Biolargo, Inc 10-K for FY2023
Biolargo, Inc. (BLGO)
About this 10-K
Biolargo, Inc filed this 10-K on April 1, 2024, covering the fiscal year ended December 31, 2023 (FY2023).
Headline figures
Fiscal year ended December 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $12.23M
- Net loss
- $4.65M
- compared with a net loss of $5.13M a year earlier
FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Year ended
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:
| BIOLARGO, INC. |
| (Exact Name of registrant as specified in its Charter) |
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| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
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| (Address of principal executive offices) | (Zip Code) |
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 |
| | | OTCQB |
Securities registered under Section 12(g) of the Exchange Act: none
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
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.
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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer ☐ | 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common stock was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter was $
The number of shares outstanding of the issuer’s class of common equity as of March 29, 2024, was
DOCUMENTS INCORPORATED BY REFERENCE
Information required by Items 10, 11, 12, 13 and 14 of Part III of this Annual Report on Form 10-K are incorporated by reference from the Registrant’s definitive Proxy Statement for its annual meeting of stockholders to be filed within 120 days of the end of the Registrant’s fiscal year ended December 31, 2023.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Changes In and Disagreements with Accountants on Accounting and Financial Disclosure |
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Certain Relationships and Related Transactions, and Director Independence |
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| Consolidated Financial Statements for the Years Ended December 31, 2023 and 2022 |
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USE OF FORWARD-LOOKING STATEMENTS IN THIS REPORT
This annual report on Form 10-K for the year ended December 31, 2023 (the “Annual Report”) contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical fact, included in this Annual Report regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects and plans and objectives of management are forward-looking statements. These forward-looking statements include, but are not limited to, predictions regarding:
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our business plan; |
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the commercial viability of our technology and products incorporating our technology; |
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the effects of competitive factors on our technology and products incorporating our technology; |
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expenses we will incur in operating our business; |
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our liquidity and sufficiency of existing cash; |
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the success of our financing plans; and |
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the outcome of pending or threatened litigation. |
You can identify these and other forward-looking statements by the use of words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would” and similar expressions, or the negative of such terms, although not all forward-looking statements contain these identifying words. Forward-looking statements also include the assumptions underlying or relating to any of the foregoing statements.
We have based these forward-looking statements on our current expectations and projections about future events. Although we believe that the expectations underlying our forward-looking statements are reasonable, these expectations may prove to be incorrect, and all of these statements are subject to risks and uncertainties. Therefore, you should not place undue reliance on our forward-looking statements. We have included important risks and uncertainties in the cautionary statements included in this Annual Report; particularly, the section titled “Risk Factors” incorporated by reference herein. We believe these risks and uncertainties could cause actual results or events to differ materially from the forward-looking statements that we make. Should one or more of these risks and uncertainties materialize, or should underlying assumptions, projections or expectations prove incorrect, actual results, performance or financial condition may vary materially and adversely from those anticipated, estimated or expected. Our forward-looking statements do not reflect the potential impact of future acquisitions, mergers, dispositions, joint ventures or investments that we may make. We do not assume any obligation to update any of the forward-looking statements contained herein, whether as a result of new information, future events or otherwise, except as required by law. In the light of these risks and uncertainties, the forward-looking events and circumstances discussed in this report may not occur, and actual results could differ materially from those anticipated or implied in the forward-looking statements. Any forward-looking statement made by us in this report is based only on information currently available to us and speaks only as of the date on which it is made.
When we refer in this report to “BioLargo,” the “Company,” “our Company,” “we,” “us” and “our,” we mean BioLargo, Inc., and our subsidiaries, including BioLargo Life Technologies, Inc., which holds our intellectual property; ONM Environmental, Inc., which manufactures, markets, sells and distributes our odor and volatile organic compound ("VOC") control products; BioLargo Energy Technologies, Inc. (“BETI”), formed to commercialize our proprietary battery technology; BioLargo Canada, Inc., our primary research and development team operating in Edmonton, Alberta Canada; BioLargo Engineering, Science & Technologies, LLC (“BLEST”), a professional engineering services division in Oak Ridge Tennessee; BioLargo Equipment Solutions & Technologies, Inc., which sells our water treatment products; BioLargo Development Corp., which employs and provides benefits to our employees; and Clyra Medical Technologies, Inc. (“Clyra Medical”), which commercializes our technologies in the medical and dental fields. All subsidiaries are wholly owned, except for BETI, BLEST and Clyra Medical.
Our Company
BioLargo, Inc. is a corporation organized under the laws of the state of Delaware. Our common stock is quoted on the OTC Markets OTCQB “Venture Marketplace” under the trading symbol “BLGO”.
