Company Quick10K Filing
BioLargo
Price0.32 EPS-0
Shares156 P/E-6
MCap50 P/FCF-16
Net Debt4 EBIT-6
TEV54 TEV/EBIT-9
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-06-30 Filed 2020-08-14
S-1 2020-04-10 Public Filing
10-Q 2020-03-31 Filed 2020-05-19
10-K 2019-12-31 Filed 2020-03-31
10-Q 2019-09-30 Filed 2019-11-14
S-1 2019-08-29 Public Filing
10-Q 2019-06-30 Filed 2019-08-14
10-Q 2019-03-31 Filed 2019-05-15
10-K 2018-12-31 Filed 2019-03-29
S-1 2018-11-06 Public Filing
10-Q 2018-09-30 Filed 2018-11-14
10-Q 2018-06-30 Filed 2018-08-14
10-Q 2018-03-31 Filed 2018-05-14
S-1 2018-01-17 Public Filing
10-K 2017-12-31 Filed 2018-03-16
10-Q 2017-09-30 Filed 2017-11-14
10-Q 2017-06-30 Filed 2017-08-14
10-Q 2017-03-31 Filed 2017-05-17
10-K 2016-12-31 Filed 2017-03-30
10-Q 2016-09-30 Filed 2016-11-14
10-Q 2016-06-30 Filed 2016-08-15
10-Q 2016-03-31 Filed 2016-05-16
10-K 2015-12-31 Filed 2016-03-30
10-Q 2015-09-30 Filed 2015-11-16
10-Q 2015-06-30 Filed 2015-08-10
10-Q 2015-03-31 Filed 2015-05-15
10-K 2014-12-31 Filed 2015-03-31
10-Q 2014-09-30 Filed 2014-11-14
10-Q 2014-06-30 Filed 2014-08-15
10-Q 2014-03-31 Filed 2014-05-15
10-K 2013-12-31 Filed 2014-04-01
10-Q 2013-09-30 Filed 2013-11-13
10-Q 2013-06-30 Filed 2013-08-14
10-Q 2013-03-31 Filed 2013-05-15
10-K 2012-12-31 Filed 2013-03-29
10-Q 2012-09-30 Filed 2012-11-14
10-Q 2012-06-30 Filed 2012-08-14
10-Q 2012-03-31 Filed 2012-05-15
10-K 2011-12-31 Filed 2012-04-06
10-Q 2011-09-30 Filed 2011-11-15
10-Q 2011-06-30 Filed 2011-08-15
10-Q 2011-03-31 Filed 2011-05-16
10-K 2010-12-31 Filed 2011-04-15
10-Q 2010-09-30 Filed 2010-11-15
10-Q 2010-06-30 Filed 2010-08-16
10-Q 2010-03-31 Filed 2010-05-17
10-K 2009-12-31 Filed 2010-04-06
8-K 2020-08-04 Sale of Shares, Regulation FD, Exhibits
8-K 2020-07-23 Shareholder Vote
8-K 2020-06-30 Enter Agreement, Exhibits
8-K 2020-03-31
8-K 2020-03-30
8-K 2020-03-20
8-K 2020-03-03
8-K 2020-02-25
8-K 2020-02-12
8-K 2019-09-23
8-K 2019-07-31
8-K 2019-07-29
8-K 2019-06-18
8-K 2019-06-04
8-K 2019-04-18
8-K 2019-04-01
8-K 2019-03-05
8-K 2019-02-05
8-K 2019-01-23
8-K 2019-01-16
8-K 2019-01-07
8-K 2018-12-17
8-K 2018-10-31
8-K 2018-10-16
8-K 2018-09-26
8-K 2018-09-26
8-K 2018-09-19
8-K 2018-09-12
8-K 2018-08-14
8-K 2018-07-02
8-K 2018-05-31
8-K 2018-05-23
8-K 2018-05-23
8-K 2018-05-07
8-K 2018-03-07
8-K 2018-01-16
8-K 2017-12-31

BLGO 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements
Note 1. Business and Organization
Note 2. Summary of Significant Accounting Policies
Note 3. Equity Financing
Note 4. Debt Obligations
Note 5. Share - Based Compensation
Note 6. Warrants
Note 7. Accounts Payable and Accrued Expenses
Note 8. Noncontrolling Interest - Clyra Medical
Note 9. Biolargo Engineering, Science and Technologies, Llc
Note 10. Business Segment Information
Note 11. Commitments and Contingencies
Note 12. Subsequent Events.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 4. Controls and Procedures
Part II
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 5. Other Information
Item 6. Exhibits
EX-4.22 ex_199467.htm
EX-31.1 ex_198870.htm
EX-31.2 ex_198876.htm
EX-32 ex_198877.htm

BioLargo Earnings 2020-06-30

Balance SheetIncome StatementCash Flow
10.06.02.0-2.0-6.0-10.02012201420172020
Assets, Equity
0.6-0.3-1.2-2.1-3.0-3.92012201420172020
Rev, G Profit, Net Income
2.82.01.10.3-0.6-1.42012201420172020
Ops, Inv, Fin

10-Q 1 blgo20200630_10q.htm FORM 10-Q blgo20200630_10q.htm
 

 

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, 2020.

 

or

 

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

 

For the transition period from              to             

 

Commission File Number 000-19709

 


 

BIOLARGO, INC.

(Exact name of registrant as specified in its charter) 

 


 

Delaware

 

65-0159115

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

14921 Chestnut St.

 

Westminster, CA 92683

(Address of principal executive offices)

 

(888) 400-2863

(Registrant’s telephone number, including area code)

 


 

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

 

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common stock

BLGO

OTC Markets (OTCQB)

 


 

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

 

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

 

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

 

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

 

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

 

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

 

The number of shares of the Registrant’s Common Stock outstanding as of August 10, 2020 was 213,563,236 shares.  

 

 

 

 
 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

BIOLARGO, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2019 AND JUNE 30, 2020

(in thousands, except for per share data)

 

   

DECEMBER 31,
2019

   

JUNE 30, 2020

(unaudited)

 

Assets

 

Current assets:

               

Cash and cash equivalents

  $ 655     $ 1,207  

Accounts receivable, net of allowance

    355       258  

Inventories, net of allowance

    16       170  

Prepaid expenses and other current assets

    39       43  

Total current assets

    1,065       1,678  
                 

In-process research and development (Note 8)

    1,893       1,893  

Property and equipment, net of depreciation

    95       46  

Other non-current assets

    35       823  

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

    411       371  

Deferred offering cost

    122        

Investment in South Korean Joint Venture

          85  

Total assets

  $ 3,621     $ 4,896  

Liabilities and stockholders’ deficit

 

Current liabilities:

               

Accounts payable and accrued expenses

  $ 602     $ 804  

Clyra Medical note payable (Note 8)

    1,007       1,007  

Note payable

    50       50  

Line of credit

    50       50  

Convertible notes payable

    3,957       2,936  

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

    (1,472 )     (203 )

Lease liability

    125       114  

Deferred revenue and deposits

    35       18  

Total current liabilities

    4,354       4,776  

Long-term liabilities:

               

Convertible notes payable

    700       600  

Liability to Clyra Medical shareholder (Note 8)

    643       643  

Discount on convertible notes payable, net of amortization

    (182 )     (124 )

Payroll protection program loan

          349  

Lease liability

    286       256  

Total liabilities

    5,801       6,500  
                 

Commitments and contingencies (Note 11)

               

Stockholders’ equity (deficit):

               

Preferred Series A, $.00067 Par Value, 50,000,000 shares authorized, -0- shares issued and outstanding, at December 31, 2019 and June 30, 2020, respectively.

