Table of Contents
As filed with the Securities and Exchange Commission
on August 30, 2019
Registration No. 333-215730
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Post-Effective Amendment
No. 2 to
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
BIOLARGO, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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2800
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65-0159115
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(State or other jurisdiction of
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(Primary Standard Industrial
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(I.R.S. Employer
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incorporation or organization)
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Classification Code Number)
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Identification No.)
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BioLargo, Inc.
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14921 Chestnut St.
Westminster, CA 92683
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(888) 400-2863
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(Address, including zip code, and telephone number, including
area code, of registrant’s principal executive offices)
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Agents and Corporations, Inc.
1201 Orange Street, Suite 600
Wilmington, DE 19801
(302) 575-0877
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(Name, address, including zip code, and telephone number, including
area code, of agent for service)
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Copy to:
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Christopher A. Wilson, Esq.
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Wilson Bradshaw & Cao, LLP
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18818 Teller Avenue, Suite 115
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Irvine, CA 92612
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Tel: (949) 752-1100/Fax: (949) 752-1144
cwilson@wbc-law.com
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Approximate date of commencement of proposed sale to the
public:
From time to time after this registration statement is declared
effective.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933, check the following box: ☐
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check
the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same offering. ☐
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier
effective registration statement for the same offering. ☐
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier
effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company or an emerging growth company. See
the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company” and "emerging growth company" in Rule
12b-2 of the Exchange Act.
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Large accelerated filer: ☐
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Smaller reporting company: ☒
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Accelerated filer: ☐
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Emerging growth company ☐
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Non-accelerated filer: ☒
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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 to Section 7(a)(2)(B) of the Securities Act.
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The registrant hereby amends this registration statement on such
date or dates as may be necessary to delay its effective date until
the registrant shall file a further amendment which specifically
states that this registration statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of
1933 or until the registration statement shall become effective on
such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
EXPLANATORY NOTE
BioLargo, Inc. (the “Company,” “we,” or “us”) filed a Registration
Statement on Form S-1 with the Securities and Exchange Commission
(“SEC”) on June 9, 2017 (the “Registration Statement”). The
Registration Statement was declared effective on June 15, 2017. The
Company filed post-effective Amendment No. 1 to the Registration
Statement on August 28, 2018, and it was declared effective on
September 6, 2018.
The Company is submitting this Post-Effective Amendment No. 2
(“Amendment”) to its Registration Statement for the purpose of (i)
providing information from its Annual Report on Form 10-K for the
period ended December 31, 2018 filed with the SEC March 29, 2019,
and as amended on April 30, 2019; (ii) providing information from
its Quarterly Report on Form 10-Q for the three- and six-month
periods ended June 30, 2019 filed with the SEC August 14, 2019; and
(iii) incorporating by reference the Current Reports on Form 8-K
filed since August 14, 2019 to the date of this Amendment.
The contents of the Registration Statement as previously filed
which are not modified and revised by this Amendment are hereby
incorporated by reference.
The information in this prospectus is not complete and may be
changed. These securities may not be sold until the registration
statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these securities
and it is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
PROSPECTUS (Subject to Completion)
Dated: August 30, 2019
PROSPECTUS
36,090,857 shares of common stock
This prospectus relates to the sale of up to 36,090,857 shares of
our common stock by persons who have purchased shares in a series
of private placements. The aforementioned persons are sometimes
referred to in this prospectus as the selling
stockholders. The shares offered under this
prospectus by the selling stockholders may be sold on the public
market, in negotiated transactions with a broker-dealer or market
maker as principal or agent, or in privately negotiated
transactions not involving a broker dealer. The prices at which the
selling stockholder may sell the shares may be determined by the
prevailing market price of the shares at the time of sale, may be
different than such prevailing market prices or may be determined
through negotiated transactions with third parties. We
will not receive proceeds from the sale of our shares by the
selling stockholders.
Each selling stockholder may be considered an “underwriter” within
the meaning of the Securities Act of 1933, as amended.
Since January 23, 2008, our common stock has been quoted on the OTC
Markets “OTCQB” marketplace (formerly known as the “OTC Bulletin
Board”) under the trading symbol “BLGO.” The
selling stockholders will sell up the shares at prices established
on the OTC Bulletin Board during the term of this offering, at
prices different than prevailing market prices or at privately
negotiated prices. On August 23, 2019, the last reported sale price
of our common stock on the OTC Markets was $0.25.
The securities offered in this prospectus involve a high degree
of risk. You should consider the risk factors beginning on page
3 before purchasing our common stock.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal
offense.
The date of this prospectus is August 30, 2019
TABLE OF
CONTENTS
Unless otherwise specified, the information in this prospectus
is set forth as of August 30, 2019, and we anticipate
that changes in our affairs will occur after such date. We have not
authorized any person to give any information or to make any
representations, other than as contained in this prospectus, in
connection with the offer contained in this prospectus. If any
person gives you any information or makes representations in
connection with this offer, do not rely on it as information we
have authorized. This prospectus is not an offer to sell our common
stock in any state or other jurisdiction to any person to whom it
is unlawful to make such offer.
PROSPECTUS
SUMMARY
The following summary highlights selected information from this
prospectus and may not contain all the information that is
important to you. You should read this entire prospectus, including
the section titled “Risk Factors,” and our financial statements and
the notes included in the Annual Report on Form 10-K for year ended
December 31, 2018 and Quarterly Report on Form 10-Q for the three-
and six-month periods ended June 30, 2019, incorporated herein by
reference, before deciding to invest in our Common Stock.
When we refer in this prospectus to “BioLargo,” the “company,” “our
company,” “we,” “us” and “our,” we mean BioLargo, Inc., a Delaware
corporation, and its wholly owned subsidiaries, BioLargo Life
Technologies, Inc., a California corporation, Odor-No-More, Inc., a
California corporation, BioLargo Water Investment Group, Inc., a
California corporation (and its subsidiary, BioLargo Water, Inc., a
Canadian corporation), BioLargo Development Corp., a California
corporation, BioLargo Engineering, Science & Technologies, LLC,
Tennessee limited liability company, and our partially owned
subsidiary Clyra Medical Technologies, Inc., a California
corporation. This prospectus contains forward-looking statements
and information relating to BioLargo. See “Cautionary Note
Regarding Forward Looking Statements” on page 15.
Our Company
BioLargo, Inc. is a Delaware corporation.
Our principal executive offices are located at 14921 Chestnut St.,
Westminster, California 92683. Our telephone number is (888)
400-2863.
The Registration Statement
This prospectus covers 36,090,857 shares of stock, all of which are
offered for sale by the selling stockholders.
ABOUT
THIS REGISTRATION
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Securities Being Registered
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This Prospectus covers the following shares, all of which are being
sold by the selling stockholders: 20,159,062 shares of common stock
of BioLargo issuable upon the exercise of outstanding warrants to
purchase common stock, and 15,931,795 outstanding shares.
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Initial Offering Price
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The selling stockholders will sell up to 36,090,857 shares at
prices established on the OTC Electronic Bulletin Board during the
term of this offering, at prices different than prevailing market
prices or at privately negotiated prices. We may receive up to
approximately $9.5 million in the event the selling stockholders
exercise warrants to purchase 20,159,062 shares.
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Termination of the Offering
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The offering will conclude when all the 36,090,857 shares of common
stock registered hereby have been sold by the selling
stockholders.
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Risk Factors
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An investment in our common stock is highly speculative and
involves a high degree of risk. See “Risk Factors” beginning on
page 3.
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RISK
FACTORS
An investment in our common stock is highly speculative,
involves a high degree of risk and should be made only by investors
who can afford a complete loss. You should carefully consider the
following risk factors, together with the other information in this
prospectus, including our financial statements and the related
notes, before you decide to buy our common stock. If any of the
following risks actually occurs, then our business,
financial condition or results of operations could be materially
adversely affected, the trading of our common stock could decline,
and you may lose all or part of your investment therein.
Risks Relating to our Business
Our limited operating history makes evaluation of our
business difficult.
We have limited and only nominal historical financial
data upon which to base planned operating expenses or forecast
accurately our future operating results. Because our
operations are not yet sufficient to fund our operational expenses,
we rely on investor capital to fund operations. Our limited
operational history make it difficult to forecast the need for
future financing activities. Further, our limited operating
history will make it difficult for investors and securities
analysts to evaluate our business and prospects. Our failure to
address these risks and difficulties successfully could seriously
harm us.
We have never generated any significant revenues, have a
history of losses, and cannot assure you that we will ever
become or remain profitable.
We have not yet generated any significant revenue from operations,
and, accordingly, we have incurred net losses every year since our
inception. To date, we have dedicated most of our financial
resources to research and development, general and administrative
expenses, and initial sales and marketing activities. We have
funded the majority of our activities through the issuance of
convertible debt or equity securities. Although sale of our
CupriDyne Clean products are increasing, and we are devoting more
energy and money to our sales and marketing activities, we continue
to anticipate net losses and negative cash flow for the
foreseeable future. Our ability to reach positive cash flow depends
on many factors, including our ability to fund sales and marketing
activities, and the rate of client adoption. There can be no
assurance that our revenues will be sufficient for us to become
profitable in 2019 or future years, or thereafter
maintain profitability. We may also face unforeseen problems,
difficulties, expenses or delays in implementing our business plan,
including generally the need for odor control products in solid
waste handling operations, which we may not fully understand or be
able to predict.
Our cash requirements are significant. We will require
additional financing to sustain our operations and without it we
may not be able to continue operations.
Our cash requirements and expenses will continue to be significant.
Our net cash used in continuing operations for the year ended
December 31, 2018 was almost $4,000,000, over $300,000 per
month, and this trend has continued in 2019. During calendar year
2018, we generated only $1,364,000 in total gross revenues, and in
the first six months of 2019, only $790,000. In order to become
profitable, we must significantly increase our revenues and reduce
our expenses. Although our revenues are increasing through sales of
our products and from our engineering division, we expect to
continue to use cash in 2019 as it becomes
available.
At December 31, 2018 and June 30, 2019, we had working capital
deficits of approximately $1,536,000 and $3,473,000.
Our auditor’s report for the year ended
December 31, 2018 includes an explanatory paragraph to
their audit opinion stating that our recurring losses from
operations and working capital deficiency raise substantial doubt
about our ability to continue as a going concern. We do not
currently have sufficient financial resources to fund our
operations or those of our subsidiaries. Therefore, we need
additional financing to continue these
operations.
During 2019, we have raised over $4.0 million through the issuance
of promissory notes and stock purchase warrants. These funds have
been used to refinance existing debt (which was approximately $3.5
million as of December 31, 2018), and for working capital.
We have one long-term financing instrument in place. In August
2017, we entered into a three-year purchase agreement
with Lincoln Park Capital Fund LLC (“Lincoln Park”) through which
we may direct Lincoln Park to purchase shares of our common stock
at prices that depend on the market price of our stock (the
“LPC Agreement”). Over time, and subject to multiple limitations,
we may direct Lincoln Park to purchase up to $10,000,000 of our
common stock. Since inception of the LPC Agreement, through
December 31, 2018, we directed Lincoln Park to
purchase 4,025,733 shares of our common stock, and
received $1,349,969 in proceeds. During the year
ended December 31, 2018, we directed Lincoln Park to
purchase 2,850,733 shares of our common stock, and
received $838,884 in proceeds. As of the date of this
prospectus, we have not used this financing instrument in 2019. The
extent to which we rely on Lincoln Park as a source of funding in
2019 will depend on a number of factors, including the
prevailing market price of our common stock, and the extent to
which we are able to secure working capital from other sources. If
obtaining sufficient funding from Lincoln Park were to prove
unavailable or prohibitively dilutive, we will need to secure
another source of funding in order to satisfy our working capital
needs. Even if we were receive the full maximum
commitment of $10,000,000 in aggregate gross proceeds from sales of
our common stock to Lincoln Park during
the three year term of the LPC Agreement, we may still
need additional capital to fully implement our business, operating
and development plans. Should the financing we require to
sustain our working capital needs be unavailable or prohibitively
expensive when we require it, the consequences could be a material
adverse effect on our business, operating results, financial
condition and prospects.
From time to time, we issue stock, instead of cash, to pay
some of our operating expenses. These issuances are dilutive to our
existing stockholders.
We are party to agreements that provide for the payment of, or
permit us to pay at our option, securities rather than
cash in consideration for services provided to us. We
include these provisions in agreements to allow us to
preserve cash. When we pay employees, vendors and
consultants in stock or stock options, we do so at a
premium. We anticipate that we will continue to
do so in the future. All such issuances are dilutive to our
stockholders because they increase (and will increase in the
future) the total number of shares of our common stock issued and
outstanding, even though such arrangements assist us with managing
our cash flow. These issuances also increase the expense
amount recorded.
Our stockholders face further potential dilution in any new
financing.
Our private securities offerings typically provide for convertible
securities, including notes and warrants. Any
additional capital that we raise would dilute the
interest of the current stockholders and any persons who may become
stockholders before such financing. Given the low price of our
common stock, such dilution in any financing of a significant
amount could be substantial.
Our stockholders face further potential adverse effects from
the terms of any preferred stock that may be issued in the
future.
Our certificate of incorporation authorizes 50 million shares of
preferred stock. None are outstanding as of the date of this
prospectus. In order to raise capital to meet expenses or to
acquire a business, our board of directors may issue additional
stock, including preferred stock. Any preferred stock that we may
issue may have voting rights, liquidation preferences, redemption
rights and other rights, preferences and privileges. The rights of
the holders of our common stock will be subject to, and in many
respects subordinate to, the rights of the holders of any such
preferred stock. Furthermore, such preferred stock may have other
rights, including economic rights, senior to our common stock that
could have a material adverse effect on the value of our common
stock. Preferred stock, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes,
can also have the effect of making it more difficult for a third
party to acquire a majority of our outstanding voting stock,
thereby delaying, deferring or preventing a change in control of
our company.
There are several specific business opportunities we are
considering in further development of our business. None of these
opportunities is yet the subject of a definitive agreement, and
most or all of these opportunities will require additional funding
obligations on our part, for which funding is not currently in
place.
In furtherance of our business plan, we are presently considering a
number of opportunities to promote our business, to further develop
and broaden, and to license, our technology with third parties.
While discussions are underway with respect to such opportunities,
there are no definitive agreements in place with respect to any of
such opportunities at this time. There can be no assurance
that any of such opportunities being discussed will result in
definitive agreements or, if definitive agreements are entered
into, that they will be on terms that are favorable to
us.
Moreover, should any of these opportunities result in definitive
agreements being executed or consummated, we may be required to
expend additional monies above and beyond our current operating
budget to promote such endeavors. No such financing is in place at
this time for such endeavors, and we cannot assure you that any
such financing will be available, or if it is available, whether it
will be on terms that are favorable to our company.
We expect to incur future losses and may not be able to
achieve profitability.
Although we are generating limited revenue from the sale of our
products, and we expect to generate revenue from new products we
are introducing, and eventually from other license or supply
agreements, we anticipate net losses and negative cash flow to
continue for the foreseeable future until our products are expanded
in the marketplace and they gain broader acceptance by resellers
and customers. Our current level of sales is not sufficient to
support the financial needs of our business. We cannot predict when
or if sales volumes will be sufficiently large to cover our
operating expenses. We intend to expand our marketing efforts of
our products as financial resources are available, and we intend to
continue to expand our research and development efforts.
Consequently, we will need to generate significant additional
revenue or seek additional financings to fund our operations. This
has put a proportionate corresponding demand on capital. Our
ability to achieve profitability is dependent upon our efforts to
deliver a viable product and our ability to successfully bring it
to market, which we are currently pursuing. Although our management
is optimistic that we will succeed in licensing our technology, we
cannot be certain as to timing or whether we will generate
sufficient revenue to be able to operate profitably. If we cannot
achieve or sustain profitability, then we may not be able to fund
our expected cash needs or continue our operations. If we are not
able to devote adequate resources to promote commercialization of
our technology, then our business plans will suffer and may
fail.
Because we have limited resources to devote to sales, marketing and
licensing efforts with respect to our technology, any delay in such
efforts may jeopardize future research and development of
technologies and commercialization of our technology. Although our
management believes that it can finance commercialization efforts
through sales of our securities and possibly other capital sources,
if we do not successfully bring our technology to market, our
ability to generate revenues will be adversely
affected.
Our internal controls are not effective.
We have determined that our disclosure controls and procedures and
our internal control over financial reporting are currently not
effective. The lack of effective internal controls could materially
adversely affect our financial condition and ability to carry out
our business plan.
Our management team for financial reporting, under the supervision
and with the participation of our chief executive officer and
our chief financial officer, conducted an evaluation of the
effectiveness of the design and operation of our internal controls.
Recognizing the dynamic nature and growth of the Company’s business
in the past two years, including the growth of the core operations
and the increase in the number of employees, management has
recognized the strain on the overall internal control environment.
As a result, management has concluded that its internal controls
over financial reporting are not effective. Management identified a
material weakness with respect to deficiencies in its financial
closing and reporting procedures. Management believes this is due
to a lack of resources. Management intends to add accounting
personnel and operating staff and more sophisticated systems in
order to improve its reporting procedures and internal controls,
subject to available capital. Until we have adequate resources
to address these issues, any material weaknesses may
materially adversely affect our ability to report accurately our
financial condition and results of operations in the future in a
timely and reliable manner. In addition, although we continually
review and evaluate internal control systems to allow management to
report on the sufficiency of our internal controls, we cannot
assure you that we will not discover additional weaknesses in our
internal control over financial reporting. Any such additional
weakness or failure to remediate the existing weakness could
materially adversely affect our financial condition or ability
to comply with applicable financial reporting requirements and the
requirements of the Company’s various financing
agreements.
If we are not able to manage our anticipated growth
effectively, we may not become profitable.
We anticipate that expansion will continue to be required to
address potential market opportunities for our technology and our
products. Our existing infrastructure is limited. While we
believe our current manufacturing processes as well as our office
and warehousing provide the basic resources to expand as we grow
sales of CupriDyne Clean to more than $2 million per
month, our infrastructure will need more staffing to support
manufacturing, customer service, administration as well as
sales/account executive functions. There can be no assurance
that we will have the financial resources to create new
infrastructure, or that any such infrastructure will be
sufficiently scalable to manage future growth, if any. There also
can be no assurance that, if we invest in additional
infrastructure, we will be effective in expanding our operations or
that our systems, procedures or controls will be adequate to
support such expansion. In addition, we will need to provide
additional sales and support services to our partners if we achieve
our anticipated growth with respect to the sale of our technology
for various applications. Failure to properly manage an increase in
customer demands could result in a material adverse effect on
customer satisfaction, our ability to meet our contractual
obligations, and our operating results.
Some of the products incorporating our technology will
require regulatory approval.
The products in which our technology may be incorporated have both
regulated and non-regulated applications. The regulatory approvals
for certain applications may be difficult, impossible, time
consuming and/or expensive to obtain. While our management believes
such approvals can be obtained for the applications contemplated,
until those approvals from the FDA or the EPA or other regulatory
bodies, at the federal and state levels, as may be required are
obtained, we may not be able to generate commercial revenues for
regulated products. Certain specific regulated applications and
their use require highly technical analysis and additional
third-party validation and will require regulatory approvals from
organizations like the FDA. Certain applications may also be
subject to additional state and local agency regulations,
increasing the cost and time associated with commercial strategies.
Additionally, most products incorporating our technology that may
be sold in the European Union (“EU”) will require EU and possibly
also individual country regulatory approval. All such approvals,
including additional testing, are time-consuming, expensive and do
not have assured outcomes of ultimate regulatory
approval.
We need to outsource and rely on third parties for the
manufacture of the chemicals, material components or delivery
apparatus used in our technology, and part of our future success
will be dependent on the timeliness and effectiveness of the
efforts of these third parties.
We do not have the required financial and human resources or
capability to manufacture the chemicals necessary to make our
odor control products. Our business model calls for the outsourcing
of the manufacture of these chemicals in order to reduce our
capital and infrastructure costs as a means of potentially
improving our financial position and the profitability of our
business. Accordingly, we must enter agreements with other
companies that can assist us and provide certain capabilities,
including sourcing and manufacturing, which we do not possess. We
may not be successful in entering into such alliances on favorable
terms or at all. Even if we do succeed in securing such agreements,
we may not be able to maintain them. Furthermore, any delay in
entering into agreements could delay the development and
commercialization of our technology or reduce its competitiveness
even if it reaches the market. Any such delay related to such
future agreements could adversely affect our business.
If any party to which we have outsourced certain functions
fails to perform its obligations under agreements with us, the
commercialization of our technology could be delayed or
curtailed.
To the extent that we rely on other companies to manufacture the
chemicals used in our technology, or sell or market products
incorporating our technology, we will be dependent on the
timeliness and effectiveness of their efforts. If any of these
parties does not perform its obligations in a timely and effective
manner, the commercialization of our technology could be delayed or
curtailed because we may not have sufficient financial resources or
capabilities to continue such efforts on our own.
We rely on a small number of key supply ingredients in order
to manufacture our products.
All of the supply ingredients used to manufacture our products are
readily available from multiple suppliers. However, commodity
prices for these ingredients can vary significantly, and the
margins that we are able to generate could decline if prices rise.
If our manufacturing costs rise significantly, we may be forced to
raise the prices for our products, which may reduce their
acceptance in the marketplace.
If our technology or products incorporating our technology do
not gain market acceptance, it is unlikely that we will become
profitable.
The potential markets for products into which our technology can be
incorporated are rapidly evolving, and we have many successful
competitors including some of the largest and most well-established
companies in the world. (see, herein: “Description At this
time, our technology is unproven in all but one industry –
waste management – and the use of our technology by others,
and the sales of our products, is relatively nominal. The
commercial success of products incorporating our technology will
depend on the adoption of our technology by commercial and consumer
end users in various fields.
Market acceptance may depend on many factors,
including:
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the willingness and ability of consumers and industry partners to
adopt new technologies from a company with little or no history in
the industry;
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our ability to convince potential industry partners and consumers
that our technology is an attractive alternative to other competing
technologies;
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our ability to license our technology in a commercially effective
manner;
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our ability to continue to fund operations while our products move
through the process of gaining acceptance, before the time in which
we are able to scale up production to obtain economies of scale;
and
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our ability to overcome brand loyalties.
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If products incorporating our technology do not achieve a
significant level of market acceptance, then demand for our
technology itself may not develop as expected, and, in such event,
it is unlikely that we will become profitable.
Any revenues that we may earn in the future are
unpredictable, and our operating results are likely to fluctuate
from quarter to quarter.
We believe that our future operating results will fluctuate due to
a variety of factors, including:
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delays in product development by us or third parties;
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market acceptance of products incorporating our technology;
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changes in the demand for, and pricing of, products incorporating
our technology;
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competition and pricing pressure from competitive products; and
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expenses related to, and the results of, proceedings relating to
our intellectual property.
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We expect our operating expenses will continue to fluctuate
significantly in 2019 and beyond, as we continue our research
and development and increase our marketing and licensing
activities. Although we expect to generate revenues from licensing
our technology in the future, revenues may decline or not grow as
anticipated, and our operating results could be substantially
harmed for a particular fiscal period. Moreover, our operating
results in some quarters may not meet the expectations of stock
market analysts and investors. In that case, our stock price most
likely would decline.
Some of our revenue is dependent on the award of
new contracts from the U.S. government, which we do not
directly control.
A substantial portion of our revenue and is generated
from sales to the U.S. defense logistics agency through a bid
process in response to request for bids. The timing and
size of requests for bids is unpredictable and outside of our
control. The number of other companies competing for these
bids is also unpredictable and outside of our control. In the event
of more competition for these awards, we may have to reduce our
margins. These variables make it difficult to predict when or if we
will sell more products to the US government, which in turns makes
it difficult to stock inventory and purchase raw
materials.
We have limited product distribution experience, and we rely
in part on third parties who may not successfully sell our
products.
We have limited product distribution experience and rely in part on
product distribution arrangements with third parties. In our future
product offerings, we may rely solely on third parties for product
sales and distribution. We also plan to license our technology to
certain third parties for commercialization of certain
applications. We expect to enter into additional distribution
agreements and licensing agreements in the future, and we may not
be able to enter into these additional agreements on terms that are
favorable to us, if at all. In addition, we may have limited or no
control over the distribution activities of these third parties.
These third parties could sell competing products and may devote
insufficient sales efforts to our products. As a result, our future
revenues from sales of our products, if any, will depend on the
success of the efforts of these third parties.
We may not be able to attract or retain qualified senior
personnel.
We believe we are currently able to manage our current business
with our existing management team. However, as we expand the scope
of our operations, we will need to obtain the full-time services of
additional senior management and other personnel. Competition for
highly-skilled personnel is intense, and there can be no assurance
that we will be able to attract or retain qualified senior
personnel. Our failure to do so could have an adverse effect on our
ability to implement our business plan. As we add full-time senior
personnel, our overhead expenses for salaries and related items
will increase from current levels and, depending upon the number of
personnel we hire and their compensation packages, these increases
could be substantial.
If we lose our key personnel or are unable to attract and
retain additional personnel, we may be unable to achieve
profitability.
Our future success is substantially dependent on the efforts of our
senior management, particularly Dennis P. Calvert, our president
and chief executive officer. The loss of the services of Mr.
Calvert or other members of our senior management may significantly
delay or prevent the achievement of product development and other
business objectives. Because of the scientific nature of our
business, we depend substantially on our ability to attract and
retain qualified marketing, scientific and technical personnel.
There is intense competition among specialized and
technologically-oriented companies for qualified personnel in the
areas of our activities. If we lose the services of, or do not
successfully recruit, key marketing, scientific and technical
personnel, then the growth of our business could be substantially
impaired. At present, we do not maintain key man insurance for any
of our senior management, although management is evaluating the
potential of securing this type of insurance in the future as may
be available.
Nondisclosure agreements with employees and others may not
adequately prevent disclosure of trade secrets and other
proprietary information.
In order to protect our proprietary technology and processes, we
rely in part on nondisclosure agreements with our employees,
potential licensing partners, potential manufacturing partners,
testing facilities, universities, consultants, agents and other
organizations to which we disclose our proprietary information.
These agreements may not effectively prevent disclosure of
confidential information and may not provide an adequate remedy in
the event of unauthorized disclosure of confidential information.
In addition, others may independently discover trade secrets and
proprietary information, and in such cases we could not assert any
trade secret rights against such parties. Costly and time-consuming
litigation could be necessary to enforce and determine the scope of
our proprietary rights, and failure to obtain or maintain trade
secret protection could adversely affect our competitive business
position. Since we rely on trade secrets and nondisclosure
agreements, in addition to patents, to protect some of our
intellectual property, there is a risk that third parties may
obtain and improperly utilize our proprietary information to our
competitive disadvantage. We may not be able to detect unauthorized
use or take appropriate and timely steps to enforce our
intellectual property rights.
We may become subject to product liability
claims.
As a business that manufactures and markets products for use by
consumers and institutions, we may become liable for any damage
caused by our products, whether used in the manner intended or not.
Any such claim of liability, whether meritorious or not, could be
time-consuming and/or result in costly litigation. Although we
maintain general liability insurance, our insurance may not cover
potential claims of the types described above and may not be
adequate to indemnify for all liabilities that may be imposed. Any
imposition of liability that is not covered by insurance or is in
excess of insurance coverage could harm our business and operating
results, and you may lose some or all of any investment you have
made, or may make, in our company.