Our corporate offices are located at 14921 Chestnut St., Westminster, California 92683. We have a research facility and offices at the University of Alberta in Canada, and our engineering team is located at 105 Fordham Road in Oak Ridge, Tennessee. Our telephone number is (888) 400-2863. We operate through multiple subsidiary entities.
Our principal corporate website is www.BioLargo.com. We also maintain a blog at www.BioLargo.blogspot.com. Websites concerning our subsidiaries are www.ONMEnvironmental.com, www.CupriDyne.com, www.ClyraMedical.com, www.BioLargoWater.com, and www.BioLargoEngineering.com. The information on our websites and blog are not, and shall not be deemed to be, a part of this Annual Report on Form 10-K.
Our Business - Innovator and Solution Provider
BioLargo is in the business of creating new cleantech technologies to solve tough, globally relevant problems. We invent, develop, then commercialize disruptive technologies to tackle challenges in air quality, water, environmental engineering, battery energy storage, and advanced antimicrobial medical device platforms. Our model is to invent new technologies that solve specific problems, develop them and prove they work, and then commercialize them with purpose-suited subsidiaries, identify and secure the right partnerships to increase their commercial reach, or potentially sell the intellectual property.
Why do we do this work? Every member of our team – including PhD scientists, engineers, and entrepreneurs – has a passion for seeking new, never-before-seen innovations that can make life better around the world. We care about safeguarding the environment and human health for future generations. We care about making technologies that are affordable and flexible enough to be accessed around the world. And we care about being the best at what we do – creating best-in-class technologies to solve big, tough cleantech challenges.
Some of our areas of focus include environmental problems like PFAS contamination (per- and polyfluoroalkyl substances), water pollution by pharmaceuticals and micropollutants, air pollution by VOCs, hard-to-treat odors from landfills and sewage plants, infection and wound healing and the creation of energy storage systems that are more affordable, efficient, safer and environmentally friendly.
Below you’ll read about the cleantech ventures and projects we are focused on commercialization today. Behind those, however, is a pipeline of other cleantech innovations in various stages of development associated with our expansive array of issued and pending patents, and that have been funded in part by over 90 government grants.
We operate our business in distinct business segments:
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Odor and VOC control products, including consumer products, such as the Pooph-branded pet-odor control product, and our flagship industrial odor control product, CupriDyne Clean Industrial Odor Eliminator, sold by our subsidiary ONM Environmental, Inc.; |
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Water treatment equipment and solutions, including our PFAS removal system the Aqueous Electrostatic Concentrator (AEC), our water reuse and recycling technology co-developed with Garratt-Callahan called AROS, and our micro-pollutant treatment and energy-efficient disinfection solution, the AOS, all sold by our subsidiary BioLargo Equipment Solutions & Technologies, Inc.; |
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Battery energy storage system solutions being developed by our partially owned (96%) subsidiary BioLargo Energy Technologies, Inc.; |
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Medical products based on our technologies, including the FDA-cleared Bioclynse surgical wound irrigation solution sold by our partially owned (53%) subsidiary Clyra Medical Technologies, Inc.; |
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Our professional engineering services division, which, in addition to serving outside clients on a fee for service basis, supports our internal business units, through our partially owned (78%) subsidiary BioLargo Engineering, Science & Technologies, LLC ("BLEST"); |
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Our research and support personnel, through our wholly-owned subsidiary BioLargo Canada, Inc., located on campus at the University of Alberta, Edmonton, Canada. |
Odor Control (Consumer and Industrial)
ONM Environmental, Inc. is BioLargo’s wholly-owned subsidiary that delivers robust and comprehensive products and services to control and mitigate odor and VOCs for both industrial and consumer applications.
Its flagship product – CupriDyne® Clean – is applied to odor-emitting masses such as landfills and composting facilities by misting systems, sprayers, water trucks and similar water delivery systems designed, manufactured and installed by ONM. It is also sold to third parties under private label brands, including for consumer brands such as the “Pooph pet odor eliminator".
Pooph - Consumer Private-Label Products
We sell privately labeled products based on our technologies to third parties who market and sell the products under their own brand names. The most successful thus far is the Pooph branded pet odor control product sold directly to consumers and to national retailers including Walmart, Amazon, and Chewy.com by Pooph Inc. In addition to purchasing product from us at an agreed-upon manufacturing margin, Pooph Inc. pays us six percent royalty on their sales in exchange for exclusive rights to our technology for pet odors. During the year ended December 31, 2023, revenues from sales to Pooph comprised 82% of our company-wide revenue.
