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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 


 

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

 

For the quarterly period ended June 30, 2023.

 

or

 

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

 

For the transition period from              to             

Commission File Number 000-19709

 


 

BIOLARGO, INC.

(Exact name of registrant as specified in its charter)

 


 

Delaware

 

65-0159115

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

14921 Chestnut St.

Westminster, CA 92683

(Address of principal executive offices)

 

(888) 400-2863

(Registrants telephone number, including area code)

 


 

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

 

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common stock

BLGO

OTC Markets (OTCQB)

 


 

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

 

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

 

 

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

 

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

 

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

 

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

 

The number of shares of the Registrant’s Common Stock outstanding as of August 11, 2023 was 288,073,533 shares.  

 

 

 

BIOLARGO, INC.

FORM 10-Q

INDEX

 

PART I

 

 

Item 1

Financial Statements

1
     

Item 2

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

26
     

Item 4

Controls and Procedures

36

 

PART II

 

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

38
     

Item 5

Other Information

39
     

Item 6

Exhibits

39
     
 

Signatures

41

 

 

 

PART I FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

 

 

BIOLARGO, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2023 AND DECEMBER 31, 2022

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

 

  

JUNE 30,

  

DECEMBER 31,

 
  

2023

(unaudited)

  

2022

 
         

Assets

 

Current assets:

        

Cash and cash equivalents

 $3,575  $1,851 

Accounts receivable, net of allowance

  1,037   1,064 

Inventories, net of allowance

  127   120 

Prepaid expenses and other current assets

  108   118 

Total current assets

  4,847   3,153 
         

Property and equipment, net of depreciation

  542   287 

Other non-current assets

  69   124 

Investment in South Korean joint venture

  21   33 

Right of use, operating lease, net of amortization

  807   867 

Clyra Medical prepaid marketing

  394   394 

Total assets

 $6,680  $4,858 
         

Liabilities and stockholders equity

        

Current liabilities:

        

Accounts payable and accrued expenses

 $720  $940 

Clyra Medical accounts payable and accrued expenses

  288   238 

Debt obligations

  66   100 

Deferred revenue

  10   17 

Lease liability

  97   97 

Customer deposits

  113   184 

Total current liabilities

  1,294   1,576 
         

Long-term liabilities:

        

Debt obligations, net of current

  299   237 

Lease liability, net of current

  721   773 

Clyra Medical debt obligations

  243   261 

Total long-term liabilities

  1,263   1,271 

Total liabilities

  2,557   2,847 
         

COMMITMENTS AND CONTINGENCIES (Note 12)

          
         

STOCKHOLDERS’ EQUITY:

        

Preferred Series A, $0.00067 Par Value, 50,000,000 Shares Authorized, -0- Shares Issued and Outstanding, at June 30, 2023 and December 31, 2022

      

Common stock, $0.00067 Par Value, 550,000,000 Shares Authorized, 287,220,661 and 278,462,706 Shares Issued, at June 30, 2023 and December 31, 2022, respectively

  192   186 

Additional paid-in capital

  152,507   148,435 

Accumulated deficit

  (145,169)  (143,594)

Accumulated other comprehensive loss

  (162)  (149)

Total BioLargo Inc. and subsidiaries stockholders’ equity

  7,368   4,878 

Non-controlling interest

  (3,245)  (2,867)

Total stockholders’ equity

  4,123   2,011 

Total liabilities and stockholders’ equity

 $6,680  $4,858 

 

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

 

 

 

BIOLARGO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022

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

(unaudited)

 

  

THREE MONTHS

  

SIX MONTHS

 
  

JUNE

30, 2023

  

JUNE

30, 2022

  

JUNE

30, 2023

  

JUNE

30, 2022

 
                 
                 

Revenues

                

Product revenue

 $1,315  $707  $4,864  $1,317 

Service revenue

  131   616   324   970 

Total revenue

  1,446   1,323   5,188   2,287 
                 

Cost of revenue

                

Cost of goods sold

  (567)  (364)  (2,364)  (659)

Cost of service

  (60)  (336)  (194)  (487)

Gross profit

  819   623   2,630   1,141 
                 

Selling, general and administrative expenses

  1,791   1,589   3,515   3,425 

Research and development

  587   355   1,152   747 

Operating loss:

  (1,559)  (1,321)  (2,037)  (3,031)

Other (expense) income:

                

Interest expense

  (12)  (15)  (60)  (28)

PPP loan forgiveness

           174 

Tax credit reversal

  (55)     (55)   

Grant income

     3   32   8 

Total other expense:

  (67)  (12)  (83)  154 

Net loss

  (1,626)  (1,333)  (2,120)  (2,877)
                 

Net loss attributable to noncontrolling interest

  (298)  (105)  (545)  3 

Net loss attributable to common shareholders

 $(1,328) $(1,228) $(1,575) $(2,880)
                 

Net loss per share attributable to common shareholders:

                

Loss per share attributable to shareholders – basic and diluted

 $(0.01) $(0.01) $(0.01) $(0.01)