           

Common stock, $.00067 Par Value, 400,000,000 shares authorized, 166,256,024 and 190,703,381 shares issued, at December 31, 2019 and June 30, 2020, respectively.

    111       128  

Additional paid-in capital

    121,327       130,875  

Accumulated other comprehensive loss

    (99 )     (77 )

Accumulated deficit

    (123,492 )     (128,291 )

Total BioLargo, Inc. and subsidiaries stockholders’ deficit

    (2,153 )     2,635  

Non-controlling interest (Note 8)

    (27 )     (4,239 )

Total stockholders’ deficit

    (2,180 )     (1,604 )

Total liabilities and stockholders’ equity (deficit)

  $ 3,621     $ 4,896  

 

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, 2019 AND 2020

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

(unaudited)

 

   

THREE MONTHS

   

SIX MONTHS

 
   

JUNE

30, 2019

   

JUNE

30, 2020

   

JUNE

30, 2019

   

JUNE

30, 2020

 

Revenues

                               

Product revenue

  $ 316     $ 301     $ 617     $ 580  

Service revenue

    110       117       173       276  

Total revenue

    426       418       790       856  
                                 

Cost of revenue

                               

Cost of goods sold

    (136 )     (109 )     (276 )     (237 )

Cost of service

    (92 )     (92 )     (143 )     (224 )

Gross profit

    198       217       371       395  
                                 

Selling, general and administrative expenses

    1,318       1,872       2,727       3,417  

Research and development

    367       350       793       684  

Operating loss:

    (1,487 )     (2,005 )     (3,149 )     (3,706 )

Other (expense) income:

                               

Interest expense

    (498 )     (747 )     (1,483 )     (1,504 )

Loss on debt extinguishment

    (44 )           (228 )     (214 )

Tax credit

          44               44  

Grant income

    42       7       124       64  

Total other expense:

    (500 )     (696 )     (1,587 )     (1,610 )

Net loss

    (1,987 )     (2,701 )     (4,736 )     (5,316 )
                                 

Net loss attributable to noncontrolling interest

    (192 )     (275 )     (365 )     (617 )

Net loss attributable to common shareholders

  $ (1,795 )   $ (2,426 )   $ (4,371 )   $ (4,699 )
                                 

Net loss per share attributable to common shareholders:

                               

Loss per share attributable to shareholders – basic and diluted

  $ (0.01 )   $ (0.02 )   $ (0.03 )   $ (0.03 )

Weighted average number of common shares outstanding:

    145,700,515       181,567,199       143,983,182       175,220,216  

Comprehensive loss:

                               

Net loss

  $ (1,987 )   $ (2,701 )   $ (4,736 )   $ (5,316 )

Foreign currency translation

    (4 )     23       (8 )     22  

Comprehensive loss

    (1,991 )     (2,678 )     (4,744 )     (5,294 )

Comprehensive loss attributable to noncontrolling interest

    (192 )     (275 )     (365 )     (617 )

Comprehensive loss attributable to common stockholders

  $ (1,799 )   $ (2,403 )   $ (4,379 )   $ (4,677 )

 

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

 

 

 

BIOLARGO, INC. AND SUBSIDIARIES 

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2020

(in thousands, except for share data)

(unaudited)

 

   

Common stock

   

Additional

paid-in

   

Accumulated

   

Accumulated

other

comprehensive

   

 

Non-

controlling

   

Total stockholders’

 
   

Shares

   

Amount

   

capital

   

deficit

   

Loss

   

interest

   

equity (deficit)

 

Balance, December 31, 2018

    141,466,071     $ 95     $ 110,222     $ (111,723 )   $ (90 )   $ 373     $ (1,123 )

Conversion of notes

    1,638,479       1       218                         219  

Issuance of common stock for service

    1,229,541       1       205                         206  

Issuance of common stock for interest

    139,362             25                         25  

Stock option compensation expense

                352                         352  

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

                1,115                         1,115  

Fair value of warrants for extension of debt

                56                         56  

Deemed dividend for the change in accounting for derivative liability

                342       (342 )                  

Clyra Medical securities offering

                21                   89       110  

Net loss

                      (2,576 )           (173 )     (2,749 )

Foreign currency translation

                            (4 )           (4 )

Balance, March 31, 2019

    144,473,453     $ 97     $ 112,556     $ (114,641 )   $ (94 )   $ 289     $ (1,793 )

Conversion of notes

    2,767,833       2       294                         296  

Issuance of common stock for service

    981,684             213                         213  

Issuance of common stock for interest

    87,478             15                         15  

Warrant exercise

    3,744,456       3       101                         104  

Stock issuance to officer (see note 7)

    500,000                                      

Stock option compensation expense

                296                         296  

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

                756                         756  

Issuance of Clyra Medical common stock

                74                   111       185  

Deemed dividend for the change in accounting for derivative liability

                440       (440 )                  

Net loss

                      (1,795 )           (192 )     (1,987 )

Foreign currency translation

                            (4 )           (4 )

Balance, June 30, 2019

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

 

  

   

Common stock

   

Additional

paid-in

   

Accumulated

   

Accumulated

other

comprehensive

   

 

Non-

controlling

   

Total stockholders’

 
   

Shares

   

Amount

   

capital

   

deficit

   

Loss

   

interest

   

equity (deficit)

 

Balance, December 31, 2019

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

Conversion of notes

    3,387,649       2       432                         434  

Issuance of common stock for service

    1,039,490       1       177                         178  

Issuance of common stock for interest

    19,278             4                         4  

Sale of common stock for cash

    4,848,305       3       898                         901  

Common stock issued as a financing fee; deferred offering costs

    2,928,571       2       (124 )                       (122 )

Stock option compensation expense

                320                         320  

Deemed dividend for the change in accounting for derivative liability

                100       (100 )                  

Clyra Medical securities offering

                15                   10       25  

Clyra Medical stock option expense

                420                         420  

Allocation of noncontrolling interest from Clyra Stock option issuance

                (448 )                 448        

Net loss

                      (2,274 )           (342 )     (2,616 )

Balance, March 31, 2020

    178,479,317     $ 119     $ 123,121     $ (125,866 )   $ (99 )   $ 89     $ (2,636 )

Conversion of notes

    6,463,784       6       682                         688  

Issuance of common stock for service

    1,774,033       1       271                         272  

Issuance of common stock for interest

    297,001             30                         30  

Sale of common stock for cash

    3,689,246       2       558                         560  

Stock option compensation expense

                528                         528  

Clyra Medical securities offering

                476                   348       824  

Clyra Medical stock option expense

                20                         20  

Clyra Medical stock for other asset (See Note 2)