The success of Pooph is an example of our goal to develop distribution channels that do not rely on our in-house sales and distribution infrastructure. We continue to explore potential partnerships and products along these lines with other parties, and to support existing private label products.
Industrial Odor and VOC Solutions
We believe CupriDyne® Clean is the number-one performing industrial odor-control product in the market, and that it offers substantial savings to our customers compared with competing products. We have been and expect to continue selling product to municipalities and some of the largest solid waste handling companies in the country, with a portion of chemistry product sales resulting from national purchasing agreements (NPAs). ONM Environmental continues to focus on securing more contracts with existing customers and developing business with new customers. ONM Environmental holds General Engineering, Electrical, Plumbing and Low Voltage contractor licenses issued by the California Contractors State License Board, and offers a menu of services to landfills, transfer stations, wastewater treatment facilities as well as facilities in non-waste related industries. These services include engineering design, construction, installation, ongoing maintenance and on-site support services to assist our clients in the implementation and continued use of the various systems that deliver our liquid products in the field (such as misting systems).
South Korean Joint Venture
Prior to the Covid-19 pandemic, we partnered with a leading wastewater treatment solution provider based in South Korea in a joint venture to commercialize our CupriDyne® Clean products in South Korea. We own 40% of the joint venture. Although the joint venture established manufacturing and is marketing the product, the pandemic significantly impacted the expected growth of the company. While the local management team continues to market the product to industrial clients, their efforts have struggled to gain a foothold. We are not obligated to contribute additional funds to the venture, and cannot predict its future success.
BioLargo Equipment Solutions & Technologies – Innovative Water Treatment Solutions
Over the years, we have developed multiple innovative technologies and equipment platforms that focus on challenging issues in the water treatment industry, including the AOS technology (developed to remove micro-pollutants), the AEC (developed to remove per- and polyfluoroalkyl substances, or PFAS), and the AROS water reuse technology (co-developed with Garratt-Callahan). As a result of increase in interest from potential customers for our PFAS solutions, we believe we will be better able to serve this market with a uniform identity and operating unit called BioLargo Equipment Solutions & Technologies, Inc. (“BEST”), which will manage the sales and distribution of our water treatment products and related services. As we transition this venture from incubation to commercialization, we are focusing staff and resources we believe necessary for success. Ultimately, BEST will be reflected as a new operating segment in our consolidated financial statements.
In February, 2024, three respected and experienced veterans of the water industry joined BEST’s board of directors to assist the company in its efforts to commercialize its innovative water treatment technologies. These are: 1) Jeffrey Kightlinger, former CEO of the Metropolitan Water District of Southern California, 2) Sally Gutierrez, retired career senior executive from the US Environmental Protection Agency, and 3) Larry Dick, former Vice Chairman of the Metropolitan Water District of Southern California and board member of the Municipal Water District of Orange County. Each brings their significant and distinctive experience from decades in the water industry to BEST’s board to help the company create the necessary regulatory and industry connections that will be critical for its efforts to secure larger and more high-profile projects for its PFAS treatment and other water treatment technologies.
Securing sales in the water and wastewater industry is a very technically intensive process, and can be long and arduous. The entirety of the sales cycle can be lengthy, in some cases even taking many months or in very large projects, multiple years. The process is also very engineering-intensive, and therefore the staff required to secure contracts for water treatment projects need to be engineers, in most cases. In our company, BLEST’s engineers fill this role.
Having secured its first contract to install an AEC system to remove PFAS from drinking water, BLEST has been actively in scoping and bidding water treatment projects for over a year and as a result has developed a substantial pipeline of potential projects in which customers indicate a high level of interest. In addition, BLEST regularly receives inquiries for new projects in development through the company’s network of manufacturer’s sales representatives. It is important to note that additional staffing is needed to meet what we believe is, and will continue to be a rapidly escalating level of customer interest in our solutions. Although BEST is primarily focused on AEC, AROS and AOS, discussed below, it offers comprehensive water treatment solutions, related equipment, and services, some of which may be manufactured by third parties and sold by BEST as an authorized distributor. The AEC, AROS and AOS are discussed in the following sections.
AEC, a solution for the PFAS “forever-chemicals” crisis
One of the most significant and timely innovations in our portfolio is our per- and polyfluoroalkyl substances (PFAS) removal and collection/disposal solution we call the Aqueous Electrostatic Concentrator (AEC), a novel water treatment system that removes PFAS from water at a lower operating cost while generating only a fraction of the PFAS-laden waste of the most common currently used solutions (carbon filtration, ion exchange, and reverse osmosis). According to the Center for Disease Control, PFAS are a group of chemicals used to make fluoropolymer coatings and products that resist heat, oil, stains, grease, and water. Fluoropolymer coatings can be in a variety of products. These include clothing, furniture, adhesives, food packaging, heat-resistant non-stick cooking surfaces, and the insulation of electrical wire. PFAS are a concern because they do not break down in the environment, can move through soils and contaminate drinking water sources, and build up (bioaccumulate) in fish and wildlife. PFAS chemicals have been linked to cancer, immune disorders, liver dysfunction, and many other human health problems, and are contained in a vast range of manufactured goods, common household products (e.g., cleaning products, cookware), and electronics, and contaminate drinking water in unsafe levels all over the globe.