Weighted average number of common shares outstanding:

  284,944,366   265,856,970   282,839,515   263,345,148 
                 

Comprehensive loss:

                

Net loss

 $(1,626) $(1,333) $(2,120) $(2,877)

Foreign currency translation

  (7)  (3)  (13)  (11)

Comprehensive loss

  (1,633)  (1,336)  (2,133)  (2,888)

Comprehensive loss attributable to noncontrolling interest

  (298)  (105)  (545)  3 

Comprehensive loss attributable to common stockholders

 $(1,335) $(1,231) $(1,588) $(2,891)

 

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

 

 

 

BIOLARGO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022

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

(unaudited)

 

   

Common stock

   

Additional

paid-in

   

Accumulated

   

Accumulated

other

comprehensive

   

Non-

controlling

   

Total stockholders

 
   

Shares

   

Amount

   

capital

   

deficit

   

Loss

   

interest

   

equity (deficit)

 
                                                         

Balance, December 31, 2022

    278,462,706     $ 186     $ 148,435     $ (143,594 )   $ (149 )   $ (2,867 )   $ 2,011  

Sale of stock for cash

    4,201,402       3       797                         800  

Issuance of common stock for services

    930,490       1       206                         207  

Issuance of common stock in exchange for Clyra shares

    527,983                                      

Stock option compensation expense

                195                         195  

Clyra Medical Technologies, Inc. (Clyra) stock options issued for services

                61                         61  

Warrant issued for interest

                30                         30  

Clyra – sales of Series A Preferred Stock

                                  225       225  

Clyra – Series A Preferred Stock – dividend

                                  (27 )     (27 )

Biolargo Energy Technology Inc. (BETI) offering

                                  550       550  

Noncontrolling interest allocation

                467                   (467 )      

Net loss

                      (247 )           (247 )     (494 )

Foreign currency translation

                            (6 )           (6 )

Balance, March 31, 2023

    284,122,581     $ 190     $ 150,191     $ (143,841 )   $ (155 )   $ (2,833 )   $ 3,552  

Sale of stock for cash

    2,677,169       2       492                         494  

Issuance of common stock for services

    420,911             75                         75  

Stock option compensation expense

                222                         222  

Clyra Medical Technologies, Inc. (Clyra) stock options issued for services

                66                         66  

Clyra – sales of Series A Preferred Stock

                                  1,062       1,062  

Clyra – Series A Preferred Stock – dividend

                                  (45 )     (45 )

Biolargo Energy Technology Inc. (BETI) offering

                                  330       330  

Noncontrolling interest allocation

                1,461                   (1,461 )      

Net loss

                      (1,328 )           (298 )     (1,626 )

Foreign currency translation

                            (7 )           (7 )

Balance, June 30, 2023

    287,220,661     $ 192     $ 152,507     $ (145,169 )   $ (162 )   $ (3,245 )   $ 4,123  

 

 

   

Common stock

   

Additional

paid-in

   

Accumulated

   

Accumulated

other

comprehensive

   

Non-

controlling

   

Total stockholders

 
   

Shares

   

Amount

   

capital

   

deficit

   

Loss

   

interest

   

equity (deficit)

 
                                                         

Balance, December 31, 2021

    255,893,726     $ 171     $ 143,718     $ (139,121 )   $ (115 )   $ (3,720 )   $ 933  

Sale of stock for cash

    6,703,789       4       1,198                         1,202  

Issuance of common stock for services

    86,752             17                         17  

Stock option compensation expense

                660                         660  

Clyra Medical Technologies, Inc. (Clyra) stock options issued for services

                141                         141  

Noncontrolling interest allocation

                (528 )                 528        

Net loss

                      (1,652 )           108       (1,544 )

Foreign currency translation

                            (8 )           (8 )

Balance, March 31, 2022

    262,684,267     $ 175     $ 145,206     $ (140,773 )   $ (123 )   $ (3,084 )   $ 1,401  

Sale of stock for cash

    5,011,570       4       944                         948  

Issuance of common stock for services

    340,891             59                         59  

Stock option compensation expense

                234                         234  

Clyra Medical Technologies, Inc. (Clyra) stock options issued for services

                82                         82  

Noncontrolling interest allocation

                (103 )                 103        

Net loss

                      (1,228 )           (105 )     (1,333 )

Foreign currency translation

                            (3 )           (3 )

Balance, June 30, 2022

    268,036,728     $ 179     $ 146,422     $ (142,001 )   $ (126 )   $ (3,086 )   $ 1,388  

 

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

 

 

 

BIOLARGO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022

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

(unaudited)

 

  

JUNE 30, 2023

  

JUNE 30, 2022

 

Cash flows from operating activities

        

Net loss

 $(2,120) $(2,877)

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

        

Stock option compensation expense

  544   1,117 

Common stock issued for services

  282   76 

Bad debt expense

  46    

Excess and obsolete inventory

  54    

Amortization of right-of-use operating lease assets

  60    

Interest expense related to amortization of the discount on note payable

  3   8 

Fair value of warrant issued for interest

  30    

PPP loan forgiveness

     (174)