                788                         788  

Noncontrolling interest allocation

                4,401                   (4,401 )      

Net loss

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

Foreign currency translation

                            22             22  

Balance, June 30, 2020

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

 

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, 2019 AND 2020

(in thousands, except for per share data)

(unaudited)

 

   

JUNE

30, 2019

   

JUNE

30, 2020

 

Cash flows from operating activities

               

Net loss

  $ (4,736 )   $ (5,316 )

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

               

Stock option compensation expense

    648       1,073  

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

    419       450  

Common stock issued for interest

    40       34  

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

    1,254       1,327  

Interest expense related to the fair value of warrants issued as consent for variable debt

    54        

Loss on extinguishment of debt

    229       214  

Depreciation expense

    31       33  

Bad debt expense

          11  

Changes in assets and liabilities:

               

Accounts receivable

    24       86  

Inventories

    (12 )     (100 )

Prepaid expenses and other current assets

    (8 )     (4 )

Accounts payable and accrued expenses

    178       148  

Deferred revenue

          (22 )

Customer deposits

    28 )     4  

Net cash used in operating activities

    (1,851 )     (2,062 )

Cash flows from investing activities

               

Investment in South Korean joint venture

          (85 )

Leasehold improvements

    (14 )      

Sale of equipment

          16  

Net cash used in investing activities

    (14 )     (69 )

Cash flows from financing activities

               

Proceeds from sales of common stock

          1,462  

Proceeds from convertible notes payable

    1,825        

Proceeds from the sale of stock in Clyra Medical

    295       850  

Repayment of note payable

    (300 )      

Proceeds from warrant exercise

    104        

Proceeds from payroll protection program loan

          349  

Net cash provided by financing activities

    1,924       2,661  

Net effect of foreign currency translation

    (8 )     22  

Net change in cash

    51       552  

Cash at beginning of year

    655       655  

Cash at end of period

  $ 706     $ 1,207  

Supplemental disclosures of cash flow information

               

Cash paid for:

               

Interest

  $ 40     $ 50  

Income taxes

  $ 3     $ 2  

Non-cash investing and financing activities

               

Fair value of warrants issued with convertible notes

  $ 1,817     $  

Inventory included in accounts payable and accrued expense

  $     $ 55  

Conversion of convertible notes payable into common stock

  $ 515     $ 1,122  

Convertible notes issued with original issue discount

  $ 373     $  
Exchange of consulting services for Clyra common shares   $     $ 788  

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

  $     $ (122 )

Deemed dividend

  $ 782     $ 100  
Allocation of Clyra stock to noncontrolling interest   $     $ 4,401  

Allocation of stock option expense within noncontrolling interest

  $     $ 448  

 

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

 

 

F-6

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

 

 
 

Note 1. Business and Organization

 

Description of Business 

 

BioLargo, Inc. is an innovative technology developer and environmental engineering company driven by a mission to "make life better" by delivering robust, sustainable solutions for a broad range of industries and applications, with a focus on clean water, clean air. The company also owns a minority interest in an advanced wound care subsidiary that has licensed BioLargo Technologies and it plans to spin out or sell when the appropriate opportunity is identified.  Our business strategy is straightforward: we invent or acquire technologies that we believe have the potential to be disruptive in large commercial markets; we develop and validate these technologies to advance and promote their commercial success as we leverage our considerable scientific, engineering, and entrepreneurial talent; we then monetize these technical assets through a variety of business structures that may include licensure, joint venture, sale, spin off, or by deploying direct to market strategies.

 

Liquidity / Going concern

 

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of our business. For the six months ended June 30, 2020, we had a net loss of $5,316,000, used $2,062,000 cash in operations, and at June 30, 2020, we had a working capital deficit of $3,098,000, and current assets of $1,678,000. We do not believe gross profits in the immediate future will be sufficient to fund our current level of operations. We have been, and anticipate that we will continue to be, limited in terms of our capital resources. During the year ended December 31, 2019, none of our business segments (see Note 10, “Business Segment Information”) generated enough revenues to fund their operations, or to contribute to our corporate operations or overhead. Thus, in light of our cash position at year end, in order to continue operations, we continued to sell our stock in private securities offerings and to Lincoln Park (see Note 3).

 

Although we are able to rely on investment funds through our agreement with Lincoln Park, the foregoing factors raise substantial doubt about our ability to continue as a going concern. Ultimately, our ability to continue as a going concern is dependent upon our willingness to require Lincoln Park purchase our stock, 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.

 

Organization

 

We are a Delaware corporation formed in 1991. We have four wholly-owned subsidiaries: BioLargo Life Technologies, Inc., organized under the laws of the State of California in 2006; ONM Environmental, Inc. (formerly, Odor-No-More, Inc.), organized under the laws of the State of California in 2009; BioLargo Water Investment Group Inc. organized under the laws of the State of California in 2019, which wholly owns BioLargo Water, Inc., organized under the laws of Canada in 2014; and BioLargo Development Corp., organized under the laws of the State of California in 2016. Additionally, we own 97.5% (see Note 9) of BioLargo Engineering Science and Technologies, LLC (“BLEST”), organized under the laws of the State of Tennessee in 2017. We also own 48% of Clyra Medical Technologies, Inc. (“Clyra Medical”), organized under the laws of the State of California in 2012, and consolidate their financial statements (see Note 2, subheading “Principles of Consolidation,” and Note 8).

 

The unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to Rule 8-03 of Regulation S-X under the Securities Act of 1933, as amended. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for annual financial statements.  In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. We are still operating in the early stages of the sales and distribution process, and therefore our operating results for the six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020, or for any other period. These unaudited consolidated financial statements and notes should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes included in the Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2020.

 

7

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 

 

Note 2. Summary of Significant Accounting Policies

 

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

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company, and its wholly- and partially-owned subsidiaries, including Clyra Medical. Management believes Clyra Medical’s financial statements are appropriately consolidated with that of the Company after reviewing the guidance of ASC Topic 810, “Consolidation”, and concluding that BioLargo controls Clyra Medical. While BioLargo does not have voting interest control through a majority stock ownership of Clyra Medical (it owns 48% of the outstanding voting stock), it does exercise control under the “Variable Interest Model”: there is substantial board overlap, BioLargo is the primary beneficiary since it has the power to direct Clyra Medical’s activities that most significantly impact Clyra Medical’s performance, and it has the obligation to absorb losses or receive benefits (through royalties and licensing) that could be potentially significant to Clyra Medical. BioLargo has consolidated Clyra Medical’s operations for all periods presented. 

 

All intercompany accounts and transactions have been eliminated (see Note 8). 

 

Foreign Currency

 

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

 

Cash and Cash Equivalents

 

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

 

Accounts Receivable

 

Trade accounts receivable are recorded net of allowances for doubtful accounts. Estimates for allowances for doubtful accounts are determined based on payment history and individual customer circumstances. The allowance for doubtful accounts as of December 31, 2019 was $24,000 and June 30, 2020 was $35,000.