In March 2023 the EPA proposed new drinking water standards that would set maximum contaminant levels for certain PFAS chemicals to four parts per trillion in drinking water – a standard our AEC can meet. We believe these proposed rules will continue to push the market to find and adopt commercially viable solutions to remove PFAS chemicals from water. A surge in environmental and health concerns surrounding PFAS is propelling market demand for PFAS waste management solutions. Shifting regulatory landscapes globally is compelling industries to adopt stringent PFAS was management practices, which include the application of innovative technologies such as our AEC. Additionally, some emerging regulations on PFAS in the U.S. are expected to skew the market toward seeking treatment technologies that produce as little PFAS-laden solid waste as possible, a favorable trend for our AEC that generates very little PFAS-laden waste. Detection of unsafe levels of PFAS around the world has given rise to a number of market opportunities, including in drinking water, industrial wastewater, municipal wastewater, solid waste, organic foods and more.
We have successfully validated the AEC as an effective system to selectively extract and collect PFAS chemicals from contaminated water, including performance testing that shows “non-detect” levels of removal, which meets new EPA standards. We have demonstrated more than 10,000 hours of continuous operation showing no materially significant degradation of the AEC system’s components or performance over time. As a modular system, we believe the AEC is scalable to small portable commercial units as well as very large commercial operations, and we believe that our engineering team has the experience to deliver systems to meet the needs of any sized commercial installation. In order to provide a full turn-key solution for our customers, we have developed an expanded offering whereby we can bundle a service package with each customer project that includes a membrane exchange program, the collection of PFAS, and transport and destruction of the PFAS.
Our strategy to market our PFAS treatment technology and related engineering services is as follows: 1) focus on demonstrating our technology’s efficacy in first demonstration projects, trials, and early customer deployments with the understanding that this early success can be leveraged to secure larger and more numerous subsequent projects, 2) market our PFAS expertise and our technology by presenting at industry events and conferences around the country, cultivating our status as “thought leaders” in the space, 3) use our network of manufacturer’s representatives and channel selling partners to maximize the number of potential opportunities with early adopters, and 4) engage in discussions with credible distribution partners at established water treatment technology companies.
The AEC’s commercial roll-out is being executed with the help of a network of sales representative organizations whose role will be to market and sell the treatment system, related equipment, and the Company’s engineering services to municipal and industrial customers across the country. We have secured channel partner agreements with several sales representative organizations ensuring coverage for most of the continental United States. We have one PFAS project ongoing, in New Jersey, and expect our equipment to be installed and operational before the end of the year. We believe this project represents a key milestone for the commercialization of the AEC, as industry validation of the technology in a first municipal drinking water treatment project will play an important role in convincing additional municipalities to adopt the technology for treating PFAS-contaminated water, as the company will publish reference customer data from the project that highlights the AEC’s distinct advantages over incumbent technologies like carbon filtration and ion exchange.
We are currently bidding on and/or in negotiations with multiple prospective industrial and municipal customers to treat PFAS contaminated water. These opportunities include small to medium sized municipalities, waste facilities, Air Force bases, remediation sites, and industrial sites, and we are waiting for our customers to finalize budgets and agreements with us. Currently, our bottleneck for processing additional expanding opportunities for PFAS treatment projects is staffing, and therefore we are currently working to hire additional qualified sales engineers to assist in bidding and specification efforts for new projects.
AROS Minimal Liquid Discharge Water Treatment
In partnership with Garratt-Callahan, one of the country’s oldest privately held water treatment companies, our engineers developed a “minimal liquid discharge” wastewater treatment system called the Aqueous Reuse Optimization System (AROS) that minimizes industrial wastewater discharges and thus the regulatory fees associated with wastewater discharge, including for uses like cooling towers at data centers. Garratt-Callahan, who invented and patented the technology, is currently marketing the AROS system to its existing customer base as well as new prospective customers. BLEST will serve as the manufacturing partner and Garratt-Callahan will serve as the selling distributor to leverage their national sales force and over one hundred years of providing services and products to customers.