Litigation or the actions of regulatory authorities may harm
our business or otherwise distract our
management.
Substantial, complex or extended litigation could cause us to incur
major expenditures and distract our management. For example,
lawsuits by employees, former
employees, investors, stockholders, partners, customers
or others, or actions taken by regulatory authorities, could be
very costly and substantially disrupt our business. As a
result of our financing activities over time, and
by virtue of the number of people that have invested in
our company, we face increased risk of lawsuits from
investors. Such lawsuits or actions could from time to time be
filed against our company and/or our executive officers and
directors. Such lawsuits and actions are not uncommon, and we
cannot assure you that we will always be able to resolve such
disputes or actions on terms favorable to our company.
If we suffer negative publicity concerning the safety or
efficacy of our products, our sales may be
harmed.
If concerns should arise about the safety or efficacy of any of our
products that are marketed, regardless of whether or not such
concerns have a basis in generally accepted science or
peer-reviewed scientific research, such concerns could adversely
affect the market for those products. Similarly, negative publicity
could result in an increased number of product liability claims,
whether or not those claims are supported by applicable
law.
The licensing of our technology or the manufacture, use or
sale of products incorporating our technology may infringe on the
patent rights of others, and we may be forced to litigate if an
intellectual property dispute arises.
If we infringe or are alleged to have infringed another party’s
patent rights, we may be required to seek a license, defend an
infringement action or challenge the validity of the patents in
court. Patent litigation is costly and time consuming. We may not
have sufficient resources to bring these actions to a successful
conclusion. In addition, if we do not obtain a license, do not
successfully defend an infringement action or are unable to have
infringed patents declared invalid, we may:
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incur substantial monetary damages;
|
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●
|
encounter significant delays in marketing our current and proposed
product candidates;
|
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●
|
be unable to conduct or participate in the manufacture, use or sale
of product candidates or methods of treatment requiring
licenses;
|
| |
●
|
lose patent protection for our inventions and products; or
|
| |
●
|
find our patents are unenforceable, invalid or have a reduced scope
of protection
|
Parties making such claims may be able to obtain injunctive relief
that could effectively block our company’s ability to further
develop or commercialize our current and proposed product
candidates in the United States and abroad and could result in the
award of substantial damages. Defense of any lawsuit or failure to
obtain any such license could substantially harm our company.
Litigation, regardless of outcome, could result in substantial cost
to, and a diversion of efforts by, our company.
Our patents are expensive to maintain, our patent
applications are expensive to prosecute, and thus we are unable to
file for patent protection in many countries.
Our ability to compete effectively will depend in part on our
ability to develop and maintain proprietary aspects of our
technology and either to operate without infringing the proprietary
rights of others or to obtain rights to technology owned by third
parties. Pending patent applications relating to our technology may
not result in the issuance of any patents or any issued patents
that will offer protection against competitors with similar
technology. We must employ patent attorneys to prosecute our patent
applications both in the United States and internationally.
International patent protection requires the retention of patent
counsel and the payment of patent application fees in each
foreign country in which we desire patent protection, on or before
filing deadlines set forth by the International Patent Cooperation
Treaty (“PCT”). We therefore choose to file patent applications
only in foreign countries where we believe the commercial
opportunities require it, considering our available financial
resources and the needs for our technology. This has resulted, and
will continue to result, in the irrevocable loss of patent rights
in all but a few foreign jurisdictions.
Patents we receive may be challenged, invalidated or circumvented
in the future, or the rights created by those patents may not
provide a competitive advantage. We also rely on trade secrets,
technical know-how and continuing invention to develop and maintain
our competitive position. Others may independently develop
substantially equivalent proprietary information and techniques or
otherwise gain access to our trade secrets.
We are subject to risks related to future business outside of
the United States.
Over time, we may develop business relationships outside of North
America, and as those efforts are pursued, we will face risks
related to those relationships such as:
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foreign currency fluctuations;
|
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●
|
unstable political, economic, financial and market conditions;
|
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●
|
import and export license requirements;
|
| |
●
|
increases in tariffs and taxes;
|
| |
●
|
high levels of inflation;
|
| |
●
|
restrictions on repatriating foreign profits back to the United
States;
|
| |
●
|
greater difficulty collecting accounts receivable and longer
payment cycles;
|
| |
●
|
less favorable intellectual property laws, and the lack of
intellectual property legal protection;
|
| |
●
|
regulatory requirements;
|
| |
●
|
unfamiliarity with foreign laws and regulations; and
|
| |
●
|
changes in labor conditions and difficulties in staffing and
managing international operations.
|
The volatility of certain raw material costs may adversely
affect operations and competitive price advantages for products
that incorporate our technology.
Most of the chemicals and other key materials that we use in our
business, such as minerals, fiber materials and packaging
materials, are neither generally scarce nor price sensitive, but
prices for such chemicals and materials can be cyclical. Super
Absorbent Polymer (SAP) beads, which are a petrochemical
derivative, have been subject to periodic scarcity and price
volatility from time to time during recent years, although prices
are relatively stable at present. Should the volume of our sales
increase dramatically, we may have difficulty obtaining SAP beads
or other raw materials at a favorable price. Supply and demand
factors, which are beyond our control, generally affect the price
of our raw materials. We try to minimize the effect of price
increases through production efficiency and the use of alternative
suppliers, but these efforts are limited by the size of our
operations. If we are unable to minimize the effects of increased
raw material costs, our business, financial condition, results of
operations and cash flows may be materially adversely
affected.
Certain of our products sales historically have been highly
impacted by fluctuations in seasons and weather.
Industrial odor control products have proven highly effective in
controlling volatile organic compounds that are released as vapors
produced by decomposing waste material. Such vapors are produced
with the highest degree of intensity in temperatures between 40
degrees Fahrenheit (5 degrees Celsius) and 140 degrees Fahrenheit
(60 degrees Celsius). When weather patterns are cold or in times of
precipitation, our clients are less prone to use our odor control
products, presumably because such vapors are less noticeable or, in
the case of precipitation, can be washed away or altered.
This leads to unpredictability in use and sales patterns for,
especially, our CupriDyne Clean product line which accounts for
over one-half our total sales.
The cost of maintaining our public company reporting
obligations is high.
We are obligated to maintain our periodic public filings and public
reporting requirements, on a timely basis, under the rules and
regulations of the SEC. In order to meet these obligations, we will
need to continue to raise capital. If adequate funds are not
available, we will be unable to comply with those requirements
and could cease to be qualified to have our stock traded in the
public market. As a public company, we incur significant legal,
accounting and other expenses. In addition, the Sarbanes-Oxley Act
of 2002, as well as related rules adopted by the SEC, has imposed
substantial requirements on public companies, including certain
corporate governance practices and requirements relating to
internal control over financial reporting under Section 404 of the
Sarbanes-Oxley Act.
Risks Relating to our Common Stock
The sale or issuance of our common stock to Lincoln Park may
cause dilution, and the sale of the shares of common stock acquired
by Lincoln Park, or the perception that such sales may occur, could
cause the price of our common stock to fall.
On August 25, 2017, we entered into the LPC Agreement with Lincoln
Park, pursuant to which Lincoln Park has committed to purchase up
to $10,000,000 of our common stock, noted above in our Risks
Related to our Business. We generally have the
right to control the timing and amount of any sales of our shares
to Lincoln Park. Sales of our common stock, if any, to
Lincoln Park will depend on market conditions and other factors to
be determined by us. We may ultimately decide to sell to Lincoln
Park all, some or none of the shares of our common stock that may
be available for us to sell pursuant to the LPC Agreement. If
and when we do sell shares to Lincoln Park, after Lincoln Park has
acquired the shares, Lincoln Park may resell all, some or none of
those shares at any time or from time to time in its discretion.
Therefore, sales to Lincoln Park by us could result in substantial
dilution to the interests of other holders of our common
stock, as well as sales of our stock by Lincoln Park into the
open market causing reductions in the price of our common
stock. Additionally, the sale of a substantial number of shares of
our common stock to Lincoln Park, or the anticipation of such
sales, could make it more difficult for us to sell equity or
equity-related securities in the future at a time and at a price
that we might otherwise desire to effect sales.
Our common stock is thinly traded and largely
illiquid.
Our stock is currently quoted on the OTC Markets (OTCQB). Being
quoted on the OTCQB has made it more difficult to buy or sell our
stock and from time to time has led to a significant decline in the
frequency of trades and trading volume. Continued trading on the
OTCQB will also likely adversely affect our ability to obtain
financing in the future due to the decreased liquidity of our
shares and other restrictions that certain investors have for
investing in OTCQB traded securities. While we intend to seek
listing on the Nasdaq Stock Market (“Nasdaq”) or
another national stock exchange when our company is
eligible, there can be no assurance when or if our common stock
will be listed on Nasdaq or another national stock
exchange.
The market price of our stock is subject to
volatility.
Because our stock is thinly traded, its price can change
dramatically over short periods, even in a single day. An
investment in our stock is subject to such volatility and,
consequently, is subject to significant risk. The market price of
our common stock could fluctuate widely in response to many
factors, including:
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developments with respect to patents or proprietary rights;
|
| |
●
|
announcements of technological innovations by us or our
competitors;
|
| |
●
|
announcements of new products or new contracts by us or our
competitors;
|
| |
●
|
actual or anticipated variations in our operating results due to
the level of development expenses and other factors;
|
| |
●
|
changes in financial estimates by securities analysts and whether
any future earnings of ours meet or exceed such estimates;
|
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●
|
conditions and trends in our industry;
|
| |
●
|
new accounting standards;
|
| |
●
|
general economic, political and market conditions and other
factors; and
|
| |
●
|
the occurrence of any of the risks described herein.
|
You may have difficulty selling our shares because they are
deemed “penny stocks”.
Because our common stock is not quoted or listed on a national
securities exchange, if the trading price of our common stock
remains below $5.00 per share, which we expect for the foreseeable
future, trading in our common stock will be subject to the
requirements of certain rules promulgated under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”),
which require additional disclosure by broker-dealers in
connection with any trades involving a stock defined as a penny
stock (generally, any non-Nasdaq equity security that has a market
price of less than $5.00 per share, subject to certain exceptions).
Such rules require the delivery, before any penny stock
transaction, of a disclosure schedule explaining the penny stock
market and the risks associated therewith and impose various sales
practice requirements on broker-dealers who sell penny stocks to
persons other than established customers and accredited investors
(generally defined as an investor with a net worth in excess of
$1,000,000 or annual income exceeding $200,000 individually or
$300,000 together with a spouse). For these types of transactions,
the broker-dealer must make a special suitability determination for
the purchaser and have received the purchaser’s written consent to
the transaction before the sale. The broker-dealer also must
disclose the commissions payable to the broker-dealer and current
bid and offer quotations for the penny stock and, if the
broker-dealer is the sole market-maker, the broker-dealer must
disclose this fact and the broker-dealer’s presumed control over
the market. Such information must be provided to the customer
orally or in writing before or with the written confirmation of
trade sent to the customer. Monthly statements must be sent
disclosing recent price information for the penny stock held in the
account and information on the limited market in penny stocks. The
additional burdens imposed on broker-dealers by such requirements
could discourage broker-dealers from effecting transactions in our
common stock, which could severely limit the market liquidity of
our common stock and the ability of holders of our common stock to
sell their shares.
Because our shares are deemed “penny stocks,” new rules make
it more difficult to remove restrictive legends.
Rules put in place by the Financial Industry Regulatory Authority
(FINRA) require broker-dealers to perform due diligence before
depositing unrestricted common shares of penny stocks, and as such,
some broker-dealers, including many national firms (such
as eTrade and Charles Schwab), are refusing to deposit previously
restricted common shares of penny stocks. As such, it may be more
difficult for purchases of shares in our private securities
offerings to deposit the shares with broker-dealers and sell those
shares on the open market.
Because we will not pay dividends in the foreseeable future,
stockholders will only benefit from owning common stock if it
appreciates.
We have never declared or paid a cash dividend to stockholders. We
intend to retain any earnings that may be generated in the future
to finance operations. Accordingly, any potential investor who
anticipates the need for current dividends from his investment
should not purchase our common stock.
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
All statements, other than statements of historical fact, included
in this prospectus regarding our strategy, future operations,
future financial position, future revenues, projected costs,
prospects and plans and objectives of management are
forward-looking statements. The words “anticipates,” “believes,”
“estimates,” “expects,” “intends,” “may,” “plans,” “projects,”
“will,” “would” and similar expressions are intended to identify
forward-looking statements, although not all forward-looking
statements contain these identifying words.
We have based these forward-looking statements on our current
expectations and projections about future events. Although we
believe that the expectations underlying our forward-looking
statements are reasonable, these expectations may prove to be
incorrect, and all of these statements are subject to risks and
uncertainties. Therefore, you should not place undue reliance on
our forward-looking statements. We have included important risks
and uncertainties in the cautionary statements included in this
prospectus, particularly the section titled “Risk Factors”
incorporated by reference herein. We believe these risks and
uncertainties could cause actual results or events to differ
materially from the forward-looking statements that we make. Should
one or more of these risks and uncertainties materialize, or should
underlying assumptions, projections or expectations prove
incorrect, actual results, performance or financial condition may
vary materially and adversely from those anticipated, estimated or
expected. Our forward-looking statements do not reflect the
potential impact of future acquisitions, mergers, dispositions,
joint ventures or investments that we may make. We do not assume
any obligation to update any of the forward-looking statements
contained herein, whether as a result of new information, future
events or otherwise, except as required by law. In the light of
these risks and uncertainties, the forward-looking events and
circumstances discussed in this prospectus may not occur, and
actual results could differ materially from those anticipated or
implied in the forward-looking statements. Any forward-looking
statement made by us in this prospectus is based only on
information currently available to us and speaks only as of the
date on which it is made.
USE OF PROCEEDS
This prospectus relates to shares of our common stock that may be
offered and sold from time to time by the selling stockholders upon
exercise of outstanding warrants to purchase common stock. We will
receive no proceeds from the sale of shares of common stock by the
selling stockholders in this offering. We may receive up to $9.5
million in aggregate gross proceeds upon exercise of the underlying
warrants. See “Plan of Distribution” elsewhere in this prospectus
for more information.
We expect to use any proceeds that we receive under the exercise of
the warrants to help fund general working capital for our corporate
operations and repayment of debt
DIVIDEND
POLICY
We have never declared or paid a cash dividend to stockholders. We
intend to retain any earnings that may be generated in the future
to finance operations.
CAPITALIZATION
The following table sets forth our actual cash and cash equivalents
and our capitalization as of December 31, 2018 and June 30, 2019,
and as adjusted to give effect to the exercise of the warrants
underlying the shares of common stock offered hereby.
You should read this information in conjunction with “Managements’
Discussion and Analysis of Financial Condition and Results of
Operations” and our consolidated financial statements and related
notes appearing in our Annual Report on Form 10-K for the periods
ended December 31, 2018 and our unaudited financial statements
appearing in the Quarterly Report on Form 10-Q for the three and
six months ended June 30, 2019.
|
|
|
December 31, 2018
(in thousands)
|
|
|
June 30, 2019
(in thousands)
|
|
|
|
|
Audited
|
|
|
Unaudited
|
|
|
As Adjusted(1)
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
655 |
|
|
$ |
706 |
|
|
$ |
10,181 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$ |
4,308 |
|
|
$ |
5,502 |
|
|
$ |
5,502 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ DEFICIT:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Preferred Series A, $.00067 Par Value, 50,000,000
Shares Authorized, -0- Shares Issued and Outstanding, at June 30,
2019 and as adjusted.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $.00067 Par Value, 400,000,000 Shares Authorized,
141,466,071 and 152,054,904 Shares Issued at December 31, 2018 and
June 30, 2019, respectively, and 172,213,966 as adjusted
|
|
|
95 |
|
|
|
102 |
|
|
|
116 |
|
|
Additional paid-in capital
|
|
|
110,222 |
|
|
|
114,745 |
|
|
|
124,206 |
|
|
Accumulated other comprehensive loss
|
|
|
(90 |
) |
|
|
(98 |
) |
|
|
(98 |
) |
|
Accumulated deficit
|
|
|
(111,723 |
) |
|
|
(116,876 |
) |
|
|
(116,876 |
) |
|
Total BioLargo stockholders’ deficit
|
|
|
(1,496 |
) |
|
|
(2,127 |
) |
|
|
7,348 |
|
|
Non-controlling interest
|
|
|
373 |
|
|
|
208 |
|
|
|
208 |
|
|
Total stockholders’ deficit
|
|
|
(1,123 |
) |
|
|
(1,919 |
) |
|
|
7,556 |
|
|
Total liabilities and stockholders’ deficit
|
|
$ |
3,185 |
|
|
$ |
3,583 |
|
|
$ |
13,058 |
|
|
(1)
|
Assumes the selling stockholders exercise all 20,159,062 shares
available for purchase under the stock purchase warrants, at an
aggregate average exercise price $0.47 per share. Given our stock
currently trades at less than $0.50 per share, we do not expect the
selling stockholders will exercise all warrants, and thus do not
expect to receive $9,475,000 cash as reflected in the “as adjusted”
column in the above table.
|
DILUTION
The net tangible book value of our company as of June 30, 2019 was
negative $3,812,000 or approximately $(0.025) per share of
common stock. Net tangible book value per share is determined by
dividing the net tangible book value of our company (total tangible
assets less total liabilities) by the number of outstanding shares
of our common stock.
Assuming net proceeds of $9,475,000 from the sale of shares to the
selling stockholders pursuant to the stock purchase warrants (see
Note 1 in the Capitalization section immediately above), our
adjusted net tangible book value as of June 30, 2019 would have
been $5,663,000 or $0.033 per share. This represents an immediate
increase in net tangible book value of approximately $0.058 per
share to existing stockholders.
MARKET PRICE OF AND
DIVIDENDS ON COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
Market Information
Since January 23, 2008, our common stock has been quoted on the OTC
Markets “OTCQB” marketplace (formerly known as the “OTC Bulletin
Board”) under the trading symbol “BLGO”.
The table below represents the quarterly high and low closing
prices of our common stock for the last three fiscal years as
reported by www.otcmarkets.com.
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
First Quarter
|
|
$ |
0.83 |
|
|
$ |
0.47 |
|
|
$ |
0.41 |
|
|
$ |
0.21 |
|
|
$ |
0.27 |
|
|
$ |
0.16 |
|
|
Second Quarter
|
|
$ |
0.53 |
|
|
$ |
0.39 |
|
|
$ |
0.45 |
|
|
$ |
0.23 |
|
|
$ |
0.31 |
|
|
$ |
0.16 |
|
|
Third Quarter
|
|
$ |
0.66 |
|
|
$ |
0.42 |
|
|
$ |
0.45 |
|
|
$ |
0.22 |
|
|
|
N/A |
|
|
|
N/A |
|
|
Fourth Quarter
|
|
$ |
0.52 |
|
|
$ |
0.39 |
|
|
$ |
0.30 |
|
|
$ |
0.18 |
|
|
|
N/A |
|
|
|
N/A |
|
The closing price for our common stock on September 13, 2017, was
$0.51 per share. The closing price for our common stock on August
23, 2019, was $0.25 per share.
Holders of our Common Stock
As of August 23, 2019, 157,380,022 shares of our common stock were
outstanding and held of record by approximately 530 stockholders of
record, and approximately 2,600 beneficial owners.
Dividends
We have never declared or paid a cash dividend to stockholders. We
intend to retain any earnings that may be generated in the future
to finance operations.
Securities Authorized for Issuance Under Equity Compensation
Plans
On March 7, 2018, our board of directors adopted BioLargo, Inc.
2018 Equity Incentive Plan (“2018 Equity Plan”) as a means of
providing our directors, key employees, and consultants additional
incentive to provide services. This plan was approved by our
stockholders at our annual meeting on May 23, 2018. The
Compensation Committee administers this plan, except for awards
made to non-employee directors. The plan allows for the grant of
stock options, restricted stock awards, stock bonus awards, stock
appreciation rights, restricted stock units and performance awards
in any combination, separately or in tandem. Subject to the terms
of the 2018 Equity Plan, the Compensation Committee will determine
the terms and conditions of awards, including the times when awards
vest or become payable and the effect of certain events such as
termination of employment. Under the 2018 Equity Plan, 40,000,000
shares of our common stock are reserved for issuance under awards.
Each January 1, through January 1, 2028, the number of shares
available for grant and issuance will be increased by the lesser of
2,000,000 and such number of shares set by the Board. As of
December 31, 2018, and June 30, 2019, we had issued options under
the plan to purchase 1,318,517 and 5,046,883 shares,
respectively.
On August 7, 2007, our board of directors adopted the BioLargo,
Inc. 2007 Equity Incentive Plan (“2007 Equity Plan”) as a means of
providing our directors, key employees, and consultants additional
incentive to provide services. This plan expired on September 6,
2017. The Compensation Committee administers this plan. The plan
allowed for grants of common shares or options to purchase common
shares. As plan administrator, the Compensation Committee has sole
discretion to set the price of the options. The Compensation
Committee may at any time amend the plan.
Under the 2007 Equity Plan, as amended in 2011, 12,000,000 shares
of our common stock are reserved for issuance under awards. Only
shares actually issued under the 2007 Equity Plan will reduce the
share reserve. If we acquire another entity through a merger or
similar transaction and issue replacement awards under the 2007
Equity Plan to employees, officers and directors of the acquired
entity, those awards, to the extent permitted under applicable laws
and securities exchange rules, will not reduce the number of shares
reserved for the 2007 Equity Plan.
In addition to the 2007 Equity Plan, our board of directors has
approved a plan for employees, consultants and vendors by which
outstanding amounts owed to them by our company may be converted to
common stock or options to purchase common stock. The conversion
and exercise price is based on the closing price of our common
stock on the date of agreement. If an option is issued, the number
of shares purchasable by the option is calculated by dividing the
amount owed by the exercise price, times one and one-half.
Equity Compensation Plan Information as of June 30,
2019
|
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
securities |
|
|
|
|
|
|
|
|
|
|
to be issued upon |
|
|
Weighted average |
|
|
|
|
|
|
|
exercise of |
|
|
exercise price of |
|
|
Number of |
|
|
|
|
outstanding
|
|
|
outstanding
|
|
|
securities |
|
|
|
|
options,
|
|
|
options,
|
|
|
remaining |
|
|
|
|
warrants and |
|
|
warrants and |
|
|
available
|
|
|
Plan category
|
|
rights
|
|
|
rights
|
|
|
for future issuance
|
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
Equity compensation plans approved by security holders (1)
|
|
|
13,896,334 |
|
|
$ |
0.37 |
|
|
|
36,953,167 |
|
|
Equity compensation plans not approved by security holders (2)
|
|
|
19,597,901 |
|
|
|
0.42 |
|
|
|
n/a |
|
|
Total
|
|
|
33,494,235 |
|
|
$ |
|
|
|
|
--- |
|
|
(1)
|
Includes 8,849,451 shares issuable under the 2007 Equity Plan,
which expired September 6, 2017, and 5,046,883 shares issued under
the 2018 Equity Incentive Plan adopted by the Board on March 7,
2018 and subsequently approved by stockholders on May 23, 2018.
|
| |
|
|
(2)
|
This includes various issuances to specific individuals either as a
conversion of un-paid obligations pursuant to a plan adopted by our
board of directors, or as part of their agreement for services.
|
DESCRIPTION OF BUSINESS
BioLargo, Inc. is a corporation organized under the laws of the
state of Delaware. Since January 23, 2008, our common stock has
been quoted on the OTC Bulletin Board (now called the OTCQB – the
OTC Markets “Venture Marketplace”) under the trading symbol
“BLGO”.
As used in this report, “we” and “Company” refers to
(i) BioLargo, Inc., a Delaware corporation; (ii) its
wholly-owned subsidiaries BioLargo Life Technologies, Inc., a
California corporation; Odor-No-More, Inc., a California
corporation; BioLargo Development Corp., a California corporation;
BioLargo Engineering, Science & Technologies, LLC, a Tennessee
limited liability company; and BioLargo Water Investment Group,
Inc., a California corporation and sole shareholder of Canadian
subsidiary BioLargo Water, Inc.; and (iii) Clyra Medical
Technologies, Inc. (“Clyra”), a partially owned subsidiary.
The following discussion and analysis should be read in conjunction
with our unaudited consolidated financial statements and the
related notes to the consolidated financial statements included
elsewhere in this report.
Our Business- A Sustainable Products, Technology and Solutions
Provider
BioLargo, Inc. is an innovative technology developer and
environmental engineering company driven by a mission to
“make life better” by delivering robust,
sustainable solutions for a broad range of industries and
applications, with a focus on clean water, clean air, and advanced
wound care. We develop and commercialize disruptive technologies by
providing the capital, support, and expertise to expedite them from
“cradle” to “maturity”. Our business strategy is straightforward:
we invent or acquire technologies that we believe have the
potential to be disruptive in large commercial markets; we incubate
and develop these technologies to advance them and promote their
commercial success as we leverage our considerable scientific,
engineering, and entrepreneurial talent; we then monetize these
technical assets through a variety of business structures that may
include licensure, joint venture, sale, spin off, or by deploying
direct to market strategies. We seek to unlock the value of our
portfolio of underlying technologies to both advance our purposeful
mission while we create value for our stockholders.
Our first significant commercial success is currently unfolding in
our subsidiary, Odor-No-More, Inc., which is focused on odor and
volatile organic compound (“VOC”) control products sold under the
brands CupriDyne Clean and Nature’s Best Science. We are gearing up
for rapid growth as our products are experiencing more widespread
market adoption in the waste handling industry through national
purchasing agreements with four of the largest industry members. To
this end, we have recently begun to offer a menu of services to our
clients including engineering design, construction, and
installation of misting systems and related equipment used to
deliver our liquid chemistry products, as well as ongoing
maintenance services for installed systems. We have also begun
expanding with early adopters into new vertical segments such as
wastewater treatment, the cannabis industry and various industrial
facilities like steel manufacturing and livestock processing
operations. In 2019 we executed a five-year white-label
distribution agreement with Cannabusters, Inc. a company organized
and owned by Mabre Corporation to feature our odor and VOC control
technology to the cannabis industry in combination with their air
handling and air quality systems. We believe this to be an
important opportunity for BioLargo’s odor and VOC control products,
as the cannabis and hemp industries are predicted to grow
significantly in the US in the coming years and are known to
contend with significant odor and VOC challenges (read more under
Emerging High-Growth Opportunity in Cannabis / Hemp
Industry).
Our second commercial operation, BioLargo Engineering, Science
& Technologies, LLC (“BLEST”), provides professional
engineering and consulting services to third party clients on a
fee-for-service basis, and also serves as our in-house engineering
team to advance the development of our proprietary technologies and
complement service offerings of our other business segments.
In addition to our two operating subsidiaries, we have technologies
and products in the development pipeline progressing towards
commercialization, including our water treatment system for
decontamination and disinfection (our “Advanced Oxidation System”,
or “AOS” – see Pilot Projects discussion below), and our
medical products focused on healing chronic wounds, including our
recently acquired stem cell therapy called the
SkinDiscTM, which is focused on regenerative tissue
management and is licensed to our subsidiary Clyra Medical
Technologies, Inc. (“Clyra Medical”).
