Biolargo, Inc 10-Q for FY2020 Q2
Biolargo, Inc. (BLGO)
About this 10-Q
Biolargo, Inc filed this 10-Q on August 14, 2020, covering the quarter ended June 30, 2020 (FY2020 Q2).
Headline figures
Quarter ended June 30, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $418K
- down 1.9% from $426K a year earlier
- Net loss
- $2.7M
- compared with a net loss of $1.99M a year earlier
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 |
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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.
FORM 10-Q
INDEX
| PART I | |
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Item 1 |
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Item 2 |
Management's Discussion and Analysis and Financial Condition and Results of Operations |
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Item 4 |
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| PART II | |
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Item 2 |
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Item 5 |
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Item 6 |
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PART I – FINANCIAL INFORMATION
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, |
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 | ||||||
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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 | ||||||
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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 |
|||||||||||||
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Revenues |
||||||||||||||||
|
Product revenue |
$ | 316 | $ | 301 | $ | 617 | $ | 580 | ||||||||
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Service revenue |
110 | 117 | 173 | 276 | ||||||||||||
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Total revenue |
426 | 418 | 790 | 856 | ||||||||||||
|
Cost of revenue |
||||||||||||||||
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Cost of goods sold |
(136 | ) | (109 | ) | (276 | ) | (237 | ) | ||||||||
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Cost of service |
(92 | ) | (92 | ) | (143 | ) | (224 | ) | ||||||||
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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: |
||||||||||||||||
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Interest expense |
(498 | ) | (747 | ) | (1,483 | ) | (1,504 | ) | ||||||||
|
Loss on debt extinguishment |
(44 | ) | — | (228 | ) | (214 | ) | |||||||||
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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 | |||||||||||||||||||||
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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 | |||||||||||||||||||||
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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 | |||||||||||||||||||||
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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.
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.
BIOLARGO, INC. AND SUBSIDIARIES
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, |
June 30, 2020 |
|||||||
|
Customer A |
18 | % | <10 | % | ||||
|
Customer B |
10 | % | <10 | % | ||||
|
Customer C |
<10 | % | 13 | % | ||||
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 | % | ||||
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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.
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 |
— | — | — | — | ||||||||||||
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Forfeiture rate |
— | — | — | — | ||||||||||||
|
Life in years |
10 | 10 | 10 | 10 | ||||||||||||
Expected price volatility is the measure by which our stock price is expected to fluctuate during the expected term of an option. Expected volatility is derived from the historical daily change in the market price of our common stock, as we believe that historical volatility is the best indicator of future volatility.
The risk-free interest rate used in the Black-Scholes calculation is based on the prevailing U.S. Treasury yield as determined by the U.S. Federal Reserve. We have never paid any cash dividends on our common stock and do not anticipate paying cash dividends on our common stock in the foreseeable future.
Historically, we have not had significant forfeitures of unvested stock options granted to employees and Directors. A significant number of our stock option grants are fully vested at issuance or have short vesting provisions. Therefore, we have estimated the forfeiture rate of our outstanding stock options as zero.
Warrants
Warrants issued with our convertible promissory notes, note payables, 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.
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.
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.
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, |
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Current liabilities: |
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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: |
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|
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.
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.
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:
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Weighted |
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average |
Aggregate |
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Options |
Exercise |
price per |
intrinsic |
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|
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.
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.
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.
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).
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.
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:
|
1. |
ONM Environmental (formerly Odor-No-More) (“ONM”) -- which sells odor and volatile organic control products and services (located in Westminster, California); |
|
2. |
Clyra Medical Technologies (“Clyra”) -- which develops and sells medical products based on our technologies, including Clyraguard Personal Protective Spray; |
|
3. |
BLEST -- which provides professional engineering services on a time and materials basis for outside clients and supports our internal operations as needed (located in Oak Ridge, Tennessee); and |
|
4. |
BioLargo Water (“Water”) -- which historically focused entirely on R&D, and has now shifted its focus to commercializing the AOS technology, developing manufacturing operations for hand sanitizers and supporting the development of iodine based disinfecting products for the company (located in Edmonton, Alberta Canada). |
Historically, none of our operating business units have operated at a profit and therefore each required additional cash to meet its monthly expenses. The additional sources of the cash to fund the shortfall from operations of ONM, BLEST and BioLargo Water have been provided by BioLargo’s sales of debt or equity, research grants, and tax credits. Clyra Medical has been funded by third party investors who invest directly in Clyra Medical in exchange for equity ownership in that entity.
The segment information for the three and six months ended June 30, 2019 and 2020, is as follows (in thousands):
|
Three months ended June 30, |
Six months ended June 30, |
|||||||||||||||
|
2019 |
2020 |
2019 |
2020 |
|||||||||||||
|
Revenue |
||||||||||||||||
|
ONM |
$ | 315 | $ | 299 | $ | 616 | $ | 596 | ||||||||
|
BLEST |
241 | 160 | 424 | 444 | ||||||||||||
|
Clyra Medical |
— | 21 | — | 21 | ||||||||||||
|
Intercompany revenue |
(130 | ) | (62 | ) | (250 | ) | (205 | ) | ||||||||
|
Total |
$ | 426 | $ | 418 | $ | 790 | $ | 856 | ||||||||
|
Operating loss |
||||||||||||||||
|
BioLargo corporate |
$ | (956 | ) | $ | (1,129 |
) |
$ | (1,904 | ) | $ | (1,936 | ) | ||||
|
ONM |
(51 | ) | (134 |
) |
(141 | ) | (287 | ) | ||||||||
|
Clyra Medical |
(319 | ) | (422 |
) |
(606 | ) | (728 | ) | ||||||||
|
BLEST |
(27 | ) | (124 |
) |
(137 | ) | (331 | ) | ||||||||
|
Water |
(134 | ) | (196 |
) |
(361 | ) | (424 | ) | ||||||||
|
Total |
$ | (1,487 | ) | $ | (2,005 |
) |
$ | (3,149 | ) | $ | (3,706 | ) | ||||
|
Interest expense |
||||||||||||||||
|
BioLargo Corporate |
$ | (485 | ) | $ | (735 |
) |
$ | (1,458 | ) | $ | (1,479 | ) | ||||
|
Clyra Medical |
(13 | ) | (12 |
) |
(25 | ) | (25 | ) | ||||||||
|
Total |
$ | (498 | ) | $ | (747 |
) |
$ | (1,483 | ) | $ | (1,504 | ) | ||||
|
Research and development expense |
||||||||||||||||
|
BioLargo Corporate |
$ | (210 | ) | $ | (119 |
) |
$ | (382 | ) | $ | (321 | ) | ||||
|
Clyra Medical |
(106 | ) | (47 |
) |
(155 | ) | (61 | ) | ||||||||
|
BLEST |
(73 | ) | (85 |
) |
(195 | ) | (166 | ) | ||||||||
|
Water |
(108 | ) | (137 |
) |
(317 | ) | (317 | ) | ||||||||
|
Intersegment BioLargo corporate |
130 | 38 | 256 | 181 | ||||||||||||
|
Total |
$ | (367 | ) | $ | (350 |
) |
$ | (793 | ) | $ | (684 | ) | ||||
|
As of June 30, 2020 |
BioLargo |
ONM |
Clyra |
BLEST |
Water |
Elimination(1) |
Total |
|||||||||||||||||||||
|
Tangible assets |
$ | 751 | $ | 478 | $ | 562 | $ | 273 | $ | 70 | $ | (40 | ) | $ | 2,094 | |||||||||||||
|
Investment in South Korean joint venture |
85 | — | — | — | — | — | 85 | |||||||||||||||||||||
|
Other assets |
35 | — | 788 | — | — | — | 823 | |||||||||||||||||||||
|
Intangible assets |
1,893 | — | — | — | — | — | 1,893 | |||||||||||||||||||||
|
As of December 31, 2019 |
BioLargo |
ONM |
Clyra |
BLEST |
Water |
Elimination(1) |
Total |
|||||||||||||||||||||
|
Tangible assets |
$ | 862 | $ | 410 | $ | 3 | $ | 396 | $ | 77 | $ | (31 | ) | $ | 1,728 | |||||||||||||
|
Intangible assets |
1,893 | — | — | — | — | — | 1,893 | |||||||||||||||||||||
(1) – the “elimination” column reflects an adjustment for revenues generated between our related entities that are eliminated in consolidation.