 

Credit Concentration

 

We have a limited number of customers that account for significant portions of our revenue. During the six months ended June 30, 2019 we had two customers, and during the six months ended June 30, 2020, we had one customer, that accounted for 10% or more of consolidated revenues in the respective periods, as follows:

 

   

June 30,
2019

   

June 30,

2020

 

Customer A

    18 %     <10 %

Customer B

    10 %     <10 %

Customer C

    <10 %     13 %

 

8

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

 

We had two customers that accounted for more than 10% of consolidated accounts receivable at December 31, 2019 and at June 30, 2020, as follows:

 

   

December 31,

2019

   

June 30,

2020

 

Customer G

    <10 %     14 %

Customer H

    <10 %     13 %

Customer I

    25 %     <10 %

Customer J

    11 %     <10 %

 

Inventory

 

Inventories are stated at the lower of cost or net realizable value using the average cost method. The allowance for obsolete inventory as of December 31, 2019 and June 30, 2020 was $3,000. As of December 31, 2019, and June 30, 2020, inventories consisted of (in thousands):

 

   

December 31,

2019

   

June 30,

2020

 

Raw material

  $ 11     $ 78  

Finished goods

    5       92  

Total

  $ 16     $ 170  

 

Other Non-Current Assets

 

Other non-current assets consisted of (i) security deposits of $35,000 related to our business offices, and (ii) prepaid consulting fees by Clyra Medical of $787,500 (see Note 8).

 

Leases

 

In February 2016, the FASB issued ASU Update No. 2016-02, “Leases,” which requires lessees to recognize most leases on their balance sheets as a right-of-use asset with a corresponding lease liability, and lessors to recognize a net lease investment. Additional qualitative and quantitative disclosures are also required. We adopted this standard effective January 1, 2019 using the effective date option, which resulted in a $399,000 gross up of assets and liabilities; this balance may fluctuate over time as we enter into new leases, extend or terminate current leases. Upon the transition to the ASC 842, the Company elected to use hindsight as a practical expedient with respect to determining the lease terms (as we considered our updated expectations of acceptance of the Westminster California facility lease renewal) and in assessing any impairment of right-of-use assets for existing leases. No impairment is expected at this time.  As of June 30, 2020, the right-of-use assets of our balance sheet related to our operating leases totals $371,000.

 

Impairment

 

Long-lived and definite lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the expected future undiscounted cash flows from the use of the asset and its eventual disposition is less than the carrying amount of the asset, then an impairment loss is recognized. The impairment loss is measured based on the fair value of the asset. Any resulting impairment is recorded as a reduction in the carrying value of the related asset in excess of fair value and a charge to operating results. For the six months ended June 30, 2019 and 2020, management determined that there was no impairment of its long-lived assets, including its In-process Research and Development at Clyra Medical (see Note 8).

 

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.

 

9

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

 

We account for our investment in the joint venture under the equity method of accounting. We have determined that while we have significant influence over the joint venture through our technology license and our position on the Board of Directors, we do not control the joint venture or are otherwise involved in managing the entity and we own less than a majority of the equity. Therefore, we record the asset on our consolidated balance sheet and record an increase or decrease the recorded balance by our percentage ownership of the profits or losses in the joint venture. During the six months ended June 30, 2020, the joint venture incurred a loss and our 40% ownership share reduced our investment interest by $15,000.

 

Earnings (Loss) Per Share

 

We report basic and diluted earnings (loss) per share (“EPS”) for common and common share equivalents. Basic EPS is computed by dividing reported earnings by the weighted average shares outstanding. Diluted EPS is computed by adding to the weighted average shares the dilutive effect if stock options and warrants were exercised into common stock. For the three and six months ended June 30, 2019 and 2020, the denominator in the diluted EPS computation is the same as the denominator for basic EPS due to the anti-dilutive effect of the warrants and stock options on the Company’s net loss.

 

Use of Estimates

 

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

 

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

 

Share-Based Compensation Expense

 

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

 

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

 

The following methodology and assumptions were used to calculate share-based compensation for the three and six months ended June 30, 2019 and 2020:

 

   

2019

 

2020

   

Non Plan

 

2018 Plan

 

Non Plan

 

2018 Plan

Risk free interest rate

   2.00

2.65%

   2.0 2.65%    0.66

1.02%

   0.64

1.90%

Expected volatility

   147

152%

   147 152%    129

131%

   129

133%

Expected dividend yield

                       

Forfeiture rate

                       

Life in years

    10       10       10       10  

 

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

 

10

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

 

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

 

Historically, we have not had significant forfeitures of unvested stock options granted to employees and Directors. A significant number of our stock option grants are fully vested at issuance or have short vesting provisions. Therefore, we have estimated the forfeiture rate of our outstanding stock options as zero.

 

Warrants

 

Warrants issued with our convertible promissory notes, note payables, and lines of credit, are accounted for under the fair value and relative fair value method. The warrant is first analyzed per its terms as to whether it has derivative features or not. If the warrant is determined to be a derivative and not qualify for equity treatment, then it is measured at fair value using the Black Scholes option model, and recorded as a liability on the balance sheet. The warrant is re-measured at its then current fair value at each subsequent reporting date (it is “marked-to-market”). If the warrant is determined to not have derivative features, it is recorded into equity at its fair value using the Black Scholes option model, however, limited to a relative fair value based upon the percentage of its fair value to the total fair value including the fair value of the convertible note.

 

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

 

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

 

Non-Cash Transactions

 

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

 

Revenue Recognition

 

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

 

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

Step 2: Identify the performance obligations in the contract.

Step 3: Determine the transaction price.

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

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

 

We have revenue from three subsidiaries, ONM, BLEST and Clyra. ONM and Clyra identify 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. Revenue is recognized at a point in time when the order for its goods are shipped if its agreement with the customer is FOB manufacturer, 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. ONM also installs misting systems for which it bills on a time and materials basis. It identifies its contract with the customer through a written purchase order in which the details of the time to be billed and materials purchased and an estimated completion date. The performance obligation is the completion of the installation. Revenue is recognized in arrears as the work is performed.

 

11

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

 

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

 

In the event that we generate revenues from royalties or license fees from our intellectual property, we anticipate a licensee would pay a license fee in one or more installments and ongoing royalties based on their sales of products incorporating or using our licensed intellectual property. Upon entering into a licensing agreement, we will determine the appropriate method of recognizing the royalty and license fees.

 

Government Grants

 

We have been awarded multiple research grants from governmental and quasi-governmental institutions. The grants received are considered “other income” and are included in our Consolidated Statements of Operations. We received our first grant in 2015 and have been awarded over 75 grants totaling over $3.6 million. Some of the funds from these grants are given directly to third parties (such as the University of Alberta or a third-party research scientist) to support research on our technology. The grants have terms generally ranging between six and eighteen months and support a majority, but not all, of the related research budget costs. This cooperative research allows us to utilize (i) a depth of resources and talent to accomplish highly skilled work, (ii) financial aid to support research and development costs, (iii) independent and credible validation of our technical claims.