We believe our current success with our industrial odor and VOC
control products serves to validate our overall business strategy
which is focused on technology-based products and services capable
of disrupting the status quo in their applicable industry market
segment. We believe that the future of our medical and clean water
technologies has similar and also very large market opportunities
ahead as they are introduced commercially.
Odor-No-More Industrial Odor and VOC
Solutions
Our CupriDyne Clean industrial products reduce and eliminate tough
odors and VOC’s in various industrial settings, delivered through
misting systems, sprayers, water trucks and similar water delivery
systems. We believe the product is the number one performing
odor-control product in the market, and offers substantial savings
to our customers compared with competing products.
Waste Handling
Our customer base for our odor and VOC business is expanding. We
are now selling product to four of the largest solid waste handling
companies in the country, and also have secured multiple flagship
clients in the wastewater treatment industry, which we expect to
become a priority market. We are also expanding with early adopters
into new industrial markets, including steel manufacturing, paper
production, construction, building and facilities management,
livestock production, and the cannabis industry. Opportunities for
our products are available internationally. We have in the past and
plan to continue marketing these products through industry
associations like the “Technology Approval Group” program offered
by Isle Utilities that serves the wastewater treatment industry. We
also have a number of potential partners actively engaged in
commercial trials around the globe and we are actively in
discussion with a number of groups to leverage our commercial focus
through distribution partnerships.
Many of our customers have adopted CupriDyne Clean as a replacement
for non-performing competitive products, some of which have been in
use by customers for decades. Upon using CupriDyne Clean, our
customers consistently express a very high degree of satisfaction
with its performance compared to prior solutions. Because of this,
we are realizing systematic adoption by our very large corporate
customers and expect to serve these customers for years to come.
Our experience has helped refine our value proposition and assemble
a comprehensive menu of products and services. Our success in this
market has validated the market opportunity for our products and
services and encourages us to continue investing in infrastructure
and sales and marketing to increase revenues. We estimate there are
approximately 2,000 active landfills1, 8,000 transfer
stations2, and 15,000 wastewater treatment
agencies3 in the United States. While all may not have
ongoing odor problems or neighbor complaints, we believe many of
the facilities have need for a disruptive odor solution like
CupriDyne Clean.
The total addressable market for the waste handling and wastewater
treatment industries is greater than $1.3 billion. While we are
still assessing the size of the cannabis, agriculture and steel
manufacturing industries, we believe they could readily double the
market opportunities for our product CupriDyne Clean.
Turn-key Full-service Solutions
At the request of our clients, we have begun offering a menu of
services to landfills, transfer stations, and wastewater treatment
facilities. These services include ongoing maintenance and on-site
support services to assist our clients in the design and continued
use of the various systems that deliver our liquid products in the
field (such as misting systems). We have recently expanded these
serves to engineering design, construction and installation. Our
engineering team at BLEST has been instrumental in supporting these
operations. Our system design, build and install business continues
to grow. We have completed multiple installs during the last
quarter and have several bids outstanding for CupriDyne Clean
delivery systems.
Regional Adoption
Sales of our CupriDyne Clean products and related services were
initially made at the local level, on a per-location/facility
basis. We would demonstrate our product to the manager of
operations at a transfer station or landfill, and he or she
ultimately would decide whether to use our products. If owned by a
national company, in some instances before the operations manager
could buy our products, we were required to obtain official
“vendor” status with the company and sign a “national purchasing
agreement” (“NPA”). Doing so required a tremendous amount of effort
and time. These agreements typically include the addition of our
line of products which will be offered through an online purchasing
portal to the members around the nation. The process of integrating
the data is often delayed by months from the start date of our
agreements given their very technical nature. As an example, we
just completed work to finish this portion of the startup process
with our fourth national agreement account. These processes
establish an easy and familiar selling and purchasing process for
the ongoing and long-term relationships we seek to develop. We now
have NPAs with four of the largest solid waste handling companies
in the United States. Some of these accounts are now introducing us
to regional managers around the country who have the ability to
direct the facilities in their region to use our product. Because
of our continued success with our existing clients, our national
accounts are expanding their support for, and expanding resources
to encourage increased awareness and broad adoption of our products
and services. It is also important to note that we are often
replacing companies that have served these customers for 20 to 30
years giving support for our claim of ‘disruption’ to an
industry.
1 “Municipal Solid Waste Landfills - Economic
Impact Analysis for the Proposed New Subpart to the New Source
Performance Standards” (2014), by U.S. Environmental Protection
Agency Office of Air and Radiation and Office of Air Quality
Planning and Standards.
2 The top 5 Waste Management companies in the US,
as of 2011, operated 624 transfer stations, and 565 landfills.
“Municipal Solid Waste Landfills - Economic Impact Analysis for the
Proposed New Subpart to the New Source Performance Standards”
(2014), by U.S. Environmental Protection Agency Office of Air and
Radiation and Office of Air Quality Planning and Standards. This is
a ratio of 1:4 (landfill to transfer stations). The estimated
number of transfer stations is this ratio multiplied by the
approximate 1,900 total landfills, and then rounded.
3 1“Failure to Act, The Economic Impact
of Current Investment Trends in Water and Wastewater Treatment
Infrastructure” (2011), by American Society of Civil Engineers and
Economic Development Research Group. Figure includes treatment
facilities owned and operated by municipalities, as well as those
owned and/or operated by private entities contracting with
municipalities.
We believe that “regional adoption” is a scalable approach for the
larger solid waste handling companies that, with sufficient
resources, we can implement nationwide. Our current national
accounts represent the opportunity to serve more than 3,000 local
operations around North America. Because of our success serving the
transfer stations, material transfer facilities, and landfills,
these very large companies are also evaluating the use of CupriDyne
Clean in various transportation segments as well.
We now have a body of evidence that has been developed through
direct work with our large national accounts that supports our
product claims, namely superior performance, cost savings and
service excellence. As a result, we are receiving support from the
leadership of our national accounts to help expand our services
within their organizations. This support has and will continue to
demand that we increase our activity to deliver RFPs (requests for
proposals), follow up with and make site visits as a result of
introductions to local operators by regional and corporate leaders,
follow up on referrals from local operators to other local
operators and provide high level customer service and
responsiveness to regional office requests for site visits, and
offer our products and services to multiple locations with these
regional operations. This activity is increasing and as a result we
are focused on adding qualified staff to our team and believe that
sales will continue to increase as a function of increased
staffing. Our experience has shown that the cycle from identifying
a new customer that wants to use our products to installing
delivery systems and related equipment (if needed), to deploying
our products can take from 60 to 180 days. The work is demanding
but we know the up-front investment by our team will be rewarded
with expanded adoption and recurring revenues. We are continually
reminded that in many instances we are replacing companies that
have been serving these customers for decades.
We believe that our products will become known as the odor and VOC
elimination product that will become selected as a “best practices”
tool for the waste handling industry. As we continue to achieve
that level of recognition, we believe our large national accounts
will want to modify their stance to encourage their local operators
around the country to choose our product as the top performer and
highest value provider.
Expanding our Brand
CupriDyne Clean is gaining a reputation as “the one that actually
works” to control odors and VOCs. We are constantly reminded that
decision-makers in many industries, including the waste handling
industry, have been conditioned to believe that “nothing actually
works” to address industrial nuisance odors. We are working to help
change the industry mindset to being proactive, investing to avoid
problems rather than to rush to fix problems that have escalated to
an emergency intervention status. One of our most important
branding goals is to educate decision-makers that the “cost of
doing nothing” can be the most expensive choice by a customer. The
alternative is to use the best-performing odor mitigation product –
CupriDyne Clean – to save them money and reduce or eliminate their
risk and costs associated with managing odors and VOCs. Our company
is committed to raise the bar of awareness with consistent
performance, brand awareness and marketing to help industry see the
value and make the correct choice to use and deploy CupriDyne
Clean. In the past few months, we have received opening orders from
more than 14 new customers, from both national accounts and new
independent customers as a result of our marketing and branding
awareness. We expect that trend to continue. New Product Expansion
with Existing Customers
In line with our mandate as an innovator and full services solution
provider, Odor-No-More was recently asked by one of its national
customers to expand the use of its CupriDyne based products to
include a wash out and odor control product for transportation
devices, compactors and containers. While this work is still early,
our first trials demonstrate that the new product saves our
customers money and labor costs. Although sales for this new
product have just begun, we believe the opportunity for this
product is significant.
Additionally, we have been approached by two of our large customers
to develop a series of educational and training tools to assist in
their continuing focus to refine ‘best practices’ operating
procedures for odor management at waste processing facilities.
While this work is early, and our scope of services and role is
still being defined, we believe this is another important
validation of how we are being adopted as a reliable and high value
total solutions provider.
Emerging High-Growth Opportunity in Cannabis / Hemp
Industry
Odor-No-More recently entered into a 5-year “white-label”
distribution agreement with Cannabusters, Inc., a sister company to
Mabre Air Systems, to sell its CupriDyne Clean odor and VOC control
products to Cannabis and Hemp grow and production facilities, which
represent a target market that management’s research indicates is
in sore need of new odor control products and services.
Cannabusters has decades of experience with air quality management
through their sister company Mabre Air Systems, a leader in air
quality control systems in Italy. Cannabusters has committed to a
comprehensive marketing program that includes more than 25 trade
show events over the next two years to quickly introduce the
Cannabusters product to the cannabis and hemp industries.
The cannabis industry is facing increased scrutiny by regulators to
better control of hazardous air pollutants called terpenes that are
a natural part of production and processing. These gases can also
cause malodors that demand attention and can be problematic as
these companies seek to maintain good community relations and avoid
legal entanglements or lawsuits over nuisance odors. Odor abatement
operating procedures are part and parcel to the permitting
processes for companies involved in the industry and have typically
included traditional carbon filters. With the growth and
concentration of cannabis related operators, the industry has come
to recognize that the volume of terpenes and air flow in a typical
operation are often more than the traditional carbon filter-based
systems can manage effectively. Odor complaints persist. We have
been able to successfully demonstrate that our products are
effective as eliminating these VOC’s and related odors, just as we
have done in the waste handling industry. As a result, we have had
a number of experts in the cannabis industry tell us that our
products could become part of the ‘best practices’ operating
procedures for this industry and are working toward that goal.
The global legal cannabis market is expected to grow
to $146.4B in 2025 at an astounding 34.6% annual
growth rate. Some call cannabis the 21st century’s gold rush. With
an estimated 15,000 companies operating in our California alone, we
believe the opportunity for our product is significant. A number of
recent examples have surfaced with leading companies in this
industry that highlight the nuisance odor issue and their inability
to adequately manage the volume of terpenes escaping the
operations. To that end, we are organizing a series of strategic
relationships within the Cannabis industry to capture the
opportunity quickly. We are working to finalize agreements with
equipment manufacturers, regulatory consultants, key opinion
leaders, and marketing partners. Our value proposition
is unmatched for odor and VOC control and this is another great
example how our platform continues to expand in high value
markets.
Wastewater Treatment
We have begun selling products and services to wastewater treatment
facilities in our local markets. Our clients are prominent
municipal agencies and have indicated a desire to expand the use of
our products and services to additional locations in their service
areas. As a result of our success in the field, a client featured
our product as an example of ‘Best Practices’ for the wastewater
treatment industry at a national water quality conference hosted by
the Water Environment Federation. We anticipate overall longer
selling cycles given the technical sophistication of the customers
in this market, and believe that channel partnerships with leading
companies that already sell and service this highly technical
market will be required for our ultimate success. We are encouraged
and are evaluating various strategies to maximize our marketing and
selling proposition into this mature and well-established market.
We are actively engaged in discussions with potential distribution
partners and leading engineering firms with well established
relationships to the clients in order to service this very large
market.
Infrastructure and Capital Needs for Odor-No-More
We recognize the scope of the opportunity for CupriDyne Clean and
related services, and understand the task of building the personnel
and infrastructure to become a disruptive company in the waste
handling industry. In the United States, we currently operate out
of two locations – Southern California and Tennessee. As of now,
our manufacturing facilities are located in California. However, we
expect to expand our manufacturing and staffing in our Tennessee
operation as we achieve critical mass in that region. We are also
contemplating the opportunity to establish a manufacturing facility
in Canada to serve the Canadian odor and VOC control market. In the
meantime, as a result of the rapid adoption we are experiencing in
our local Southern California market, we want to focus on adding
staff and infrastructure to meet the obvious need for our products
and services. We believe that we need to invest in qualified sales
and support personnel to properly focus our energies on capturing
the client opportunities already under contract with our national
accounts and expand revenues accordingly. As of August 1, 2019, we
added waste-industry veteran Mitch Noto to our team as Director of
Business Development.
We believe that a significant number of personnel will be required
to fully service the solid waste handling and wastewater treatment
industries. We plan to expand as adequate capital to fund these
needs becomes available.
Full Service Environmental Engineering
In September 2017, we formed a subsidiary (BioLargo Engineering,
Science & Technologies, LLC, or “BLEST”), for the purpose of
offering full service environmental engineering to third parties,
and to provide engineering support services to our internal teams
to accelerate the commercialization of our AOS technologies. Its
website is found at www.BioLargoEngineering.com.
BLEST focuses its efforts in four areas:
| |
●
|
Providing engineering services to third-party clients;
|
| |
●
|
Supporting the AOS development efforts by working with our Canadian
subsidiary, BioLargo Water;
|
| |
●
|
Supporting our team at Odor-No-More to provide engineering and
design of the CupriDyne Clean delivery systems to the waste
handling industry; and
|
| |
●
|
Developing new products or engineered solutions for high value
targets like:
|
| |
o
|
our work on behalf of the US EPA as funded through a SBIR Phase I
grants to develop potential solutions for managing PFAS
contaminants in water;
|
| |
o
|
our work to refine and validate the CupriDyne Clean’s efficacy and
delivery systems for managing terpenes from cannabis
production;
|
| |
o
|
our work to provide initial proof of claim for CupriDyne Clean’s
efficacy in high volume industrial settings for VOC and air
contaminant mitigation; and
|
| |
o
|
Legionella prevention and monitoring systems
|
The subsidiary is based in Oak Ridge (a suburb of Knoxville),
Tennessee, and employs seven scientists and engineers who
collectively have over two hundred years of experience in diverse
engineering fields. The team is led by Randall Moore, who served as
Manager of Operations for Consulting and Engineering for the
Knoxville office of CB&I Environmental & Infrastructure and
was formerly a leader at The Shaw Group, Inc., a Fortune 500 global
engineering firm. The other team members are also former employees
of CB&I and Shaw. The team is highly experienced across
multiple industries and they are considered experts in their
respective fields, including chemical engineering, wastewater
treatment (including design, operations, data gathering and data
evaluation), process safety, energy efficiency, air pollution,
design and control, technology evaluation, technology integration,
air quality management & testing, engineering management,
permitting, industrial hygiene, applied research and development,
air testing, environmental permitting, HAZOP review, chemical
processing, thermal design, computational fluid dynamics,
mechanical engineering, mechanical design, NEPDES permitting,
RCRA/TSCA compliance and permitting, project management,
storm water design & permitting, computer assisted design
(CAD), bench chemistry, continuous emission monitoring system
operator, data handling and evaluation and decommissioning and
decontamination of radiological and chemical contaminated
facilities.
Business Development at BLEST
BLEST has had success in several noteworthy areas in the past
months. The company is increasing its customer base and executing
more and larger projects than in its first year. Additionally,
BLEST has made strides toward creating lucrative new opportunities
through development of new processes, which BioLargo intend to seek
new IP for where possible.
BLEST was recently awarded three subcontracts to do work on U.S.
Air Force bases in Texas, Kansas, Illinois and Arizona. Primary
contractor Bhate Environmental Associates, Inc. has bid multiple
projects with BioLargo to conduct “Fence-to-Fence (F2F)
environmental compliance”. The total value of the contracts awarded
(split between the prime contractor Bhate and its subcontractors,
including BLEST) is in excess of $15 million over five years (with
one year guaranteed). BLEST is responsible for one of the three
major components of the services: air quality compliance.
BLEST was recently awarded an SBIR Phase I Competitive Grant by the
Environmental Protection Agency in the amount of $100,000 to
investigate solutions for the removal of per- and polyfluoroalkyl
substances (PFAS) from water. PFAS have been linked to cancer,
fertility problems, asthma, and more, and are present in a vast
range of manufactured goods including food, common household
products (e.g., cleaning products, cookware), and electronics. PFAS
also pose widespread and serious water safety problems around the
world, with governments and industry actively seeking new
technologies and processes to eliminate PFAS from groundwater and
drinking water. BLEST will compete for a Phase II grant for
$1,000,000 in funding to finish the product design and start a go
to market campaign.
BLEST recently began a feasibility and placement study for 1.1
million tons of magnesium rich production tailings in Northern
California for a new client.
Notably, BLEST recently begun work to develop a new process by
which to manage and mitigate Legionella contamination in the
water distribution systems of large buildings including hospitals,
office buildings, condos, and more. BioLargo recently filed a
patent for this new process, which is referenced below in the
Intellectual Property section. BLEST intends to leverage this
patented process to offer Legionella mitigation services to
customers.
BLEST has recently been notified that as a result of its recent
audit work on assisting a leading healthcare products company in
transitioning to the 2015 revision of the ISO 14001 standard
for environmental management systems (EMS) it is being awarded
another small project from the client. The new time and materials
project involved preparing a detailed GAP analysis, and
subsequently updating the client’s EMS procedures to reflect the
significant changes to the new EMS standard which places new
emphasis on upper management involvement, the life cycle of
products and services, emergency preparedness and response, and
sustainability. There is also a new focus on evaluating risks
and opportunities and integrating this assessment into the EMS
program.
The formation of BLEST was predicated on the concept that 60% of
the revenue would be provided by external clients and the remaining
40% would be provided by internal clients (i.e. BioLargo Water or
Odor-No-More). By reaching this goal, BLEST will provide direct
positive cash flow to the BioLargo, Inc. while fulfilling its
mission to provide professional engineering services to the
internal client base. For calendar 2018, the ratio was
approximately 40% of revenue provided by external clients and 60%
provided by internal sources. In the second quarter of 2019, BLEST
has now reached and exceeded its target threshold of 60% of
revenues coming from external clients and less than 40% coming from
internal sources, meaning BLEST has achieved its goal of generating
the majority of its revenues from external contracts. . This
occurred and is occurring principally because of an increasing
number of perpetual contracts including the U.S. Air Force
contracts, Citizens Gas Utility District, HAVCO, Powell Valley
Utilities, and APTIM/Picatinny Arsenal. These perpetual contracts,
which are anticipated to be renewed annually, will provide a steady
base load of outside client revenue that is reasonably predictable
and secure.
In addition to continued organic growth in the external client
base, BLEST is developing new technologies and services for water
pollution control, the microbrewery sector, legionella prevention
in public buildings and hospitals. They are evaluating similar
approaches for the cannabis industry as well. These markets are
expanding in areas across the United States and represent
significant opportunities for BLEST.
BLEST management believes the company can expect growth in several
additional areas. For one, BLEST is under contract to design,
build, and install wastewater treatment equipment and “treatment
trains” for clients in collaboration with BioLargo’s water
technology subsidiary BioLargo Water. Not only does this represent
important synergy between two BioLargo business units, but it
offers BLEST the opportunity to become a total water treatment
solutions provider for customers in the widely under-served small
industrial wastewater treatment sector. Another area of predicted
growth is the conduct of environmental engineering and permitting
work for large industrial facilities such as fuel conversion
plants, an area in which BLEST has experienced an increasing number
of contracts in the past quarter.
BioLargo Water and the Advanced Oxidation System -
AOS
BioLargo Water is our wholly owned subsidiary located on campus at
the University of Alberta, Canada, that has been primarily engaged
in the research and development of our Advanced Oxidation System
(AOS). The AOS is our patented water treatment device that
generates a series of highly oxidative species of iodine and other
molecules that, because of its proprietary configuration and inner
constituents, allow it to eliminate pathogenic organisms and
organic contaminants as water passes through the device and it
performs with extreme efficacy while consuming very little
electricity. Its key application is rapid and efficient
decontamination and disinfection of various wastewaters. The AOS
recently began its first pre-commercial pilot project, wherein an
AOS and treatment train has been installed on-site at Sunworks
Farm, a poultry farm in Alberta. This pilot project is discussed in
more detail in the Pre-commercial Pilot Projects section
below.
The key value proposition of the AOS is its ability to eliminate a
wide variety of contaminants with high performance while consuming
extremely low levels of both input electricity and chemistry – a
trait made possible by the complex set of highly oxidative iodine
compounds generated within the AOS reactor. Our proof-of-concept
studies and case studies have generated results that project the
AOS will be more cost- and energy-efficient than commonly used
advanced water treatment technologies such as UV,
electro-chlorination, and ozonation. This value proposition sets
the AOS technology above other water treatment options, as we
believe the AOS may allow safe and reliable water treatment for
significantly lower cost compared to its competitors and may even
enable advanced water treatment in applications where it otherwise
would have been prohibitively costly.
The AOS has the potential to allow reliable and cost-effective
water treatment in numerous industries and applications where
high-level disinfection or elimination of hard-to-treat organic
contaminants is required. We believe the total serviceable market
for our AOS is $10.75 billion for the poultry processing, food
& beverage, and storm water segments with a target beachhead
market for poultry processing in North America at an estimated $240
million.
Our AOS was the result of breakthroughs in both advanced iodine
electrochemistry and advances in materials engineering, and its
invention led to BioLargo’s co-founding of a multi-year industrial
research chair whose goal was to solve the contaminated water
issues associated with the Canadian Oil Sands at the University of
Alberta Department of Engineering in conjunction with the top five
oil companies in Canada, the regional water district, and various
environmental agencies of the Canadian government. Based on
recovering oil prices and our ongoing work in Canada, in 2018 re
reinitiated discussions with stakeholders in the oil sands industry
to support the completion of AOS development for oil and gas water
treatment and to discuss the initiation of pre-commercial and
commercial pilots for our AOS to help treat and remediate oil sands
process-affected water (“OSPW”) found in tailings ponds in the
Canadian oil sands, an application that currently has no good
economically viable solution. We have been unsuccessful in raising
grant or private funds for this project, and, therefore we will
continue to focus on energies on other markets until such time as
proper resources are available.
Our AOS is an award-winning invention that is supported by science
and engineering financial support and highly competitive grants (66
and counting) from various federal and provincial funding agencies
in Canada such as NSERC, NRC- IRAP, and Alberta Innovates and in
the United States by the Metropolitan Water District of Southern
California.
Our immediate goals for the development and commercialization of
the AOS are: 1) to secure direct investment into the BioLargo Water
subsidiary to empower its staff to complete its development cycle,
2) complete the ongoing pre-commercial field pilot studies which
are necessary to generate the techno-economic data required to
secure commercial trials, entice future customers, and commence
traversal of regulatory pathways, 3) conduct the first commercial
trials with the AOS, and 4) secure first sale of the AOS. It is our
belief that once pre-commercial pilots have concluded with the AOS,
we will be able to entice major water industry players to partner
with BioLargo Water to accelerate market adoption of the AOS..
Recent AOS Milestones
The most important advances in AOS development in recent months
have been 1) recent validation of the AOS as an effective and
transformative water treatment technology able to eliminate
hard-to-treat “micropollutants” from wastewater; 2) design and
engineering advances and changes to the AOS in preparation for
piloting and scale-up for industrial flow-rates and conditions; and
3) the planning and design of pre-commercial field pilot
projects.
One recent and important AOS milestone was the demonstration that
it eliminated or reduced the toxicity of certain high-concern
pharmaceutical byproducts (micropollutants) common in some
municipal wastewater (“MWW”) streams. Currently, there are no
economically viable solutions to remove these compounds from MWW,
and incumbent technologies fall short. We believe that the value
proposition for our AOS for use as a new technology solution for
the municipal water treatment industry to efficiently remove
micropollutants could increase our total serviceable market to 5%
or more of the total industry which is recognized at + $700 billion
globally or approximately $35 billion.
Several advances and improvements to the AOS have also been made in
recent months with the purpose of preparing the technology for
pre-commercial piloting, commercial piloting, and subsequent mass
production, as well as to prepare it for scale-up to allow
industrial flow rates. These advancements have largely been
proprietary physical improvements to the AOS, including the
transitioning of the AOS to using inner substrates more amenable to
mass-production and greater flow rates and pressures. Management
believes it will continue to advance the scale-up to higher volume
throughputs of water flow and enhances the AOS ability to be more
compact and longer lasting in the field. This work is not
complete, but management believes it does represent a significant
step forward to achieving high throughput quality results.
Importantly, we have also designed and begun assembling our own
proprietary water treatment train that will be used in pilots for
the AOS and that will pave the way for complete wastewater
treatment in industrial settings.
Pre-commercial Pilot Projects for AOS
We are now underway on multiple pre-commercial field pilot
projects.
The first project involves treating poultry wastewater on-site at a
facility in Alberta Canada, with support from the Poultry Growers
Association. In this pilot, the AOS is being assessed for its
ability to eliminate bacteria and other contaminants from poultry
processing wastewater effectively and cost-efficiently and to
establish operating costs (OPEX) and capital costs (CAPEX) in a
field setting. BioLargo Water built and installed a complete
“treatment train” with equipment to address all aspects of the
client’s water treatment needs, including organic contaminants,
suspended solids, and biological organisms, in addition to the
connected AOS unit. Therefore, this pilot also represents
BioLargo’s first assessment as a “total solutions provider”, which
could open the door for a wider array of future water treatment
market opportunities. Funded in part by Canadian government grants,
this system is operating successfully. We hope to report data from
the project before the end of the year.
In another pilot project, the AOS is being used on-site at a
Californian micro-brewery as a polishing (final) step in a
wastewater “treatment train” whose goal is to reduce wastewater
contaminant load to levels that would allow the microbrewery to
reduce its wastewater discharge fines and enable water reuse. The
treatment train includes several pieces of wastewater treatment
equipment including a proprietary technology developed and
manufactured by our project partner Aquacycl, an emerging
wastewater treatment technology company based in the San Diego area
that was introduced to our company by The Maritime Alliance, a
trade organization in San Diego committed to fostering maritime
business and technology innovation. This pilot will help establish
the efficacy of the AOS in a field setting, the OPEX and CAPEX of
the system, and the AOS’ ability to “plug and play” in the context
of diverse supporting equipment and logistics.
In addition, we recently commenced a pre-commercial demonstration
pilot that will utilize the company’s Advanced Oxidation System
(AOS) to treat captured stormwater in Southern California at
BioLargo’s Westminster, California facility. The pilot’s goal is to
demonstrate the technical and economic feasibility of deploying the
AOS to enable stormwater treatment and reuse, an important and
emerging water management application in the US and Canada. The
pilot project is supported in part by research and development
funding of to up to $189,000 from the National Research Council of
Canada Industrial Research Assistance Program (NRC IRAP). BioLargo
Water is collaborating on the project with Richard Watson &
Associates, Inc. and Carollo Engineers, Inc. Richard Watson has
been active in stormwater quality management since 1990 and
currently consults to three watershed management groups in Los
Angeles County. Carollo Engineers, a leading environmental
engineering firm providing cost-effective, innovative, and reliable
water treatment solutions, will provide engineering and water
treatment validation for the project. The goals of this
demonstration pilot will focus on the efficacy of the AOS to treat
captured stormwater to water reuse standards. The pilot will also
help establish the capital and operating costs of the AOS in this
application, a crucial step before potential commercial pilot
clients and paying customers would consider the technology in this
industrial setting.