Loss on investment in South Korean joint venture

  12   15 

Depreciation expense

  48   6 

Changes in assets and liabilities:

        

Accounts receivable

  (19)  (66)

Inventories

  (63)  (15)

Prepaid expenses and other assets

  66   4 

Accounts payable and accrued expenses

  (391)  105 

Clyra accounts payable and accrued expenses

  51   (32)

Deferred revenue

  (7)  (89)

Lease liability, net

  (52)   

Customer deposits

  (71)  58 

Net cash used in operating activities

  (1,527)  (1,864)

Cash flows from investing activities

        

Equipment purchases

  (127)  (101)

Net cash used in investing activities

  (127)  (101)

Cash flows from financing activities

        

Proceeds from sale of common stock

  1,294   2,150 

Proceeds from sale of BETI common stock

  880    

Repayment of note payable and vehicle loan

  (52)   

Repayment by Clyra on inventory line of credit

  (18)  (10)

Proceeds from sale of Clyra Medical preferred stock

  1,287    

Proceeds from Clyra Medical convertible note

     100 

Net cash provided by financing activities

  3,391   2,240 

Net effect of foreign currency translation

  (13)  (11)

Net change in cash

  1,724   264 

Cash at beginning of year

  1,851   962 

Cash at end of period

 $3,575  $1,226 

Supplemental disclosures of cash flow information

        

Cash paid during the year for:

        

Interest

 $27  $7 

Income taxes

 $5  $ 

Short-term lease payments not included in lease liability

 $24  $78 

Non-cash investing and financing activities

        

Equipment added via vehicle loan

 $80  $ 

Leasehold improvements included in accounts payable

 $102  $ 

Allocation of noncontrolling interest

 $1,927  $631 

Conversion of Clyra common stock to BioLargo common stock

 $100  $ 

 

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

 

 
- 5 -

BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 

 

Note 1. Business and Organization

 

Description of Business

 

BioLargo, Inc. (“BioLargo”, or the “Company”) invents, develops, and commercializes innovative platform technologies to solve challenging environmental problems like PFAS contamination (per- and polyfluoroalkyl substances), advanced water and wastewater treatment, industrial odor control, air quality control, infection control, and myriad environmental remediation challenges. Our business strategy is straightforward: we invent or acquire technologies that we believe have the potential to be disruptive in large commercial markets; we develop and validate these technologies to advance and promote their commercial success as we leverage our considerable scientific, engineering, and entrepreneurial talent; we then monetize these technical assets through a variety of business structures that may include licensure, joint venture, sale, spin off, or by deploying direct to market strategies.

 

Organization

 

We are a Delaware corporation formed in 1991. We have six wholly-owned subsidiaries: BioLargo Life Technologies, Inc., organized under the laws of the State of California in 2006; ONM Environmental, Inc., organized under the laws of the State of California in 2009; BioLargo Equipment and Technologies, Inc., organized under the laws of the State of California in 2022; BioLargo Water, Inc. (“Water”), organized under the laws of Canada in 2014; BioLargo Equipment and Solutions Technologies, Inc., organized under the laws of the State of California in 2022; and BioLargo Development Corp., organized under the laws of the State of California in 2016. Additionally, we own 82% (see Note 9) of BioLargo Engineering Science and Technologies, LLC (“BLEST”), organized under the laws of the State of Tennessee in 2017, 56% of Clyra Medical Technologies, Inc. (“Clyra” or “Clyra Medical”), organized under the laws of the State of California in 2012, and 96% of BioLargo Energy Technologies, Inc. (“BETI”) organized under the laws of the State of California in 2022. We consolidate the financial statements of our partially owned subsidiaries (see Note 2, subheading “Principles of Consolidation,” and Note 8).

 

Liquidity / Going Concern

 

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of our business. For the six months ended June 30, 2023, we generated revenues of $5,188,000 through our business segments (see Note 11), had a net loss of $2,120,000, used $1,527,000 cash in operations, and at June 30, 2023, we had working capital of $3,553,000, and current assets of $4,847,000.

 

During the six months ended June 30, 2023, we (i) sold $299,000 of our common stock to Lincoln Park Capital Fund, LLC (“Lincoln Park”) (see Note 3), (ii) sold $995,000 of our common stock and warrants to accredited investors (see Notes 3 and 6), (iii) sold $1,287,000 of Clyra Medical Series A Preferred Stock (see Note 8), and (iv) sold $880,000 of BETI common stock (see Note 10). Subsequent to June 30, 2023, we continued these financing activities (see Note 13). As of June 30, 2023, our cash and cash equivalents totaled $3,575,000. Our total liabilities included a $75,000 vehicle loan, $140,000 due in U.S. Small Business Administration (SBA) loans issued pursuant to the Paycheck Protection Program (see Note 4), $150,000 due to the SBA issued pursuant to the Economic Injury Disaster program (see Note 4), and $243,000 owed by Clyra Medical due in 2024 (see Note 8). We have been, and anticipate that we will continue to be, limited in terms of our capital resources, and expect to continue to need further investment capital to fund operations. Such activities have continued subsequent to June 30, 2023.