Presently, both BioLargo and Garratt-Callahan are engaged in discussions with multiple potential first customers for the AROS system.
Advanced Oxidation System (AOS)
The Advanced Oxidation water treatment system (AOS) is our patented water treatment device that generates highly oxidative and energetic species of iodine and other molecules which allow it to eliminate pathogenic organisms and organic contaminants rapidly and effectively as water passes through the device. The key value proposition of the AOS is its ability to reduce or eliminate a wide variety of waterborne contaminants with high performance, including the normally hard-to-treat class of recalcitrant water contaminants called “micropollutants”, while using very little electricity and input chemicals.
Our proof-of-concept studies and on-site pilot projects 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. Furthermore, our technology has been proven capable of removing hard-to-treat organic micropollutants such as pharmaceuticals from water more quickly and energy-efficiently than other technologies. Together, these characteristics make the AOS an economical and versatile tool to enable wastewater treatment and reuse in the face of emerging water contaminants and increasing regulatory scrutiny on industrial wastewater discharge.
The AOS has, broadly speaking, two target applications: 1) treatment of municipal or industrial wastewater to eliminate bacteria, viruses, other organisms, and regulated organic contaminants, while using less electrical energy than other technologies, and 2) treatment of water or wastewater specifically to eliminate micropollutants/pharmaceuticals, at which the AOS particularly excels at compared to existing technologies. Our work to have the AOS adopted in the US and Canada for application 1) has been met with resistance because existing technologies, while less energy efficient than our technology, are effective enough against target contaminants, and our “value-add” of also eliminating hard-to-treat micropollutants isn’t relevant unless regulations dictate that those chemicals must be removed. Similarly, application 2) is only relevant in jurisdictions where those hard-to-treat micropollutants are regulated. Unfortunately, this does not include the US or Canada, but it does include several European countries. For that reason, presently, much of the our business development efforts to secure projects for the AOS focus on development of partnerships to demonstrate the AOS for the European micropollutant market.
The AOS has been and will continue to be included as a component of treatment trains (comprehensive systems) we scope for other projects. In addition, it is included in the catalog of offerings being sold through our independent representatives as well as channel partners. BEST will continue to attempt to cultivate sales channels in Canada, Europe and South America, where there has been more interest.
BioLargo Energy Technologies, Inc.
We acquired a proprietary “liquid-sodium” battery technology and formed a subsidiary to finish its development and commercialize it. The subsidiary – BioLargo Energy Technologies, Inc. (“BETI”) – hopes to capitalize on the ongoing shift toward renewable energy production and the growth in global electricity demand, and the consequent drastic expansion in energy storage capacity in the US and world-wide that will be needed to accommodate increased demand and the intermittent nature of renewable energy sources like wind and solar. The growth in AI (Artificial Intelligence) based computing which spurns the demand for expanded data centers and an increased energy level to operate are occurring just as well as the already insufficient capacity of the electric grid to meet demand is clear. The need for better, safer long-duration battery energy solutions is obvious.
During the year ended December 31, 2023, BETI raised $1,005,000 from the sale of its common stock (of that amount, $100,000 was invested by BioLargo, and $50,000 was from the conversion of BioLargo debt). As a result of these sales, BioLargo owns 96% of BETI’s issued and outstanding stock. The company has completed construction of a pilot-scale battery production facility in our Oak Ridge Tennessee engineering headquarters. Prototype batteries will be tested to confirm energy efficiency, useful life expectancy, energy density, safety profile, number of charge/discharge cycles, and other technical claims that we believe will differentiate the battery from incumbent technologies. Batteries built based on the underlying technology a decade ago demonstrated features that far surpass comparable lithium-ion batteries, the dominant incumbent technology in the market, including:
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Increased safety, no runaway fire risks, and a more sustainable design – with no rare-earth elements – that is capable of being manufactured completely from a domestic supply chain |
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Ability to charge and discharge completely, with no degradation of performance, ensuring virtually unlimited charge/discharge cycles, and without self-discharge and no out-gassing |
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Increased energy efficiency and energy density in comparison to lithium-ion batteries, and a longer useful life expectancy of at least 10 years and expected to be up to 20 years |
Our battery technology operates at higher temperatures than lithium batteries and much lower temperature than competing sodium-based batteries, and its casing and materials when combined, are heavier than lithium-ion, making it more suitable for stationary energy storage applications like grid-scale energy storage, electric vehicle charging stations, and commercial and residential energy storage, and believed to be less suitable for placement into electric vehicles or portable electronics.