All of these pilot projects represent an important step for our AOS
technology, as well as for our company. We are confident in our
disruptive water treatment technology and have proven its treatment
capabilities in the lab. However, pilot projects for the AOS, as
with any technology, are crucial to prove its reliability to
industry stakeholders as well the capital cost and operating costs
of our technology at-scale. These data will be critical to pave the
way for future market adoption. As a reminder, we have many other
pilots in evaluation to support this same cause.
We believe that our current designs for the AOS are cost-effective,
commercially viable and should be ready for their first commercial
launch in late 2019 or early 2020. We secured a patent on the AOS
in 2018, and another in March 2019. We intend to continue refining
and improving the AOS continually to accomplish a series of goals:
expanded patent coverage, extended useful life, lower capital
costs, lower energy costs, optimized performance, precise
configurations for specific industry challenges, portability, and
identifying its performance limits. Our current and most pressing
goal for the AOS, as evidenced by the pilot projects described
above, is to demonstrate its efficacy in field settings, which is a
crucial and necessary step for the commercialization of any water
treatment system.
Advanced Wound Care - Clyra Medical
We initially formed Clyra Medical to commercialize our technology
in the medical products industry, which we believe can be
disruptive to many competing product lines. Our initial product
designs focus in the “advanced wound care” field, which includes
traumatic injury, diabetic ulcers, and chronic hard-to-heal wounds.
We also have designs for products focused on preventing or
controlling infections. In late 2018, we also acquired our second
technology, a stem cell therapy technology, SkinDisc, that is both
complementary to our antimicrobial product designs and it also
presents a high value proposition to offer stand-alone products to
the advanced wound care industry to assist in regenerating tissue.
With the addition of highly skilled team members with extensive
experience and proven track record of success in the medical
industry and, the addition of the SkinDisc, we have expanded our
plans to focus and build out a complete line of products to deliver
state of the art solutions to assist in healing wounds. Therefore,
we are also presently evaluating a number of additional licensing
opportunities to add complementary technologies and products to our
medical products portfolio with the goal of offering a complete
menu of proprietary and patent protected products to better serve
the advanced wound care patient population with state-of-the-art
medical products. We are presently seeking pre-market clearance for
our first advanced wound care product (application in process),
from the U.S. Food & Drug Administration (“FDA”) under Section
510(k) of the Food, Drug, and Cosmetic Act.
We believe the total addressable market for Clyra Medical’s
existing product designs in the advanced wound care market, dental,
orthopedics and regenerative tissue markets will exceed $2.5
billion by 2022.
Our first and original advanced wound care product combines the
broad-spectrum antimicrobial capabilities of iodine in a platform
complex that promotes and facilitates wound healing. Our products
are highly differentiated from existing antimicrobials in multiple
ways - by the gentle nature in which they perform, extremely low
dosing of active ingredients, reduced product costs, extended
antimicrobial activity, and biofilm efficacy. In addition, iodine
has no known acquired microbial resistance, unlike many competing
products. We believe the future markets for some of our product
designs may also include infection control and wound therapy in
orthopedics, dental and veterinary markets. We also intend to
pursue and study the use of our technology as a complimentary and
synergistic platform for use with regenerative tissue therapy.
We have three patent applications pending for medical products, and
are preparing additional applications. While these patent
applications are pending, we intend to continue expanding patent
coverage as we refine and expand our medical products.
We are in the process of obtaining regulatory approval (pre-market
clearance) from the FDA for our first advanced wound care product.
These efforts are ongoing as of the date of this report. Although
the process has taken considerable time and money, and we have
faced a number of delays as a result of the FDA’s requirements of
us, we remain highly encouraged by our current interactions with
the FDA staff and our current position. The process has confirmed
that our product design falls in the scope of the 510(k) process
and the pathway to clearance has now been better defined by senior
staff at FDA. We are preparing to report to the FDA results of a
30-day animal study that confirmed the Clyra product has no adverse
effects on wound healing. This animal study is the last material
item asked of us by FDA staff, and we believe we can submit this
new data and have a response back from the FDA as soon as possible,
with expectations of delivery within weeks and a timely response
from the FDA promptly thereafter. While we remain confident that we
will ultimately receive premarket clearance for this product, and
we continue to invest substantial recourses in anticipation of our
ultimate success, we are continually reminded by legal counsel that
we can make no assurance or prediction as to success of these
efforts, or whether additional information will be requested after
this animal study, and must wait patiently for the process with the
FDA to conclude. Notwithstanding these disclosures, having spent a
significant amount of time and money responding to the various
technical questions by the staff, including two trips to Washington
D.C., we are confident we will see a successful conclusion.
We believe this product’s future role in the advanced wound care
industry will be disruptive to many incumbent competing products
like silver, hypochlorous acid and even other iodine-based products
and therefore our extraordinary investment of time and money will
have significant opportunity to generate a considerable return on
investment as the products find their way through the FDA process
for clearance and then to market adoption. Simply stated, we
believe it is worth it and that we will succeed.
Our second technology and its related products center around the
SkinDisc technology which we acquired in late 2018 from Scion
Solutions, LLC (“Scion”). Scion is led by Spencer Brown, a medical
device industry veteran with more than 35 years’ experience in
sales, account management, and distribution in the medical device
industry. The SkinDisc product was developed by Dr. Brock Liden, a
renowned medical podiatrist and expert in wound care and diabetic
limb salvage. The SkinDisc is a therapy product that uses a
patient’s own bone marrow and plasma in a unique mixture to
generate a cell-rich bio gel for use with chronic wounds. It has
been tested in over 250 patient cases with no adverse effects, and
has successfully aided in the salvage of limbs that otherwise would
have been amputated. The regenerative tissue therapy technique has
been shown to assist in successful wound closure in time frames as
short at 4 to 7 weeks with one or two applications and is patent
pending.
Clyra Medical also continues to actively work on the development of
new products.
Clyra is currently successfully recruiting Key Opinion Leaders from
the medial field to join Clyra’s Medical Advisory Board and is
actively evaluating a number of technologies and products to add to
its product portfolio in anticipation of its near-term plans to
launch its commercial sales efforts.
We are committed to see these advanced wound care products go to
market and we believe they will make a positive impact for a
greater good around the world and generate meaningful financial
results for our stockholders.
Scion Solutions Acquisition –
SkinDisc™
On September 26, 2018, we and Clyra Medical agreed to a transaction
whereby we would acquire the intangible assets of Scion Solutions,
LLC (“Scion”), and in particular its stem cell-based technology,
the SkinDisc, and the know-how of key team members to support
further research as well as the sale and distribution of Clyra
Medical’s products based on our BioLargo technologies.
The parties entered into a Stock Purchase Agreement and Plan of
Reorganization (“Purchase Agreement”) whereby Clyra Medical
acquired (and then sold to BioLargo) the Scion intangible assets,
including the SkinDisc. The consideration provided to Scion is
subject to an escrow agreement and earn out provisions and
includes: (i) 21,000 shares of the Clyra Medical common stock; (ii)
10,000 shares of Clyra Medical common stock redeemable for BioLargo
common shares (detailed below); and (iii) a promissory note in the
principal amount of $1,250,000 to be paid through new capital
investments and revenue, as detailed below. The Clyra Medical
common stock was initially held in escrow subject to the new entity
raising $1,000,000 “base capital” to fund its business operations,
which was raised effective December 17, 2018 (see below). One-half
of the common stock was released to scion, and the second half
remains subject to the following performance metrics, each vesting
one-fifth of the remaining shares of common stock: (a) notification
of FDA premarket clearance of certain orthopedics products, or
recognition by Clyra Medical of $100,000 gross revenue; (b) the
recognition by Clyra Medical of $100,000 in aggregate gross
revenue; (c) the granting of all or any part of the patent
application for the SkinDisc product, or recognition by Clyra
Medical of $500,000 in gross revenue; (d) recognition by Clyra
Medical of $1,000,000 in aggregate gross revenue; and (e)
recognition by Clyra Medical of $2,000,000 in gross revenue. In
addition, Clyra and Scion entered into the $1,250,000 promissory
note called for by the Purchase Agreement. The promissory note
accrues interest at the rate of 5%. Principal and interest due
under the note are to be paid periodically at a rate of 25% of
investment proceeds received. If the note is not paid off within 18
months after the date of issuance, it is automatically extended for
additional 12-month periods until the note is repaid in full.
Payments after the initial 18-month maturity date are required to
be made as investment proceeds are received, at a rate of 25% of
such proceeds, and 5% of Clyra Medical’s gross revenues.
Immediately following Clyra Medical’s purchase of Scion’s assets,
Clyra Medical sold to BioLargo the assets, along with 12,755 Clyra
Medical common shares. In exchange, BioLargo issued Clyra Medical
7,142,858 shares of BioLargo common stock. Concurrently, BioLargo
licensed back to Clyra Medical the Scion assets. Scion may exchange
its 10,000 Clyra Medical common shares for the 7,142,858 shares of
BioLargo common stock issued to Clyra Medical, subject to the
escrow and earn-out provisions described above. As of December 31,
2018, per the Closing Agreement, one-half of these shares have been
earned and thus may be redeemed, and one-half remain subject to the
earn-out provisions.
On December 17, 2018, we entered into a closing agreement (“Closing
Agreement”) reflecting the satisfaction of the obligation to raise
$1,000,000 “base capital” established under the Purchase Agreement.
With the satisfaction of the obligation to raise $1,000,000 in base
capital, Clyra Medical agreed to release to Scion one-half of the
shares of Clyra common stock exchanged for the Scion assets. The
remaining Clyra Medical common shares remain subject to the Escrow
Agreement dated September 26, 2018, subject to the metrics
identified above. We were initially introduced to the SkinDisc
product and Scion Solutions through Dr. Liden and Tanya Rhodes’s
consulting work with Clyra Medical (both Dr. Liden and Ms. Rhodes
have ownership interest in Scion). Prior to the execution of the
above-described agreements, BioLargo did not have any material
relationship with Scion’s founder Spencer Brown.
Intellectual Property
We have 20 patents issued, including 18 in the United States, and
multiple pending. We believe these patents provide a foundation
from which to continue building our patent portfolio, and we
believe that our technology is sufficiently useful and novel that
we have a reasonable basis upon which to rely on our patent
protections. We also rely on trade secrets and technical know-how
to establish and maintain additional protection of our intellectual
property. As our capital resources permit, we expect to expand our
patent protection as we continue to refine our inventions as well
as make new discoveries. See the detailed discussion below of our
patent portfolio.
We regard our intellectual property as critical to our ultimate
success. Our goal is to obtain, maintain and enforce patent
protection for our products and technologies in geographic areas of
commercial interest and to protect our trade secrets and
proprietary information through laws and contractual
arrangements.
Our Chief Science Officer, Mr. Kenneth R. Code, has been
involved in the research and development of the technology
since 1997. He has participated in the Canadian Federal
Scientific Research and Experimental Development program, and he
was instrumental in the discovery, preparation and filing of the
first technology patents. He has worked with manufacturers,
distributors and suppliers in a wide variety of industries to gain
a full appreciation of the potential applications and the
methodologies applicable to our technology for their manufacture
and performance. He continues to research methods and
applications to continue to expand the potential uses of our
technology as well as work to uncover new discoveries that may
provide additional commercial applications to help solve real world
problems in the field of disinfection.
We incurred approximately $1,700,000 in expense related to our
research and development activities in 2018, an increase of
approximately $100,000 over the prior year. We have shifted the
focused in our Canadian research facility to focus on
commercializing our AOS technology and thus expect these expenses
to decrease in 2019.
We believe that our suite of intellectual property covers the
presently targeted major areas of focus for our licensing strategy.
The description of our intellectual property, at present, is as
follows:
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U.S. Patent 10,238,990, issued on March 26, 2019, and 10,051,866,
issued on August 21, 2018, which protect our AOS system.
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U.S. Patent 10,046,078 issued on August 15, 2018, which encompasses
our CupriDyne Clean misting systems used at transfer stations and
landfills.
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U.S. Patent 9,883,653 issued on February 8, 2018, which encompasses
a litter composition used in the absorption of animal wastes.
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U.S. Patent 9,414,601 issued on August 16, 2016, relating to the
use of an article for application to a surface to provide
antimicrobial and/or anti-odor activity. At least one of the
reagents is coated with a water-soluble, water dispersible or
water-penetrable covering that prevents ambient conditions of 50%
relative humidity at 25ºC from causing more than 10% of the total
reagents exposed to the ambient conditions from reacting in a
twenty-four-hour period.
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U.S. Patent 8,846,067, issued on September 30, 2014, which
encompasses a method of treating a wound or burn on tissue to
reduce microbe growth about a wound comprising applying an
antimicrobial composition to the wound or burn on tissue using a
proprietary stable iodine gel or liquid. This patent covers our
technology as used in products being developed by our subsidiary,
Clyra Medical Technologies.
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U.S. Patent 8,757,253, issued on June 24, 2014, relating to the
moderation of oil extraction waste environments.
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U.S. Patent 8,734,559, issued on May 27, 2014, relating to the
moderation of animal waste environments.
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U.S. Patent 8,679,515 issued on March 25, 2014, titled “Activated
Carbon Associated with Alkaline or Alkali Iodide,” which provides
protection for our BioLargo® AOS filter.
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U.S. Patent 8,642,057, issued on February 14, 2014, titled
“Antimicrobial and Antiodor Solutions and Delivery Systems,”
relating to our liquid antimicrobial solutions, including our gels,
sprays and liquids imbedded into wipes and other substrates.
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U.S. Patent 8,574,610, issued on November 5, 2013, relating to
flowable powder compositions, including our cat litter
additive.
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U.S. Patent 8,257,749, issued on September 4, 2012, relating to the
use of our technology as protection of against antimicrobial
activity in environments that need to be protected or cleansed of
microbial or chemical material. These environments include closed
and open environments and absorbent sheet materials that exhibit
stability until activated by aqueous environments. The field also
includes novel particle technology, coating technology or
micro-encapsulation technology to control the stability of
chemicals that may be used to kill or inhibit the growth of
microbes to water vapor or humidity for such applications.
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U.S. Patent 8,226,964, issued on July 24, 2012, relating to use of
our technology as a treatment of residue, deposits or coatings
within large liquid carrying structures such as pipes, drains,
ducts, conduits, run-offs, tunnels and the like, using iodine,
delivered in a variety of physical forms and methods, including
using its action to physically disrupt coatings. The iodine’s
disruptive activity may be combined with other physical removal
systems such as pigging, scraping, tunneling, etching or grooving
systems or the like.
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U.S. Patent 8,021,610, issued on September 20, 2011, titled “System
providing antimicrobial activity to an environment,” relating to
the reduction of microbial content in a land mass. Related to this
patent are patents held in Canada and the European Union.
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U.S. Patent 7,943,158, issued on May 17, 2011, titled “Absorbent
systems providing antimicrobial activity,” relating to the
reduction of microbial content by providing molecular iodine to
stabilized reagents.
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U.S. Patent 7,867,510, issued on January 11, 2011, titled “Material
having antimicrobial activity when wet,” relating to articles for
delivering stable iodine-generating compositions.
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U.S. Patent 6,328,929, issued on December 11, 2001, titled “Method
of delivering disinfectant in an absorbent substrate,” relating to
method of delivering disinfectant in an absorbent substrate.
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U.S. Patent 6,146,725, issued on November 14, 2000, titled
“absorbent composition,” relating to an absorbent composition to be
used in the transport of specimens of bodily fluids.
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Pending Patent Applications
Most recently, we filed two patent applications in the United
States for our advanced wound care formulas. The inventions in
these applications form the basis for the work at Clyra Medical and
the products for which that subsidiary intends to seek FDA
approval. In addition to these applications, we have filed patent
applications in multiple foreign countries, including the European
Union, pursuant to the PCT, and other provisional applications.
Subject to adequate financing, we intend to continue to expand and
enhance our suite of intellectual property through ongoing focus on
product development, new intellectual property development and
patent applications, and further third-party testing and
validations for specific areas of focus for commercial
exploitation. We currently anticipate that additional patent
applications will be filed during the next 12 months with the USPTO
and the PCT, although we are uncertain of the cost of such patent
filings, which will depend on the number of such applications
prepared and filed. The expense associated with seeking patent
rights in multiple foreign countries is expensive and will require
substantial ongoing capital resources. However, we cannot give any
assurance that adequate capital will be available. Without adequate
capital resources, we will be forced to abandon patent applications
and irrevocably lose rights to our technologies.
Competition
We believe that our products contain unique characteristics that
distinguish them from competing products. In spite of these unique
characteristics, our products face competition from products with
similar prices and similar claims. We face stiff competition from
companies in all of our market segments, and many of our
competitors are larger and better-capitalized.
For example, we would compete with the following leading companies
in our respective markets:
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Disinfecting/Sanitizing: Johnson & Johnson, BASF
Corporation, Dow Chemical Co., E.I. DuPont De Nemours & Co.,
Chemical and Mining Company of Chile, Inc., Proctor and Gamble Co.,
Diversey, Inc., EcoLab, Inc., Steris Corp., Clorox, and Reckitt
Benckiser.
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Water Treatment: GE Water, Trojan UV, Ecolab, Pentair, Xylem
and Siemens AG.
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Medical Markets: Smith & Nephew, 3M, ConvaTec and Derma
Sciences.
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Pet Market: Arm & Hammer and United Pet Group (owner of
Nature’s Miracle branded products).
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Industrial Odor Control: NCM Odor Control and OMI
Industries.
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Each of these named companies and many other competitors are
significantly more capitalized than we are and have many more years
of experience in producing and distributing products.
Additionally, our technology and products incorporating our
technology must compete with many other applications and long
embedded technologies currently on the market (such as, for
example, chlorine for disinfection).
In addition to the competition we face for our existing products,
we are aware of other companies engaged in research and development
of other novel approaches to applications in some or all the
markets identified by us as potential fields of application for our
products and technologies. Many of our present and potential
competitors have substantially greater financial and other
resources and larger research and development staffs than we have.
Many of these companies also have extensive experience in testing
and applying for regulatory approvals.
Finally, colleges, universities, government agencies, and public
and private research organizations conduct research and are
becoming more active in seeking patent protection and licensing
arrangements to collect royalties for the use of technology that
they have developed, some of which may be directly competitive with
our applications.
Governmental Regulation
We will have products (each a ‘‘Medical Device”) that will be
subject to the Federal Food, Drug, and Cosmetic Act, as amended
(including the rules and regulations promulgated thereunder, the
“FDCA”), or similar Laws (including Council Directive 93/42/EEC
concerning medical devices and its implementing rules and guidance
documents) in any foreign jurisdiction (the FDCA and such similar
Laws, collectively, the “Regulatory Laws”) that are developed,
manufactured, tested, distributed or marketed by our company or its
subsidiary Clyra. Each such Medical Device will need to be
developed, manufactured, tested, distributed, and marketed in
compliance with all applicable requirements under the Regulatory
Laws, including those relating to investigational use, premarket
clearance or marketing approval to market a medical device, good
manufacturing practices, labeling, advertising, record keeping,
filing of reports and security, and in compliance with the Advanced
Medical Technology Association Code of Ethics on Interactions with
Healthcare Professionals.
We believe that no article or part of any Medical Device intended
to be manufactured or distributed by our company or any of our
subsidiaries will be classified as (i) adulterated within the
meaning of Sec. 501 of the FDCA (21 U.S.C. § 351) (or other
Regulatory Laws), (ii) misbranded within the meaning of Sec. 502 of
the FDCA (21 U.S.C. § 352) (or other Regulatory Laws) or (iii) a
product that is in violation of Sec 510 of the FDCA (21 U.S.C. §
360) or Sec. 515 of the FDCA (21 U.S.C. § 360e) (or other
Regulatory Laws).
Neither our company nor any of its subsidiaries, nor, to the
knowledge of our company, any officer, employee or agent of our
company or any of its subsidiaries, has been convicted of any crime
or engaged in any conduct for which such Person or entity could be
excluded from participating in the federal health care programs
under Section 1128 of the Social Security Act of 1935, as amended
(the “Social Security Act”), or any similar Law in any foreign
jurisdiction.
Neither our company nor any of its subsidiaries has received any
written notice that the FDA or any other Governmental Authority has
commenced, or threatened to initiate, any action to enjoin
research, development, or production of any Medical Device.
Employees
As of the date of this prospectus, we employ 25 persons. We also
engage consultants on an as needed basis who provide certain
specified services to us.
Description of Property
Our company owns no real property. We are party to three commercial
property leases for our corporate offices and manufacturing
facility in California, our research and development facility in
Canada, and our engineering division in Tennessee.
We currently lease approximately 9,000 square feet of office and
industrial space at 14921 Chestnut St., Westminster, California
92683. The current lease term is from September 1, 2016 to August
31, 2020, at a monthly base rent of $8,379 throughout the term. In
addition to serving as our principal offices, it is also a
manufacturing facility where we manufacture our products, including
our CupriDyne Clean Industrial Odor, and Specimen Transport
Solidifiers.
We also lease approximately 1,500 square feet of office and lab
space from the University of Alberta. The current lease term
expires on January 31, 2020, at monthly fee of $5,266 Canadian
dollars. These offices serve as our primary research and
development facilities.
We also lease approximately 13,000 square feet of office and
warehouse space at 105 Fordham Road, Oak Ridge, Tennessee, 37830,
for our professional engineering division. The lease term is from
September 1, 2017 through August 31, 2020, at a monthly base rent
of $5,400 throughout the term.
Our telephone number is (888) 400-2863.
Legal Proceedings
Our company is not a party to any legal proceeding.
MANAGEMENT’S DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion contains forward-looking statements about our
business and operations. Our actual results may differ materially
from those we currently anticipate as a result of
many factors, including those we described under
“Risk Factors” and elsewhere in this
prospectus. Certain statements contained in this discussion,
including, without limitation, statements containing the words
“believes,”
“anticipates,” “expects”
and the like, constitute “forward-looking
statements” within the meaning of the Securities
Exchange Act of 1934, as amended (the “Exchange
Act”). However, as we will issue “penny
stock,” as such term is defined in Rule 3a51-1
promulgated under the Exchange Act, we are ineligible
to rely on these safe harbor provisions. Such forward-looking
statements involve known and unknown risks, uncertainties and other
factors that may cause our actual results, performance or
achievements to be materially different from any of the future
results, performance or achievements expressed or implied by such
forward-looking statements. Given these uncertainties, readers are
cautioned not to place undue reliance on such forward-looking
statements. We disclaim any obligation to update any of such
factors or to announce publicly the results of revision of any of
the forward-looking statements contained herein to reflect future
events or developments. For information regarding risk factors that
could have a material adverse effect on our business, refer to
the “Risk Factors” section of this
prospectus beginning on page 3.
Results of Operations—Comparison of the three and six months
ended June 30, 2018 and 2019
We operate our business in distinct business segments:
| |
●
|
Odor-No-More, which manufactures and sells our odor and VOC control
products and services, including our flagship product, CupriDyne
Clean;
|
| |
●
|
BLEST, our professional engineering services division supporting
our internal business units and serving outside clients on a fee
for service basis;
|
| |
●
|
BioLargo Water, our Canadian division that has been historically
pure research and development, and is now transitioning to focus on
commercializing our AOS system;
|
| |
●
|
Clyra Medical, our partially owned subsidiary focused on the
Advanced Wound Care industry; and
|
| |
●
|
Our corporate operations, which support the operating segments with
legal, accounting, human resources, and other services.
|
We invest cash into each of these segments on a regular basis, as
none of the segments yet generates enough cash to fund their
operations. However, both Odor-No-More and BLEST are trending
towards cash-flow positive, and we expect each of those two
segments to begin to generate positive cash for BioLargo in 2019.
Additionally, Clyra Medical raises capital directly, rather than
relying on BioLargo for cash to operate.
Revenue for the three and six months ended June 30, 2019 was
$426,000 and $790,000, respectively. This is a 30% and 34% increase
over the same periods in 2018. We generated revenue from two of our
operating divisions – Odor-No-More and BLEST. Our business segments
obtain cash to support operations in different ways. Odor-No-More
and BLEST generate revenues from third parties, and receive funding
as needed from their parent corporation, BioLargo. Our Canadian
team, BioLargo Water, receives funds from government research
grants (reported on our financial statements as “Other income –
Grant income”), and receives funding as needed from BioLargo. Clyra
Medical, however, relies on direct investment from third parties
for 100% of its operating costs and is not supported with capital
from BioLargo’s corporate budget or fundraising.
Odor-No-More
Our wholly owned subsidiary Odor-No-More generates revenues through
sales of our flagship product CupriDyne Clean, by providing design,
installation, and maintenance services on the systems that deliver
CupriDyne Clean at its clients’ facilities, and through sales of
odor absorption products to the U.S. Government.
Revenue (Odor-No-More)
Odor-No-More’s revenues for the six months ended June 30, 2019,
increased $76,000 (34%) from the same period in 2018. Its revenue
for the three months ended June 30, 2019, was equal to that of the
same period in 2018. The fluctuation in our revenues is due to
timing of orders, weather at customer facilities (such as rain and
snow), and shipping schedules. Approximately three-quarters of our
revenue is generated from sales of CupriDyne Clean products and
related services, and the remaining mostly from sales to the U.S.
military.
Sales of our CupriDyne Clean products increased 31% and 24% in the
three and six months ended June 30, 2019, as compared to same
periods in 2018, due to the acquisition of more clients and client
locations, and the sale and delivery of more products. Of our
CupriDyne Clean sales, approximately one-half were made pursuant to
“national purchasing agreements” (“NPA”) with the four largest
waste handling companies in the United States. With the addition of
an industry veteran as Director of Business Development, and
increased capital resources, we expect sales to our NPA clients as
well as new independent customers will increase in the remainder of
2019.
Sales to the U.S. military are primarily our Specimen Transport
Solidifier pouches, and are made to the U.S. Defense Logistics
Agency through our distributor Downeast Logistics. These sales
decreased by 65% and 59% in the three and six months ended June 30,
2019 as compared with the same periods in 2018. The vast majority
of these sales are made through a bid process in response to a
request for bids to which any qualified government vendor can
respond, and our decreased revenue in 2019 is due to a reduced
number of opportunities from the government for our products, and
to the cyclical nature and timing of the government procurement
process. We cannot know in advance the frequency or size of such
requests from the US Government, or whether our bids will be
successful, and as such we are uncertain as to our future revenues
through this system. We believe that the sales of CupriDyne Clean
will continue to grow and help offset this segment of our business
which we do not view as a high growth opportunity.
Cost of Goods Sold (Odor-No-More)
Odor-No-More’s cost of goods sold includes costs of raw materials,
contract manufacturing, and portions of salaries and expenses
related to the manufacturing of our products. For installation and
other services, it includes labor and materials. As a percentage of
gross sales, Odor-No-More’s costs of goods was 43% and 45% in the
three and six months ended June 30, 2019 versus 61% in the same
periods in 2018. In mid-2018, because of higher volumes,
Odor-No-More was able to decrease its costs by purchasing raw
materials directly from manufacturers at more favorable prices,
resulting in the year-to-year cost of goods decrease.