 

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

 

- 6 -

BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 

The foregoing factors raise substantial doubt about our ability to continue as a going concern, unless we are able to continue to raise funds through stock sales to Lincoln Park or other private financings, and in the long term, our ability to attain a reasonable threshold of operating efficiencies and achieve profitable operations by licensing or otherwise commercializing products incorporating our technologies. The consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

 

 

Note 2. Summary of Significant Accounting Policies

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, and partially owned subsidiaries BETI, BLEST and Clyra Medical. All intercompany accounts and transactions have been eliminated.

 

Foreign Currency

 

The Company has designated the functional currency of BioLargo Water, Inc., our Canadian subsidiary, to be the Canadian dollar. Therefore, translation gains and losses resulting from differences in exchange rates are recorded in accumulated other comprehensive income.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with maturities of three months or less when acquired to be cash equivalents. Substantially all cash equivalents are held in short-term money market accounts at one of the largest financial institutions in the United States, Bank of America. From time to time, our cash account balances are greater than the Federal Deposit Insurance Corporation insurance limit of $250,000 per owner per bank, and during such times, we are exposed to credit loss for amounts in excess of insured limits in the event of non-performance by the financial institution. We do not anticipate non-performance by our financial institution.

 

As of June 30, 2023, and December 31, 2022, our cash balances were made up of the following (in thousands):

 

  

June 30,

2023

  

December 31,

2022

 

BioLargo, Inc. and subsidiaries

 $2,762  $1,681 

Clyra Medical Technologies, Inc.

  813   170 

Total

 $3,575  $1,851 

 

Accounts Receivable

 

In June 2016, the FASB issued ASU 2016-13, which sets out the principles for the recognition of measurement of credit losses on financial instruments, including trade receivables. The standard eliminates the probable initial recognition threshold and requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. The new standard was effective for the Company beginning January 1, 2023 and primarily impacted trade accounts receivable. 

 

Accounts receivable are customer obligations that are unconditional. Accounts receivable are presented net of an allowance for doubtful accounts for expected credit losses, which represents an estimate of amounts that may not be collectible. The Company performs ongoing credit evaluations of its customers and, if necessary, provides an allowance for doubtful accounts and expected credit losses. A provision to the allowances for doubtful accounts for expected credit losses is recorded based on factors including the length of time the receivables are past due, the current business environment, and the Company’s historical experience. Provisions to the allowances for doubtful accounts for expected credit losses are recorded to general and administrative expenses. The Company writes off accounts receivable against the allowance when it determines a balance is uncollectible and no longer actively pursues collection of the receivable. The Company does not have any off-balance-sheet credit exposure related to customers. As of June 30, 2023, and December 31, 2022, the allowance for doubtful accounts for expected credit losses was $58,000 and $12,000.

 

- 7 -

BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 

Credit Concentration

 

We have a limited number of customers that account for significant portions of our revenue. During the three and six months ended June 30, 2023, and 2022, the following customers accounted for more than 10% of consolidated revenues:

 

  

Three Months

  

Six Months

 
  

June 30, 2023

  

June 30, 2022

  

June 30, 2023

  

June 30, 2022

 
                 

Customer A

  55%  39%  77%  35%

Customer B

 

<10

%  27% 

<10

%  17%

Customer C

 

<10

% 

<10

% 

<10

%  10%

 

At June 30, 2023, one customer accounted for more than 10% of consolidated accounts receivable, and at December 31, 2022, three customers accounted for more than 10% of consolidated accounts receivable:

 

  

June 30,

2023

  

December 31,

2022

 

Customer A

  49%  11%

Customer B

 

<10

%  31%

Customer D

 

<10

%  15%

 

 

Inventory

 

Inventories are stated at the lower of cost or net realizable value using the average cost method. The allowance for obsolete inventory as of  June 30, 2023, and December 31, 2022, was $212,000 and $158,000. Inventories consisted of (in thousands):

 

  

June 30,

2023

  

December 31,

2022

 

Raw material

 $83  $46 

Finished goods

  44   74 

Total

 $127  $120 

 

- 8 -

BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 

Other Non-Current Assets

 

Other non-current assets consisted of (i) security deposits related to our business offices, (ii) three patents acquired on  October 22, 2021, for $34,000, and (iii) tax credit receivables from the Canadian government related to a research and development credit from our Canadian subsidiary for which we’ve applied for and received in prior periods.

 

  

June 30,

2023

  

December 31,

2022

 

Patents

 $34  $34 

Security deposits

  35   35 

Tax credit receivable

  --   55 

Total

 $69  $124 

 

 

Equity Method of Accounting

 

On March 20, 2020, we invested $100,000 into a South Korean entity (Odin Co. Ltd., “Odin”) pursuant to a Joint Venture agreement we had entered into with BKT Co. Ltd. and its U.S. based subsidiary, Tomorrow Water. We received a 40% non-dilutive equity interest, and BKT and Tomorrow Water each received 30% equity interests for an aggregate $150,000 investment.