We are exploring opportunities to commercialize our proprietary liquid sodium batteries through joint ventures with third parties. The third parties would finance the construction of independent battery manufacturing facilities designed and built under the direction of our engineers, and the joint venture would market, manufacture and distribute batteries. BioLargo would (i) receive a minority equity position in each joint venture, (ii) separately manufacture and sell at a profit to the joint venture certain proprietary battery components, and (iii) receive a royalty on the revenues of the joint venture.
Given the global growing demand for better batteries, and, while we are witnessing a number of current examples in which battery manufacturers have secured forward-contracts to supply batteries to its customers with backlogs of orders that amount to multiple years of production capacity, we believe our offer to partner with customers to secure needed inventory provides for a clear potential pathway to access capital, and more readily scale up production to meet demand around the world. At this point, we do not intend to finance and build our own manufacturing facilities, nor would we develop in-house sales channels, although that possibility remains on the table if needed.
Clyra Medical Technologies, Inc. - Bioclynse Wound Irrigation Solution
Clyra Medical Technologies, Inc. is our partially owned subsidiary creating medical products based on our technologies. Its primary product is a surgical wound irrigation solution called Bioclynse that can help manage patient care and outcomes. The first target market for this product is orthopedics, including hip and knee replacement surgeries. Management believes Bioclynse outperforms competing products as it has proven performance in biofilm disruption and inhibition, is non-toxic and non-cytotoxic, is non-sensitizing to tissue, and unlike competing products, does not require it to be rinsed and/or removed from a surgical cavity. Clyra management is focused on developing partnerships with large, well-established distributors who can help rapidly accelerate the product’s access to clinicians and surgeons in hospitals around the country. In first quarter 2024, Clyra placed orders for approximately $800,000 in capital equipment to support anticipated growth in sales of its Bioclynse line of products, and has secured third-party FDA compliant manufacturing capabilities, as it does intend to build a manufacturing facility. During the year ended December 31, 2023, Clyra sold $1,575,000 in preferred stock, and $35,000 in common stock, to support these efforts.
Full Service Environmental Engineering
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.
BLEST focuses its efforts in three areas:
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providing engineering services to third-party clients as well as affiliated BioLargo entities; |
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supporting internal product development; and |
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advancing their own technical innovations such as the AEC PFAS treatment technology and the battery energy storage system. |
BLEST operates out of an engineering facility in Oak Ridge, Tennessee (a suburb of Knoxville), and employs a group of scientists and engineers, many of whom are owners of the entity (BioLargo owns 82% as of December 31, 2023). 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. Many of the other team members are also former employees of CB&I and Shaw, with the exception of more recent staff hires. The team is highly experienced across multiple industries and we believe 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. The team has decades of high-level experience in the energy industry. The engineering team has also developed an extended network of trusted engineering subcontractors that assist in serving specific client projects as needed.
BLEST engineers generate revenue through services to third party clients, as well as for internal BioLargo projects such as the AEC and battery (revenues from internal projects are eliminated in the consolidation of our financial statements and are designed “intersegment revenue”). Third party contracts include ongoing work at U.S. Air Force bases for air quality control. Efforts to expand this work as well as with other clients are consistently ongoing.
The staff time devoted to supporting the AEC (PFAS) and battery related work is demanding and , at the same time, BLEST needs to hire more qualified staff to meet and expanding demand for our growing list of customers and/or expected customers. When we combine the demands of current revenue generating projects and expected growth, we are presented with an obvious challenge to manage quality, timely performance as well as access to qualified staff. We are working carefully to find balance to help insure we meet the demands of both in a practical customer centric and capital conserving way. It may be for example, when we secure larger and larger contracts for PFAS or Garrett Callan related work, we will need to depend heavily on our contact manufactures to meet the customer demands in the near term as we scale up our infrastructure and work force capabilities.
Share Purchase Agreement with Lincoln Park
On December 13, 2022 we entered into a registration rights agreement (the “Registration Rights Agreement”) and purchase agreement (the “Purchase Agreement”), with Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant to which Lincoln Park has committed to purchase up to $10.0 million of the Company’s common stock, par value $0.00067 per share (the “Common Stock”), subject to certain limitations and the satisfaction of the conditions set forth in the Purchase Agreement.
Under the Purchase Agreement, the Company has the right, but not the obligation, to sell to Lincoln Park, and Lincoln Park is obligated to purchase up to $10.0 million of the Company’s Common Stock. Sales of Common Stock by the Company will be subject to certain limitations set forth in the Purchase Agreement, and may occur from time to time, at the Company’s sole discretion, over the 36-month period commencing on the date that the conditions to Lincoln Park’s purchase obligation set forth in the Purchase Agreement are satisfied. These conditions include that a registration statement covering the resale by Lincoln Park of shares of Common Stock that have been and may be issued to Lincoln Park under the Purchase Agreement, filed by the Company with the Securities and Exchange Commission (the “SEC”) pursuant to the Registration Rights Agreement, is declared effective by the SEC and a final prospectus relating thereto is filed with the SEC (the date on which all of such conditions are satisfied, the “Commencement Date”).