Note 11. Commitments and Contingencies
Office Leases
We have long-term operating leases for office, industrial and laboratory space in Westminster, California, Oak Ridge, Tennessee, and Alberta, Canada. Payments made under operating leases are charged to the Consolidated Statement of Operations and Comprehensive Loss on a straight-line basis over the term of the operating lease agreement. For the six months ended June 30, 2019 and 2020, rental expense was $51,000 and $55,000, respectively. On January 1, 2019, we adopted ASC 842 which resulted in a right-of-use asset and lease liability. Short-term leases are not included in our analysis. The adoption resulted in an immaterial cumulative effect of an accounting change that was not recorded. The lease of our Westminster facility qualifies for the new treatment; it originated in August 2016, expires August 2020, contains a yearly escalation of 3%, and includes a four-year renewal option whereby the base rent is adjusted to then market value. We exercised our option to extend the lease for four years. That has been included in the analysis. The lease of our Oak Ridge, Tennessee facility also qualifies, and it had one executed extension to September 2022, and has one renewal option for another five years where the rental rate would adjust to greater of the current price and fair market value. No determination has been made whether to exercise the renewal option for the Oak Ridge facility. The lease of our Canadian facility is less than one year. None of our leases have additional terms related to the payments or mechanics of the lease: there are not any common area maintenance charges or tax sharing arrangements, easement provisions or any free rent. Since there is no explicit interest rate in leases, management used its incremental borrowing rate, which is estimated to be 18%. As of June 30, 2020, our weighted average remaining lease term is four years and the total remaining operating lease payments is $622,000.
Note 12. Subsequent Events.
Management has evaluated subsequent events through the date of the filing of this Quarterly Report and management noted the following for disclosure.
Economic Injury Disaster Loan (EIDL)
Our subsidiary ONM Environmental, Inc. received an Economic Injury Disaster loan from the U.S. Small Business Administration of $150,000. The term of the loan is 30 years and has a 3.75% interest rate. Monthly payments of $800 begin July 2021.
2020 Unit Offering
Pursuant to the 2020 Unit Offering (see Note 3), we received $125,000 from three investors, issued 746,528 shares of our common stock, and issued six-month and five-year stock purchase warrants to purchase 746,528 shares of common stock at $0.184 and $0.23 per share.
Sales to Lincoln Park
From July 1, 2020, through August 11, 2020, we sold 2,531,549 shares of our common stock to Lincoln Park and received $436,000 in gross and net proceeds. These sales were registered with the SEC on Form S-1, Registration Number 333-237651.
Note Maturity Extensions
On August 10, 2020, we and the holder of a convertible promissory note in the principal amount of $475,000 due August 12, 2020, entered into an agreement to extend the maturity date of the note to August 12, 2021. The holder agreed to convert one-fourth of the outstanding principal, plus $23,750 of interest, into 838,235 shares of common stock at the $0.17 conversion price set forth in the note. As consideration for the extension of the maturity date, we agreed to issue an additional 179,622 shares of common stock, extend the expiration date from September 18, 2023 to September 18, 2025, of a warrant to purchase 1,734,375 shares of common stock, and extend the expiration date from August 12, 2024 to August 12, 2025 of a warrant to purchase 2,095,588 shares of common stock.
On August 10, 2020, we and the holder of a convertible promissory note in the principal amount of $75,000 due August 20, 2020, entered into an agreement in which we agreed to pay $25,000, and the holder agreed to extend the maturity date of the note to August 20, 2021.
Debt Conversions
From July 1, 2020, through August 10, 2020, we have elected to convert at maturity $1,891,000 principal amount of twelve-month OID notes (see Note 4), and $99,000 interest, into 20,087,918 shares of our common stock. As of August 10, 2020, $395,000 principal amount of twelve-month OID notes remain outstanding.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
This quarterly report on Form 10-Q contains forward-looking statements. These forward-looking statements involve risks and uncertainties, including statements regarding BioLargo’s capital needs, business plans and expectations. Such forward-looking statements involve risks and uncertainties regarding BioLargo’s ability to carry out its planned development and production of products. Forward-looking statements are made, without limitation, in relation to BioLargo’s operating plans, BioLargo’s liquidity and financial condition, availability of funds, operating and exploration costs and the market in which BioLargo competes. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “expect”, “plan”, “intend”, “anticipate”, “believe”, “estimate”, “predict”, “potential” or “continue”, the negative of such terms or other comparable terminology. Actual events or results may differ materially. In evaluating these statements, you should consider various factors, including the risks outlined in our Form most recent annual report on Form 10-K, and, from time to time, in other reports BioLargo files with the SEC. These factors may cause BioLargo’s actual results to differ materially from any forward-looking statement. BioLargo disclaims any obligation to publicly update these statements, or disclose any difference between its actual results and those reflected in these statements. The information constitutes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
Unless otherwise expressly stated herein, all statements, including forward-looking statements, set forth in this Form 10-Q are as of June 30, 2020, unless expressly stated otherwise, and we undertake no duty to update this information.
As used in this report, “we” and “Company” refers to (i) BioLargo, Inc., a Delaware corporation; (ii) its wholly-owned subsidiaries BioLargo Life Technologies, Inc., a California corporation, ONM Environmental, Inc., a California corporation (formerly Odor-No-More), BioLargo Development Corp., a California corporation, , (iii) its majority-owned subsidiary BioLargo Engineering, Science & Technologies, LLC, a Tennessee limited liability company, and Canadian subsidiary BioLargo Water, Inc.; and (iv) Clyra Medical Technologies, Inc. (“Clyra”), a partially owned subsidiary.
The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and the related notes to the consolidated financial statements included elsewhere in this report.
Recent Events
The COVID-19 pandemic is currently impacting countries, communities, supply chains and markets as well as the global financial markets. Governments have imposed laws requiring social distancing, travel bans and quarantine, and these laws may limit access to our facilities, customers, management, support staff and professional advisors. These factors, in turn, may not only impact our operations, financial condition and demand for our goods and services, but our overall ability to react timely to mitigate the impact of this event. Also, it may hamper our efforts to comply with our filing obligations with the Securities and Exchange Commission. Depending on the severity and longevity of the COVID-19 pandemic, our business, customers, and stockholders may experience a significant negative impact.
Our Business - A Sustainable Products, Technology and Solutions Provider
BioLargo, Inc. is an innovative technology developer and environmental engineering company driven by a mission to “make life better” by delivering robust, sustainable solutions for a broad range of industries and applications, with a focus on clean water, clean air, and advanced wound care. We develop and commercialize disruptive technologies by providing the capital, support, and expertise to expedite them from “cradle” to “maturity”. Our business strategy is straightforward: we invent or acquire technologies that we believe have the potential to be disruptive in large commercial markets; we incubate and develop these technologies to advance them and promote their commercial success as we leverage our considerable scientific, engineering, and entrepreneurial talent; we then monetize these technical assets through a variety of business structures that may include licensure, joint venture, sale, spin off, or by deploying direct to market strategies. We seek to unlock the value of our portfolio of underlying technologies to both advance our purposeful mission while we create value for our stockholders.
Response to COVID-19 Pandemic
In response to the COVID-19 pandemic, during which many states issued “shelter-at-home” orders, we took rapid action to bring forth solutions to assist in the crisis, stabilize operations, protect our staff, and shore up financial resources to continue growing the company. We have achieved the following over the past few months:
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Clyra Medical launched and began sales of its new FDA-registered Clyraguard Personal Protection Spray (www.clyramedical.com/clyraguard). Manufacturing and distribution is ramping up to meet demand, with a major national medical supplier signing a distribution agreement in July. |
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We assisted our subsidiary Clyra Medical in securing an inventory-based line of credit up to $1 million. |
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We received confirmation through third-party testing by UTMB-Galveston National Lab that our CupriDyne products inactivate the SARS-CoV-2 (COVID-19) virus. |
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We received confirmation through third-party testing at UTMB-Galveston National Lab that Clyra Medical’s FDA registered products inactivate the SARS-CoV-2 (COVID-19) virus (the peer reviewed study has been published). |
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We organized a small-scale production and sale of hand sanitizers in our Westminster, Oak Ridge, and Edmonton Alberta facilities. |
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We negotiated and executed a financing instrument with Lincoln Park Capital which can provide up to $10,250,000 in new capital should we elect to draw down the facility, any time over the next three years; |
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We secured two commitments for commercial trials of our AOS water treatment system. |
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From January 1, 2020, through August 10, 2020, we converted approximately $2.5 million in debt to equity. |
COVID-19 Testing
We sponsored research with one of the leading researchers in the study of pandemic diseases, Dr Slobodan Praessler’s laboratory located at the Galveston National Laboratory at the University of Texas Medical Branch, to confirm that CupriDyne as well as Clyraguard, a product of Clyra Medical, inactivated the Coronavirus that causes COVID-19. The tests were successful. The research concluded that “CupriDyne was shown to be effective in inactivating the virus in a time-dependent manner, reducing virus titers by 99% (2 logs) after 30 minutes, and reducing virus titers to below the detection limit after 60 minutes. The novel iodine complex tested herein offers a safe and gentle alternative to conventional disinfectants for use on indoor and outdoor surfaces.” The actual report can be seen at the following link: https://www.biorxiv.org/content/10.1101/2020.05.08.082701v1. The CupriDyne abstract states:
“The coronavirus known as SARS-CoV-2, which causes COVID-19 disease, is presently responsible for a global pandemic wherein more than 3.5 million people have been infected and more than 250,000 killed to-date. There is currently no vaccine for COVID-19, leaving governments and public health agencies with little defense against the virus aside from advising or enforcing best practices for virus transmission prevention, which include hand-washing, physical distancing, use of face covers, and use of effective disinfectants. In this study, a novel iodine complex called CupriDyne® was assessed for its ability to inactivate SARS-CoV-2. CupriDyne was shown to be effective in inactivating the virus in a time-dependent manner, reducing virus titers by 99% (2 logs) after 30 minutes, and reducing virus titers to below the detection limit after 60 minutes. The novel iodine complex tested herein offers a safe and gentle alternative to conventional disinfectants for use on indoor and outdoor surfaces.”