 

We account for our investment in the joint venture under the equity method of accounting. We have determined that while we have significant influence over the joint venture through our technology license and our position on the Board of Directors, we do not control the joint venture or are otherwise involved in managing the entity and we own less than a majority of the equity. Therefore, we record the asset on our consolidated balance sheet and record an increase or decrease of the recorded balance by our percentage ownership of the profits or losses in the joint venture. The joint venture has incurred a loss since inception and our 40% ownership share reduced our investment interest. For the three and six months ended  June 30, 2023, the reduction of our investment interest totaled $6,000 and $12,000, respectively, and for the same periods in 2022, reduced our investment interest $8,000 and $15,000, respectively.

 

Impairment

 

Long-lived and definite lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  If the sum of the expected future undiscounted cash flows from the use of the asset and its eventual disposition is less than the carrying amount of the asset, then an impairment loss is recognized.  The impairment loss is measured based on the fair value of the asset.  Any resulting impairment is recorded as a reduction in the carrying value of the related asset in excess of fair value and a charge to operating results. There were no impairment losses related to intangible assets during the three or six months ended June 30, 2023 or 2022.

 

Earnings (Loss) Per Share

 

We report basic and diluted earnings (loss) per share (“EPS”) for common and common share equivalents. Basic EPS is computed by dividing reported earnings by the weighted average shares outstanding. Diluted EPS is computed by adding to the weighted average shares the dilutive effect if convertible notes payable, stock options and warrants were exercised into common stock. For the three and six months ended June 30, 2023, and 2022, the denominator in the diluted EPS computation is the same as the denominator for basic EPS due to the Company’s net loss which creates an anti-dilutive effect of the convertible notes payable, warrants and stock options.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the period reported. Actual results could differ from those estimates. Estimates are used when accounting for stock-based transactions, debt transactions, derivative liabilities, allowance for bad debt, asset depreciation and amortization, impairment expense, among others.

 

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

 

- 9 -

BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 

Share-Based Compensation Expense

 

We recognize compensation expense for stock option awards on a straight-line basis over the applicable service period of the award, which is the vesting period. Fair value is determined on the grant date. Share-based compensation expense is based on the grant date fair value estimated using the Black-Scholes Option Pricing Model.

 

For stock and stock options issued to consultants and other non-employees for services, the Company measures and records an expense as of the earlier of the date at which either: a commitment for performance by the non-employee has been reached or the non-employee’s performance is complete. The equity instruments are measured at the current fair value, and for stock options, the instruments are measured at fair value using the Black Scholes option model.

 

The following methodology and assumptions were used to calculate share-based compensation for the six months ended June 30, 2023, and 2022:

 

  

2023

  

2022

 
  

Non Plan

  

2018 Plan

  

Non Plan

  

2018 Plan

 

Risk free interest rate

 3.483.58%

 

 3.483.58%

 

 2.323.83%

 

 2.322.98%

 

Expected volatility

 113-114%

 

 113-114%

 

 114117%

 

 116117%

 

Expected dividend yield

        

Forfeiture rate

        

Life in years

 10  10  10  10 

 

Expected price volatility is the measure by which our stock price is expected to fluctuate during the expected term of an option. The expected volatility is derived from the historical daily change in the market price of our common stock, as we believe that historical volatility is the best indicator of future volatility.

 

The risk-free interest rate used in the Black-Scholes calculation is based on the prevailing U.S. Treasury yield as determined by the U.S. Federal Reserve. We have never paid any cash dividends on our common stock and do not anticipate paying cash dividends on our common stock in the foreseeable future.

 

Warrants

 

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. The warrant relative fair values are also recorded as a discount to the convertible promissory notes.

 

- 10 -

BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 

Non-Cash Transactions

 

We determine the value assigned to each intangible we acquire, and/or services or products received for non-cash consideration of our common stock based on the market price of our common stock issued as consideration, at the date of the agreement of each transaction or when the service is rendered or product is received.

 

Revenue Recognition

 

We account for revenue in accordance with ASC 606, “Revenue from Contacts with Customers”. The guidance focuses on the core principle for revenue recognition, which is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, the guidance provides that an entity should apply the following steps:

 

Step 1: Identify the contract(s) with a customer.

 

Step 2: Identify the performance obligations in the contract.

 

Step 3: Determine the transaction price.

 

Step 4: Allocate the transaction price to the performance obligations in the contract.

 

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

 

The Company’s products are sold through a contract with the customer and 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. Revenue is recognized at a point in time when the goods are shipped if the agreement is FOB manufacturer, and when goods are delivered if FOB destination. Revenue is recognized with a reduction for sales discounts, as appropriate and negotiated in the customer’s purchase order.