From and after the Commencement Date, on any business day selected by the Company, the Company may, by written notice to Lincoln Park, direct Lincoln Park to purchase up to 100,000 shares of Common Stock on such business day, at a purchase price per share that will be determined and fixed in accordance with the Purchase Agreement at the time such written notice is delivered to Lincoln Park (each, a “Regular Purchase”), provided, however, that the maximum number of shares the Company may sell to Lincoln Park in a Regular Purchase may be increased to (i) up to 125,000 shares, provided that the closing sale price of the Common Stock on the applicable purchase date is not below $0.20, (ii) up to 150,000 shares, provided that the closing sale price of the Common Stock on the applicable purchase date is not below $0.30, and (iii) up to 200,000 shares, provided that the closing sale price of the Common Stock on the applicable purchase date is not below $0.50, in each case, subject to adjustment for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction as provided in the Purchase Agreement; provided, however, that Lincoln Park’s maximum purchase commitment in any single Regular Purchase may not exceed $500,000. The purchase price per share of Common Stock sold in each such Regular Purchase, if any, will be based on prevailing market prices of the Common Stock immediately preceding the time of sale as computed under the Purchase Agreement. The Company may deliver a notice for a Regular Purchase to Lincoln Park on any business day selected by the Company, provided that at least one Business Day has elapsed since the purchase date for the most recent prior Regular Purchase effected by the Company under the Purchase Agreement.
In addition to Regular Purchases, provided that we have directed Lincoln Park to purchase the maximum amount of shares that we are then able to sell to Lincoln Park in a Regular Purchase, and provided that the closing sale price of the Common Stock on the applicable purchase date for such Regular Purchase is not below $0.10 per share, we may, in our sole discretion, also direct Lincoln Park to purchase additional shares of Common Stock in “accelerated purchases,” and “additional accelerated purchases” as set forth in the Purchase Agreement. The purchase price per share of Common Stock sold in each such accelerated purchase and additional accelerated purchase, if any, will be based on prevailing market prices of the Common Stock at the time of sale as computed under the Purchase Agreement. There are no upper limits on the price per share that Lincoln Park must pay for shares of Common Stock in any purchase under the Purchase Agreement.
The Company will control the timing and amount of any sales of Common Stock to Lincoln Park pursuant to the Purchase Agreement. Lincoln Park has no right to require the Company to sell any shares of Common Stock to Lincoln Park, but Lincoln Park is obligated to make purchases as the Company directs, subject to certain conditions.
Actual sales of shares of Common Stock to Lincoln Park will depend on a variety of factors to be determined by the Company from time to time, including, among others, market conditions, the trading price of the Company’s Common Stock and determinations by the Company as to the appropriate sources of funding for the Company and its operations. The net proceeds under the Purchase Agreement to the Company will depend on the frequency and prices at which the Company sells shares of its stock to Lincoln Park. The Company expects that any proceeds received by the Company from such sales to Lincoln Park will be used for working capital and general corporate purposes.
The Purchase Agreement prohibits the Company from directing Lincoln Park to purchase any shares of Common Stock if those shares, when aggregated with all other shares of Common Stock then beneficially owned by Lincoln Park (as calculated pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended, and Rule 13d-3 thereunder), would result in Lincoln Park beneficially owning more than 4.99% of the outstanding shares of Common Stock.
There are no restrictions on future financings, rights of first refusal, participation rights, penalties or liquidated damages in the Purchase Agreement or Registration Rights Agreement other than a prohibition (with certain limited exceptions) on entering into a “Variable Rate Transaction,” as defined in the Purchase Agreement. Lincoln Park has agreed not to engage in or effect, directly or indirectly, for its own principal account or for the principal account of any of its affiliates, any short sales of the Common Stock or hedging transaction that establishes a net short position in the Common Stock during the term of the Purchase Agreement.
As consideration for Lincoln Park’s commitment to purchase shares of the Company’s Common Stock from time to time at the Company’s direction upon the terms of and subject to satisfaction of the conditions set forth in the Purchase Agreement, has agreed (i) to issue to Lincoln Park 1,250,000 shares of Common Stock (the “Commitment Shares”) upon the execution of the Purchase Agreement and (ii) to pay to Lincoln Park a cash fee of $250,000 upon the Company’s receipt of aggregate cash proceeds of $3.0 million from sales of Common Stock to Lincoln Park under the Purchase Agreement. The Company will not receive any cash proceeds from the issuance of the Commitment Shares to Lincoln Park pursuant to the Purchase Agreement.