 

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

 

Fair Value of Financial Instruments

 

Management believes the carrying amounts of the Company’s financial instruments (excluding debt and equity instruments) as of December 31, 2019 and June 30, 2020 approximate their respective fair values because of the short-term nature of these instruments. Such instruments consist of cash, accounts receivable, prepaid assets, accounts payable, lines of credit, and other assets and liabilities.

 

Recent Accounting Pronouncements

 

In August 2018, the FASB issued Accounting Standards Update No. 2018-13, “Fair Value Measurement (Topic 820), Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.” The amendments in this update modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. Management has concluded that new guidance does not impact the Company’s financial statements.

 

 

Note 3. Equity Financing

 

Lincoln Park

 

During the three months ended March 31, 2020, pursuant to our August 2017 agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park”), we elected to sell to Lincoln Park 1,398,223 shares of our common stock, for which we received $295,000 in gross and net proceeds. Additionally, we issued Lincoln Park 14,420 “additional commitment” shares required under the agreement. We did not sell any shares to Lincoln Park during the three and six months ended June 30, 2019. In conjunction with the signing of the March 2020 agreement with Lincoln Park (see below), we recorded the remaining deferred offering costs on our August 2017 agreement totaling $122,000 as additional paid in capital on our consolidated balance sheet.

 

12

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

 

On March 30,2020, we entered into a Purchase Agreement with Lincoln Park, pursuant to which Lincoln Park agreed to purchase from us at our request up to an aggregate of $10,250,000 of our common stock (subject to certain limitations) from time to time over a period of three years. The agreement allows us, at our sole discretion, to direct Lincoln Park to purchase shares of our common stock, subject to limitations in both volume and dollar amount. The purchase price of the shares that may be sold to Lincoln Park under the Purchase Agreement is the lower of (i) the lowest sale price on the date of purchase, or (ii) the average of the three lowest closing prices in the prior 12 business days. There are no restrictions on future financings, rights of first refusal, participation rights, penalties or liquidated damages other than a prohibition on entering into a “Variable Rate Transaction,” as defined in the agreement. Lincoln Park may not assign or transfer its rights and obligations under the Purchase Agreement. This agreement replaced the August 2017 agreement with Lincoln Park. Concurrently with the Purchase Agreement, we entered into a Registration Rights Agreement, pursuant to which we filed a registration statement on Form S-1 with the SEC on April 10, 2020. This registration statement was declared effective on April 21, 2020, and as of April 29, 2020, we commenced regular purchases under the agreement.

 

In the March 30, 2020 agreement, we agreed to issue 2,928,571 shares to Lincoln Park as a commitment fee, valued at $527,000 and recorded as additional paid in capital on our consolidated balance sheet as of March 31, 2020. Additionally, the Purchase Agreement provided for an initial sale of 1,785,715 shares to Lincoln Park for $250,000. We received those funds and issued the shares on March 31, 2020.

 

During the three months ended June 30, 2020, we sold 2,117,579 shares to Lincoln Park for $319,000 under the August 2017 and March 2020 purchase agreements.

 

13

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

 

2020 Unit Offering

 

On May 1, 2020, we commenced a private offering of units, each unit consisting of (i) common stock, (ii) a four-month stock purchase warrant, and (iii) a five-year stock purchase warrant. Unit prices are set from time-to-time based on market conditions. The number of shares of common stock issued, and the number of shares available for purchase under each warrant, are based on the quotient of the unit price and investment amount (e.g., a $100,000 investment and unit price of $0.25 is equal to 400,000 shares). The four-month warrant exercise price is equal to 120% of the unit price, and the five-year warrant is equal to 150% of the unit price.

 

During the three months ended June 30, 2020, we received an aggregate $242,000 of investments from three investors at unit prices of $0.15 and $0.16, issued 1,571,667 shares of our common stock, issued four-month and five-year warrants (see Note 6). See also Note 12, Subsequent Events.

 

 

Note 4. Debt Obligations

 

The following table summarizes our debt obligations outstanding as of December 31, 2019 and as of June 30, 2020 (in thousands).

 

   

December 31, 2019

   

June 30,
2020

 

Current liabilities:

               

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

  $ 50     $ 50  

Line of credit, matures September 1, 2019 or later (on 30-day demand)

    50       50  

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

    1,007       1,007  

Total notes payable and line of credit

  $ 1,107     $ 1,107  

Convertible notes payable:

               

Convertible note, matures April 7, 2020

    270        

Convertible note, matures June 20, 2020(1)

    25        

Convertible 12-month OID notes, mature beginning June 2020(1)

    3,112       2,286  

Convertible note payable, matures April 20, 2021(1)

          100  

Convertible notes, mature August 12 and 16, 2020(2)

    550       550  

Total convertible notes payable

    3,957       2,936  

Total current liabilities

  $ 5,064     $ 4,043  
                 

Long-term liabilities:

               

Convertible note payable, matures August 9, 2021

  $ 600     $ 600  

SBA Payroll Protection Program loans, mature April 2022

          349  

Convertible notes payable, mature April 20, 2021(1)

    100        

Total long-term liabilities

  $ 700     $ 949  
                 

Total

  $ 5,764     $ 4,992  

 

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

(2) See Note 12, Subsequent Events - the maturity date for these notes has been extended by one year.

 

For the six months ended June 30, 2019 and 2020 we recorded $1,483,000 and $1,504,000 of interest expense related to the amortization of discounts on convertible notes payable, coupon interest from our convertible notes and line of credit.

 

The following discussion includes debt instruments to which amendments were made or included other activity that management deemed appropriate to disclose. Each of the debt instruments contained in the above table are disclosed more fully in the financial statements contained in the Company’s Annual Report filed March 31, 2020.

 

Paycheck Protection Program SBA Loans

 

In April 2020, our subsidiaries ONM, BLEST and Clyra received advances of $210,000, $96,000 and $43,000, respectively, from the Small Business Administration Paycheck Protection Program. The loans mature in two years and incur interest at 1%. Management believes that it has complied with the terms of forgiveness as set forth by the Small Business Administration, and intends to submit a forgiveness application when appropriate.

 

14

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

 

Convertible Note, matures October 7, 2019 (Vista Capital)

 

On January 7, 2019, Vista Capital Investments LLC (“Vista Capital”) invested $300,000 and in exchange we issued a convertible promissory note (the “Vista 2019 Note”) in the principal amount of $330,000. Originally set to mature nine months from the date of issuance, the maturity date was extended multiple times. The note earned a one-time interest charge of 12%, which was recorded as a discount on convertible notes and was amortized over the term of the note. The note allowed conversion of the note into our common stock at a price equal to 65% of the lowest closing bid price of the Company’s common stock during the 25 consecutive trading days immediately preceding the conversion date. The intrinsic value of the beneficial conversion feature resulted in a fair value totaling $300,000, and is recorded as a discount on convertible notes on our balance sheet. This discount was amortized over the term of the note as interest expense, all of which was recorded in 2019.