Selling, General and Administrative Expense
(Odor-No-More)
Odor-No-More’s Selling, General and Administrative (“SG&A”)
expenses are remaining consistent between the three and six months
ended June 30, 2019 and 2018. They are averaging $235,000 per
quarter in 2019 compared to an average of $223,000 in 2018. These
expenses have increased alongside Odor-No-More’s efforts to
increase revenues by hiring additional sales and support staff. We
expect its SG&A expenses to increase in 2019 as it continues to
add sales and support personnel as its number of customers and
revenues increase.
Operating Loss (Odor-No-More)
Odor-No-More had a net operating loss of $51,000 and $141,000 for
the three and six months ended June 30, 2019. This was a 65% and
45% improvement over the same periods in 2018. Odor-No-More is
continuing to increase sales to work toward profitability. Its
gross margin from product sales is at 55%, and its loss from
operations is trending downward. We believe these trends will
continue. The loss from operations is trending downward for two
reasons. First, Odor-No-More was able to reduce its product costs
as a result of its increased volume (purchasing power). Second,
increased sales resulted in increased gross margin contributing to
the company’s operational costs.
We expect that Odor-No-More’s sales will continue to increase. By
the end of 2019, assuming the company is properly capitalized with
a marketing budget and additional salespeople, we expect that
Odor-No-More will no longer require a cash subsidy to operate.
BLEST (engineering division)
Revenue (BLEST)
BLEST generated $241,000 and $424,000 of revenue for the three and
six months ended June 30, 2019. Included in that total is
intersegment revenue of $130,000 and $250,000 for the three and six
months ended June 30, 2019. Intersegment revenue is eliminated in
consolidation.
BLEST generated $111,000 and $174,000 of revenues from third party
clients in the three and six months ended June 30, 2019, compared
to $11,000 and $50,000 in revenue in same periods in 2018. The
increase is due to an increase in the number of client contracts
being serviced. The impact of its recently signed subcontracts to
service the United States Air Force will begin generating revenues
in the third quarter of 2019.
Cost of Goods (Services) Sold (BLEST)
BLEST’s cost of services includes employee labor as well as
subcontracted labor costs. In the three and six months ended June
30, 2019, its cost of services were 84% and 83% of its revenues,
versus 72% and 62% in the three and six months ended June 30, 2018.
Costs were higher in the six-month comparison as we utilized
sub-contractors with lower margins and we had fixed fee contracts
that were not profitable. Those trends are declining as we add new,
profitable contracts.
Selling, General and Administrative Expense
(BLEST)
BLEST selling, general and administrative expenses during the three
and six months ended June 30, 2019 totaled $107,000 and $198,000,
which is comparable to the same periods in 2018. BLEST primarily
delivers services to its clients, most of its labor costs are
included in its cost of services (for third party clients), and
research and development for its work on BioLargo technologies.
Operating Loss (BLEST)
BLEST had a net operating loss of $108,000 and $137,000 during the
three and six months ended June 30, 2019, compared to $69,000 and
$117,000 for the same periods in 2018. Because the subsidiary had
an operating loss, we invested cash during the year to allow it to
maintain operations. BLEST’s need for a cash subsidy to support its
operations has decreased over time. We expect this trend to
continue, and expect that in the remainder of 2019 its revenues
will continue to increase. We expect that this subsidiary will
become profitable and contribute cash to our corporate
operations.
Other Income
Our wholly owned Canadian subsidiary has been awarded more than 67
research grants over the years from various Canadian public and
private agencies, including the Canadian National Research
Institute – Industrial Research Assistance Program (NRC-IRAP), the
National Science and Engineering Research Council of Canada
(NSERC), and the Metropolitan Water District of Southern
California’s Innovative Conservation Program “ICP”. The research
grants received are considered reimbursement grants related to
costs we incur and therefore are included as Other Income. We
continued to win grants and it is important to note that amounts
paid directly to third parties are not included as income in our
financial statements. Our grant income increased $9,000 and $86,000
in the three and six months ended June 30, 2019, compared with the
same periods in 2018. This increase is due to additional and higher
value grants awarded in 2019.
Although we are continuing to apply for government and industry
grants, and indications from the various grant agencies is highly
encouraging, we cannot be certain of continuing those successes in
the future.
Selling, General and Administrative Expense – company-wide
consolidated results
Our SG&A expenses include both cash expenses (for example,
salaries to employees) and non-cash expenses (for example, stock
option compensation expense). Our SG&A expenses decreased by 1%
($14,000) during the three months ended June 30, 2019 compared to
the three months ended June 30, 2018, and increased by 8%
($210,000) for the six-month periods. The largest components of our
SG&A expenses included (in thousands):
|
|
|
Three months
|
|
|
Six months
|
|
|
|
|
June 30, 2018
|
|
|
June 30, 2019
|
|
|
June 30, 2018
|
|
|
June 30, 2019
|
|
|
Salaries and payroll related
|
|
$ |
521 |
|
|
$ |
476 |
|
|
$ |
972 |
|
|
$ |
969 |
|
|
Professional fees
|
|
|
187 |
|
|
|
164 |
|
|
|
379 |
|
|
|
360 |
|
|
Consulting
|
|
|
192 |
|
|
|
299 |
|
|
|
353 |
|
|
|
590 |
|
|
Office expense
|
|
|
258 |
|
|
|
224 |
|
|
|
468 |
|
|
|
464 |
|
|
Sales and marketing
|
|
|
63 |
|
|
|
34 |
|
|
|
117 |
|
|
|
93 |
|
|
Investor relations
|
|
|
28 |
|
|
|
37 |
|
|
|
61 |
|
|
|
82 |
|
|
Board of director expense
|
|
|
68 |
|
|
|
68 |
|
|
|
135 |
|
|
|
135 |
|
Consulting expense increased in 2019 due to increased cash at Clyra
and resulting increased research and development activities, and
our hiring firms related to business development and brand
exposure. . We have also increased our investor relations expense
to continue to develop and spread the word about our company.
Research and Development
Our company-wide research and development expenses decreased by 14%
and 17% compared to the three and six months ended June 30, 2018.
In some areas, such as in our medical subsidiary, these expenses
increased as the company was better financed and ramping up
activities in anticipation of an FDA decision regarding their first
wound care product. In Canada, we have transitioned from pure
research and development towards a focus on commercializing the AOS
system, decreasing R&D.
Interest expense
Our interest expense for the three and six months ended June 30,
2019 decreased by $1,231,000 (71%) and $1,078,000 (42%) compared
with the three and six months ended June 30, 2018. Of our total
interest expense, $40,000 was paid in cash, and the remaining is
non-cash expenses related to financing transactions. Our interest
expense decreased in 2019 primarily because (i) over $5 million in
debt matured in the first six months of 2018, and (ii) we accepted
cash from some convertible noteholders to reduce their conversion
prices. We expect our interest expense to increase in the second
half of 2019 due to the recent issuance of more than $2 million in
Twelve Month OID Notes. Each investor also received a stock
purchase warrant and we record the relative fair value of the
warrants and the intrinsic value of the beneficial conversion
feature sold with the convertible notes which typically results in
a full discount on the proceeds from the convertible notes. This
discount is then amortized as interest expense over the term of the
convertible notes. Ultimately, it is management’s objective to
secure equity and discontinue the use of convertible
interest-bearing debt to finance its ongoing growth. In the six
months ended June 30, 2019, we recorded non-cash expenses of
$1,254,000 related to amortization of the fair value of warrants
issued in connection with our debt, and $228,000 related to debt
extension.
Net Loss
Net loss for the three and six months ended June 30, 2019 was
$1,987,000 ($0.01 per share) and $4,736,000 ($0.03 per share). Net
loss for the three and six months ended June 30, 2018 was
$3,600,000 ($0.03 per share) and $6,029,000 ($0.05 per share). Our
net loss in 2019 has decreased primarily due to lower interest
expense and an increase in revenue. Of our total net loss,
approximately $2.9 million (60%) was non-cash expense, and the
remaining $1.85 million (40%) was cash used in operating
activities.
The net loss per business segment is as follows (in thousands):
|
|
|
Three months
|
|
|
Six months
|
|
|
|
|
June 30, 2018
|
|
|
June 30, 2019
|
|
|
June 30, 2018
|
|
|
June 30, 2019
|
|
|
BioLargo corporate
|
|
|
(3,056 |
) |
|
|
(1,486 |
) |
|
|
(4,980 |
) |
|
|
(3,591 |
) |
|
Odor-no-more
|
|
|
(145 |
) |
|
|
(51 |
) |
|
|
(254 |
) |
|
|
(141 |
) |
|
Clyra
|
|
|
(177 |
) |
|
|
(332 |
) |
|
|
(376 |
) |
|
|
(631 |
) |
|
BLEST
|
|
|
(71 |
) |
|
|
(26 |
) |
|
|
(117 |
) |
|
|
(137 |
) |
|
BioLargo Water
|
|
|
(151 |
) |
|
|
(92 |
) |
|
|
(302 |
) |
|
|
(237 |
) |
|
Net loss
|
|
|
(3,600 |
) |
|
|
(1,987 |
) |
|
|
(6,029 |
) |
|
|
(4,736 |
) |
Liquidity and Capital Resources
For the six months ended June 30, 2019, we had a net loss of
$4,736,000, used $1,851,000 cash in operations, and at June 30,
2019, had a working capital deficit of $3,473,000 and current
assets of $1,001,000. We do not have sufficient working capital and
do not believe gross profits will be sufficient to fund our current
level of operations or pay our debt due prior to December 31, 2019,
and will have to obtain further investment capital to continue to
fund operations and seek to refinance our existing debt. We have
been, and anticipate that we will continue to be, limited in terms
of our capital resources. During the year ended December 31, 2018,
and the six months ended June 30, 2019, we generated revenues of
$1,364,000 and $790,000 through our business segments
(Odor-No-More and BLEST – see Note 10, “Business Segment
Information”). Neither generated enough revenues to fund their
operations. We have $2,119,000 in debt obligations due in the next
12 months (see Notes 4 and 12): (i) $1,724,000in notes that are
convertible at the option of the holder, (ii) a $145,000 note due
September 6, 2019, and (iii) a line of credit in the amount of
$250,000 due on 30-day demand beginning September 1, 2019. We
intend to either refinance or renegotiate these obligations, as our
cash position is insufficient to maintain our current level of
operations and pay these liabilities. Thus, we will be required to
raise additional capital. We continue to raise money through
private securities offerings, and continue to negotiate for more
substantial financings from private and institutional investors.
During the six months ended June 30, 2019, we received $1,924,000
net cash provided by financing activities, and at June 30, 2019 had
cash of $706,000. Subsequent to June 30, 2019, we received
$2,360,000 from new financing activities. No assurance can be made
of our success at raising money through private or public
offerings.
Clyra Medical is unique in that it funds its operations through
third party investments, as it has done since 2016. We do not
currently intend and are under no obligation to subsidize its
operations in the future.
Results of Operations—Comparison of the years ended December 31,
2017 and 2018
We operate our business in distinct business segments:
| |
●
|
Odor-No-More, which manufactures and sells our odor and VOC control
products and services, including our flagship product, CupriDyne
Clean;
|
| |
●
|
BLEST, our professional engineering services division supporting
our internal business units and serving outside clients on a fee
for service basis;
|
| |
●
|
BioLargo Water, our Canadian division that has been historically
pure research and development, and is now transitioning to focus on
commercializing our AOS system;
|
| |
●
|
Clyra Medical, our partially owned subsidiary focused on the
Advanced Wound Care industry; and
|
| |
●
|
Our corporate operations, which support the operating segments with
legal, accounting, human resources, and other services.
|
We invest cash into each of these segments on a regular basis, as
none of the segments yet generates enough cash to fund their
operations. However, both Odor-No-More and BLEST are trending
towards cash-flow positive, and we expect each of those two
segments to begin to generate positive cash for BioLargo in
2019.
Annual revenue for the year ended December 31, 2018 was $1,364,000,
more than double the revenue of $516,000 in 2017. We generated
revenue from two of our operating divisions – Odor-No-More and
BLEST. Our business segments obtain cash to support operations in
different ways. Odor-No-More and BLEST generate revenues from third
parties, and receive funding as needed from their parent
corporation, BioLargo. Our Canadian team, BioLargo Water, receives
funds from government research grants (reported on our financial
statements as “Other income – Grant income”), and receives funding
as needed from BioLargo. Clyra Medical, however, relies direct
investment from third parties for 100% of its operating costs and
is not supported with capital from BioLargo’s corporate budget or
fundraising.
Odor-No-More
Our wholly owned subsidiary Odor-No-More generates revenues through
sales of our flagship product CupriDyne Clean, by providing design,
installation, and maintenance services on the systems that deliver
CupriDyne Clean at its clients’ facilities, and through sales of
odor absorption products to the U.S. Government. Although
Odor-No-More did not generate a net profit in 2018, its revenues
continued to increase throughout the year, and in the fourth
quarter of 2018 its net loss was only $68,000 (for the year, its
net loss was $433,000).
Revenue (Odor-No-More)
Odor-No-More’s revenues more than doubled in 2018, to $1,123,000,
comprised of $1,016,000 in product sales, and $107,000 in design,
installation and maintenance services (including related parts). Of
product sales, approximately 50% was generated from sales of
CupriDyne Clean products, and approximately one-third from sales to
the U.S. military.
Sales of our CupriDyne Clean products increased 68% from the prior
year, due to the acquisition of more clients and client locations,
and the sale and delivery of more products than in years past. Of
our CupriDyne Clean sales, approximately two-thirds were made
pursuant to “national purchasing agreements” (“NPA”) with the four
largest waste handling companies in the United States. We expect
our sales to NPA clients to continue to increase in 2019 as we
expect to continue to add new service locations for those
customers. And, for one such company, we have only recently become
fully authorized in their corporate system, opening up potential
sales to their more than 1,000 U.S. locations.
Sales to the U.S. military are primarily our Specimen Transport
Solidifier pouches, and are made to the U.S. Defense Logistics
Agency through our distributor Downeast Logistics. These sales
increased by almost three-fold in 2018 as compared with 2017. The
vast majority of these sales are made through a bid process in
response to a request for bids to which any qualified government
vendor can respond, and our increased revenue in 2018 is due to an
increased volume of sales from the bidding process. We cannot know
in advance the frequency or size of such requests from the US
Government, or whether our bids will be successful, and as such we
are uncertain as to our future revenues through this system.
Cost of Goods Sold (Odor-No-More)
Odor-No-More’s cost of goods sold includes costs of raw materials,
contract manufacturing, and portions of salaries and expenses
related to the manufacturing of our products. As a percentage of
gross sales, Odor-No-More’s costs of goods was 51% in 2018 versus
64% in 2017. In mid-2018, because of higher volumes, Odor-No-More
was able to decrease its costs by purchasing raw materials directly
from manufacturers at more favorable prices, resulting in the
year-to-year cost of goods decrease.
Selling, General and Administrative Expense
(Odor-No-More)
Odor-No-More’s Selling, General and Administrative (“SG&A”)
expenses include both cash and non-cash expense related to its
operations. Odor-No-More’s SG&A expenses increased to $969,000
in 2018, as compared with $661,000 in 2017, an increase of 47%.
These expenses have increased alongside Odor-No-More’s efforts to
increase revenues by hiring additional sales and support staff. We
expect its SG&A expenses to increase in 2019 as it continues to
add sales and support personnel as its number of customers and
revenues increase.
Net Loss (Odor-No-More)
Odor-No-More generated $1,123,000 in revenue, a gross margin of
$552,000, and had total costs and expenses of $985,000, resulting
in a net loss of $433,000. Odor-No-More is trending toward
profitability. Its gross margin from product sales has increased
significantly since 2017, and its loss from operations is trending
downward:
We believe these trends will continue. The loss from operations is
trending downward for two reasons. First, Odor-No-More was able to
reduce its product costs as a result of its increased volume
(purchasing power). Second, increased sales resulted in increased
gross margin contributing to the company’s operational costs.
Because the subsidiary had a net loss, we invested cash into it
during the year to allow it to fund its operations. However, this
need for cash decreased as 2018 progressed, and in the fourth
quarter of 2018, it needed only $51,000 cash (as compared with over
$400,000 for the year). We expect that Odor-No-More’s sales will
continue to increase, and thus its gross margin will continue to
increase. By the end of 2019, we expect that Odor-No-More will no
longer require a cash subsidy to operate, but will be contributing
cash to our corporate operations.
BLEST (engineering division)
Revenue (BLEST)
Our engineering segment (BLEST) generated $241,000 of revenues from
third party clients in its first full year of operation, versus
only $12,000 in revenue in its first three months of operation in
2017. BLEST’s revenues increased in the latter part of the year,
with approximately one-half of its revenues generated during the
fourth quarter 2018. Its revenues do not include over $600,000 of
work performed on internal BioLargo projects, such as its further
engineering and development of the AOS water filtration system. Our
engineers are performing a critical role in the AOS pilot projects,
some of which are supported by third-party research grants and has
been instrumental in developing and supporting a professional
engineered design service for misting systems being sold by our
Odor-No-More operating unit.
Cost of Goods (Services) Sold (BLEST)
BLEST’s cost of services includes employee labor as well as
subcontracted labor costs. In 2018, its cost of services were 71%
of its revenues, versus 66% in 2017. We expect the cost of services
to remain stable in 2019.
Selling, General and Administrative Expense
(BLEST)
BLEST’S SG&A expenses include both cash and non-cash expense
related to its operations, although because it primarily delivers
services to its clients, most of its labor costs are included in
its cost of services (for third party clients), and research and
development for its work on BioLargo technologies. Because BLEST
began operations in the fourth quarter of 2017, and thus its
SG&A expenses of $409,000 in 2018 does not have a comparable
period in 2017. We expect these expenses to increase only slightly
in 2019, as the staff required to increase service to its clients
and revenues will be included in cost of services.
Net Loss (BLEST)
BLEST generated $241,000 in revenue, a gross margin of $69,000, and
had total costs and expenses of $991,000, resulting in a net loss
of $750,000.
While we are unable to record revenues generated from intracompany
services by the engineering group to other operating divisions, it
is important to note that the net loss would be eliminated if BLEST
were an outside contract for hire services company selling services
to our water company or our industrial odor and VOC control
operating unit.
Because the subsidiary had a net loss, we invested cash during the
year to allow it to maintain operations. BLEST’s need for a cash
subsidy to support its operations decreased considerably towards
the end of calendar year 2018. We expect this trend to continue,
and expect that in 2019 its sales will continue to increase, and
thus its gross profit will continue to increase. By the end of
2019, we expect that it will no longer require a cash subsidy to
operate, but will be contributing cash to our corporate
operations.
Other Income
Our wholly owned Canadian subsidiary has been awarded more than 65
research grants over the years from various Canadian public and
private agencies, including the Canadian National Research
Institute – Industrial Research Assistance Program (NRC-IRAP), the
National Science and Engineering Research Council of Canada
(NSERC), and the Metropolitan Water District of Southern
California’s Innovative Conservation Program “ICP”. The research
grants received are considered reimbursement grants related to
costs we incur and therefore are included as Other Income. The
amount of grant income remained consistent between 2017 and 2018.
We continued to win grants and it is important to note that amounts
paid directly to third parties are not included as income in our
financial statements.
Our Canadian subsidiary applied for and received a refund on our
income taxes pursuant to the “Scientific Research and Experimental
Development (SR&ED) Program”, a Canadian federal tax incentive
program designed to encourage Canadian businesses to conduct
research and development in Canada. For the year ended December 31,
2017 and 2018, we received $71,000 and $73,000.
Although we are continuing to apply for government and industry
grants, and indications from the various grant agencies is highly
encouraging, we cannot be certain of continuing those successes in
the future.
Selling, General and Administrative Expense – company
wide
Our SG&A expenses include both cash expenses (for example,
salaries to employees) and non-cash expenses (for example, stock
option compensation expense). Our SG&A expenses increased by
19% ($834,000) in 2018 to $5,264,000.4 Our non-cash
expenses (through the issuance of stock and stock options)
increased in 2018 compared with 2017 ($2,242,000 compared to
$1,564,000) because our employees, vendors and consultants chose to
receive a greater number of stock and stock options in lieu of cash
owed. The largest components of our SG&A expenses included (in
thousands):
|
|
|
Year ended
December 31, 2017
|
|
|
Year ended
December 31, 2018
|
|
|
Salaries and payroll related
|
|
$ |
1,610 |
|
|
$ |
1,973 |
|
|
Professional fees
|
|
|
651 |
|
|
|
800 |
|
|
Consulting
|
|
|
810 |
|
|
|
839 |
|
|
Office expense
|
|
|
627 |
|
|
|
987 |
|
|
Board of director expense
|
|
|
306 |
|
|
|
280 |
|
|
Sales and marketing
|
|
|
224 |
|
|
|
246 |
|
|
Investor relations
|
|
|
201 |
|
|
|
139 |
|
Our salaries and payroll-related and office-related expenses
increased in 2018 due to the addition of our engineering subsidiary
for the full year of 2018 compared to only three months of 2017.
Our professional fees increased in 2018 due to increased needs for
legal and accounting as a result of the registration statements
filed during 2018, the special stockholder meeting held in
September 2018 and other work related to our efforts to list our
common stock on a national exchange, and the purchase of the
intellectual property of Scion Solutions (see Part I, Item I,
“Advanced Wound Care – Clyra Medical,” above). Office expense
increased due to the addition our engineering segment in Tennessee.
Our investor relations fees decreased in 2018 compared with 2017
due to a reduction in the use of outside investor relation firms
during that period. The Company has maintained investor relations
support with internal personnel.
4 This includes all of our operational segments
(including Odor-No-More and BLEST discussed above).
Research and Development
In the year ended December 31, 2018, we spent approximately
$1,700,000 in the research and development of our technologies and
products. This was a slight increase of 5% ($86,000) over 2017.
This number does not include over $300,000 in internal billings
from our engineering division’s work on the AOS system.
As we transition our Canadian operations from pure research and
development towards a focus on commercializing the AOS system, we
expect their contribution to our total research and development
expenses to decrease in 2019. We expect this to be offset by
increased research and development at Clyra Medical, which we
expect to be funded entirely from its own resources.
Interest expense
Our interest expense for the year ended December 31, 2018 was
$3,494,000, a decrease of $366,000 compared with 2017, and of which
$54,000 was paid in cash, and the remainder, $3,440,000, is
non-cash expense. Our non-cash interest related expenses were
comprised primarily as follows: (i) $2,766,000 as one-time,
non-cash debt discounts related to warrants issued in conjunction
with debt instruments being amortized over the life of the debt
instrument (in 2017, it was $3,058,000), and (ii) $524,000 related
to interest paid in stock on debt instruments. While we cannot
predict our interest expense in 2019, our outstanding debt as of
December 31, 2018 was substantially less than as of December 31,
2019, and thus we expect our interest expense in 2019 to
decline.
We record the relative fair value of the warrants and the intrinsic
value of the beneficial conversion feature sold with the
convertible notes payable which typically results in a full
discount on the proceeds from the convertible notes. This discount
is being amortized as interest expense over the term of the
convertible notes. We expect our interest expense to decrease in
2019 because the total amount we amortize (the line item on our
balance sheet “Discount on convertible notes payable and line of
credit, net of amortization”) decreased by $1,784,000 in 2018 –
from $2,107,000 at December 31, 2017, to $323,000 at December 31,
2018. However, any decrease would be offset if we issue new debt
instruments in 2019 that are combined with warrants, or if we issue
new warrants as consideration to extend maturity dates on existing
debt instruments.
Net Loss
Net loss for the year ended December 31, 2018 was $10,696,000 a
loss of $0.09 per share, compared to a net loss for the year ended
December 31, 2017 of $9,547,000 a loss of $0.10 per share. Our net
loss this year was somewhat offset by an increase in revenue;
nevertheless, the net loss increased mainly due to the increase in
financing costs, non-cash interest expense to obtain capital, and
increased payroll and related office expenses which are primarily
associated with the start-up expenses related to our engineering
operating unit. The decrease in net loss per share for the year
ended December 31, 2018 is primarily attributable to the increase
in the number of shares outstanding from 2017 to 2018.
The net loss per business segment is as follows (in thousands):
|
Net loss
|
|
Year ended
December 31, 2017
|
|
Year ended
December 31, 2018
|
|
Odor-No-More
|
|
$ |
(500) |
|
$ |
(433) |
|
BLEST
|
|
|
(90) |
|
|
(750) |
|
Clyra Medical
|
|
|
(915) |
|
|
(883) |
|
BioLargo Water
|
|
|
(741) |
|
|
(571) |
|
Corporate
|
|
|
(7,301) |
|
|
(8,059) |
|
Consolidated net loss
|
|
$ |
(9,547) |
|
$ |
(10,696) |
It is important to note that of the corporate net loss of
$8,059,000, interest expense was $3,494,000, of which $3,440,000
was a non-cash expense. R & D was $1,700,000 primarily
attributed to the accelerated development of the AOS technology.
These two items alone account for $5.2 million in losses of the
consolidated loss of $10,696,000 in total losses. With expanding
sales, we believe that Odor-No-More and BLEST (engineering) can
achieve positive cash flow from operations. However, with the
continued development costs associated with Clyra Medical (even
though it is financed directly through the sale of stock in Clyra),
and with the addition of any ongoing development costs associated
with BioLargo Water to be incurred through pre-commercial piloting,
we expect to continue to incur a net loss for the foreseeable
future.
We have made considerable investments in our water and medical
technologies as well as supporting the start-up expenses for our
engineering team. We believe those investment will pay off as we
now are narrowly focused on commercial sales.
Liquidity and Capital Resources
The accompanying consolidated financial statements have been
prepared on a going concern basis, which contemplates the
realization of assets and the settlement of liabilities and
commitments in the normal course of our business. For the year
ended December 31, 2018, we had a net loss of $10,696,000, used
$3,891,000 cash in operations, and at December 31, 2018, we had a
working capital deficit of $1,536,000, and current assets of
$955,000. At December 31, 2018, we had convertible debt,
promissory notes, and line of credit obligations outstanding with
an aggregate principal balance of $3,487,000, an accumulated
deficit of $111,723,000, and net stockholders’ deficit of
$1,496,000. We do not believe gross profits will be sufficient to
fund our current level of operations or pay our debt due prior to
December 31, 2019, and thus we believe we will have to raise
additional investment capital to both fund our operations and
refinance our existing debt.
We operate our business in five distinct business segments. Each of
these segments obtains cash to fund operations in unique ways.