We intend to fully explore any and all alternatives available to develop a new CupriDyne based product to help combat COVID-19 and secure appropriate regulatory approvals.
The UTMB-Galveston National Laboratory also tested Clyra’s new Clyraguard product, and confirmed that it inactivates the SARS-CoV-2 (COVID-19) virus. The associated study results were recently published in an academic paper, which can be accessed here: https://f1000research.com/articles/9-674. This paper appears in F1000 Research, a well-respected open publishing platform that promotes free and transparent access to novel research, and is currently in the peer-review process whereby it is being reviewed by qualified academics in the fields of microbiology, healthcare, and epidemiology for its scientific and academic merits, as is the case with all papers published in peer-reviewed journals.
While we are actively engaged in responding the COVID-19 crisis, we have not ceased operations of our previous and long-term operating activities or plans. However, our normal operations and rate of growth been negatively impacted during the crisis, namely with delays by our customers until such time as our customers operations resume some sense of normalcy. For example, our growth in the waste handling industry reversed course in March as operators, in light of the COVID-19 crisis, are less concerned about managing odor than during normal times. As the pandemic has progressed, and shelter-in-place orders have been lifted, these operating activities are increasing.
Clyra Medical recently launched its first commercial product, Clyraguard Disinfecting Personal Protection Spray. This product (described in greater detail under “Clyra Medical Technologies”) is a safe, effective, FDA-registered Class I General Purpose disinfectant designed to decontaminate medical devices such as face masks and other personal protective equipment (PPE). The product has been proven effective against a wide range of bacteria, and has been proven effective against SARS-CoV-2, the virus that causes COVID-19 disease. Given the product’s unique value proposition as an FDA-registered safe-on-skin and gentle disinfectant, we expect Clyraguard to experience rapid revenue growth.
Each incremental success serves to validate our overall business strategy which is focused on technology-based products and services capable of disrupting the status quo in their applicable industry market segment. We believe that the future of our medical and clean water technologies has similar and also very large market opportunities ahead as they are introduced commercially.
In addition to our three commercial operating subsidiaries, we have technologies and products in the development pipeline progressing towards commercialization, including our water treatment system for decontamination and disinfection (our “Advanced Oxidation System”, or “AOS” – see Pilot Projects discussion below), our Clyra antimicrobial wound care products, and our stem cell therapy called the SkinDisc™, which is focused on regenerative tissue management and is licensed to our subsidiary Clyra Medical Technologies, Inc. (“Clyra Medical”).
ONM Environmental Industrial Odor and VOC Solutions
ONM Environmental (previously known as Odor-No-More) generates most of its revenues through the sales of odor and VOC control products under the flagship brand CupriDyne Clean. While sales of this product have increased over time, the company also began to expand its service offering due principally to the demands and needs of its major waste handling and industrial clients (which ultimately prompted the company to re-brand to “ONM Environmental” to reflect the widened scope of services it offers). ONM Environmental now offers a menu of services to landfills, transfer stations, and wastewater treatment facilities. These services include ongoing maintenance and on-site support services to assist our clients in the design and continued use of the various systems that deliver our liquid products in the field (such as misting systems). It has recently expanded these serves to engineering design, construction and installation. Our engineering team at BLEST has been instrumental in supporting these operations.
Our CupriDyne Clean industrial products reduce and eliminate tough odors and VOC’s in various industrial settings, delivered through misting systems, sprayers, water trucks and similar water delivery systems. We believe the product is the number-one performing odor-control product in the market, and that it offers substantial savings to our customers compared with competing products.
Our customer base for our odor and VOC business was expanding prior to the COVID-19 crisis and we expect it to continue doing so once the world returns back to work. We have been and expect to continue selling product to three of the largest solid waste handling companies in the country, and also have secured multiple flagship clients in the wastewater treatment industry, which we expect to become a priority market. We are also expanding with early adopters into new industrial markets, including steel manufacturing, paper production, construction, building and facilities management, livestock production, the cannabis industry. Opportunities for our products are available internationally. Very recently, some of the capital projects that ONM Environmental previously had on hold due to logistical limitations imposed by the COVID-19 pandemic have begun to come back online, with decision-makers from these clients requesting that ONM Environmental resume work on these projects. Further, several cannabis growing operations have recently signed on for capital equipment and service contracts with ONM Environmental, whereby ONM Environmental provides design, build, and install services and equipment for their odor and VOC control needs, with the company’s partner Cannabusters providing odor and VOC control products to the client (and with product royalties going to ONM Environmental).
We have in the past and plan to continue marketing these products through industry associations like the “Technology Approval Group” program offered by Isle Utilities that serves the wastewater treatment industry. We also have a number of potential partners actively engaged in commercial trials around the globe and we are actively in discussion with a number of groups to leverage our commercial focus through distribution partnerships.
Many of our customers have adopted CupriDyne Clean as a replacement for a non-performing and competitive products, some of which have been in use by customers for as many as 30 years. Upon using CupriDyne Clean, the majority of customers have expressed a very high degree of satisfaction with its performance compared to prior solutions. Because of this, we were realizing systematic adoption by our very large corporate customers and expect to resume the adoption cycle post crisis, to serve these customers for years to come. Our experience has helped refine our value proposition and assemble a comprehensive menu of products and services. Our success in this market has validated the market opportunity for our products and services and encourages us to continue investing in infrastructure and sales and marketing to increase revenues. We estimate there are approximately 2,000 active landfills1, 8,000 transfer stations2, and 15,000 wastewater treatment agencies3 in the United States. While all may not have ongoing odor problems or neighbor complaints, we believe many of the facilities have need for a disruptive odor solution like CupriDyne Clean.
South Korean Joint Venture
On February 12, 2020, we executed a “Joint Venture Framework Agreement” with a leading wastewater treatment solution provider based in South Korea (BKT Co. Ltd., “BKT”), to create a South Korean entity that would manufacture odor and VOC control products based on our CupriDyne Clean products. We received a $350,000 investment from BKT and issued 1,593,087 shares of our common stock, and invested $100,000 into the joint venture for a 40% ownership share. BKT and its U.S. based subsidiary invested $150,000 into the joint venture for the remaining 60% ownership share. Although the joint venture established manufacturing, the COVID-19 pandemic has slowed the expected growth of the company.
Full Service Environmental Engineering
Our subsidiary BioLargo Engineering, Science & Technologies, LLC (“BLEST”) offers full service environmental engineering to third parties, and provides engineering support services to our internal teams to accelerate the commercialization of our technologies. Its website is found at www.BioLargoEngineering.com.
BLEST focuses its efforts in three areas:
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Providing engineering services to third-party clients; |
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Supporting the internal product development (e.g., the AOS and AEC water treatment systems); and |
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Supporting our team at ONM Environmental to provide engineering and design of the CupriDyne Clean delivery systems. |
1 “Municipal Solid Waste Landfills - Economic Impact Analysis for the Proposed New Subpart to the New Source Performance Standards” (2014), by U.S. Environmental Protection Agency Office of Air and Radiation and Office of Air Quality Planning and Standards.
2 The top 5 Waste Management companies in the US, as of 2011, operated 624 transfer stations, and 565 landfills. “Municipal Solid Waste Landfills - Economic Impact Analysis for the Proposed New Subpart to the New Source Performance Standards” (2014), by U.S. Environmental Protection Agency Office of Air and Radiation and Office of Air Quality Planning and Standards. This is a ratio of 1:4 (landfill to transfer stations). The estimated number of transfer stations is this ratio multiplied by the approximate 1,900 total landfills, and rounded.
3 1“Failure to Act, The Economic Impact of Current Investment Trends in Water and Wastewater Treatment Infrastructure” (2011), by American Society of Civil Engineers and Economic Development Research Group.
Figure includes treatment facilities owned and operated by municipalities, as well as those owned and/or operated by private entities contracting with municipalities.