 

During the three months ended March 31, 2020, Vista Capital elected to convert the remaining balance of $270,000 of the outstanding principal and interest due on the note, and we issued 2,417,059 shares of our common stock.

 

Convertible Twelve-month OID notes

 

From June 7, 2019 through September 30, 2019, we received $2,235,000 and issued convertible promissory notes (each, a “Twelve-Month OID Note”) in the aggregate principal amount of $2,794,000, with a 25% original issue discount, to 34 accredited investors. The original issuance discount totaled $559,000 and is recorded as a discount on convertible notes payable on our balance sheet. The intrinsic value of the beneficial conversion features resulted in an aggregate fair value of $2,235,000, and is recorded as a discount on convertible notes on our balance sheet. The discounts will be amortized and recorded to interest expense over the term of the notes. These notes each mature twelve months from the date of issuance.

 

During the three months July 1, 2019 through September 30, 2019, in exchange for $305,000 of convertible note payables that were coming due, we issued an additional $381,000 in Twelve-Month OID Notes , with a 25% original issue discount. The original issue discount totaled $76,000 and is recorded as a discount on convertible notes payable on our balance sheet. The intrinsic value of the beneficial conversion features resulted in an aggregate fair value of $381,000 and is recorded as debt extinguishment expense on our statement of operations. The discount will be amortized and recorded to interest expense over the term of the notes. These notes mature twelve months from the date of issuance.  

 

Each Twelve-month OID Note is convertible by the investor at any time at $0.17 per share. The notes earn interest at a rate of five percent (5%) per annum, due at maturity. The Company may prepay the notes only upon 10 days’ notice to the investor, during which time the investor may exercise his/her right to convert the note to stock. The Company is obligated to prepay the notes in the event it receives at least $3.5 million gross proceeds in a financing transaction. At maturity, the Company may redeem the notes through the issuance of common stock at a conversion price equal to the lower of the “conversion price” (initially $0.17, as may be adjusted), and 70% of the lowest daily volume weighted average price of the Company’s common stock during the 25 trading days preceding the conversion date.

 

During the six months ended June 30, 2020, $826,000 of the outstanding principal of 12-Month OID Notes was converted, and we issued 7,624,000 shares of our common stock. As of June 30, 2020, the aggregate principal amount outstanding on the Twelve-Month OID Notes was $2,286,000. See Note 12, Subsequent Events.

 

Convertible Note, June 20, 2020

 

On June 20, 2020, we elected to convert $25,000 of the outstanding principal on a convertible note issued in our Summer 2017 offering, and issued 83,334 shares of our common stock.

 

15

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

 

 

Note 5. Share-Based Compensation

 

Issuance of Common Stock in exchange for payment of payables

 

Payment of Officer Salaries

 

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

 

On June 28, 2019, we issued 465,875 shares of our common stock at $0.23 per share in lieu of $107,000 of accrued salary and unreimbursed business expenses owed to two of our officers. On March 29, 2019, we issued 579,996 shares of our common stock at $0.16 per share in lieu of $93,000 of accrued and unpaid obligations to our officers.

 

All of these issuances were pursuant to our 2018 Equity Incentive Plan.

 

Payment of Consultant Fees

 

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

 

During the three months ended June 30, 2019, we issued 515,809 shares of our common stock at a range of $0.16 – $0.23 per share in lieu of $107,000 accrued and unpaid obligations to consultants. On March 29, 2019, we issued 649,545 shares of our common stock at $0.16 per share in lieu of $113,000 of accrued and unpaid obligations to consultants.

 

Payment of Accrued Interest

 

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

 

During the three months ended June 30, 2019, we issued 87,478 shares of our common stock, at prices ranging between $0.23 - $0.43 per share, in lieu of $15,000 of accrued interest. During the three months ended March 31, 2019, we issued 139,362 shares of our common stock at a range of $0.17 – $0.23 per share in lieu of $25,000 of accrued interest.

 

Stock Option Expense

 

During the six months ended June 30, 2019 and 2020, we recorded an aggregate $648,000 and $1,073,000, in selling general and administrative expense related to the issuance and vesting of stock options issued through our 2018 Equity Incentive Plan, our (now expired) 2007 Equity Incentive Plan, and outside of these plans (see Note 8 related to stock options issued by Clyra Medical).

 

2018 Equity Incentive Plan

 

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

 

Activity for our stock options under the 2018 Plan for the six months ended June 30, 2019 and June 30, 2020, is as follows:

 

                   

Weighted

         
                   

average

   

Aggregate

 
   

Options

   

Exercise

 

price per

   

intrinsic

 
   

outstanding

   

price per share

 

share

   

value(1)

 

Balance, December 31, 2018

    1,318,517     $0.22 0.43    $ 0.30          

Granted

    3,728,366      0.16 0.22      0.18          

Expired

                         

Balance, June 30, 2019

    5,046,833     $0.16 0.43    $ 0.21          
                                 
                                 

Balance, December 31, 2019

    9,214,356     $0.22 0.43   $ 0.25          

Granted

    8,610,689      0.17 0.22      0.15          

Expired

    (200,000

)

   0.18 0.34      0.26          

Balance, June 30, 2020

    17,625,045     $0.16 0.43   $ 0.20          

Non-vested

    (9,762,819

)

   0.17 0.45      0.12          

Vested, June 30, 2020

    7,862,226     $0.16 0.45    $ 0.31     $ 22,000  

(1) – Aggregate intrinsic value based on closing common stock price of $0.16 at June 30, 2020.

 

16

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

 

The options granted under the 2018 Plan to purchase 8,610,689 shares during the six months ended June 30, 2020 were issued to officers, board of directors, employees and consultants: (i) we issued options to purchase 4,880,945 shares of our common stock at an exercise price of $0.14 per share to employees and consultants as a bonus during the pandemic. These options vest quarterly over one year and the fair value totaled $656,000 (ii) we issued options to purchase 457,500 shares of our common stock at an exercise price range of $0.14 – $0.21 per share to our CFO , with 177,500 shares having vested during the six months ended June 30, 2020, and the remaining shares to vest 25,000 monthly through January 31, 2021; (ii) we issued options to purchase 821,434 shares of our common stock at an exercise price on the respective grant date of $0.17 and $0.16 per share to members of our board of directors for services performed, all options vested at issuance and the fair value of these options totaled $130,000; (iii) we issued options to purchase 939,332 shares of our common stock to employees as part of an employee retention plan at an exercise price on the respective date of $0.17 and $0.16 per share; the fair value of employee retention plan options totaled $151,000 and vest quarterly over four years as long as they are retained as employees; (iv) we issued options to purchase 449,286 shares of our common stock to consultants in lieu of cash for unpaid obligations totaling $65,000; and (v) we issued options to purchase 1,062,192 shares of common stock at an exercise price ranging between $0.14 – $0.17 per share to employees to convert accrued and unpaid obligations and for previously issued options that expire. All of these options vested at issuance and the fair value totaled $145,000, All stock option expense is recorded on our consolidated statement of operations as selling, general and administrative expense.