 

Service contracts are performed through a written contract, which specifies the performance obligations and the rate at which the services will be billed, typically by time and materials. Each service is separately negotiated and priced. Revenue is recognized as services are performed and completed, or, for services related to product installations, at the completion of the installation. A few contracts have called for milestone or fixed cost payments, where we invoice an agreed-to amount per month for the life of the contract. In these instances, completed work, billed hourly, is recognized as revenue. If the billing amount is greater or lesser than the completed work, a receivable or payable is created. These accounts are adjusted upon additional billings as the work is completed. To date, there have been no discounts or other financing terms for the contracts.

 

The Company has outstanding contract liability obligations of $10,000 as of June 30, 2023, recorded as deferred revenue. We recognized $7,000 in revenue and reduced the deferred revenue balance by the same amount as performance obligations were satisfied in the six months ended June 30, 2023. The outstanding balance will be recognized over the remaining life of the contracts. Our Canadian subsidiary had a customer deposit outstanding at June 30, 2023, totaling $113,000, that was awarded as part of a grant for a particular project that has been delayed.

 

As we generate revenues from royalties or license fees from our intellectual property, a licensee will 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. We have entered into a licensing agreement for the CupriDyne Clean product, and we recognize royalty and license fees on a quarterly basis as the product is sold through to third parties and reported to us.

 

Government Grants

 

We have been awarded multiple research grants from the private and public Canadian research programs. The income we receive directly from grants is recorded as other income. We have been awarded over 80 grants since our first in 2015. Some of the funds from these grants are given directly to third parties (such as the University of Alberta or a third-party research scientist) to support research on our technology. The grants have terms generally ranging between six and eighteen months and support a majority, but not all, of the related research budget costs. This cooperative research allows us to utilize (i) a depth of resources and talent to accomplish highly skilled work, (ii) financial aid to support research and development costs, (iii) independent and credible validation of our technical claims.

 

- 11 -

BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 

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

 

Income Taxes

 

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

 

We account for uncertainties in income tax law under a comprehensive model for the financial statement recognition, measurement, presentation, and disclosure of uncertain tax positions taken or expected to be taken in income tax returns as prescribed by generally accepted accounting principles (“GAAP”). Under GAAP, the tax effects of a position are recognized only if it is “more-likely-than-not” to be sustained by the taxing authority as of the reporting date. If the tax position is not considered “more-likely-than-not” to be sustained, then no benefits of the position are recognized. Management believes there are no unrecognized tax benefits or uncertain tax positions as of June 30, 2023, and December 31, 2022.

 

The Company assessed its earnings history, trends and estimates of future earnings and determined that the deferred tax asset could not be realized as of June 30, 2023, and December 31, 2022. Accordingly, a 100% valuation allowance was recorded against the net deferred tax asset.

 

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

 

Fair Value of Financial Instruments

 

Management believes the carrying amounts of the Company’s financial instruments as of June 30, 2023, and December 31, 2022 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, line of credit, and other assets and liabilities. The carrying amount of debt instruments are believed to approximate fair value as the stated interest rates are reflective of the prevailing market rates.

 

Tax Credits

 

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

 

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BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 

Leases

 

At inception of a lease contract, we assess whether the contract is, or contains, a lease. Our assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether we obtain the right to substantially all the economic benefit from the use of the asset throughout the period of the contract, and (3) whether we have the right to direct the use of the asset during such time period. At inception of a lease, we allocate the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments. Leases are classified as either finance leases or operating leases. A lease must be classified as a finance lease if any of the following criteria are met: the lease transfers ownership of the asset by the end of the lease term, the lease contains an option to purchase the asset that is reasonably certain to be exercised, the lease term is for a major part of the remaining useful life of the asset or the present value of the lease payments equals or exceeds substantially all of the fair value of the asset. A lease is classified as an operating lease if it does not meet any of these criteria. We have no leases classified as finance leases. As of June 30, 2023, the weighted average remaining lease term for our operating leases was nine years. The weighted average discount rate for our operating leases was 18%. For all leases at the lease commencement date, a right-of-use asset and a lease liability are recognized. The right-of-use asset represents the right to use the leased asset for the lease term. The lease liability represents the present value of the lease payments under the lease. The right-of-use asset is initially measured at cost, which primarily comprises the initial amount of the lease liability, plus any initial direct costs incurred, consisting mainly of brokerage commissions, less any lease incentives received. All right-of-use assets are reviewed for impairment. The lease liability is initially measured at the present value of the lease payments, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, management estimates the incremental borrowing rate, which currently is estimated to be 18%. Lease payments included in the measurement of the lease liability comprise the following: the fixed noncancelable lease payments, payments for optional renewal periods where it is reasonably certain the renewal period will be exercised, and payments for early termination options unless it is reasonably certain the lease will not be terminated early. Lease components are included in the measurement of the initial lease liability. Additional payments based on a change in our portion of the operating expenses, including real estate taxes and insurance, are recorded as a period expense when incurred. Lease modifications result in remeasurement of the lease liability. Lease expense for operating leases consists of the lease payments plus any initial direct costs, primarily brokerage commissions, and is recognized on a straight-line basis over the lease term. We have elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a term of 12 months or less. The effect of short-term leases on our right-of-use asset and lease liability was not material.