The subsidiary is located in Oak Ridge (a suburb of Knoxville, Tennessee), and employs seven scientists and engineers who collectively have over two hundred years of experience in diverse engineering fields. The team is led by Randall Moore, who served as Manager of Operations for Consulting and Engineering for the Knoxville office of CB&I Environmental & Infrastructure and was formerly a leader at The Shaw Group, Inc., a Fortune 500 global engineering firm. The other team members are also former employees of CB&I and Shaw. The team is highly experienced across multiple industries and they are considered experts in their respective fields, including chemical engineering, wastewater treatment (including design, operations, data gathering and data evaluation), process safety, energy efficiency, air pollution, design and control, technology evaluation, technology integration, air quality management & testing, engineering management, permitting, industrial hygiene, applied research and development, air testing, environmental permitting, HAZOP review, chemical processing, thermal design, computational fluid dynamics, mechanical engineering, mechanical design, NEPDES permitting, RCRA/TSCA compliance and permitting, project management, storm water design & permitting, computer assisted design (CAD), bench chemistry, continuous emission monitoring system operator, data handling and evaluation and decommissioning and decontamination of radiological and chemical contaminated facilities.
Development of AEC to Combat PFAS Crisis
In 2019, BLEST was awarded an SBIR Phase I Competitive Grant by the Environmental Protection Agency in the amount of $100,000 to investigate solutions for the removal of per- and polyfluoroalkyl substances (PFAS) from water. PFAS have been linked to cancer, fertility problems, asthma, and more, and are present in a vast range of manufactured goods including food, common household products (e.g., cleaning products, cookware), and electronics. PFAS also pose widespread and serious water safety problems around the world, with governments and industry actively seeking new technologies and processes to eliminate PFAS from groundwater and drinking water. BLEST had applied for but did not receive “Phase II” funding from the EPA to sponsor a go-to-market strategy for its AEC. While management is disappointed by this news, it is not deterred from pursuing what it believes will be a substantial business opportunity. The scale-up work on the AEC continues with our own resources, and we expect to be ready for commercial trials in the near future.
Recently, BioLargo Engineering completed design and manufacturing of a medium-scale demonstration pilot prototype of the BioLargo AEC. This prototype is being tested and will be installed on-site for its first field pilot in the coming months, where the technology will be vetted in tough field conditions for its ability to effectively and affordably eliminate per- and poly-fluoroalkyl substances (“PFAS”) contaminants from water. The technology has already been proven in lab-scale studies to eliminate +99% of PFAS from water in continuous flow while consuming as low as $0.30 in electrical costs per 1,000 gallons treated, representing a significant potential cost savings compared to incumbent PFAS solutions like reverse osmosis and carbon sequestration technologies. Once the first field pilot projects for the AEC have been successfully completed, we intend to commence the first commercial trials for the AEC.
BioLargo Water and the Advanced Oxidation System – AOS
BioLargo Water is our wholly owned subsidiary located on campus at the University of Alberta, Canada, that has been primarily engaged in the research and development of our Advanced Oxidation System (AOS). The AOS is our patented water treatment device that generates a series of highly oxidative species of iodine and other molecules that, because of its proprietary configuration and inner constituents, allow it to eliminate pathogenic organisms and organic contaminants as water passes through the device and it performs with extreme efficacy while consuming very little electricity. Its key application is extremely efficient decontamination and the disinfection of various waste waters.
The AOS completed its first pre-commercial pilot project at Sunworks Farm, a poultry farm in Alberta, and the client agreed to expand the scope of AOS in the operations and be involved in the first commercial AOS pilot project. Recently, we received conditional approval of government grant that will partly fund the project, and are working on the engineering schematics for the system. BioLargo water hopes to start the project in the fourth quarter of 2020. The total budget for the project is $695,000, of which $600,000 will be funded by a combination of grants and client contributions. ]
The key value proposition of the AOS is its ability to eliminate a wide variety of contaminants with high performance while consuming extremely low levels of input electricity and extremely low levels of chemistry inputs – a trait made possible by the complex set of highly oxidative iodine compounds generated within the AOS reactor. Our proof-of-concept studies and case studies have generated results that project the AOS will be more cost- and energy-efficient than commonly used advanced water treatment technologies such as UV, electro-chlorination, and ozonation. This value proposition sets the AOS technology above other water treatment options, as we believe the AOS may allow safe and reliable water treatment for significantly lower cost compared to its competitors and may even enable advanced water treatment in applications where it otherwise would have been prohibitively costly.
The AOS has the potential to allow reliable and cost-effective water treatment in numerous industries and applications where high-level disinfection or elimination of hard-to-treat organic contaminants is required. We believe the total serviceable market for our AOS is $10.75 billion for the poultry processing, food & beverage, and storm water segments with a target beachhead market for poultry processing in North America at an estimated $240 million.
Our AOS is an award-winning invention that is supported by science and engineering financial support and highly competitive grants (66 and counting) from various federal and provincial funding agencies in Canada such as NSERC, NRC- IRAP, and Alberta Innovates and in the United States by the Metropolitan Water District of Southern California and National Water Research Institute.
Our immediate goals for the development and commercialization of the AOS are: 1) to secure direct investment into the BioLargo Water subsidiary to empower its staff to complete its development cycle, 2) complete the ongoing pre-commercial field pilot studies which are necessary to generate the techno-economic data required to secure commercial trials, entice future customers, and commence traversal of necessary regulatory pathways, 3) conduct the first commercial trials with the AOS, and 4) secure first sales of the AOS. It is our belief that once pre-commercial pilots have concluded with the AOS, our ability to entice major water industry players to partner with BioLargo Water to accelerate market adoption of the AOS will be increased dramatically.
Clyra Medical Technologies
We initially formed Clyra Medical to commercialize our technology in the medical products industry, which we believe can be disruptive to many competing product lines.
When the COVID-19 crisis began, we immediately responded by supporting the team at Clyra Medical in any way possible to help them create a product called Clyraguard. Testing has confirmed that Clyraguard inactivates the COVID-19 pandemic coronavirus.
Clyraguard Personal Protection Spray is a disinfectant and germicide intended to clean and decontaminate noncritical medical devices such as face masks and personal protective equipment (PPE). Clyraguard Personal Protection Spray may also be used to preclean critical medical devices prior to sterilization.
Clyraguard features a host of unique claims:
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Extremely high antimicrobial efficacy (99.999%) against virus, bacteria and fungus, including Coronavirus |
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Safe for human skin / Non-irritating / Non-sensitizing / Non-toxic |
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No Known Microbial Resistance |
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Clear / Colorless / Odorless |
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4 oz bottle lasts up to 2 months with typical usage |
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Anti-odor |
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Environmentally friendly |
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Effective against biofilm |
The early development work at Clyra and its long regulatory approval process was pivotal to enable Clyra to respond to the COVID-19 crisis. The Clyraguard product is now being manufactured and sold primarily to its target market of frontline health care workers and supply companies as a Class I disinfectant intended to disinfect face masks and personal protective equipment.
Recently Clyra Medical Technologies has welcomed two key team members to its roster. The company recruited Shawn Dougherty, experienced C-level executive responsible for several successful high-profile product launches, to serve as Clyra’s Chief Revenue Officer. Prior to joining Clyra, Shawn co-founded mophie, the number one selling battery case manufacturer for mobile devices in North America. As COO and founder, she helped mophie create the first juice pack battery case for the iPhone in North America and built an exclusive partnership with Apple. Clyra also recruited John A. Sirpilla to serve as its Chief Business Development Officer, whereby he will work with Clyra’s senior executive team on brand expansion and retail channel development, and will work to develop strategic partnerships to help make Clyra products widely available to individuals, businesses, and the healthcare industry. Mr. Sirpilla is the former President of Camping World Accessory Stores, a 140-store nationwide retail chain serving the RV industry and was promoted in 2012 to Chief Business Development Officer for the parent company, Camping World and Good Sam with annual sales of nearly $4 billion.
SkinDisc
Our second technology and its related products center around the SkinDisc technology which we acquired in late 2018 from Scion Solutions, LLC (“Scion”). Scion is led by Spencer Brown, a medical device industry veteran with more than 35 years’ experience in sales, account management, and distribution in the medical device industry. The SkinDisc product was developed by Dr. Brock Liden, a renowned medical podiatrist and expert in wound care and diabetic limb salvage. The SkinDisc is a therapy product that uses a patient’s own bone marrow and plasma in a unique mixture to generate a cell-rich bio gel for use with chronic wounds. It has been tested in over 250 patient cases with no adverse effects, and has successfully aided in the salvage of limbs that otherwise would have been amputated in time frames as short at 4 to 7 weeks with one or two applications. We are continuing to work on patenting the technology, and building the case files for regulatory requirements.