 

2007 Equity Incentive Plan

 

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

 

Activity for our stock options under the 2007 Plan for the six months ended June 30, 2019 and 2020 is as follows:

 

                   

Weighted

         
                   

average

     

Aggregate

 
   

Options

   

Exercise

 

price per

     

intrinsic

 
   

outstanding

   

price per share

 

share

     

value(1)

 

Balance, December 31, 2018

    9,691,586     $0.23 0.94   $ 0.43          

Expired

    (842,136 )   0.28 0.70     0.49          

Balance, June 30, 2019

    8,849,451     $0.23 1.65    $ 0.46          
                                 
                                 

Balance, December 31, 2019

    9,691,586     $0.23 0.94   $ 0.42          

Expired

    (930,000 )    0.50 0.58     0.56          

Balance, June 30, 2020

    8,761,586     $0.23 1.65   $ 0.41     $  

(1) – Aggregate intrinsic value based on closing common stock price of $0.16 at June 30, 2020.

 

17

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

 

Non-Plan Options issued

 

During the six months ended June 30, 2020, we issued options to purchase 292,437 shares of our common stock at exercise prices ranging between $0.17 – $0.21 per share to vendors for fees for service. The fair value of the options issued totaled $50,000, is recorded in our selling, general and administrative expense.

 

During the six months ended June 30, 2019, we issued options to purchase 970,380 shares of our common stock at exercise prices ranging between $0.16 – $0.25 per share to vendors for fees for service resulting in a fair value totaling $194,000. The fair value of the options issued and vested during the six months ended June 30, 2019 totaled $367,000, is recorded in our selling, general and administrative expense.

 

Activity of our non-plan stock options issued for the six months ended June 30, 2019 and 2020 is as follows:

 

                   

Weighted

         
   

Non-plan

           

average

     

Aggregate

 
   

options

   

Exercise

 

price per

     

intrinsic

 

As of June 30, 2019:

 

outstanding

   

price per share

 

share

     

value(1)

 

Balance, December 31, 2018

    19,319,496     $0.23 1.00   $ 0.43          

Granted

    970,380      0.16 0.25     0.19          

Expired

    (691,975 )     0.55       0.55          

Balance, June 30, 2019

    19,597,901     $0.16 1.00   $ 0.42          
                                 
As of June 30, 2020:                                

Balance, December 31, 2019

    19,888,718     $0.23 1.00   $ 0.41          

Granted

    292,437      0.17 0.21     0.18          

Balance, June 30, 2020

    20,181,155     $0.17 1.00   $ 0.41          

Non-vested

    (3,005,340

)

   0.17 0.45     0.45          

Vested, June 30, 2020

    17,175,815     $0.23 1.00   $ 0.40     $  

(1) – Aggregate intrinsic value based on closing common stock price of $0.16 at June 30, 2020.

 

 

Note 6. Warrants

 

We have certain warrants outstanding to purchase our common stock, at various prices, as described in the following table:

 

                   

Weighted

         
                   

average

     

Aggregate

 
   

Warrants

   

Exercise

 

price per

     

intrinsic

 

As of June 30, 2019:

 

outstanding

   

price per share

 

share

     

value(1)

 

Balance, December 31, 2018

    26,872,430     $0.25 1.00   $ 0.42          

Issued

    9,031,871      0.10 0.25     0.15          

Expired

    (5,205,746 )    0.10 0.12     0.11          

Balance, June 30, 2019

    30,698,555     $0.10 1.00   $ 0.39          
                                 
As of June 30, 2020:                                

Balance, December 31, 2019

    43,231,161     $0.16 1.00   $ 0.35          

Issued

    3,934,592      0.13 0.24     0.19          

Expired

    (14,272,820 )    0.40 0.49     0.46          

Balance, June 30, 2020

    32,892,933     $0.16 1.00   $ 0.29     $ 131,000  

(1) – Aggregate intrinsic value based on closing common stock price of $0.16 at June 30, 2020.

 

18

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

 

Warrants Issued to One-Year Noteholders

 

In conjunction with two investments of one-year convertible notes, we issued warrants in July 2017 to purchase an aggregate 400,000 shares to two investors at an exercise price of $0.65 per share. Each of these warrants contained provisions that required a reduction to the exercise price and increase to the number of warrant shares in the event that we sold our common stock at a lower price than the exercise price (subject to some exceptions). During the three months ended March 31, 2020, we adjusted downward the warrant exercise price to $0.13, resulting in an increase of 791,260 warrants available for exercise. The increase in warrants resulted in a fair value totaling $100,000, recorded as a deemed dividend in our consolidated statement of stockholders’ equity. 

 

Warrants issued in private offering

 

Pursuant to our 2020 Unit Offering (see Note 3), we issued four-month stock purchase warrants to purchase an aggregate 1,571,667 shares of our common stock at prices from $0.18 to $0.192 per share, and five-year stock purchase warrants to purchase an aggregate 1,571,667 shares of our common stock at prices from $0.225 to $0.24 per share.

 

Fair Value – Interest Expense

 

To determine interest expense related to our outstanding warrants issued in conjunction with debt offerings, the fair value of each award grant is estimated on the date of grant using the Black-Scholes option pricing model and the relative fair values are amortized over the life of the warrant. For the determination of expense of warrants issued for services, extinguishment of debt and settlement management also uses the option-pricing model. The principal assumptions we used in applying this model were as follows:

 

   

 

June 30, 2019

 

 

June 30, 2020

Risk free interest rate

   1.70

2.62%

    0.23%

 

Expected volatility

   86

110%

    112%

 

Expected dividend yield

           

Forfeiture rate

           

Expected life in years

   2 5    0.33 5

 

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

 

 

Note 7. Accounts Payable and Accrued Expenses

 

Accounts payable and accrued expenses included the following (in thousands):

 

   

December 31,

2019

   

June 30,

2020

 

Accounts payable and accrued expense

  $ 346     $ 394  

Accrued interest

    123       234  

Accrued payroll

    133       176  

Total accounts payable and accrued expenses

  $ 602     $ 804  

 

Accounts payable and accrued expenses includes ordinary business payables incurred by the Company and its operational subsidiaries.

 

 

Note 8. Noncontrolling Interest – Clyra Medical

 

We consolidate the operations of our partially owned subsidiary Clyra Medical (see Note 2).

 

19

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

 

Acquisition of In-process Research and Development

 

On September 26, 2018, Clyra Medical entered into a transaction with Scion Solutions, LLC, for the purchase of its intellectual property, including its SkinDisc. The consideration provided to Scion is subject to an escrow agreement (“Escrow Agreement”) and earn out provisions and includes: (i) 21,000 shares of the Clyra Medical common stock; (ii) 10,000 shares of Clyra Medical common stock redeemable for 7,142,858 BioLargo common shares held by Clyra Medical; and (iii) a promissory note in the principal amount of $1,250,000 to be paid through new capital investments and revenue, as detailed below. This consideration was initially held in escrow pending Clyra Medical raising $1 million “base capital” to fund its business operations.