 

As of June 30, 2023, the right-of-use assets totaled $807,000 and the lease liability totaled $818,000 on our balance sheet related to our operating leases.

 

Property and Equipment

 

Property and equipment includes machinery and leasehold improvements and is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range from 3 - 5 years or the remaining lease term. Newly built leaseholds, additions, renewals, and betterments that significantly extend the life of the asset are capitalized. The Company is currently constructing a facility and purchasing equipment for producing sodium sulfur batteries. Expenditures for repairs and maintenance are charged to expense as incurred. For assets sold or otherwise disposed of, the cost and related accumulated depreciation and amortization are removed from the accounts, and any related gain or loss is reflected in income for the period.

 

Recent Accounting Pronouncements

 

Currently there are no recently released pronouncements that are considered applicable to the Company’s financial statements.

 

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BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
 

Note 3. Sale of Stock for Cash

 

Lincoln Park Financing

 

On December 13, 2022, we entered into a stock purchase agreement (the “2022 LPC Purchase Agreement”) with Lincoln Park, pursuant to which Lincoln Park agreed to purchase from us at our request up to an aggregate of $10,000,000 of our common stock (subject to certain limitations) from time to time over a period of three years. The agreement allows us, at our sole discretion, to direct Lincoln Park to purchase shares of our common stock, subject to limitations in both volume and dollar amount. The purchase price of the shares that may be sold to Lincoln Park under the agreement is the lower of (i) the lowest sale price on the date of purchase, or (ii) the average of the three lowest closing prices in the prior 12 business days. There are no restrictions on future financings, rights of first refusal, participation rights, penalties, or liquidated damages other than a prohibition on entering into a “Variable Rate Transaction,” as defined in the agreement. Concurrently with the 2022 LPC Purchase Agreement, we entered into a Registration Rights Agreement, pursuant to which we filed a registration statement on Form S-1 with the SEC on December 23, 2022. This registration statement was declared effective on January 19, 2023.

 

During the three and six months ended June 30, 2023, we sold 1,098,221 and 1,643,623 shares of our common stock to Lincoln Park, and received $194,000 and $299,000, respectively, in gross and net proceeds.

 

During the three and six months ended  June 30, 2022, pursuant to a prior (similar) arrangement, we sold 406,140 and 1,912,961 shares of our common stock to Lincoln Park, and received $72,000 and $418,000, respectively, in gross and net proceeds.

 

Unit Offerings

 

During the three and six months ended June 30, 2023, we sold 1,578,948 and 5,234,948 shares of our common stock and received $300,000 and $995,000 in gross and net proceeds from accredited investors. In addition to the shares, we issued each investor a six-month and a five-year warrant to purchase additional shares. (See Note 6, “Warrants Issued in Unit Offering”.)

 

 

Note 4. Debt Obligations

 

The following table summarizes our debt obligations outstanding as of June 30, 2023, and December 31, 2022 (in thousands). The table does not include debt obligations of our partially owned subsidiary Clyra Medical (see Note 8, “Debt Obligations of Clyra Medical”).

 

  

June 30,

2023

  


December 31,

2022

 

Current portion of debt:

        

SBA Paycheck Protection Program loan

 $43  $43 

Vehicle loan, current portion

  13    

Convertible note payable, matures March 1, 2023

     50 

SBA EIDL Loan, matures July 2053, current portion

  10   10 

Debt discount, net of amortization

     (3)

Total current portion of debt

 $66  $100 
         

Long-term debt:

        

SBA Paycheck Protection Program loans, matures May 2025

 $97  $97 

Vehicle loan, matures March 2029

  62    

SBA EIDL Loan, matures July 2050

  140   140 

Total long-term debt, net of current

 $299  $237 
         

Total

 $365  $337 

 

- 14 -

BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 

For the three and six months ended June 30, 2023, we recorded $12,000 and $60,000 of interest expense related to the amortization of discounts on convertible notes payable and coupon interest from our convertible notes and lines of credit.

 

For the three and six months ended June 30, 2022, we recorded $15,000 and $28,000 of interest expense related to the amortization of discounts on convertible notes payable and coupon interest from our convertible notes and lines of credit.

 

Vehicle loan

 

On February 7, 2023, we entered a loan agreement with Bank of America for the purchase of a vehicle used in operations totaling $80,000, at 5.29% annual interest which matures March 7, 2029. The loan agreement requires monthly payments of $1,000.

 

Convertible note payable, matures March 1, 2023

 

On March 6, 2023, we entered into an agreement with the holder of a $50,000 note to convert that note into common stock of BETI (see note 10). As payment for interest, a warrant to purchase 200,000 shares of BioLargo common stock at $0.21 was issued to the investor, expiring five years from the grant date. (See Note 6).