Odor-No-More and BLEST generate cash by selling products and
services. Clyra Medical obtains cash from third party investments
of sales of its common stock. BioLargo Water generates cash through
government research grants and tax credits. Our corporate
operations generate cash through private offerings of stock, debt
instruments, and warrants. In 2018, cash was generated as follows
(in thousands):
|
|
|
2017 (year)
|
|
|
2018 (Year)
|
|
|
SOURCES OF INCOME AND CASH
|
|
|
|
|
|
|
|
|
|
Revenue from operations
|
|
$ |
516 |
|
|
$ |
1,364 |
|
|
Grant income
|
|
|
140 |
|
|
|
158 |
|
|
Tax credit income
|
|
|
71 |
|
|
|
73 |
|
|
Cash investments (to BioLargo)
|
|
|
3,373 |
|
|
|
2,637 |
|
|
Cash investments (to Clyra)
|
|
|
750 |
|
|
|
1,005 |
|
|
Total:
|
|
$ |
4,850 |
|
|
$ |
5,237 |
|
Only two segments (Odor-No-More and BLEST) generated revenues in
the year ended December 31, 2018. As such, we provided a cash
subsidy to each business segment to allow it to fund its
operations. For our two revenue generating divisions, cash needs
have decreased as their revenues have increased. In the fourth
quarter of 2018, Odor-No-More’s gross margin and cash receipts from
clients were such that it needed only $51,000 extra cash from
corporate to meet its operational expenses. BLEST similarly
increased its revenues such that it needed little cash from
corporate during the fourth quarter to maintain it operations. We
expect these trends to continue, and expect that at some point in
the calendar year 2019 both Odor-No-More and BLEST will be
generating profits and contributing cash to corporate
operations.
In the first quarter of 2019, we shifted focus at our Canadian
subsidiary (BioLargo Water) from pure research and development to
commercializing the AOS system. In doing so, we reduced our
research staff and thus reduced its monthly cash needs by
$15,000.
Clyra Medical is unique in that it funds its operations through
third party investments. We do not intend to subsidize its
operations in the future.
We used almost four million dollars cash in our total operations in
2018. At December 31, 2018, we had current assets of just less than
one million dollars. Thus, to maintain the same level of operations
in 2019, and notwithstanding the increasing revenues at
Odor-No-More and BLEST, we expect to continue to need to raise
investment capital. In 2018, we conducted private securities
offerings and received $3,642,000 net proceeds. Since first
acquiring the BioLargo technology in the spring of 2007, we have
received investment capital of approximately $22,000,000 which we
have invested in development and commercialization efforts. We
intend to continue to raise money through private securities
offerings for the foreseeable future. Although we engaged an
investment banking firm and filed a registration statement to raise
$7,500,000 in conjunction with an application for listing our
common stock on the Nasdaq Capital Markets, no assurance can be
made that we will move forward in the near future with that
offering or our listing application. We may reconsider and
postpone these efforts as management believes our current market
capitalization does not reflect the true value of the Company or
recognize the significant business opportunities that lie ahead.
Our board intends to evaluate these and other factors, including
the anticipated dilution to our stockholders of an offering of the
size required to meet the initial and continued listing
requirements. No assurance can be made of our success at raising
money through private or public offerings, or of our intended
listing on a national exchange.
Critical Accounting Policies
Our discussion and analysis of our results of operations and
liquidity and capital resources are based on our consolidated
financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States. The
preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and disclosure of contingent
assets and liabilities. On an ongoing basis, we evaluate our
estimates and judgments, including those related to revenue
recognition, valuation of offerings of debt with equity or
derivative features which include the valuation of the warrant
component, any beneficial conversion feature and potential
derivative treatment, and share-based payments. We base our
estimates on anticipated results and trends and on various other
assumptions that we believe are reasonable under the circumstances,
including assumptions as to future events. These estimates form the
basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. By
their nature, estimates are subject to an inherent degree of
uncertainty. Actual results that differ from our estimates could
have a significant adverse effect on our operating results and
financial position. We believe that the following significant
accounting policies and assumptions may involve a higher degree of
judgment and complexity than others.
The methods, estimates and judgments the Company uses in applying
these most critical accounting policies have a significant impact
on the results of the Company reports in its financial
statements.
Revenue Recognition
We adopted ASU 2014-09, “Revenue from Contracts with Customers”,
Topic 606, on January 1, 2018. The guidance focuses on the core
principle for revenue recognition.
The core principle of the guidance is that an entity should
recognize revenue to depict the transfer of promised goods or
services to customers in an amount that reflects the consideration
to which the entity expects to be entitled in exchange for those
goods or services. To achieve that core principle, an entity should
apply the following steps:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance
obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a
performance obligation.
We have revenue from two subsidiaries, Odor-No-More and BLEST.
Odor-No-More identifies its contract with the customer through a
written purchase order , in which the details of the contract are
defined including the transaction price and method of shipment. The
only performance obligation is to create and ship the product and
each product has separate pricing. Odor-No-More recognizes revenue
at a point in time when the order for its goods are shipped if its
agreement with the customer is FOB Odor-No-More’s warehouse
facility, and when goods are delivered to its customer if its
agreement with the customer is FOB destination. Revenue is
recognized with a reduction for sales discounts, as appropriate and
negotiated in the customer’s purchase order.
BLEST identifies services to be performed in a written contract,
which specifies the performance obligations and the rate at which
the services will be billed. Each service is separately negotiated
and priced. Revenue is recognized as services are performed and
completed. BLEST’s contracts typically call for invoicing for time
and materials incurred for that contract. To date, there have been
no discounts or other financing terms for the contracts.
In the future, we may generate revenues from royalties or license
fees from our intellectual property. In the event we do so, we
anticipate a licensee would pay a license fee in one or more
installments and ongoing royalties based on their sales of products
incorporating or using our licensed intellectual property. Upon
entering into a licensing agreement, we will determine the
appropriate method of recognizing the royalty and license fees.
Warrants and Conversion Features
Warrants issued with our convertible and non-convertible debt
instruments are accounted for under the fair value and relative
fair value method.
The warrant is first analyzed per its terms as to whether it has
derivative features or not. If the warrant is determined to be a
derivative and not qualify for equity treatment, then it is
measured at fair value using the Black Scholes option model, and
recorded as a liability on the balance sheet. The warrant is
re-measured at its then current fair value at each subsequent
reporting date (it is “marked-to-market”).
If the warrant is determined to not have derivative features, it is
recorded into equity at its fair value using the Black Scholes
option model, however, limited to a relative fair value based upon
the percentage of its fair value to the total fair value including
the fair value of the convertible note.
Convertible debt instruments are recorded at fair value, limited to
a relative fair value based upon the percentage of its fair value
to the total fair value including the fair value of the warrant.
Further, the convertible debt instrument is examined for any
intrinsic beneficial conversion feature (“BCF”) of which the
conversion price is less than the closing common stock price on
date of issuance. If the relative fair value method is used to
value the convertible debt instrument and there is an intrinsic
BCF, a further analysis is undertaken of the BCF using an effective
conversion price which assumes the conversion price is the relative
fair value divided by the number of shares the convertible debt is
converted into by its terms. The BCF value is accounted for as
equity.
The warrant and BCF relative fair values are also recorded as a
discount to the convertible promissory notes. As present, these
equity features of the convertible promissory notes have recorded a
discount to the convertible notes that is substantially equal to
the proceeds received.
Share-based Payments
It is the Company’s policy to expense share-based payments as of
the date of grant or over the term of the vesting period in
accordance with Auditing Standards Codification Topic 718
“Share-Based Payment.” Application of this pronouncement
requires significant judgment regarding the assumptions used in the
selected option pricing model, including stock price volatility and
employee exercise behavior. Most of these inputs are either highly
dependent on the current economic environment at the date of grant
or forward-looking expectations projected over the expected term of
the award.
Fair Value Measurement
Generally accepted accounting principles establishes a hierarchy to
prioritize the inputs of valuation techniques used to measure fair
value. The hierarchy gives the highest ranking to the fair values
determined by using unadjusted quoted prices in active markets for
identical assets (Level 1) and the lowest ranking to fair values
determined using methodologies and models with unobservable inputs
(Level 3). Observable inputs are those that market participants
would use in pricing the assets based on market data obtained from
sources independent of the Company. Unobservable inputs reflect the
Company’s assumptions about inputs market participants would use in
pricing the asset or liability developed based on the best
information available in the circumstances. The Company has
determined the appropriate level of the hierarchy and applied it to
its financial assets and liabilities.
Management believes the carrying amounts of the Company’s financial
instruments as of December 31, 2018 and June 30, 2019 approximate
their respective fair values because of the short-term nature of
these instruments. Such instruments consist of cash, accounts
receivable, prepaid assets, accounts payable, convertible notes,
and other assets and liabilities.
Recent Accounting Pronouncements
See Note 2 to the Consolidated Financial Statements, “Summary of
Significant Accounting Policies – Recent Accounting
Pronouncements”, for the applicable accounting pronouncements
affecting the Company.
MANAGEMENT
Executive Officers and Directors
The following table sets forth information about our executive
officers and directors as of the date of this prospectus:
|
Name
|
|
Age
|
|
Position
|
| |
Dennis P. Calvert
|
|
56
|
|
President, CEO, Chairman, Director
|
| |
Charles K. Dargan II
|
|
64
|
|
CFO
|
| |
Kenneth R. Code
|
|
72
|
|
Chief Science Officer, Director
|
| |
Joseph L. Provenzano
|
|
50
|
|
Vice President of Operations, Corporate Secretary, Director
|
|
|
Dennis E. Marshall(2)(3)(5)
|
|
76
|
|
Director
|
|
|
Kent C. Roberts III(3)(5)
|
|
59
|
|
Director
|
| |
John S.
Runyan(1)(4)(6)
|
|
80
|
|
Director
|
| |
Jack B. Strommen
|
|
49
|
|
Director
|
______________
|
(1)
|
Member of Audit Committee
|
|
(2)
|
Member of Compensation Committee
|
|
(3)
|
Chairman of Audit Committee
|
|
(4)
|
Chairman of Compensation Committee
|
|
(5)
|
Member of Nominating Committee
|
|
(6)
|
Chairman of Nominating Committee
|
Dennis P. Calvert is our President, Chief Executive
Officer and Chairman of the Board. He also serves in the same
positions for BioLargo Life Technologies, Inc. and BioLargo Water
U.S.A., Inc., both wholly owned subsidiaries, and chairman of the
board of directors of our subsidiaries Odor-No-More, Inc., Clyra
Medical Technologies, Inc. and BioLargo Water, Inc. (Canada). Mr.
Calvert was appointed a director in June 2002 and has served as
President and Chief Executive Officer since June 2002, Corporate
Secretary from September 2002 until March 2003 and Chief Financial
Officer from March 2003 through January 2008. Mr. Calvert holds a
B.A. degree in Economics from Wake Forest University, where he was
a varsity basketball player. Mr. Calvert also studied at Columbia
University and Harding University. He also serves on the board of
directors at The Maximum Impact Foundation, a 501(c)(3), committed
to bridging the gap for lifesaving work around the globe for the
good of man and in the name of Christ. He serves as a Director of
Sustain SoCal (formerly known as Sustain OC) in and serves on their
“Technology Breakthrough” committee. Sustain SoCal is a trade
association that seeks to promote economic growth in the Orange
County clean technology industry. Most recently, he joined the
Board of Directors at The Maritime Alliance of San Diego and also
serves on the Board of Directors of Tilly’s Life Center, a
nonprofit charitable foundation aimed at empowering teens with
a positive mindset and enabling them to effectively cope with
crisis, adversity and tough decisions. He is also an Eagle
Scout. He is married and has two children. He has been an active
coach in youth sports organizations and ministry activity in his
home community. Mr. Calvert has an extensive entrepreneurial
background as an operator, investor and consultant. Prior to his
work with BioLargo, he had participated in more than 300 consulting
projects and more than 50 acquisitions as well as various financing
transactions and companies that ranged from industrial chemicals,
healthcare management, finance, telecommunications and consumer
products.
Charles K. Dargan II is our Chief Financial Officer and has
served as such since February 2008. Since January 2003, Mr. Dargan
has served as founder and principal of CFO 911, an organization of
senior executives that provides accounting, finance and operational
expertise to both public and private companies who are at strategic
inflection points of their development and helps them effectively
transition from one business stage to another. From March 2000 to
January 2003, Mr. Dargan was the Chief Financial Officer of Semotus
Solutions, Inc., an American Stock Exchange-listed wireless
mobility software company. Mr. Dargan also serves as a director of
Hiplink Software, Inc. and CPSM, Inc. Further, Mr. Dargan began his
finance career in investment banking with Drexel Burnham Lambert
and later became Managing Director of two regional firms, including
Houlihan Lokey Howard & Zukin, where he was responsible for the
management of the private placement activities of the firm. Mr.
Dargan received his B.A. degree in Government from Dartmouth
College, and his M.B.A. degree and M.S.B.A. degree in Finance from
the University of Southern California. Mr. Dargan is a CPA
(inactive).
Kenneth R. Code is our Chief Science Officer. He has been a
director since April 2007. Mr. Code is our single largest
stockholder. He is the founder of IOWC, which is engaged in the
research and development of advanced disinfection technology, and
from which our company acquired its core iodine technology in April
2007. Mr. Code has authored several publications and holds several
patents, with additional patents pending, concerning advanced
iodine disinfection. Mr. Code graduated from the University of
Calgary, Alberta, Canada.
Joseph L. Provenzano is our Vice President of Operations,
Corporate Secretary. He has been a director since June 2002,
assumed the role of Corporate Secretary in March 2003, was
appointed Executive Vice President of Operations in January 2008
and was elected President of our subsidiary, Odor-No-More, Inc.,
upon the commencement of its operations in January 2010. He is a
co-inventor on several of our company’s patents and proprietary
manufacturing processes, and he has developed over 30 products from
our CupriDyne® technology. Mr. Provenzano began his corporate
career in 1988 in the marketing field. In 2001 he began work with
an investment holding company to manage their mergers and
acquisitions department, participating in more than 50 corporate
mergers and acquisitions.
Dennis E. Marshall has been a director since April 2006. Mr.
Marshall has over 46 years of experience in real estate, asset
management, management level finance and operations-oriented
management. Since 1981, Mr. Marshall has been a real estate
investment broker in Orange County, California, representing buyers
and sellers in investment acquisitions and dispositions. From March
1977 to January 1981, Mr. Marshall was a real estate syndicator at
McCombs Corporation as well as the assistant to the Chairman of the
Board. While at McCombs Corporation, Mr. Marshall became the Vice
President of Finance, where he financially monitored numerous
public real estate syndications. From June 1973 to September 1976,
Mr. Marshall served as an equity controller for the Don Koll
Company, an investment builder and general contractor firm, at
which Mr. Marshall worked closely with institutional equity
partners and lenders. Before he began his career in real estate,
Mr. Marshall worked at Arthur Young & Co. (now Ernst &
Young) from June 1969 to June 1973, where he served as Supervising
Senior Auditor and was responsible for numerous independent audits
of publicly held corporations. During this period, he obtained
Certified Public Accountant certification. Mr. Marshall earned a
degree in Accounting from the University of Texas, Austin in 1966
and earned a Master of Science Business Administration from the
University of California, Los Angeles in 1969. Mr. Marshall serves
as Chairman of the Audit Committee.
Kent C. Roberts III has been a director since August 2011.
Mr. Roberts is an analyst and portfolio manager for Vulcan Capital
is Seattle Washington. He joined Vulcan Capital in April 2017. Mr.
Roberts has had a long and successful career in the asset
management business as a north American practice leader or at the
senior partner level. His investment experience spans 25 years
where he served in senior positions in business management,
trading, currency risk management, business development and
marketing strategy, as well as governance and oversight roles. He
has worked for both large firms as well as boutiques that bring
unique investment expertise to investors around the world. Those
firms include: Global Evolution USA, First Quadrant and Bankers
Trust Company. He has presented at numerous industry conferences
and as a guest speaker at numerous industry conferences and events.
Before entering the financial services industry Mr. Roberts worked
in the oil and gas exploration industry. Mr. Roberts received a MBA
in Finance from the University of Notre Dame and a BS in
Agriculture and Watershed Hydrology from the University of Arizona.
Mr. Roberts holds a series 3 securities license.
John S. Runyan has been a director since October 2011. He
has spent his career in the food industry. He began as a stock
clerk at age 12, and ultimately served the Fleming Companies for 38
years, his last 10 years as a Senior Executive Officer in its
corporate headquarters where he was Group President of Price Impact
Retail Stores with annual sales of over $3 billion. He retired from
Fleming Companies in 2001, and then established JSR&R Company
Executive Advising, with a primary emphasis in the United States
and international food business. His clients have included Coca
Cola, Food 4 Less Price Impact Stores, IGA, Inc., Golden State
Foods, Bozzuto Companies Foodstuffs New Zealand, Metcash Australia
and McLane International. In 2005, he joined Associated Grocers in
Seattle, Washington as President and CEO, overseeing its purchase
in 2007 by Unified Grocers, at which time he became Executive
Advisor to its CEO and to its President. Mr. Runyan currently
serves on the board of directors of Western Association of Food
Chains and Retailer Owned Food Distributors of America.
Additionally, Mr. Runyan served eight years as a board member of
the City of Hope’s Northern California Food Industry Circle, which
included two terms as President, and was recognized with the City
of Hope “Spirit of Life” award. He was the first wholesale
executive to be voted “Man of the Year” by Food People Publication.
He is a graduate of Washburn University, which recognized his
business accomplishments in 2007 as the honoree from the School of
Business “Alumni Fellow Award.” Mr. Runyan serves as Chairman of
the Compensation and Nominating/Corporate Governance
Committees.
Jack B. Strommen has been a director since June 2017,
and also is a member of the board of directors of our subsidiary,
Clyra Medical Technologies, as the representative of Sanatio
Capital LLC. Mr. Strommen is the CEO of PD Instore, a leader in the
design, production and installation of retail environments and
displays for many Fortune 500 companies including Target, Adidas,
Verizon, Disney and Sony. He also is the Chairman of Our House
Films, an angel investor in several private companies ranging from
bio-tech to med-tech to real estate, and serves on the board of
directors of several private and public companies. A relentless
force of growth, Mr. Strommen has taken his company, PD Instore, to
new and ever increasing levels of success. Mr. Strommen purchased
the family owned, local based printing firm, from his grandfather
in 1999. With his vision and leadership, it went from a local
company with $25M in revenues to a global company with $180M in
global sales. Mr. Strommen led the company in a private sale in
2015, remaining as CEO.
CORPORATE
GOVERNANCE
Our corporate website, www.biolargo.com, contains the
charters for our Audit and Compensation Committees and certain
other corporate governance documents and policies, including our
Code of Ethics. Any changes to these documents and any waivers
granted with respect to our Code of Ethics will be posted
at www.biolargo.com. In addition, we will provide a
copy of any of these documents without charge to any stockholder
upon written request made to Corporate Secretary, BioLargo, Inc.,
14921 Chestnut St., Westminster, California 92683. The
information at www.biolargo.com is
not, and shall not be deemed to be, a part of this prospectus.
Director Independence
Our board of directors has determined that each of Messrs.
Marshall, Roberts, Strommen and Runyan is independent as defined
under applicable Nasdaq Stock Market, LLC (“Nasdaq”) listing
standards. Our board of directors has determined that neither Mr.
Calvert, Mr. Provenzano, nor Mr. Code is independent as defined
under applicable Nasdaq listing standards. Neither Mr. Calvert, Mr.
Provenzano, nor Mr. Code serve on any committee of our board of
directors.
Meetings of our Board of Directors
Our board of directors held five meetings during 2017, and acted
via unanimous written consent four times. Each of the incumbent
directors attended all the meetings of our board of directors and
committees on which the director served, except for two absences at
the annual board meeting in June 2017, and one absence at a meeting
in August 2017. Each of our directors is encouraged to attend our
Annual Meeting of Stockholders, when these are held, and to be
available to answer any questions posed by stockholders to such
director.
Communications with our Board of Directors
The following procedures have been established by our board of
directors to facilitate communications between our stockholders and
our board of directors:
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•
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Stockholders may send correspondence, which should indicate that
the sender is a Stockholder, to our board of directors or to any
individual director, by mail to Corporate Secretary, BioLargo,
Inc., 14921 Chestnut St., Westminster, California 92683.
|
| |
•
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Our Corporate Secretary will be responsible for the first review
and logging of this correspondence and will forward the
communication to the director or directors to whom it is addressed
unless it is a type of correspondence which our board of directors
has identified as correspondence which may be retained in our files
and not sent to directors. Our board of directors has authorized
the Corporate Secretary to retain and not send to directors
communications that: (a) are advertising or promotional in
nature (offering goods or services), (b) solely relate to
complaints by clients with respect to ordinary course of business
customer service and satisfaction issues or (c) clearly are
unrelated to our business, industry, management or Board or
committee matters. These types of communications will be logged and
filed but not circulated to directors. Except as set forth in the
preceding sentence, the Corporate Secretary will not screen
communications sent to directors.
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•
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The log of stockholder correspondence will be available to members
of our board of directors for inspection. At least once each year,
the Corporate Secretary will provide to our board of directors a
summary of the communications received from stockholders, including
the communications not sent to directors in accordance with the
procedures set forth above.
|
Our stockholders also may communicate directly with the
non-management directors as a group, by mail addressed to Dennis E.
Marshall, c/o Corporate Secretary, BioLargo, Inc., 14921 Chestnut
St., Westminster, California 92683.
Our Audit Committee has established procedures for the receipt,
retention and treatment of complaints regarding questionable
accounting, internal controls and financial improprieties or
auditing matters. Any of our employees may confidentially
communicate concerns about any of these matters by mail addressed
to Audit Committee, c/o Corporate Secretary, BioLargo, Inc., 14921
Chestnut St., Westminster, California 92683.
All the reporting mechanisms also are posted on our corporate
website, www.biolargo.com. Upon receipt of a
complaint or concern, a determination will be made whether it
pertains to accounting, internal controls or auditing matters and,
if it does, it will be handled in accordance with the procedures
established by the Audit Committee.
Committees of our Board of Directors
Our board of directors has established an Audit Committee, a
Compensation Committee, and a Nominating and Corporate Governance
Committee.
The Audit Committee meets with management and our independent
registered public accounting firm to review the adequacy of
internal controls and other financial reporting matters. Dennis E.
Marshall served as Chairman of the Audit Committee during 2015 and
continues to serve in that capacity. John S. Runyan also serves on
the Audit Committee. Our board of directors has determined that
Mr. Marshall qualifies as an “audit committee financial
expert” as defined in Item 401(h) of Regulation S-K of the
Securities Exchange Act of 1934, as amended. The Audit Committee
met four times in 2018.
The Compensation Committee reviews the compensation for all our
officers and directors and affiliates. The Committee also
administers our equity incentive option plan. Mr. Runyan served as
Chairman of the Compensation Committee during 2018. Mr. Marshall
also serves on the Compensation Committee. The Compensation
Committee met once and acted by consent three times during
2018.
Our board of directors did not modify any action or recommendation
made by the Compensation Committee with respect to executive
compensation for the 2017 or 2018 fiscal years. It is the opinion
of the Compensation Committee that the executive compensation
policies and plans provide the necessary total remuneration program
to properly align their performance and the interests of our
stockholders using competitive and equitable executive compensation
in a balanced and reasonable manner, for both the short and long
term.
The Nominating and Corporate Governance Committee was established
in November 2018. Its responsibilities include to identify and
screen individuals qualified to become members of the Board, to
make recommendations to the Board regarding to the Board regarding
the selection and approval of the nominees for director to be
submitted to a stockholder vote at the annual meeting of
stockholders, subject to approval by the Board, to development
corporate governance guidelines and oversee corporate governance
practices, to develop a process for an annual evaluation of the
Board and its committees, to review all director compensation and
benefits, to review, approve and oversee and related party
transaction, to develop and recommend director independent
standards, and to develop and recommend a company code of conduct,
to investigate any alleged breach and enforce the provisions of the
code. This committee has not yet held any meetings or taken any
formal action.
Our board of directors follows a written code of ethics that
applies to its principal executive officers, principal financial
officer, principal accounting officer or controller, or persons
performing similar functions.
Leadership Structure of our Board of Directors
Mr. Calvert serves as both principal executive officer and Chairman
of the Board. Our company does not have a lead independent
director. Messrs. Marshall, Roberts, Strommen and Runyan serve as
independent directors who provide active and effective oversight of
our strategic decisions. As of the date of this prospectus, our
company has determined that the leadership structure of our board
of directors has permitted our board of directors to fulfill its
duties effectively and efficiently and is appropriate given the
size and scope of our company and its financial condition.
Our Board of Directors’ Role in Risk Oversight
As a smaller company, our executive management team, consisting of
Messrs. Calvert, Code and Provenzano, are also members of our board
of directors. Our board of directors, including our executive
management members and independent directors, is responsible for
overseeing our executive management team in the execution of its
responsibilities and for assessing our company’s approach to risk
management. Our board of directors exercises these responsibilities
on an ongoing basis as part of its meetings and through its
committees. Each member of the management team has direct access to
the other Board members, and our committees of our board of
directors, to ensure that all risk issues are frequently and openly
communicated. Our board of directors closely monitors the
information it receives from management and provides oversight and
guidance to our executive management team regarding the assessment
and management of risk. For example, our board of directors
regularly reviews our company’s critical strategic, operational,
legal and financial risks with management to set the tone and
direction for ensuring appropriate risk taking within the
business.
Family Relationships
There are no family relationships among the directors and executive
officers of our company.
EXECUTIVE
COMPENSATION
The following table sets forth all compensation earned for services
rendered to our company in all capacities for the fiscal years
ended December 31, 2017 and 2018, by our principal executive
officer and our three most highly compensated executive officers
other than our principal executive officer, collectively referred
to as the “Named Executive Officers.”
Summary Compensation Table
|
Name and
Principal
Positions
|
Year
|
|
Salary
|
|
|
Stock
Awards(1)
|
|
|
Option
Awards(1)
|
|
|
All other
Compensation
|
|
|
Total
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dennis P. Calvert,
|
2017
|
|
$ |
288,603 |
(2) |
|
$ |
— |
(3) |
|
$ |
195,894 |
(4) |
|
$ |
49,600 |
(5) |
|
$ |
534,097 |
|
|
Chairman, Chief Executive Officer and President
|
2018
|
|
$ |
288,603 |
(2) |
|
$ |
— |
(3) |
|
$ |
335,820 |
(4) |
|
$ |
31,325 |
(5) |
|
$ |
655,748 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kenneth R. Code,
|
2017
|
|
$ |
288,603 |
(6) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
72,600 |
(5) |
|
$ |
361,203 |
|
|
Chief Science Officer
|
2018
|
|
$ |
288,603 |
(6) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
12,600 |
(5) |
|
$ |
301,203 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles K. Dargan
|
2017
|
|
$ |
— |
|
|
|
|
|
|
$ |
236,250 |
(7) |
|
$ |
— |
|
|
$ |
236,250 |
|
|
Chief Financial Officer
|
2018
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
87,750 |
(7) |
|
$ |
— |
|
|
$ |
87,750 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph Provenzano,
|
2017
|
|
$ |
169,772 |
(8) |
|
$ |
— |
|
|
$ |
47,000 |
(9) |
|
$ |
12,900 |
(10) |
|
$ |
229,672 |
|
|
Corporate Secretary; President Odor-No-More, Inc
|
2018
|
|
$ |
169,772 |
(8) |
|
$ |
— |
|
|
$ |
37,600 |
(9) |
|
$ |
16,565 |
(5) |
|
$ |
224,937 |
|
________________
|
(1)
|
Our company recognizes compensation expense for stock option awards
on a straight-line basis over the applicable service period of the
award, which is the vesting period. Share-based compensation
expense is based on the grant date fair value estimated using the
Black-Scholes method. The amounts in the “Stock Awards” and “Option
Awards” columns reflect the aggregate fair value of awards of stock
or options calculated as of the grant date. These amounts do not
represent cash paid to or realized by any of the recipients during
the years indicated.
|
|
(2)
|
In 2017 and 2018 the employment agreement for Mr. Calvert provided
for a base salary of $288,603 and other compensation for health
insurance and an automobile allowance. During the year ended
December 31, 2017, Mr. Calvert agreed to forego $27,796 of cash
compensation due to him and accept 71,273 shares of our common
stock in lieu thereof, at $0.39 per share. During the year ended
December 31, 2018, Mr. Calvert agreed forego $151,149 of cash
compensation due to him and accept 534,619 shares of our common
stock in lieu thereof, at prices ranging between $0.24 - $0.43 per
share. The common stock issued to Mr. Calvert is subject to a “lock
up agreement” that prohibits Mr. Calvert from selling the shares
until the earlier of (i) the sale of the Company; (ii) the
successful commercialization of BioLargo’s products or technologies
as demonstrated by its receipt of at least $3,000,000 in cash, or
the recognition of $3,000,000 in revenue, over a 12-month period
from the sale of products and/or the license of technology; and
(iii) the Company’s breach of the employment agreement between the
Company and Calvert dated May 2, 2017 and resulting in Calvert’s
termination. (See “Employment Agreements—Dennis P. Calvert”
and “Outstanding Equity Awards at Fiscal Year-End” below for more
details).
|
|
(3)
|
On May 2, 2017, pursuant to his employment agreement, we granted to
our president, Dennis P. Calvert, 1,500,000 shares of common stock,
subject to a “lock-up agreement” whereby the shares remain unvested
until the occurrence of certain events. As no such events occurred
during 2017, and thus no shares vested, the value of the award in
2017 was recorded as zero. (See “Employment Agreements—Dennis P.