 

On December 17, 2018, the parties entered into a closing agreement (“Closing Agreement”) reflecting the satisfaction of the obligation to raise $1 million “base capital”; at that time, one-half of the shares of Clyra Medical common stock exchanged for the Scion assets were released to Scion. The remaining Clyra Medical common shares (a total of 15,500 shares) remain subject to the Escrow Agreement’s performance metrics, each vesting one-fifth of the remaining shares of common stock (e.g., 2,000 shares of Clyra common stock, and an additional 1,100 shares redeemable for 785,714 BioLargo shares): (a) notification of FDA premarket clearance of certain orthopedics products, or recognition by Clyra Medical of $100,000 gross revenue; (b) the recognition by Clyra Medical of $100,000 in aggregate gross revenue; (c) the granting of all or any part of the patent application for the SkinDisc product, or recognition by Clyra Medical of $500,000 in gross revenue; (d) recognition by Clyra Medical of $1 million in aggregate gross revenue; and (e) recognition by Clyra Medical of $2 million in gross revenue.

 

Clyra Medical began selling products and generating revenue in June 2020. As of the date of this report, two of these metrics have been met.

 

Scion Solutions – Note Payable and Clyra Liability

 

The promissory note in the principal amount of $1,250,000 issued by Clyra Medical to Scion on September 26, 2018 (“Clyra-Scion Note”) accrues interest at the rate of 5%. Principal and interest due under the note are to be paid periodically at a rate of 25% of investment proceeds received by Clyra Medical. At the initial maturity of June 26, 2020, the maturity date of the note automatically extended for 12 months and will continue to automatically extend for additional 12-month periods until the note is repaid in full. Payments after the initial 18-month maturity date are required to be made in annual installments in an amount equal to the greater of (i) 25% of investment proceeds received during the 12-month period, and (ii) 5% of Clyra Medical’s gross revenues.

 

Non-Controlling Interest

 

During the six months ended June 30, 2020, Clyra sold 2,742 shares of its common stock at $310 per Clyra share. 

 

During the three months ended June 30, 2020, BioLargo increased its investment in Clyra by 23,004 shares. Of this amount, 22,513 shares were issued to BioLargo pursuant to an amendment to the BioLargo/Clyra license agreement whereby BioLargo has granted Clyra rights to commercialize its technology in certain medical fields. The amendment provided, among other things, for the payment of the “initial license fee” through the issuance of 22,513 shares of Clyra common stock. (See Note 2.)

 

At June 30, 2020, the balance due on the Clyra-Scion Note equaled $1,007,000. The shares of BioLargo common stock held by Clyra for the benefit of Scion (the redemption shares) totals $643,000 and is recorded on our balance sheet as a liability to “Clyra Medical Shareholder”.

 

As of June 30, 2020, Clyra Medical had the following common (and no preferred) shares outstanding:

 

Shareholder

 

Shares

   

Percent

 

BioLargo, Inc.

  49,207     48%  

Sanatio Capital

  18,704     19%  

Scion Solutions(1)

  15,500     15%  

Other

  18,639     18%  

Total

  102,050(2)        

 

Notes:

 

(1) Does not include an additional 15,500 shares held in escrow subject to performance metrics.

 

(2) Does not include options to purchase 9,664 of shares of Clyra stock.

 

20

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

 

During 2019, Clyra began issuing options to its employees and consultants in lieu of compensation owed.  As of December 31, 2019, the Company had issued options to purchase 7,624 shares of Clyra stock.  In the three and six months ended June 30, 2020, Clyra issued options to purchase 1,945 and 95 shares of common stock to employees and vendors in exchange for a reduction of $206,000 and $20,000 in payables owed (none were issued in the comparable periods in 2019). Each option issued has an exercise price of $1.00 per share, are vested upon issuance and an expiration date 10 years from the date of grant. The fair value of the options issued in the three and six months ended June 30, 2020, totaled $420,000 and $441,000, respectively, and the additional fair value totaling $214,000 was recorded as a loss on extinguishment of debt in our consolidated statement of operations. We used the Black-Scholes model to calculate the initial fair value, assuming a stock price on date of grant of $310 per share. Because Clyra is a private company with no secondary market for its common stock, the resulting fair value was discounted by 30%.

 

Consulting Agreement

 

Clyra entered into a consulting agreement with Beach House Consulting, LLC, through which Jack B. Strommen will be providing consulting services to Clyra related to its sales and marketing activities, and in exchange receive $23,000 per month for a period of four years. On June 30, 2020, at Clyra’s request, Beach House Consulting agreed to accept 3,639.03 shares of Clyra common stock as full payment of the consulting fee, in lieu of cash. The obligation to provide the consulting services is dependent on Clyra generating an average of $250,000 in monthly sales over three consecutive months. The value of the shares issued to Beach House is recorded as a prepaid asset (see Note 2).

 

 

Note 9. BioLargo Engineering, Science and Technologies, LLC

 

In September 2017, we commenced a full-service environmental engineering firm and formed a Tennessee entity named BioLargo Engineering, Science & Technologies, LLC (“BLEST”). In conjunction with the start of this subsidiary, we entered into a three-year office lease in the Knoxville, Tennessee area, and entered into employment agreements with six scientists and engineers. (See Note 10 “Business Segment Information”.) The company was capitalized with two classes of membership units: Class A, 100% owned by Biolargo, and Class B, held by management of BLEST, and which initially have no “profit interest,” as that term is defined in Tennessee law. However, over the succeeding five years, the Class B members can earn up to a 30% profit interest. They also have been granted options to purchase up to an aggregate 1,750,000 shares of BioLargo, Inc. common stock. The profit interest and option shares are subject to a five year vesting schedule tied to the performance of the subsidiary, including gross revenue targets that increase over time, obtaining positive cash flow by March 31, 2018 (which was not met), collecting 90% of its account receivables, obtaining a profit of 10% in its first year (and increasing in subsequent years), making progress in the scale-up and commercialization of our AOS system, and using BioLargo research scientists (such as our Canadian team) for billable work on client projects. These criteria are to be evaluated annually by BLEST’s compensation committee (which includes BioLargo’s president, CFO, and BLEST’s president), beginning September 2018. Given the significant performance criteria, the Class B units and the stock options will only be recognized in compensation expense if or when the criteria are satisfied.

 

 Since the commencement of operations, the Compensation Committee has met twice, once in September 2018, and once in November 2019. In 2018, it reviewed the operating performance and determined that the performance metrics were not met and as a result, did not award any Class B units or stock options. The Committee decided to roll forward one additional year to the time allowed for the performance metrics to be met and for the Class B units and stock options to be awarded.

 

In November 2019, the Compensation Committee again reviewed the operating performance and determined that a portion of the performance metrics were met. It was agreed that one-half of the eligible profits interests would be vested (2.5% in the aggregate). The fair value of the profit interest was nominal and not recorded. Nevertheless, Biolargo treats the 2.5% profits interest as part of the noncontrolling interest on both the balance sheet and the statement of operations.

 

 

Note 10. Business Segment Information

 

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