Results of Operations
We operate our business in distinct business segments:
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ONM Environmental, which manufactures and sells our odor and VOC control products and services, including our flagship product, CupriDyne Clean; |
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BLEST, our professional engineering services division supporting our internal business units, advancing innovations like the AEC to remove PFAS contaminants from water, and serving outside clients on a fee for service basis; |
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Clyra Medical, our partially owned subsidiary which develops and sells medical products based on our technology, including the recently released Clyraguard Personal Protection Spray; and |
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BioLargo Water, our Canadian division that has been historically pure research and development, and is now transitioning to focus on commercializing our AOS system and supporting the work to advance CupriDyne technology-based products through an EPA registration; |
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Our corporate operations, which support the operating segments with legal, accounting, human resources, and other services. |
Consolidated revenue for the three and six months ended June 30, 2020 was $418,000 and $856,000, which is a 2% decrease and 8% increase over the same periods in 2019. Sales at our operating divisions decreased upon the initial shutdown of California and most the U.S. in late March due to the COVID-19 pandemic, but have since rebounded.
Overall, we expect revenues to significantly increase in the third quarter, due primarily to sales of Clyraguard Personal Protection Spray.
ONM Environmental (formerly, Odor-No-More)
Our wholly owned subsidiary ONM Environmental generated revenues through sales of its flagship product CupriDyne Clean, by providing design, installation, and maintenance services on the systems that deliver CupriDyne Clean at its clients’ facilities, and through sales of odor absorption products to the U.S. Government. Of its gross sales in the three months ended June 30, 2020, approximately two-thirds were to the waste handling industry.
Revenue (ONM)
ONM’s revenues for the three and six months ended June 30, 2020, were $299,000 and $596,000, a decrease of $16,000 and $20,000 from the same periods in 2019. Sales on a quarter-to-quarter basis had been increasing until the COVID-19 pandemic shut down businesses across the country, and have since started to rebound. For example, the company was recently awarded a contract to install a large misting system at a local landfill that is expected to be completed by year’s end.
Cost of Goods Sold (ONM)
ONM’s cost of goods sold includes costs of raw materials, contract manufacturing, and portions of salaries and expenses related to the manufacturing of our products. As a percentage of revenue, ONM’s costs of goods improved 5% in the three and six months ended June 30, 2020 to 38% and 40%.
Selling, General and Administrative Expense (ONM)
ONM’s selling, general and administrative expenses increased by 35% to $641,000 during the six months ended June 30, 2020. These expenses have increased alongside its efforts to increase revenues by hiring additional sales and support staff. We expect these expenses to increase when compared to 2019 but remain consistent in 2020 unless and until its revenues increase.
Net Loss (ONM)
For the six months ended June 30, 2020, ONM generated $596,000 in revenue, a gross margin of $354,000, and had total costs and expenses of $641,000, resulting in a operating loss of $287,000, and a net loss of $279,000.
BLEST (engineering division)
Revenue (BLEST)
Our engineering segment (BLEST) generated $120,000 and $280,000 of revenues from third party clients in the three and six months ended June 30, 2020, an increase of $11,000 and $108,000 from the same periods in 2019. Revenues decreased in the three months ended June 30, 2020, as compared with the prior three-month period, due to the COVID-19 pandemic. The increases this year compared with 2019 is due to an increase in the number of client contracts being serviced. BLEST revenues reported on our consolidated statement of operations do not include work performed on internal BioLargo projects, such as its engineering and development of the AOS water filtration system, development of the AEC to combat the PFAS crisis (see Development of AEC to Combat PFAS Crisis, above), and other projects.
Cost of Goods (Services) Sold (BLEST)
BLEST’s cost of services includes employee labor as well as subcontracted labor costs. In the three and six months ended June 30, 2020, its cost of services were 77% and 80% of its revenues, versus 84% and 83% in the comparable periods in 2019.
Selling, General and Administrative Expense (BLEST)
BLEST’S SG&A expenses include expense related to its operations, although because it primarily delivers services to its clients, most of its labor costs are included in its cost of services (for third party clients), and research and development for its work on BioLargo technologies. BLEST selling, general and administrative expenses during the six months ended June 30, 2020 totaled $221,000 compared to $220,000 for the six months ended June 30, 2019.
Net Loss (BLEST)
For the six months ended June 30, 2020, BLEST generated $280,000 in revenue, a gross margin of $56,000, and had total costs and expenses of $387,000, resulting in a net loss of $331,000.
While we are unable to record revenues generated from intracompany services by the engineering group to other operating divisions, it is important to note that the net loss would be eliminated if BLEST were an outside contract for hire services company selling services to our water company or our industrial odor and VOC control operating unit.
Because the subsidiary had a net loss, we invested cash during the year to allow it to maintain operations. BLEST’s need for a cash subsidy to support its operations decreased considerably towards the end of calendar year 2019. We expect this trend to continue, and expect that in 2020 its sales will continue to increase.
Other Income
Our wholly owned Canadian subsidiary has been awarded more than 79 research grants over the years from various Canadian public and private agencies, including the Canadian National Research Institute – Industrial Research Assistance Program (NRC-IRAP), the National Science and Engineering Research Council of Canada (NSERC), and the Metropolitan Water District of Southern California’s Innovative Conservation Program “ICP”. The research grants received are considered reimbursement grants related to costs we incur and therefore are included as Other Income. We continued to win grants and it is important to note that amounts paid directly to third parties are not included as income in our financial statements.
Although we are continuing to apply for government and industry grants, and indications from the various grant agencies is highly encouraging, we cannot be certain of continuing those successes in the future.
Selling, General and Administrative Expense – consolidated
Our SG&A expenses include both cash expenses (for example, salaries to employees) and non-cash expenses (for example, stock option compensation expense). Our SG&A expenses increased by $554,000 (42%) and $690,000 (25%) in the three and six months ended June 30, 2020, compared to the three and six months ended June 30, 2019, due primarily to increases in salaries and payroll of $250,000 and $301,000 in the three and six months ended June 30, 2020 versus 2019 Much of the increase is due to non-cash expenses related to the issuance of stock options, and the hiring of sales personnel. Our employees, vendors and consultants chose to receive a greater number of stock and stock options in lieu of cash owed and as part of an employee retention program. The largest components of our SG&A expenses included (in thousands):
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Three months ended: |
Six months ended: |
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June 30, 2019 |
June 30, 2020 |
June 30, 2019 |
June 30, 2020 |
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Salaries and payroll related |
$ | 476 | $ | 726 | $ | 969 | $ | 1,274 | ||||||||
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Professional fees |
164 | 244 | 360 | 472 | ||||||||||||
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Consulting |
299 | 396 | 590 | 684 | ||||||||||||
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Office expense |
224 | 300 | 464 | 584 | ||||||||||||
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Sales and marketing |
34 | 58 | 93 | 136 | ||||||||||||
|
Investor relations |
37 | 68 | 82 | 104 | ||||||||||||
|
Board of director expense |
68 | 63 | 135 | 130 | ||||||||||||
The increase in salaries and payroll expenses is also related to the implementation of a stock option bonus compensation program for employees. Professional fees have increased as the Company has done more financings and registrations which have required more legal expense. Consulting expenses have increased, as well as sales and marketing and investor relations as the Company has increased efforts to sell its products and services and increased efforts in the capital markets. as
Research and Development
In the three and six months ended June 30, 2020, we spent approximately $350,000 and $684,000 in the research and development of our technologies and products. This was a decrease of 12% and 17% compared to the same periods in 2019, due to an increased focus on commercial operations and a decreased focus on research and development.
Interest expense
Our interest expense for the three and six months ended June 30, 2020 was $747,000 and $1,504,000, an increase of 50% and 1% compared to the same periods in 2019. The increase is due to non-cash expenses from warrants issued to investors in our OID convertible note offering that began in June, 2019, and concluded in September, 2019, which is amortized over the one-year period of the note. As the vast majority of the OID investments were after June 30, 2019, so the three months ended June 30, 2019included only a small amount of this non-cash interest expense.
Loss on extinguishment of debt
In the three months ended June 30, 2020, we recorded a loss on extinguishment of debt related to transactions with current vendor and employees where Clyra Medical is unable to pay obligations in cash. In lieu of cash, the vendors and employees accepted options to purchase shares of Clyra stock. The fair value of those options exceeded the debt that was converted by $214,000.
In the three months ended June 30, 2019, we recorded a loss on extinguishment of debt related to transactions with prior investors to extend the maturity dates of promissory notes. As consideration, we increased principal amounts, modified conversion terms, and/or issued stock purchase warrants. We had no such activities in the comparable period in 2020. We extended the maturity dates of the promissory notes due to a lack of sufficient cash to satisfy the obligations at maturity. Unless our cash position changes substantially, we anticipate we will continue to do so as additional notes come due.