Calvert” and “Outstanding Equity Awards at Fiscal Year-End”
below for more details.)
|
|
(4)
|
On May 2, 2017, pursuant to his employment agreement, we granted to
our president, Dennis P. Calvert, an option to purchase 3,731,322
shares of the Company’s common stock. The option is a non-qualified
stock option, exercisable at $0.45 per share, the closing price of
our common stock on the grant date, exercisable for ten years from
the date of grant, and vesting in equal increments on the
anniversary of the option agreement for five years. Any portion of
the option which has not yet vested shall immediately vest in the
event of, and prior to, a change of control, as defined in the
employment agreement. The option cliff vests in 4 equal amounts on
each anniversary of the option agreement. The option agreement
contains the other terms standard in option agreements issued by
the Company, including provisions for a cashless exercise. The fair
value of this option totaled $1,679,095 and will be amortized
monthly through May 2, 2022. During the year ended December 31,
2017 and 2018, we recorded $195,894 and $335,820, respectively, of
selling, general and administrative expense related to the
option.
|
|
(5)
|
Includes health insurance premiums, automobile allowance, and
bonus.
|
|
(6)
|
In 2017 and 2018 the employment agreement for Mr. Code provided for
a base salary of $288,603 and other compensation of $12,600. During
the year ended December 31, 2017, Mr. Code agreed to forego $30,198
of cash compensation due to him and accept 77,432 shares of our
common stock in lieu thereof, at $0.39 per share. During the year
ended December 31, 2018, Mr. Calvert agreed forego $167,535 of cash
compensation due to him and accept 596,417 shares of our common
stock in lieu thereof, at prices ranging between $0.24 - $0.43 per
share. See “Employment Agreements—Kenneth R. Code” and “Outstanding
Equity Awards at Fiscal Year-End” below for more details.
|
|
(7)
|
Our Chief Financial Officer, Charles K. Dargan II, did not receive
any cash compensation during the years ended December 31, 2017 and
2018. His only compensation is the issuance, each year, of an
option to purchase 300,000 shares of our common stock, with 25,000
shares vesting each month. The value set forth in the table
reflects the fair value of the options issued that vested during
the 12 months of the years indicated. See “Employment
Agreements—Charles K. Dargan II” and “Outstanding Equity Awards at
Fiscal Year-End” below for more details.
|
|
(8)
|
In 2017 and 2018, the employment agreement for Mr. Provenzano
provided for a base salary of $169,772, and other compensation for
health insurance and automobile allowance. See “Employment
Agreements – Joseph Provenzano” and “Outstanding Equity Awards at
Fiscal Year-End” below for more details.
|
|
(9)
|
On October 23, 2017, we issued to Mr. Provenzano an option to
purchase 100,000 shares of our common stock at $0.47 per share,
which expires October 23, 2027, and vests monthly in 10,000 share
increments beginning November 23, 2017. The remaining fair value of
$37,600 vested during 2018.
|
|
(10)
|
Includes a $7,500 cash bonus and $5,400 in automobile expense.
|
Employment Agreements
Dennis P. Calvert
On May 2, 2017, we and our President and Chief Executive Officer
Dennis P. Calvert entered into an employment agreement (the
“Calvert Employment Agreement”), replacing in its entirety the
previous employment agreement with Mr. Calvert dated April 30,
2007.
The Calvert Employment Agreement provides that Mr. Calvert
will continue to serve as the President and Chief Executive Officer
of the Company and receive base compensation equal to his current
rate of pay of $288,603 annually. In addition to this base
compensation, the agreement provides that he is eligible to
participate in incentive plans, stock option plans, and similar
arrangements as determined by the Company’s Board of Directors,
health insurance premium payments for himself and his immediate
family, a car allowance of $800 per month, paid vacation of four
weeks per year, and bonuses in such amount as the Compensation
Committee may determine from time to time.
The Calvert Employment Agreement provides that Mr. Calvert
will be granted an option (the “Option”) to purchase 3,731,322
shares of the Company’s common stock. The Option shall be a
non-qualified stock option, exercisable at $0.45 per share, which
represents the market price of the Company’s common stock as of the
date of the agreement, exercisable for ten years from the date of
grant and vesting in equal increments over five years.
Notwithstanding the foregoing, any portion of the Option which has
not yet vested shall be immediately vested in the event of, and
prior to, a change of control, as defined in the Calvert Employment
Agreement. The agreement also provides for a grant of 1,500,000
shares of common stock, subject to the execution of a “lock-up
agreement” whereby the shares remain unvested unless and until the
earlier of (i) a sale of the Company, (ii) the successful
commercialization of the Company’s products or technologies as
demonstrated by its receipt of at least $3,000,000 in cash, or the
recognition of $3,000,000 in revenue, over a 12-month period from
the sale of products and/or the license of technology, and (iii)
the Company’s breach of the employment agreement resulting in his
termination. The Option contains the other terms standard in option
agreements issued by the Company, including provisions for a
cashless exercise.
The Calvert Employment Agreement has a term of five years, unless
earlier terminated in accordance with its terms. The Calvert
Employment Agreement provides that Mr. Calvert’s employment
may be terminated by the Company due to his death or disability,
for cause, or upon a merger, acquisition, bankruptcy or
dissolution of the Company. “Disability” as used in the Calvert
Employment Agreement means physical or mental incapacity or illness
rendering Mr. Calvert unable to perform his duties on a
long-term basis (i) as evidenced by his failure or inability
to perform his duties for a total of 120 days in any 360-day
period, or (ii) as determined by an independent and licensed
physician whom the Company selects, or (iii) as determined
without recourse by the Company’s disability insurance carrier.
“Cause” means that Mr. Calvert has (i) engaged in willful
misconduct in connection with the Company’s business; or (ii) been
convicted of, or plead guilty or nolo contendre in
connection with, fraud or any crime that constitutes a felony or
that involves moral turpitude or theft. If Mr. Calvert’s
employment is terminated due to merger or acquisition, then he will
be eligible to receive the greater of (i) one year’s
compensation plus an additional one half year for each year of
service since the effective date of the employment agreement or
(ii) one year’s compensation plus an additional one half year
for each year remaining in the term of the agreement. Otherwise, he
is only entitled to receive compensation due through the date of
termination.
The Calvert Employment Agreement requires Mr. Calvert to keep
certain information confidential, not to solicit customers or
employees of the Company or interfere with any business
relationship of the Company, and to assign all inventions made or
created during the term of the Calvert Employment Agreement as
“work made for hire”.
Kenneth R. Code
We entered into an employment agreement dated as of April 29, 2007
with Mr. Code, our Chief Science Officer (the “Code Employment
Agreement”), which we amended on December 28, 2012 such that his
salary will remain at $288,603, the level paid in April 2012, with
no further automatic increases. The Code Employment Agreement can
automatically renew for one year periods on April 29th of each
year but may be terminated “without cause” at any time upon 120
days’ notice, and upon such termination, Mr. Code would not receive
the severance originally provided for. All other terms in the 2007
agreement remain the same in the Code Employment Agreement.
In addition, Mr. Code will be eligible to participate in
incentive plans, stock option plans, and similar arrangements as
determined by our board of directors. When such benefits are made
available to our senior employees, Mr. Code is also eligible
to receive health insurance premium payments for himself and his
immediate family, a car allowance of $800 per month, paid vacation
of four weeks per year plus an additional two weeks per year for
each full year of service during the term of the agreement up to a
maximum of 10 weeks per year, life insurance equal to three times
his base salary and disability insurance.
The Code Employment Agreement further requires Mr. Code to
keep certain information confidential, not to solicit customers or
employees of our company or interfere with any business
relationship of our company, and to assign all inventions made or
created during the term of the Code Employment Agreement as “work
made for hire”.
Charles K. Dargan II
Charles K. Dargan, II has served as our Chief Financial Officer
since February 2008 pursuant to an engagement agreement with his
company, CFO 911, that has been renewed each year. For the renewal
effective February 1, 2015, Mr. Dargan was compensated through
the issuance of an option to purchase an additional 300,000 shares
of our common stock, at an exercise price of $0.57 per share, to
expire September 30, 2025, and vest over the term of the engagement
with 120,000 shares vested as of September 30, 2015, and the
remaining shares to vest 15,000 monthly, provided that the
Engagement Extension Agreement with Mr. Dargan has not been
terminated prior to each vesting date. Mr. Dargan receives no cash
compensation from our company and continues to serve as our Chief
Financial Officer.
On February 10, 2017, we and Mr. Dargan further extended his
engagement agreement. The extension provides for an additional term
to expire September 30, 2017 (the “Extended Term”), and is
retroactively effective to the termination of the prior extension
on October 1, 2016. This more recent extension again compensates
Mr. Dargan through the issuance of an option to purchase 300,000
shares of the Company’s common stock. The strike price of the
option is $0.69 per share, which is equal to the closing price of
the Company’s common stock on February 10, 2017, expires February
10, 2027, and vests over the term of the engagement with 125,000
shares having vested as of February 10, 2017, and the remaining
shares to vest 25,000 shares monthly beginning March 1, 2017, and
each month thereafter, so long as his agreement is in full force
and effect.
On December 31, 2017, we and Mr. Dargan further extended his
engagement agreement. The extension provides for an additional term
to expire September 30, 2018 (the “Extended Term”), and is
retroactively effective to the termination of the prior extension
on October 1, 2017. This more recent extension again compensates
Mr. Dargan through the issuance of an option to purchase 300,000
shares of the Company’s common stock. The strike price of the
option is $0.39 per share, which is equal to the closing price of
the Company’s common stock on December 29, 2017, expires December
31, 2027, and vests over the term of the engagement with 75,000
shares having vested as of December 31, 2017, and the remaining
shares to vest 25,000 shares monthly beginning January 31, 2018,
and each month thereafter, so long as his agreement is in full
force and effect.
On January 16, 2019, we and Mr. Dargan formally agreed to extend
his engagement agreement. The extension provides for an additional
term to expire September 30, 2019, and is retroactively effective
to the termination of the prior extension on September 30,
2018. Mr. Dargan has been serving as the Company’s Chief
Financial Officer since such termination pursuant to the terms of
the December 31, 2017 extension. This extension again compensates
Mr. Dargan through the issuance of an option to purchase
300,000 shares of the Company’s common stock, at a strike price
equal to the closing price of the Company’s common stock on January
16, 2019 of $0.223, to expire January 16, 2029, and to vest over
the term of the engagement with 75,000 shares having vested as of
December 31, 2018, and the remaining shares to vest 25,000 shares
monthly beginning January 31, 2019, and each month thereafter, so
long as the engagement agreement is in full force and effect. The
Option was issued pursuant to the Company’s 2018 Equity Incentive
Plan. The issuance of the Option is Mr. Dargan’s sole source of
compensation for the extended term. As was the case in all prior
terms of his engagement, there is no cash component of his
compensation for the Extended Term. Mr. Dargan is eligible to be
reimbursed for business expenses he incurs in connection with the
performance of his services as the Company’s Chief Financial
Officer (although he has made no such requests for reimbursement in
the past). All other provisions of the Engagement Agreement not
expressly amended pursuant to the Engagement Extension Agreement
remain the same, including provisions regarding indemnification and
arbitration of disputes.
Joseph Provenzano
Mr. Provenzano has served as Vice President of Operations since
January 1, 2008, in addition to continuing to serve as our
Corporate Secretary. On June 18, 2019, we and Mr. Provenzano
entered into an employment agreement (the “Provenzano Employment
Agreement”), replacing in its entirety the previous employment
agreement with Mr. Provenzano dated January 1, 2008.
The Provenzano Employment Agreement provides that
Mr. Provenzano will serve as our Executive Vice President of
Operations, as well as the President and Chief Executive Officer of
our wholly owned subsidiary Odor-No-More. Mr. Provenzano’s base
compensation will remain at his current rate of $169,772 annually.
In addition to this base compensation, the agreement provides that
he is eligible to participate in incentive plans, stock option
plans, and similar arrangements as determined by the our Board of
Directors, health insurance premium payments for himself and his
immediate family, a car allowance covering the expenses of his
personal commercial grade truck which the company uses in company
operations on a continual basis, paid vacation of four weeks per
year, and bonuses in such amount as the Compensation Committee may
determine from time to time.
In conjunction with this agreement, our Compensation Committee
awarded Mr. Provenzano an option to purchase common stock and
restricted stock units under our 2018 Equity Incentive Plan (see
Note 5).
The Provenzano Employment Agreement has a term of five years,
unless earlier terminated in accordance with its terms. The
Provenzano Employment Agreement provides that Mr. Provenzano’s
employment may be terminated by the Company due to his death or
disability, for cause, or upon a merger, acquisition, bankruptcy or
dissolution of the Company. “Disability” as used in the Provenzano
Employment Agreement means physical or mental incapacity or illness
rendering Mr. Provenzano unable to perform his duties on a
long-term basis (i) as evidenced by his failure or inability
to perform his duties for a total of 120 days in any 360-day
period, or (ii) as determined by an independent and licensed
physician whom the Company selects, or (iii) as determined
without recourse by the Company’s disability insurance carrier.
“Cause” means that Mr. Provenzano has (i) engaged in willful
misconduct in connection with the Company’s business; or (ii) been
convicted of, or plead guilty or nolo contendre in connection with,
fraud or any crime that constitutes a felony or that involves moral
turpitude or theft. If Mr. Provenzano’s employment is
terminated due to merger or acquisition, then he will be eligible
to receive the greater of (i) one year’s compensation plus an
additional one half year for each year of service since the
effective date of the employment agreement or (ii) one year’s
compensation plus an additional one half year for each year
remaining in the term of the agreement. Otherwise, he is only
entitled to receive compensation due through the date of
termination.
The Provenzano Employment Agreement requires Mr. Provenzano to
keep certain information confidential, not to solicit customers or
employees of the Company or interfere with any business
relationship of the Company, and to assign all inventions made or
created during the term of the Provenzano Employment Agreement as
“work made for hire”.
Director Compensation
Each director who is not an officer or employee of our company
receives an annual retainer of $60,000, paid in cash or shares of
our common stock, or options to purchase our common stock (pursuant
to a plan put in place by our board of directors), in our sole
discretion. Historically, all but one director has received the
entirety of his fees in the form of options to purchase stock,
rather than cash. In addition, Mr. Marshall and Mr. Runyan each
receive an additional $15,000 for their services as the chairman of
the Audit Committee and chairman of the Compensation Committee,
respectively. The following table sets forth information for the
fiscal years ended December 31, 2018 regarding compensation of our
non-employee directors. Our employee directors do not receive any
additional compensation for serving as a director.
|
Name
|
|
Fees Earned or Fees Paid in Cash
|
|
|
Option
Awards
|
|
|
Non-Equity Incentive Plan Compensation
|
|
|
All Other Compensation
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dennis E. Marshall
|
|
$ |
75,000 |
(1) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
75,000 |
|
|
Jack B. Strommen
|
|
$ |
60,000 |
(2) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
60,000 |
|
|
Kent C. Roberts III
|
|
$ |
60,000 |
(3) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
60,000 |
|
|
John S. Runyan
|
|
$ |
75,000 |
(4) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
75,000 |
|
_________________
| |
(1)
|
In 2018, Mr. Marshall earned director fees of $75,000, which
included compensation for serving as Chairman of the Audit
Committee of our board of directors. None of these fees was paid in
cash. During 2018, Mr. Marshall received options in lieu of cash
consisting of (i) on March 31, 2018, an issuance of an option to
purchase 72,394 shares of our common stock at $0.26 per share, (ii)
on June 30, 2018, an issuance of an option to purchase 43,605
shares of our common stock at $0.43 per share, (iii) on September
30, 2018, an issuance of an option to purchase 69,444 shares of our
common stock at $0.27 per share, and (iv) on December 31, 2018, an
issuance of an option to purchase 78,125 shares of our common stock
at $0.24 per share.
|
| |
(2)
|
In 2018 Mr. Strommen earned director fees of $60,000. During 2018,
Mr. Strommen received options in lieu of cash consisting of (i) on
March 31, 2018, an issuance of an option to purchase 57,916 shares
of our common stock at $0.43 per share, (ii) on June 30, 2018, an
issuance of an option to purchase 34,884 shares of our common stock
at $0.43 per share, (iii) on September 30, 2018, an option to
purchase 55,556 shares of our common stock at $0.27 per share, and
(iv) on December 31, 2018, an option to purchase 62,500 shares of
our common stock at $0.34 per share.
|
| |
(3)
|
In 2018 Mr. Roberts earned director fees of $60,000. During 2018,
Mr. Roberts received options in lieu of cash consisting of (i) on
March 31, 2018, an issuance of an option to purchase 57,916 shares
of our common stock at $0.43 per share, (ii) on June 30, 2018, an
issuance of an option to purchase 34,884 shares of our common stock
at $0.43 per share, (iii) on September 30, 2018, an option to
purchase 55,556 shares of our common stock at $0.27 per share, and
(iv) on December 31, 2018, an option to purchase 62,500 shares of
our common stock at $0.34 per share.
|
| |
(4)
|
In 2018, Mr. Runyan earned director fees of $75,000. None of these
fees was paid in cash. During 2018, Mr. Runyan received options in
lieu of cash consisting of (i) on March 31, 2018, an issuance of an
option to purchase 72,394 shares of our common stock at $0.26 per
share, (ii) on June 30, 2018, an issuance of an option to purchase
43,605 shares of our common stock at $0.43 per share, (iii) on
September 30, 2018, an issuance of an option to purchase 69,444
shares of our common stock at $0.27 per share, and (iv) on December
31, 2018, an issuance of an option to purchase 78,125 shares of our
common stock at $0.24 per share.
|
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information regarding unexercised
stock options and equity incentive plan awards for each of the
Named Executive Officers outstanding as of December 31, 2018. All
stock or options that were granted to the Named Executive Officers
during the fiscal year ended December 31, 2018 have fully vested,
except as indicated.
|
Name
|
|
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
|
|
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
|
|
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
|
|
|
Option
Exercise
Price
|
|
|
Share
Price on
Grant Date
|
|
Option
Expiration
Date
|
|
Dennis P. Calvert
|
|
|
3,731,322 |
|
|
|
|
-- |
|
|
$ |
0.45 |
|
|
$ |
0.45 |
|
May 2, 2027
|
|
|
|
|
60,000 |
|
|
|
|
-- |
|
|
$ |
0.55 |
|
|
$ |
0.37 |
|
April 27, 2019
|
|
|
|
|
691,974 |
|
|
|
|
-- |
|
|
$ |
0.55 |
|
|
$ |
0.37 |
|
April 27, 2019
|
|
|
|
|
200,000 |
|
|
|
|
-- |
|
|
$ |
0.575 |
|
|
$ |
0.50 |
|
February 1, 2020
|
|
Charles K. Dargan II
|
|
|
10,000 |
|
|
|
|
-- |
|
|
$ |
0.38 |
|
|
$ |
0.38 |
|
January 31, 2019
|
|
|
|
|
50,000 |
|
|
|
|
-- |
|
|
$ |
0.28 |
|
|
$ |
0.28 |
|
February 23, 2019
|
|
|
|
|
10,000 |
|
|
|
|
-- |
|
|
$ |
0.30 |
|
|
$ |
0.30 |
|
April 29, 2019
|
|
|
|
|
36,000 |
|
|
|
|
-- |
|
|
$ |
0.50 |
|
|
$ |
0.30 |
|
April 29, 2019
|
|
|
|
|
10,000 |
|
|
|
|
-- |
|
|
$ |
0.45 |
|
|
$ |
0.45 |
|
May 31, 2019
|
|
|
|
|
10,000 |
|
|
|
|
-- |
|
|
$ |
0.45 |
|
|
$ |
0.45 |
|
June 30, 2019
|
|
|
|
|
10,000 |
|
|
|
|
-- |
|
|
$ |
0.50 |
|
|
$ |
0.50 |
|
July 31, 2019
|
|
|
|
|
10,000 |
|
|
|
|
-- |
|
|
$ |
0.43 |
|
|
$ |
0.43 |
|
August 31, 2019
|
|
|
|
|
10,000 |
|
|
|
|
-- |
|
|
$ |
0.40 |
|
|
$ |
0.40 |
|
September 30, 2019
|
|
|
|
|
10,000 |
|
|
|
|
-- |
|
|
$ |
0.45 |
|
|
$ |
0.45 |
|
October 31, 2019
|
|
|
|
|
10,000 |
|
|
|
|
-- |
|
|
$ |
0.57 |
|
|
$ |
0.57 |
|
November 30, 2019
|
|
|
|
|
10,000 |
|
|
|
|
-- |
|
|
$ |
0.70 |
|
|
$ |
0.70 |
|
December 31, 2019
|
|
|
|
|
10,000 |
|
|
|
|
-- |
|
|
$ |
0.50 |
|
|
$ |
0.50 |
|
January 31, 2020
|
|
|
|
|
10,000 |
|
|
|
|
-- |
|
|
$ |
0.45 |
|
|
$ |
0.45 |
|
February 28, 2020
|
|
|
|
|
60,000 |
|
|
|
|
-- |
|
|
$ |
0.575 |
|
|
$ |
0.50 |
|
February 1, 2020
|
|
|
|
|
10,000 |
|
|
|
|
-- |
|
|
$ |
0.50 |
|
|
$ |
0.50 |
|
March 31, 2020
|
|
|
|
|
10,000 |
|
|
|
|
-- |
|
|
$ |
0.39 |
|
|
$ |
0.39 |
|
April 29, 2020
|
|
|
|
|
10,000 |
|
|
|
|
-- |
|
|
$ |
0.31 |
|
|
$ |
0.31 |
|
May 31, 2020
|
|
|
|
|
10,000 |
|
|
|
|
-- |
|
|
$ |
0.25 |
|
|
$ |
0.25 |
|
June 30, 2020
|
|
|
|
|
10,000 |
|
|
|
|
-- |
|
|
$ |
0.24 |
|
|
$ |
0.24 |
|
July 31, 2020
|
|
|
|
|
10,000 |
|
|
|
|
-- |
|
|
$ |
0.23 |
|
|
$ |
0.23 |
|
August 30, 2020
|
|
|
|
|
200,000 |
|
|
|
|
-- |
|
|
$ |
0.30 |
|
|
$ |
0.30 |
|
August 4, 2020
|
|
|
|
|
10,000 |
|
|
|
|
-- |
|
|
$ |
0.35 |
|
|
$ |
0.35 |
|
September 30, 2020
|
|
|
|
|
10,000 |
|
|
|
|
-- |
|
|
$ |
0.42 |
|
|
$ |
0.42 |
|
October 31, 2020
|
|
|
|
|
10,000 |
|
|
|
|
-- |
|
|
$ |
0.40 |
|
|
$ |
0.40 |
|
November 30, 2020
|
|
|
|
|
10,000 |
|
|
|
|
-- |
|
|
$ |
0.50 |
|
|
$ |
0.50 |
|
December 31, 2020
|
|
|
|
|
10,000 |
|
|
|
|
-- |
|
|
$ |
0.42 |
|
|
$ |
0.42 |
|
January 31, 2021
|
|
|
|
|
120,000 |
|
|
|
|
-- |
|
|
$ |
0.41 |
|
|
$ |
0.41 |
|
February 28, 2021
|
|
|
|
|
300,000 |
|
|
|
|
-- |
|
|
$ |
0.35 |
|
|
$ |
0.35 |
|
April 10, 2022
|
|
|
|
|
410,000 |
|
|
|
|
-- |
|
|
$ |
0.30 |
|
|
$ |
0.30 |
|
December 28, 2022
|
|
|
|
|
300,000 |
|
|
|
|
-- |
|
|
$ |
0.30 |
|
|
$ |
0.30 |
|
July 17, 2023
|
|
|
|
|
300,000 |
|
|
|
|
-- |
|
|
$ |
0.30 |
|
|
$ |
0.30 |
|
June 23, 2024
|
|
|
|
|
300,000 |
|
|
|
|
-- |
|
|
$ |
0.57 |
|
|
$ |
0.57 |
|
September 30, 2025
|
|
|
|
|
300,000 |
|
|
|
|
-- |
|
|
$ |
0.69 |
|
|
$ |
0.69 |
|
February 10, 2027
|
|
|
|
|
300,000 |
|
|
|
|
-- |
|
|
$ |
0.39 |
|
|
$ |
0.39 |
|
December 31, 2027
|
|
Kenneth R. Code
|
|
|
200,000 |
|
|
|
|
-- |
|
|
$ |
1.03 |
|
|
$ |
0.94 |
|
July 17, 2023
|
|
|
|
|
200,000 |
|
|
|
|
-- |
|
|
$ |
0.575 |
|
|
$ |
0.50 |
|
February 1, 2020
|
|
Joseph L. Provenzano
|
|
|
30,000 |
|
|
|
|
|
|
|
$ |
0.50 |
|
|
$ |
0.37 |
|
April 27, 2019
|
|
|
|
|
200,000 |
|
|
|
|
|
|
|
$ |
0.575 |
|
|
$ |
0.50 |
|
February 1, 2020
|
|
|
|
|
296,203 |
|
|
|
|
|
|
|
$ |
0.30 |
|
|
$ |
0.30 |
|
August 4, 2020
|
|
|
|
|
200,000 |
|
|
|
|
|
|
|
$ |
0.41 |
|
|
$ |
0.41 |
|
March 21 2021
|
|
|
|
|
100,000 |
|
|
|
|
|
|
|
$ |
0.45 |
|
|
$ |
0.45 |
|
October 23 2027
|
Limitation of Liability and Indemnification Matters
As permitted by the Delaware general corporation law, we have
included a provision in our certificate of incorporation to
eliminate the personal liability of our directors for monetary
damages for breach of their fiduciary duties as directors, except
for liability (i) for any breach of the director’s duty of loyalty
to our company, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law,
(iii) under section 174 of the Delaware general corporation law or
(iv) for any transaction from which the director derived an
improper personal benefit. Our certificate of incorporation also
provides that our company shall, to the full extent permitted by
section 145 of the Delaware general corporation law, as amended
from time to time, indemnify all persons whom it may indemnify
pursuant thereto.