 

SBA Program Loans

 

On  February 7, 2022, we received notice that the SBA had forgiven $174,000 of ONM Environmental's $217,000 Paycheck Protection Program (PPP) loan. As of June 30, 2023, the outstanding balance on this loan totals $43,000. The partial forgiveness decision has been appealed, and during such time, loan payments are deferred.

 

On May 12, 2022, we received notice that the SBA had denied the forgiveness application of BLEST’s $97,000 PPP loan. We have appealed that decision. During the period upon which a forgiveness decision is on appeal, loan payments are deferred. The maturity date of the BLEST PPP loan was officially extended on our request to May 2025.

 

In July 2020, ONM Environmental received an Economic Injury Disaster Loan from the SBA in the amount of $150,000. The note has a 3.75% annual interest rate, requires monthly payments of $731, and matures July 2050.

 

 

Note 5. Share-Based Compensation

 

Issuance of Common Stock in exchange for Services

 

Payment of Officer Salaries

 

On June 30, 2023, an officer agreed to convert an aggregate $12,000 of accrued and unpaid salary into 68,541 shares of our common stock at $0.18 per share. On March 31, 2023, an officer agreed to convert an aggregate $6,000 of accrued and unpaid salary into 30,747 shares of our common stock at $0.20 per share.

 

On  June 30, 2022, we issued 263,895 shares of our common stock at $0.18 per share in lieu of $47,000 of accrued and unpaid salary to our officers.

 

Shares issued to Officers are unvested at the date of grant and subject to a lock-up agreement restricting vesting and sale until the earlier of (i) the consummation of a sale (in a single transaction or in a series of related transactions) of BioLargo by means of a sale of (a) a majority of the then outstanding common stock of BioLargo (whether by merger, consolidation, sale or transfer of common stock, reorganization, recapitalization or otherwise) or (b) all or substantially all of the assets of BioLargo; and (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 Officer and resulting in Officer’s termination.

 

- 15 -

BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 

Payment of Consultant and Vendor Fees

 

On  June 30, 2023, we issued 352,370 shares of our common stock at $0.18 per share in lieu of $63,000 of accrued and unpaid obligations to consultants and vendors. On  March 31, 2023, we issued 899,743 shares of our common stock at $0.20 per share in lieu of $201,000 of accrued and unpaid obligations to consultants and vendors.

 

On  June 30, 2022, we issued 76,996 shares of our common stock at $0.18 per share in lieu of $12,000 of accrued and unpaid obligations to consultants and vendors. On  March 31, 2022, we issued 86,752 shares of our common stock at $0.23 per share in lieu of $17,000 of accrued and unpaid obligations to consultants and vendors. 

 

All of these offerings and sales were made in reliance on the exemption from registration contained in Section 4(2) of the Securities Exchange Act and/or Regulation D promulgated thereunder as not involving a public offering of securities.

 

Stock Option Expense

 

During the three and six months ended June 30, 2023, we recorded an aggregate $288,000 and $544,000, and during the three and six months ended  June 30, 2022, we recorded an aggregate $316,000 and $1,117,000, in selling general and administrative expense related to the issuance of stock options. We issued options through our 2018 Equity Incentive Plan, and outside of this plan. Included in these totals is option expense related to issuances by our subsidiary, Clyra Medical, totaling $66,000 and $127,000 in the three and six months ended June 30, 2023, and $82,000 and $223,000 in the three and six months ended June 30, 2022. (See Note 8.)

 

2018 Equity Incentive Plan

 

On June 22, 2018, our stockholders adopted the BioLargo 2018 Equity Incentive Plan (“2018 Plan”) as a means of providing our directors, key employees, and consultants additional incentive to provide services. Both stock options and stock grants may be made under this plan for a period of 10 years. It is set to expire on its terms on June 22, 2028. Our Board of Director’s Compensation Committee administers this plan. As plan administrator, the Compensation Committee has sole discretion to set the price of the options. The plan authorizes the following types of awards: (i) incentive and non-qualified stock options, (ii) restricted stock awards, (iii) stock bonus awards, (iv) stock appreciation rights, (v) restricted stock units, and (vi) performance awards. The total number of shares reserved and available for awards pursuant to this Plan as of the date of adoption of this 2018 Plan by the Board is 40 million shares. The number of shares available to be issued under the 2018 Plan increases automatically each January 1st by the lesser of (a) 2 million shares, or (b) such number of shares determined by our Board. As of June 30, 2023, 50,000,000 shares are authorized under the plan.

 

Activity for our stock options under the 2018 Plan during the six months ended June 30, 2023, and 2022, is as follows:

 

           

Weighted

     
           

Average

  

Aggregate

 
  Options   

Exercise

  Price per   

intrinsic

 
  Outstanding   Price per share   

share

  Value(1) 

Balance, December 31, 2022

  28,484,549  $0.120.43  $0.19    

Granted

  2,636,712  $0.180.20  $0.19    

Balance, June 30, 2023

  31,121,261  $0.120.43  $0.19