Net Loss
Net loss for the three months ended June 30, 2020 was $2,701,000, a loss of $0.01 per share, compared with $1,987,000 and $0.02 per share in the prior year comparable period. Net loss for the six months ended June 30, 2020 was $5,316,000, a loss of $0.03 per share, compared to a net loss for the six months ended June 30, 2019 of $4,736,000, a loss of $0.03 per share. The increase in net loss for these periods is due to increase in SG&A and interest expenses.
The net loss per business segment is as follows (in thousands):
|
Three months ended |
Six months ended |
|||||||||||||||
|
June 30, 2019 |
June 30, 2020 |
June 30, 2019 |
June 30, 2020 |
|||||||||||||
|
BioLargo corporate |
(1,142 | ) | (1,823 | ) | (3,366 | ) | (3,415 | ) | ||||||||
|
ONM |
(52 | ) | (126 | ) | (141 | ) | (279 | ) | ||||||||
|
Clyra Medical |
(332 | ) | (432 | ) | (631 | ) | (965 | ) | ||||||||
|
BLEST |
(372 | ) | (165 | ) | (361 | ) | (331 | ) | ||||||||
|
BioLargo Water |
(89 | ) | (155 | ) | (237 | ) | (326 | ) | ||||||||
|
Net loss |
(1,987 | ) | (2,701 | ) | (4,736 | ) | (5,316 | ) | ||||||||
Liquidity and Capital Resources
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.
Critical Accounting Policies
Our discussion and analysis of our results of operations and liquidity and capital resources are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, valuation of offerings of debt with equity or derivative features which include the valuation of the warrant component, any beneficial conversion feature and potential derivative treatment, and share-based payments. We base our estimates on anticipated results and trends and on various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results that differ from our estimates could have a significant adverse effect on our operating results and financial position. We believe that the following significant accounting policies and assumptions may involve a higher degree of judgment and complexity than others.
The methods, estimates and judgments the Company uses in applying these most critical accounting policies have a significant impact on the results of the Company reports in its financial statements.
Revenue Recognition
We adopted ASU 2014-09, “Revenue from Contracts with Customers”, Topic 606, on January 1, 2018. The guidance focuses on the core principle for revenue recognition.
The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
We have revenue from 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.
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 bills 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 future, we may generate revenues from royalties or license fees from our intellectual property. In the event we do so, we anticipate a licensee would pay a license fee in one or more installments and ongoing royalties based on their sales of products incorporating or using our licensed intellectual property. Upon entering into a licensing agreement, we will determine the appropriate method of recognizing the royalty and license fees.
Warrants and Conversion Features
Warrants issued with our convertible and non-convertible debt instruments are accounted for under the fair value and relative fair value method.
The warrant is first analyzed per its terms as to whether it has derivative features or not. If the warrant is determined to be a derivative and not qualify for equity treatment, then it is measured at fair value using the Black Scholes option model, and recorded as a liability on the balance sheet. The warrant is re-measured at its then current fair value at each subsequent reporting date (it is “marked-to-market”).
If the warrant is determined to not have derivative features, it is recorded into equity at its fair value using the Black Scholes option model, however, limited to a relative fair value based upon the percentage of its fair value to the total fair value including the fair value of the convertible note.
Convertible debt instruments are recorded at fair value, limited to a relative fair value based upon the percentage of its fair value to the total fair value including the fair value of the warrant. Further, the convertible debt instrument is examined for any intrinsic beneficial conversion feature (“BCF”) of which the conversion price is less than the closing common stock price on date of issuance. If the relative fair value method is used to value the convertible debt instrument and there is an intrinsic BCF, a further analysis is undertaken of the BCF using an effective conversion price which assumes the conversion price is the relative fair value divided by the number of shares the convertible debt is converted into by its terms. The BCF value is accounted for as equity.
The warrant and BCF relative fair values are also recorded as a discount to the convertible promissory notes. At present, these equity features of the convertible promissory notes have recorded a discount to the convertible notes that is substantially equal to the proceeds received.
Share-based Payments
It is the Company’s policy to expense share-based payments as of the date of grant or over the term of the vesting period in accordance with Auditing Standards Codification Topic 718 “Share-Based Payment.” Application of this pronouncement requires significant judgment regarding the assumptions used in the selected option pricing model, including stock price volatility and employee exercise behavior. Most of these inputs are either highly dependent on the current economic environment at the date of grant or forward-looking expectations projected over the expected term of the award.
Fair Value Measurement
Generally accepted accounting principles establishes a hierarchy to prioritize the inputs of valuation techniques used to measure fair value. The hierarchy gives the highest ranking to the fair values determined by using unadjusted quoted prices in active markets for identical assets (Level 1) and the lowest ranking to fair values determined using methodologies and models with unobservable inputs (Level 3). Observable inputs are those that market participants would use in pricing the assets based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s assumptions about inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The Company has determined the appropriate level of the hierarchy and applied it to its financial assets and liabilities.
Management believes the carrying amounts of the Company’s financial instruments as of December 31, 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, convertible notes, and other assets and liabilities.
Recent Accounting Pronouncements
See Note 2 to the Consolidated Financial Statements, “Summary of Significant Accounting Policies – Recent Accounting Pronouncements”, for the applicable accounting pronouncements affecting the Company.
|
Controls and Procedures |
We conducted an evaluation, under the supervision and with the participation of management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Report.
Our procedures have been designed to ensure that the information relating to our company, including our consolidated subsidiaries, required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow for timely decisions regarding required disclosure. However, our Company is continuing to grow and evolve in 2018, as we have added a new accounting manager for ONM and the engineering division and implemented more detailed reviews of the accounting records. In late 2017, we added an engineering division operating in Tennessee. The volume of our product sales continues to grow, increasing strain on our accounting systems. And, our operations do not yet generate enough cash to fund operations, and thus we rely on financing activities to maintain our level of operations and fund our anticipated growth. These activities put stress on our overall controls and procedures. Although we have made some improvements, our chief executive officer and chief financial officer have concluded that, as of the evaluation date, our disclosure controls and procedures were not effective, due to the material weakness identified below.
It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.
Under the supervision and with the participation of our management, including our chief executive officer and the chief financial officer, we have established internal control procedures in accordance with the guidelines established in the 2013 Framework —Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Recognizing the dynamic nature and growth of the Company’s business, its business segments operating in multiple locations, and the lack of sophisticated reporting systems, management recognizes the strain on the overall internal control environment. As a result, management has concluded that its internal controls over financial reporting are not effective. Management identified a material weakness with respect to deficiencies in its financial closing and reporting procedures. Management believes this is due to a lack of resources. Management intends to add accounting personnel and operating staff and more sophisticated systems in order to improve its reporting procedures and internal controls, subject to available capital. A material weakness is a significant deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected. There was no further change in our internal control over financial reporting that occurred during the six-month period covered by this Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Our management, including our chief executive officer and chief financial officer, does not expect that our disclosure controls or our internal control over financial reporting, or any system we design or implement in the future, will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
OTHER INFORMATION
|
Unregistered Sales of Equity Securities and Use of Proceeds |
The following is a report of the sales of unregistered securities during the period covered by this report not previously reported in an annual report on Form 10-K, a Quarterly Report on Form 10-Q, or a Current Report on Form 8-K.
In the three months ended June 30, 2020, we issued 6,567,133 shares of our common stock in conversion of principal and interest due on convertible promissory notes in the principal amount of $531,000.
In the three months ended June 30, 2020, we issued 1,571,666 shares of our common stock pursuant to a Unit Offering whereby we accepted investments and issued units consisting of shares of common stock, a six-month stock purchase warrant, and a five-year stock purchase warrant. The number of shares issued to each investor, and purchasable by each warrant, is the quotient of the unit price and investment amount. The exercise price of each six-month warrant is 120% of the unit price, and for the six-month warrant, 150% of the unit price. So long as 18 months has passed and the warrant shares are not registered with the SEC, the warrants allow for cashless exercise.
In the three months ended June 30, 2020, we issued 876,079 shares of our common stock to vendors in exchange for reduction of $132,000 of amounts owed.
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.
|
Other Information |
None.
|
Exhibits |
See the Exhibit Index for a list of exhibits filed as part of this report and incorporated herein by reference.
* Filed herewith
** Furnished herewith
† Management contract or compensatory plan, contract or arrangement
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
Date: August 14, 2020 |
BIOLARGO, INC.
By: /s/ DENNIS P. CALVERT |
|
|
Dennis P. Calvert Chief Executive Officer |
||
|
Date: August 14, 2020 |
By: /s/ CHARLES K. DARGAN, II |
|
|
Chief Financial Officer |
Exhibit 4.22
[FORM OF UNIT OFFERING WARRANT]
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
BIOLARGO, INC.