In addition, our Bylaws provide that we are required to indemnify
our officers and directors even when indemnification would
otherwise be discretionary, and we are required to advance expenses
to our officers and directors as incurred in connection with
proceedings against them for which they may be indemnified.
We may enter into indemnification agreements with our officers and
directors containing provisions that are in some respects broader
than the specific indemnification provisions contained in the
Delaware general corporation law. The indemnification agreements
would require us to indemnify our officers and directors against
liabilities that may arise by reason of their status or service as
officers and directors other than for liabilities arising from
willful misconduct of a culpable nature, to advance their expenses
incurred as a result of any proceeding against them as to which
they could be indemnified, and to obtain our directors’ and
officers’ insurance if available on reasonable terms. As of the
date of this prospectus, our company has not entered into any
indemnification agreement with any of its directors or officers,
except for Mr. Strommen.
We have obtained directors’ and officers’ liability insurance in
amounts comparable to other companies of our size and in our
industry.
No pending litigation or proceeding involving a director, officer,
employee or other agent of our company currently exists as to which
indemnification is being sought. We are not aware of any threatened
litigation that may result in claims for indemnification by any
director, officer, employee or other agent of our company.
See “Disclosure of SEC Position on Indemnification for Securities
Act Liabilities.”
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of shares of our Common stock as of August 23, 2019,
including rights to acquire beneficial ownership of shares of our
Common stock within 60 days of August 23, 2019, by (a) all
stockholders known to the Company to be beneficial owners of more
than 5% of the outstanding Common stock; (b) each director, (c)
each Named Executive Officer, and (d) all directors and executive
officers of the Company as a group:
|
Name and Address of Beneficial
Owner(1)
|
Amount of Beneficial
Ownership
|
Percent of
Class(2)
|
|
Kenneth R. Code(4)
|
23,266,703
|
14.6%
|
|
Dennis P. Calvert(5)
|
9,636,555
|
6.0%
|
|
Jack B. Strommen(6)
|
8,603,094
|
5.4%
|
|
Charles K. Dargan II(7)
|
3,396,244
|
2.1%
|
|
Dennis E. Marshall(8)
|
2,842,881
|
1.8%
|
|
Joseph L. Provenzano(9)
|
2,096,946
|
1.3%
|
|
Kent C. Roberts II(10)
|
2,004,778
|
1.3%
|
|
John S. Runyan(11)
|
1,851,716
|
1.2%
|
|
All directors and officers as a group (8 persons)
|
53,548,917
|
33.7%
|
__________________
|
(1)
|
Except as noted in any footnotes below, each person has sole voting
power and sole dispositive power as to all of the shares shown as
beneficially owned by them. Beneficial ownership is determined in
accordance with the rules of the SEC and generally includes voting
or investment power with respect to securities.
|
|
(2)
|
The address for all directors and the Named Executive Officers is:
c/o BioLargo, Inc., 14921 Chestnut St., Westminster, CA 92683,
except for: Kent C. Roberts II’s address is 1146 Oxford Road, San
Marino, CA 91108; Charles K. Dargan II’s address is 18841 NE
29th Avenue, Suite 700, Aventura FL 33180; and John S.
Runyan’s address is 30001 Hillside Terrace, San Juan Capistrano, CA
92675.
|
|
(3)
|
Our company has only one class of stock outstanding. The sum of
157,380,022 shares of common stock outstanding on August 13, 2019.
For purposes of the above table, an additional 13,539,521 shares of
common stock subject to options currently exercisable or
exercisable within 60 days by the directors and officers are deemed
outstanding for determining the number of shares beneficially owned
by the directors and officers, and the directors and officers as a
group, and for computing the percentage ownership of the person
holding such options, but are not deemed outstanding for computing
the percentage ownership of any other person.
|
|
(4)
|
Includes 22,139,012 shares owned indirectly by Mr. Code issued on
April 29, 2007 to IOWC Technologies, Inc. in connection with the
acquisition by our company of certain intellectual property and
other assets on that date. Includes 400,000 shares issuable to Mr.
Code upon exercise of options.
|
|
(5)
|
Includes 1,528,695 shares, and an option to purchase 691,974
shares, of common stock held by New Millennium Capital Partners,
LLC, which is wholly owned and controlled by Mr. Calvert. Includes
200,000 shares issuable to Mr. Calvert upon exercise of other
options granted from time to time by our company.
|
|
(6)
|
Includes 369,823 shares issuable to Mr. Strommen upon exercise of
options; includes 3,257,143 shares issuable to Mr. Strommen upon
the exercise of warrants. Includes 400,000 shares issuable to Mr.
Strommen upon conversion of a convertible promissory note.
|
|
(7)
|
Includes 2,985,000 shares issuable to Mr. Dargan upon exercise of
options.
|
|
(8)
|
Includes 2,504,371 shares issuable to Mr. Marshall upon exercise of
options.
|
|
(9)
|
Includes 796,203 shares issuable to Mr. Provenzano upon exercise of
options.
|
|
(10)
|
Includes 1,400,912 shares issuable to Mr. Roberts upon exercise of
options.
|
|
(11)
|
Includes 1,586,069 shares issuable to Mr. Runyan upon exercise of
options.
|
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Our company has adopted a policy that all transactions between our
company and its executive officers, directors and other affiliates
must be approved by a majority of the members of our board of
directors and by a majority of the disinterested members of our
board of directors, and must be on terms no less favorable to our
company than could be obtained from unaffiliated third parties.
From time to time, our company is unable to pay in full amounts due
to its officers for salary and business expenses, and those amounts
are recorded as liabilities in our financial statements. These
amounts are then paid in the future as our company’s cash position
allows, or through the issuance of our common stock, or an option
to purchase common stock, pursuant to a plan adopted by our board
for the payment of outstanding payables.
On June 30, 2019, we issued options to purchase 293,478 shares of
our common stock at an exercise price of $0.23 per share to four
members of our board of directors, in lieu of $67,500 in fees, as
follows: 81,522 to Mr. Marshall in exchange for $18,750 in fees
due; 65,217 to Mr. Strommen in exchange for $15,000 in fees due;
65,217to Mr. Roberts in exchange for $15,000 in fees due; and
81,522 to Mr. Runyan in exchange for $18,750 in fees due. The
options expire 10 years from the date of grant.
On March 31, 2019, we issued options to purchase 421,876 shares of
our common stock at an exercise price of $0.16 per share to four
members of our board of directors, in lieu of $67,500 in fees, as
follows: 117,188 to Mr. Marshall in exchange for $18,750 in fees
due; 93,750 to Mr. Strommen in exchange for $15,000 in fees due;
93,750 to Mr. Roberts in exchange for $15,000 in fees due; and
117,188 to Mr. Runyan in exchange for $18,750 in fees due. The
options expire 10 years from the date of grant.
On March 31, 2019, we issued an aggregate 579,996 shares of our
common stock to two executive officers in exchange for a reduction
of $92,799 of salary and unreimbursed business expenses owed to the
officers.
On December 31, 2018, we issued options to purchase 281,250 shares
of our common stock at an exercise price of $0.22 per share to four
members of our board of directors, in lieu of $67,500 in fees, as
follows: 78,125 to Mr. Marshall in exchange for $18,750 in fees
due; 62,500 to Mr. Strommen in exchange for $15,000 in fees due;
62,500to Mr. Roberts in exchange for $15,000 in fees due; and
78,125 to Mr. Runyan in exchange for $18,750 in fees due. The
options expire 10 years from the date of grant.
On December 31, 2018, we issued an aggregate 381,801 shares of our
common stock to two executive officers in exchange for a reduction
of $91,632 of salary and unreimbursed business expenses owed to the
officers.
On September 30, 2018, we issued options to purchase 250,000 shares
of our common stock at an exercise price of $0.27 per share to four
members of our board of directors, in lieu of $67,500 in fees, as
follows: 69,444 to Mr. Marshall in exchange for $18,750 in fees
due; 55,556 to Mr. Strommen in exchange for $15,000 in fees due;
55,556 to Mr. Roberts in exchange for $15,000 in fees due; and
69,444 to Mr. Runyan in exchange for $18,750 in fees due. The
options expire 10 years from the date of grant.
On September 30, 2018, we issued an aggregate 249,258 shares of our
common stock to two executive officers in exchange for a reduction
of $67,300 of salary owed to the officers.
On June 29, 2018, we issued options to purchase 156,978 shares of
our common stock at an exercise price of $0.31 per share to four
members of our board of directors, in lieu of $62,500 in fees, as
follows: 43,605 to Mr. Marshall in exchange for $18,750 in fees
due; 34,884 to Mr. Strommen in exchange for $15,000 in fees due;
34,884 to Mr. Roberts in exchange for $15,000 in fees due; and
43,605 to Mr. Runyan in exchange for $18,750 in fees due. The
options expire 10 years from the date of grant.
On June 29, 2018, we issued an aggregate 176,950 shares of our
common stock to two executive officers in exchange for a reduction
of $76,087 of salary owed to the officers.
On March 31, 2018, we issued options to purchase 260,620 shares of
our common stock at an exercise price of $0.295 per share to four
members of our board of directors, in lieu of $62,500 in fees, as
follows: 72,394 to Mr. Marshall in exchange for $18,750 in fees
due; 57,916 to Mr. Strommen in exchange for $15,000 in fees due;
57,916 to Mr. Roberts in exchange for $15,000 in fees due; and
72,394 to Mr. Runyan in exchange for $18,750 in fees due. The
options expire 10 years from the date of grant.
On March 31, 2018, we issued an aggregate 323,030 shares of our
common stock to two executive officers in exchange for a reduction
of $83,664 of salary owed to the officers.
On March 31, 2017, we issued options to purchase an aggregate
130,000 shares of our common stock at an exercise price of $0.50
per share to four members of our board of directors, in lieu of
$65,000 in fees, as follows: 37,500 to Mr. Marshall in exchange for
$18,750 in fees due; 25,000 to Mr. Cox in exchange for $12,500 in
fees due; 30,000 to Mr. Roberts in exchange for $15,000 in fees
due; 37,500 to Mr. Runyan in exchange for $18,750 in fees due. The
options expire 10 years from the date of grant.
On June 30, 2017, we issued options to purchase 145,350 shares of
our common stock at an exercise price of $0.43 per share to four
members of our board of directors, in lieu of $62,500 in fees, as
follows: 43,605 to Mr. Marshall in exchange for $18,750 in fees
due; 18,992 to Mr. Cox in exchange for $8,167 in fees due; 34,884
to Mr. Roberts in exchange for $15,000 in fees due; 43,605 to Mr.
Runyan in exchange for $18,750 in fees due; and 4,264 to Mr.
Strommen in exchange for $1,833 in fees due. The options expire 10
years from the date of grant.
On September 30, 2017, we issued options to purchase 132,354 shares
of our common stock at an exercise price of $0.51 per share to four
members of our board of directors, in lieu of $62,500 in fees, as
follows: 36,765 to Mr. Marshall in exchange for $18,750 in fees
due; 29,412 to Mr. Roberts in exchange for $15,000 in fees due;
36,765 to Mr. Runyan in exchange for $18,750 in fees due; and
29,412 to Mr. Strommen in exchange for $15,000 in fees due. The
options expire 10 years from the date of grant.
On December 31, 2017, we issued options to purchase 173,078 shares
of our common stock at an exercise price of $0.39 per share to four
members of our board of directors, in lieu of $62,500 in fees, as
follows: 48,077 to Mr. Marshall in exchange for $18,750 in fees
due; 38,462 to Mr. Strommen in exchange for $15,000 in fees due;
38,462 to Mr. Roberts in exchange for $15,000 in fees due; and
48,077 to Mr. Runyan in exchange for $18,750 in fees due. The
options expire 10 years from the date of grant.
On December 31, 2017, we issued an aggregate 148,705 shares of our
common stock to two executive officers in exchange for a reduction
of $57,994 of salary owed to the officers.
During 2016, we issued options to purchase 170,377 shares of our
common stock to a member of our Board of Directors, Mr. Marshall,
in exchange for the payment of $86,250 of board of director fees
due. Pursuant to a plan adopted by our Board of Directors for the
reduction of outstanding accounts payable, the options were issued
at a strike price equal to the closing price of our common stock on
the date of the agreement, and the number of shares purchasable was
calculated by dividing the total amount of fees due by the exercise
price and multiplying that number by one point five. As a result,
the aggregate value of the options issued to Mr. Marshall was equal
to $86,250.
During 2016, we issued options to purchase 121,115 shares of our
common stock to a member of our Board of Directors, Mr. Runyan, in
exchange for the payment of $63,750 of board of director fees due.
Pursuant to a plan adopted by our Board of Directors for the
reduction of outstanding accounts payable, the options were issued
at a strike price equal to the closing price of our common stock on
the date of the agreement, and the number of shares purchasable was
calculated by dividing the total amount of fees due by the exercise
price and multiplying that number by one point five. As a result,
the aggregate value of the options issued to Mr. Runyan was equal
to $63,750.
On March 31, 2017, we issued options to purchase an aggregate
130,000 shares of our common stock at an exercise price of $0.50
per share to four members of our board of directors, in lieu of
$65,000 in fees, as follows: 37,500 to Mr. Marshall in exchange for
$18,750 in fees due; 25,000 to Mr. Cox in exchange for $12,500 in
fees due; 30,000 to Mr. Roberts in exchange for $15,000 in fees
due; 37,500 to Mr. Runyan in exchange for $18,750 in fees due. The
options expire 10 years from the date of grant.
On June 30, 2017, we issued options to purchase 145,349 shares of
our common stock at an exercise price of $0.43 per share to four
members of our board of directors, in lieu of $62,500 in fees, as
follows: 43,605 to Mr. Marshall in exchange for $18,750 in fees
due; 18,992 to Mr. Cox in exchange for $8,167 in fees due; 34,884
to Mr. Roberts in exchange for $15,000 in fees due; 43,605 to Mr.
Runyan in exchange for $18,750 in fees due; and 4,264 to Mr.
Roberts in exchange for $1,833 in fees due. The options expire 10
years from the date of grant.
Mr. Strommen was first elected to our board of directors on June
20, 2017. Prior to joining our board, Mr. Strommen invested in the
Company’s 2015 Unit Offering, receiving a promissory note and stock
purchase warrant. Pursuant to the terms of the notes issued to
investors in the 2015 Unit Offering, the Company has elected to pay
interest due by issuing common stock. On June 26, 2017, and
September 20, 2017, Mr. Strommen was issued 71,423 and 61,792
shares of our common stock, respectively, in payment of interest.
All other investors in the 2015 Unit Offering were also issued
shares on those days. Prior to those dates, and prior to joining
the board, Mr. Strommen had been issued 339,868 shares of our
common stock in payment of interest.
On March 28, 2018, Mr. Strommen invested $100,000 in the Company’s
private securities offering, receiving a promissory note in the
face amount of $100,000, bearing annual interest at the rate of
12%, which is convertible into the Company’s common stock by Mr.
Strommen at any time, or the Company at the April 30, 2021
maturity, at the rate of $0.30 per share. Investors in the offering
also receive a stock purchase warrant to purchase the number of
shares calculated by dividing the investment amount by the note
conversion price. Mr. Strommen received a warrant to purchase
333,334 shares of common stock at $0.48 per share, which expires
April 20, 2023.
DESCRIPTION OF CAPITAL STOCK
As reflected in the Certificate of Incorporation as amended May 25,
2018, our authorized capital stock consists of 400,000,000 shares
of common stock, par value $0.00067 per share, and 50,000,000
shares of preferred stock, par value $0.00067 per share.
|
Authorized and Issued Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares at August 23, 2019
|
|
|
Title of Class
|
|
Authorized
|
|
|
Outstanding
|
|
|
Reserved (1)
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, par value $0.00067 per share
|
|
|
400,000,000 |
|
|
|
157,380,022 |
|
|
|
75,111,575 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.00067 par value per share
|
|
|
50,000,000 |
|
|
|
-0- |
|
|
|
|
|
| |
(1)
|
The 75,111,575 shares reserved for future issuances includes
17,397,258 shares issuable to Lincoln Park pursuant to the Purchase
Agreement.
|
Common Stock
Dividends. Each share of our common stock is entitled to
receive an equal dividend, if one is declared. We cannot provide
any assurance that we will declare or pay cash dividends on our
common stock in the future. Any future determination to declare
cash dividends will be made at the discretion of our board of
directors, subject to applicable laws, and will depend on our
financial condition, results of operations, capital requirements,
general business conditions and other factors that our board of
directors may deem relevant. Our board of directors may determine
it to be necessary to retain future earnings (if any) to finance
operations. See “Risk Factors” and “Dividend Policy.”
Liquidation. If our company is liquidated, then assets that
remain (if any) after the creditors are paid and the owners of
preferred stock receive liquidation preferences (as applicable)
will be distributed to the owners of our common stock pro
rata.
Voting Rights. Each share of our common stock entitles the
owner to one vote. There is no cumulative voting. A simple majority
can elect all of the directors at a given meeting, and the minority
would not be able to elect any director at that meeting.
Preemptive Rights. Owners of our common stock have no
preemptive rights. We may sell shares of our common stock to third
parties without first offering such shares to current
stockholders.
Redemption Rights. We do not have the right to buy back
shares of our common stock except in extraordinary transactions,
such as mergers and court approved bankruptcy reorganizations.
Owners of our common stock do not ordinarily have the right to
require us to buy their common stock. We do not have a sinking fund
to provide assets for any buy back.
Conversion Rights. Shares of our common stock cannot be
converted into any other kind of stock except in extraordinary
transactions, such as mergers and court approved bankruptcy
reorganizations.
Nonassessability. All outstanding shares of our common stock
are fully paid and nonassessable.
Preferred Stock
Our certificate of incorporation authorizes our board of directors
to issue “blank check” preferred stock. Our board of directors may
divide this preferred stock into series and establish the rights,
preferences and privileges thereof. Our board of directors may,
without prior stockholder approval, issue any or all of the shares
of this preferred stock with dividend, liquidation, conversion,
voting or other rights that could adversely affect the relative
voting power or other rights of our common stock. Preferred stock
could be used as a method of discouraging, delaying or preventing a
takeover or other change in control of our company. Issuances of
preferred stock in the future could have a dilutive effect on our
common stock.
As of the date of this prospectus, there are no shares of our
preferred stock outstanding.
DESCRIPTION OF THE OFFERING
This is a registration of shares that were previously sold by the
Company in a series of private placements. This prospectus relates
to the sale of up to 36,090,857 shares of our common stock by
selling stockholders.
SELLING STOCKHOLDERS
The following table presents information regarding the selling
stockholders and the shares of our common stock that may be sold by
them pursuant to this prospectus.
Each of the selling shareholders acquired their shares from the
company for cash (or as payment of accrued interest) in a private
placement transaction which was exempt from registration pursuant
Regulation D promulgated under the Securities Act of 1933, except
Freedom Investors Corp., Sexton Equities LLC, and Randall A.
Heller, each of whom received their warrants to purchase shares as
broker-dealer commissions.
Except for Jack Strommen, who is a shareholder of Clyra and may be
a consultant to Clyra, none of the selling stockholders has had
within the past three years any position, office or other material
relationship with our company or any of its predecessors or
affiliates. Other than Freedom Investors Corp., Sexton Equities
LLC, and Randall A. Heller, no selling stockholder is a
broker-dealer or an affiliate of a broker-dealer. Freedom Investors
Corp. is a registered broker-dealer and purchased the shares being
offered under this prospectus in the ordinary course of its
business. Sexton Equities LLC, and Randall A. Heller are affiliated
persons of Freedom Investor Corp. At the time of purchase, Freedom
Investors Corp., Sexton Equities LLC, and Randall A. Heller did not
have any agreement or understanding, directly or indirectly, with
any person to distribute the shares. Freedom Investor Corp. is
deemed to be an underwriter with respect to the shares of stock it
offers for sale under this prospectus. Shares beneficially owned
prior to the offering includes shares that may be issued to the
selling stockholders pursuant to the exercise of stock purchase
warrants and conversion of convertible promissory notes.
Our company issued the shares being offered for resale pursuant to
this prospectus to the selling stockholders in private placements
that we effected in 2013, 2015, and 2016 in exchange for
consideration that we received from the selling stockholders.
|
Name
|
Number of
Shares of
Common stock
Beneficially
Owned Prior to
Offering(1)
|
Number of
Shares of
Common
Stock Being
Offered
|
Shares of
Common
Stock
Beneficially
Owned After
the Offering
|
Percentage
Beneficially
Owned
After
Registration
|
|
Andrea Kochensparger
|
986,992
|
986,992
|
–
|
*
|
|
Anthony J. Jacobson
|
876,596
|
585,559
|
291,037
|
*
|
|
Austin N. Heberger
|
149,883
|
149,883
|
–
|
*
|
|
Best Home Choices, LLC(2)
|
179,858
|
179,858
|
–
|
*
|
|
Black Mountain Equities, Inc.(3)
|
640,000
|
640,000
|
–
|
*
|
|
BMS Endeavor, LLP(4)
|
612,117
|
212,117
|
400,000
|
*
|
|
Brandan Adams and Dr. Shelley Thompson
|
202,771
|
202,771
|
–
|
*
|
|
Brandan M Adams
|
191,429
|
191,429
|
–
|
*
|
|
Brian Griffith
|
201,502
|
201,502
|
–
|
*
|
|
Brian Griffith and Lorelei Griffith
|
107,135
|
107,135
|
–
|
*
|
|
Bruce Evans
|
500,000
|
500,000
|
–
|
*
|
|
Bruce Kelber
|
92,857
|
40,000
|
52,857
|
*
|
|
C1P Solutions Inc.(5)
|
431,221
|
345,507
|
85,714
|
*
|
|
California Clock Co.(6)
|
210,568
|
210,568
|
–
|
*
|
|
Carl Soderlund
|
161,224
|
161,224
|
–
|
*
|
|
Chris T. Washburn
|
71,429
|
71,429
|
–
|
*
|
|
Christopher A. Herr
|
691,050
|
691,050
|
–
|
*
|
|
Coastal Real Estate Investments Inc.(7)
|
273,817
|
273,817
|
–
|
*
|
|
Daniel J. Conger
|
485,233
|
485,233
|
–
|
*
|
|
David Azari
|
1,054,335
|
1,054,335
|
–
|
*
|
|
Demosthenes Dionis
|
147,819
|
147,819
|
–
|
*
|
|
Dennis DeSmith
|
124,000
|
60,000
|
64,000
|
*
|
|
Don and Bryn Oates
|
40,000
|
40,000
|
–
|
*
|
|
Douglas Goularte
|
207,440
|
207,440
|
–
|
*
|
|
Douglas J. Morgan
|
333,981
|
333,981
|
–
|
*
|
|
Duane Fitzgerald
|
209,471
|
209,471
|
–
|
*
|
|
Ermelinda Arriola
|
745,283
|
745,283
|
–
|
*
|
|
Eva Wald
|
150,117
|
150,117
|
–
|
*
|
|
Freedom Investor Corp.
|
128,800
|
128,800
|
–
|
*
|
|
G. Scott McComb
|
133,652
|
133,652
|
–
|
*
|
|
Gemini Master Fund, Ltd.(8)
|
480,000
|
480,000
|
–
|
*
|
|
Golfbully Venture Capital, LLC(9)
|
211,592
|
211,592
|
–
|
*
|
|
Harvey Bibicoff
|
502,095
|
502,095
|
–
|
*
|
|
Irving Cantor
|
150,140
|
150,140
|
–
|
*
|
|
Jack Strommen
|
6,854,154
|
6,854,154
|
–
|
*
|
|
James C. Hilbert
|
798,255
|
798,255
|
–
|
*
|
|
Jeanne M. Stratta
|
290,473
|
290,473
|
–
|
*
|
|
Jeffrey Jackson
|
200,000
|
200,000
|
–
|
*
|
|
Jeffrey Jeremiah McCarty
|
186,802
|
186,802
|
–
|
–*
|
|
Jennifer Blake
|
207,769
|
207,769
|
–
|
*
|
|
John J. Dombroski
|
50,000
|
50,000
|
–
|
*
|
|
John L. Martino
|
484,777
|
484,777
|
–
|
*
|
|
Johnathan Rubic
|
180,601
|
180,601
|
–
|
*
|
|
Jonathan Phillips
|
50,000
|
50,000
|
–
|
*
|
|
Joseph A. Martino
|
765,248
|
765,248
|
–
|
*
|
|
Julius Argumedo
|
102,307
|
102,307
|
–
|
*
|
|
Kent Shuster
|
465,514
|
465,514
|
–
|
*
|
|
Larry Backus
|
267,688
|
80,000
|
187,688
|
*
|
|
Larry Levine
|
1,259,931
|
1,259,931
|
–
|
*
|
|
Mark Sherman
|
397,517
|
397,517
|
–
|
*
|
|
Matthew B. Madden
|
134,272
|
134,272
|
–
|
*
|
|
Michael A. Krever
|
127,964
|
127,964
|
–
|
*
|
|
Michael B. Greenberg
|
206,541
|
206,541
|
–
|
*
|
|
Michael Rivkind
|
108,364
|
108,364
|
–
|
*
|
|
Moshe and Gabriel Azari
|
1,644,219
|
1,644,219
|
–
|
*
|
|
Neta Phillips
|
50,000
|
50,000
|
–
|
*
|
|
Nicholas H. Nguyen
|
466,543
|
466,543
|
–
|
*
|
|
Nicholas Steele
|
93,350
|
93,350
|
–
|
*
|
|
Partner Ship Inc.
|
697,157
|
622,157
|
75,000
|
*
|
|
Patricia Jonikaitis
|
212,301
|
212,301
|
–
|
*
|
|
Paul McDermott
|
74,666
|
74,666
|
–
|
*
|
|
Pedro Arriola
|
278,099
|
102,672
|
175,427
|
*
|
|
Peter Jonikaitis
|
212,406
|
212,406
|
–
|
*
|
|
Peter K Nitz
|
257,762
|
257,762
|
–
|
*
|
|
Phillip Harris
|
100,000
|
100,000
|
–
|
*
|
|
R. Jonathan Robinson
|
499,114
|
499,114
|
–
|
*
|
|
Ralph C. Jenney and Joanne M. Jenney
|
241,919
|
241,919
|
–
|
*
|
|
Randall A. Heller
|
40,000
|
40,000
|
–
|
*
|
|
Raymond A. Pronto
|
1,307,901
|
1,307,901
|
–
|
*
|
|
Robert A. Commandeur
|
504,094
|
504,094
|
–
|
*
|
|
Robert G Szewc
|
273,852
|
273,852
|
–
|
|