WARRANT TO PURCHASE COMMON STOCK
|
INSTRUMENT NO. XX |
ISSUED: XX |
THIS CERTIFIES THAT, for value received, XX (the “Holder”), is entitled upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date issued set forth above (the “Exercise Date”) and on or prior to 5:00 p.m. Pacific Time on XX (the “Termination Date”) but not thereafter, to subscribe for and purchase from BioLargo, Inc., a Delaware corporation (the “Company”), up to XX shares (the “Warrant Shares”) of common stock, par value, $0.00067, of the Company (the “Common Stock”). The exercise price per share of the Common Stock under this Warrant shall be $XX subject to adjustment hereunder (the “Exercise Price”).
This Warrant is issued in connection with and as consideration for the initial Holder’s investment in the Company’s private securities offering dated May 1, 2020, titled its Summer 2020 Unit Offering, in which the initial Holder purchased a Unit consisting of shares of common stock and two stock purchase warrants.
1. Method of Exercise; Payment; Issuance of New Warrant.
(a) Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Exercise Date and on or before the Termination Date by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed facsimile copy of the Notice of Exercise Form annexed hereto; and, within three (3) Trading Days (for purposes herein, “Trading Day” means a day on which any of the following markets or exchanges on which the Common Stock is listed or quoted is open for trading on the date in question (“Trading Market”): the NYSE AMEX, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange or the OTC Markets (or any successors to any of the foregoing)), of the date said Notice of Exercise is delivered to the Company, the Company shall have received payment of the aggregate Exercise Price of the shares thereby purchased by wire transfer or cashier’s check drawn on a United States bank. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise Form within one Business Day of receipt of such notice. In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.
(b) Mechanics of Exercise.
(i) Delivery of Certificates Upon Exercise. Certificates for shares purchased hereunder shall be transmitted by the Transfer Agent (“Transfer Agent” means American Stock Transfer & Trust Company, the current transfer agent of the Company, with a mailing address of 6201-15th Avenue, Brooklyn, New York 11219 and a facsimile number of 718-236-2641, and any successor transfer agent of the Company) to the Holder by crediting the account of the Holder’s prime broker with the Depository Trust Company through its Deposit Withdrawal Agent Commission (“DWAC”) system if the Company is then a participant in such system and there is an effective Registration Statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by Holder, by the date that is three (3) Trading Days after the latest of (A) the delivery to the Company of the Notice of Exercise Form, (B) surrender of this Warrant (if required) and (C) payment of the aggregate Exercise Price as set forth above (such date, the “Warrant Share Delivery Date”). This Warrant shall be deemed to have been exercised on the first date on which all of the foregoing have been delivered to the Company. The Warrant Shares shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised, with payment to the Company of the Exercise Price (or by cashless exercise, if permitted) and all taxes required to be paid by the Holder, if any, pursuant to Section 1(c)(vi) prior to the issuance of such shares, having been paid. If the Company fails for any reason to deliver to the Holder certificates evidencing the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $5 per Trading Day (increasing to $10 per Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant Share Delivery Date until such certificates are delivered or Holder rescinds such exercise. In the event that there is not an effective Registration Statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by Holder, shares purchased hereunder shall be delivered to the Holder by credit the account of the Holder at the Company’s Transfer Agent by the date that is ten Trading Days after the latest of (A) the delivery to the Company of the Notice of Exercise Form, (B) surrender of this Warrant (if required) and (C) payment of the aggregate Exercise Price as set forth above (such date, the “Warrant Share Delivery Date”).
(ii) Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the certificate or certificates representing Warrant Shares, deliver to Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.
(iii) Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder a certificate or the certificates representing the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then, the Holder will have the right to rescind such exercise.
(iv) Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder a certificate or the certificates representing the Warrant Shares pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.
(v) No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.
(vi) Charges, Taxes and Expenses. Issuance of certificates for Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event certificates for Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.
(vii) Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.
(viii) “VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time), (b) if the OTC Bulletin Board is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board, (c) if the Common Stock is not then listed or quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink Sheets” published by OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Company and reasonably acceptable to a majority in interest of the Securities then outstanding, the fees and expenses of which shall be paid by the Company.
(ix) If (a) twelve (12) months have elapsed since the issued date set forth on page 1, (b) the Market Price of one share of Common Stock is greater than the Exercise Price, and (c) the Warrant Shares are not subject to a registration statement filed by the Company for the resale of the Warrant Shares that has been declared effective by the Securities and Exchange Commission, then the Holder may elect to receive Warrant Shares pursuant to a cashless exercise, in lieu of a cash exercise, equal to the value of this Warrant determined in the manner described below (or of any portion thereof remaining unexercised) by surrender of this Warrant and a Notice of Exercise, in which event the Company shall issue to Holder a number of Common Stock computed using the following formula:
|
X = |
Y (A - B) |
|
A |
Where
|
X = |
the number of Warrant Shares to be issued to Holder. |
|
Y = |
the number of Warrant Shares that the Holder elects to purchase under this Warrant (at the date of such calculation). |
|
A = |
the Market Price (at the date of such calculation). |
|
B = |
Exercise Price (as adjusted to the date of such calculation). |
2. Call Provision. In the event that both of the following conditions are met (the “Call Conditions”), the Company may “call” this Warrant requiring the Holder purchase all or a portion of the Warrant Shares pursuant to the provisions of this Paragraph: (i) the closing price of the Common Stock for each of ten (10) consecutive trading days, equals or exceeds two (2) times the Exercise Price (subject to adjustment for forward and reverse stock splits, recapitalizations, stock dividends and the like after the date of issuance of this Warrant), and (ii) the Warrant Shares are subject to an effective registration statement (“Registration Statement”) filed with the Securities & Exchange Commission. If the Call Conditions are satisfied concurrently, the Company may, within thirty (30) calendar days of such day, call for cancellation of all or any portion of the remaining Warrant Shares for which a Notice of Exercise Form has not yet been delivered (such right, a “Call”). To exercise this right, the Company must deliver to the registered Holder a written notice (a “Call Notice”), indicating therein the unexercised portion of this Warrant to which such notice applies. In the event a Notice of Exercise Form for any portion of this Warrant subject to such Call Notice shall not have been received by the Company within thirty (30) calendar days after the date of the Call Notice, then such portion shall be forfeited in its entirety without payment or consideration to the registered Holder.
3. Stock Fully Paid; Reservation of Shares. All Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be fully paid and nonassessable, and free from all preemptive rights, taxes, liens and charges with respect to the issue thereof; provided, however, that the Company shall not be required to pay any transfer taxes with respect to the issue of shares in any name other than that of the registered holder hereof. During the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized, and reserved for the purpose of the issue upon exercise of the purchase rights evidenced by this Warrant, a sufficient number of shares of Common Stock to provide for the exercise of the rights represented by this Warrant. The Company shall at all times take all such action and obtain all such permits or orders as may be necessary to enable the Company lawfully to issue such Common Stock as duly and validly issued, fully paid and nonassessable shares upon exercise in full of this Warrant.
4. Adjustment. This Warrant shall be subject to adjustment from time to time upon the occurrence of certain events, as follows:
(a) Adjustment for Stock Splits and Combinations. If the Company shall at any time or from time to time after the date hereof effect a subdivision of the outstanding Common Stock, the Exercise Price then in effect immediately before that subdivision shall be proportionately decreased. If the Company shall at any time or from time to time after the date hereof combine the outstanding Common Stock, the Exercise Price then in effect immediately before the combination shall be proportionately increased. Any adjustment under this subsection shall become effective at the close of business on the date the subdivision or combination becomes effective.
(b) Adjustment for Certain Dividends and Distributions. In the event the Company at any time or from time to time after the date hereof shall make or issue a dividend or other distribution payable in additional shares of Common Stock, then and in each such event the Exercise Price shall be decreased as of the time of such issuance, by multiplying the Exercise Price by a fraction:
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(x) |
the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance; and |
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(y) |
the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance plus the number of shares of Common Stock issuable in payment of such dividend or distribution. |
(c) Adjustment of Number of Shares. Upon each adjustment of the Exercise Price pursuant to either Section 4(a) or 4(b) of this Warrant, the number of shares of Common Stock purchasable upon exercise of this Warrant shall be adjusted to the number of shares of Common Stock, calculated to the nearest one hundredth of a share, obtained by multiplying the number of shares of Common Stock purchasable immediately prior to such adjustment upon the exercise of the Warrant by the Exercise Price in effect prior to such adjustment and dividing the product so obtained by the new Exercise Price.
(d) Adjustment for Reclassification, Exchange and Substitution. If the Common Stock issuable upon the exercise of this Warrant are changed into the same or different number of shares of any class or classes of stock, whether by recapitalization, reclassification or otherwise (other than a subdivision or combination provided for in Section 4(a) above, a dividend or distribution provided for in Section 4(b) above, or a reorganization, merger, consolidation or sale of assets, provided for in Section 4(e) below), then and in any such event the Holder shall have the right thereafter to exercise this Warrant into the kind and amount of stock and other securities receivable upon such recapitalization, reclassification or other change, by holders of the number of shares of Common Stock for which this Warrant might have been exercised immediately prior to such recapitalization, reclassification or change.
(e) Reorganization, Mergers, Consolidations or Sales of Assets. If at any time or from time to time there is a capital reorganization of the Common Stock (other than a subdivision or combination provided for in Section 4(a) above, a dividend or distribution provided for in Section 4(b) above, or a reclassification or exchange of shares provided for in Section 4(d) above) or a merger or consolidation of the Company with or into another entity, or a sale of all or substantially all of the Company’s properties and assets to any other person or entity, then, as a part of such reorganization, merger, consolidation or sale, provision shall be made so that the Holder shall thereafter be entitled to receive upon exercise of this Warrant the number of shares of stock or other securities, money or property of the Company, or of the successor entity resulting from such merger or consolidation or sale, to which a holder of Common Stock deliverable upon conversion would have been entitled on such capital reorganization, merger, consolidation, or sale. The Company shall not effect any reorganization, merger, consolidation or sale unless prior to the consummation thereof each entity or person (other than the Company) that may be required to deliver any cash, securities or other property upon the exercise of this Warrant shall assume, by written instrument delivered to the Holder, the obligation to deliver to the Holder such cash, securities or other property as in accordance with the foregoing provisions the Holder may be entitled to receive. The foregoing provisions of this Section 4(e) shall similarly apply to successive reorganizations, mergers, consolidations and sales.
(f) No Impairment. The Company will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company but will at all times in good faith assist in the carrying out of all the provisions of this Section and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the Holder against dilution or other impairment. Without limiting the generality of the foregoing, the Company will not issue any capital stock of any class which is preferred as to dividends or as to the distribution of assets upon the voluntary or involuntary dissolution, liquidation or winding up of the Company.
(g) Notice of Adjustments. Whenever this Warrant shall be adjusted pursuant to this Section 4, the Company shall make a certificate signed by an officer of the Company setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the new Exercise Price and the type or the number of Shares purchasable after giving effect to such adjustment, and shall cause copies of such certificate to be mailed (by first class mail, postage prepaid) to the Holder.
5. Notice of Record Date. In the event:
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(1) |
that the Company declares a dividend (or any other distribution) on any of its capital stock (including without limitation, its Common Stock); |
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(2) |
that the Company repurchases or redeems any of its capital stock (including without limitation, its Common Stock) or any rights to acquire such capital stock; |
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(3) |
that the Company subdivides or combines its outstanding shares of Common Stock; |
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(4) |
of any reclassification of the Common Stock, or of any consolidation, merger or share exchange of the Company into or with another entity, or of the sale of all or substantially all of the assets of the Company; |
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(5) |
of the involuntary or voluntary dissolution, liquidation or winding up of the Company; or |
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(6) |
of any offer of its Common Stock or any rights to acquire such Common Stock for consideration paid per share of Common Stock less than the Exercise Price then in effect. |
then the Company shall notify the Holder at least 30 days prior to the date specified in (A), (B) or (C) below, in writing stating:
(A) the record date of such dividend, distribution, repurchase, redemption, subdivision or combination, or, if a record is not to be taken, the date as to which the holders of Common Stock of record to be entitled to such dividend, distribution, repurchase, redemption, subdivision or combination are to be determined;
(B) the date on which such reclassification, consolidation, merger, share exchange, sale, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger, sale, dissolution or winding up; or
(C) the date on which such offering of its Common Stock or any rights to acquire such Common Stock for consideration paid per share of Common Stock less than the Exercise Price is expected to become consummated.
6. Transfer of Warrant.
(a) Transferability. This Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.
(b) New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 6(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the initial issuance date set forth on the first page of this Warrant and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.
(c) Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.
(d) Understandings or Arrangements. Such Holder is acquiring this Warrant as principal for its own account and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Warrant (this representation and warranty not limiting such Holder’s right to sell the Warrant pursuant to the Registration Statement or otherwise in compliance with applicable federal and state securities laws.) Such Holder is acquiring this Warrant hereunder in the ordinary course of its business.
7. Miscellaneous.
(a) No Rights as Stockholder Until Exercise. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 1(d)(i).
(b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.
(c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a business day, then, such action may be taken or such right may be exercised on the next succeeding business day.
(d) Authorized Shares.
(i) The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).
(ii) Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.
(iii) Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.
(e) Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of Delaware law.
(f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, will have restrictions upon resale imposed by state and federal securities laws.
(g) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice Holder’s rights, powers or remedies. Without limiting any other provision of this Warrant, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.
(h) Notices. Except as otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing (including electronic mail and facsimile) and delivered to the applicable party at its address specified opposite its signature below, or at such other address as shall be designated by such party in a written notice to the other. All such notices and communications shall, when mailed, telegraphed, telexed, telecopied or cabled or sent by overnight courier, be effective when deposited in the mails, delivered to the telegraph company, cable company or overnight courier, as the case may be, or sent by telex or telecopier.
(i) Limitation of Liability. No provision hereof, in the absence of any affirmative action by Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of Holder, shall give rise to any liability of Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.
(j) Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.
(k) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.
(l) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holders holding Warrants at least equal to a majority of the Warrant Shares issuable upon exercise of all then outstanding Warrants.
(m) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.
(n) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed and delivered by its duly authorized officer on the day and year first above written.
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BIOLARGO, INC. |
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By: _________________________ |
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Name: Dennis P. Calvert, President |
EXHIBIT A
NOTICE OF EXERCISE – WARRANT
TO: BIOLARGO, INC.
(1) The undersigned hereby elects to purchase _____________ Warrant Shares of BioLargo, Inc., pursuant to the terms of the attached Warrant, and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.
(2) Unless said Warrant Shares will be delivered electronically via DWAC, please issue the Warrant Shares in the name of the undersigned or in such other name as is specified below in “book entry” form at the Company’s transfer agent.
If the Warrant Shares will be delivered electronically via DWAC, please issue them to the following account:
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Name of DTC Participant (broker-dealer at which the account of Holder to be credited with the Warrant Shares is maintained): |
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DTC Participant Number: |
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Name of Account at DTC Participant to be credited with the Shares: |
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Account Number at DTC Participant to be credited with the Shares: |
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[SIGNATURE OF HOLDER]
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Name of Investing Entity: |
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Signature of Authorized Signatory of Investing Entity: |
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Name of Authorized Signatory: |
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Title of Authorized Signatory: |
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Date: |
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EXHIBIT B
NOTICE OF TRANSFER – SERIES “A” WARRANT
(To be signed only upon transfer of Warrant and subject to other conditions of this Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto ____________________________________________ the right represented by the attached Warrant to purchase __________ shares of the Common Stock of BIOLARGO, INC., to which the attached Warrant relates, and appoints _____________________ as Attorney-in-fact to transfer such right on the books of BIOLARGO, INC., with full power of substitution in the premises.
The undersigned understands that any transfer of the attached Warrant is subject to full compliance with Federal and applicable state securities laws and other requirements, which requirements shall be determined and which issues shall be decided by BIOLARGO, INC., in its sole and absolute discretion, prior to consenting to and recognizing such transfer.
Dated:
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(Signature must conform in all respects to the name of the Holder as specified on the face of the Warrant) |
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(Address) |
Signed in the presence of:
EXHIBIT 31.1
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Dennis P. Calvert, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of BioLargo, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Date: August 14, 2020 |
By: |
/s/ DENNIS P. CALVERT |
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Dennis P. Calvert |
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Chief Executive Officer |
EXHIBIT 31.2
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Charles K. Dargan II, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of BioLargo, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Date: August 14, 2020 |
By: |
/s/ CHARLES K. DARGAN II |
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Charles K. Dargan II |
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Chief Financial Officer |
EXHIBIT 32
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
AND CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Dennis P. Calvert, Chief Executive Officer of BioLargo, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that the Quarterly Report of BioLargo, Inc. on Form 10-Q for the quarter ended June 30, 2020 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of BioLargo, Inc.
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Dated: August 14, 2020 |
By: |
/s/ DENNIS P. CALVERT |
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Dennis P. Calvert |
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President and Chief Executive Officer |
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to BioLargo, Inc. and will be retained by BioLargo, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
I, Charles K. Dargan II, Chief Financial Officer of BioLargo, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge that the Quarterly Report of BioLargo, Inc. on Form 10-Q for the quarter ended June 30, 2020 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of BioLargo, Inc.
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Dated: August 14, 2020 |
By: |
/s/ CHARLES K. DARGAN II |
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Charles K. Dargan II |
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Chief Financial Officer |
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to BioLargo, Inc. and will be retained by BioLargo, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.