The Purchase Agreement and the Registration Rights Agreement contain customary representations, warranties, conditions and indemnification obligations of the parties. The Company has the right to terminate the Purchase Agreement at any time with one business days’ notice, at no cost or penalty. During any “event of default” under the Purchase Agreement, Lincoln Park does not have the right to terminate the Purchase Agreement; however, the Company may not initiate any regular or other purchase of shares by Lincoln Park, until such event of default is cured.
During the three months ended December 31, 2023, we sold 999,384 shares of common stock to Lincoln Park, and received $162,000 in proceeds. During the year ended December 31, 2023, we sold 3,833,230 shares of common stock to Lincoln Park, and received $995,000 in proceeds
Intellectual Property
We have 26 patents issued, including 22 in the United States, and multiple applications pending. We were issued three patents in the year ended December 31, 2023, and our patents have an average remaining duration of seven years. We believe these patents provide a foundation from which to continue building our patent portfolio, and we believe that our technology is sufficiently useful and novel that we have a reasonable basis upon which to rely on our patent protections. We also rely on trade secrets and technical know-how to establish and maintain additional protection of our intellectual property. As our capital resources permit, we expect to expand our patent protection as we continue to refine our inventions as well as make new discoveries. We regard our intellectual property as critical to our ultimate success. Our goal is to obtain, maintain and enforce patent protection for our products and technologies in geographic areas of commercial interest and to protect our trade secrets and proprietary information through laws and contractual arrangements.
We incurred approximately $2,282,000 in expense related to our research and development activities in the year ended December 31, 2023, and $1,319,000 in the year ended December 31, 2022.
Competition
Given the fragmented nature of the specialty waste industry, environmental engineering and cleantech industry and the different segments within these industries in which we participate directly or through our subsidiaries, we compete with numerous companies. Larger companies within the hazardous materials line of business include Clean Earth, a subsidiary of Enviri Corporation, Clean Harbors, Republic Services, which acquired U.S. Ecology in 2022, Veolia and Covanta, which acquired Circon Holdings, Inc. in 2023 and also recently announced, through its parent company, EQT Infrastructure, its intent to acquire a major stake in Heritage Environmental Services in 2024. We believe we differentiate ourselves from competitors through innovation, reliability and responsiveness, our diverse operating capabilities and regulatory compliant solutions, and the value we provide through providing energy efficient, low output, environmentally superior solutions relative to other waste management, remediation and disposal alternatives in the US and Canada.
Executive Officers
As of December 31, 2023, and as the date of this report, our executive officers were:
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Dennis P. Calvert: Chief Executive Officer, President and Chairman of the Board |
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Charles K. Dargan II: Chief Financial Officer |
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Joseph L. Provenzano: Corporate Secretary and Sr. Vice President of Operations |
Our operational subsidiaries are led by:
| Subsidiary |
President |
| ONM Environmental, Inc. |
Joseph L. Provenzano |
| BioLargo Engineering, Science & Technologies, LLC |
Randall Moore |
| BioLargo Canada, Inc. |
Richard Smith |
| Clyra Medical Technologies, Inc. |
Steven V. Harrison |
| BioLargo Equipment Solutions & Technologies, Inc. | Tonya Chandler |
Employees
As of March 29, 2024, we had 33 employees, of which 31 were full-time. Our employees including professional engineers, masters of engineering, and PhDs, as well as sales, support and administrative personnel. We also utilize consultants and independent contractors on an as-needed basis who provide certain specified services, such as professional engineers used from time to time by our engineering group in Tennessee.
Our future results of operations, financial condition and liquidity and the market price for our securities are subject to numerous risks, many of which are driven by factors that we cannot control. The following cautionary discussion of risks, uncertainties and assumptions relevant to our business includes factors we believe could cause our actual results to differ materially from expected and historical results. Other factors beyond those listed below, including factors unknown to us and factors known to us which we have not currently determined to be material, could also adversely affect our business, results of operations, financial condition, prospects and cash flows. Also see “Forward-looking Statements” above.
Risks relating to our Financial Condition
We have incurred net losses on an annual basis since our inception and may continue to experience losses and negative cash flow in the future.
We have not yet generated enough revenue or gross profit from operations to fund our expenses, and, accordingly, we have incurred net losses every year since our inception. We recorded net loss of $4,648,000 for the year ended December 31, 2023, and a net loss of $5,132,000 for the year ended December 31, 2022. At December 31, 2023, we had $3,539,000 cash and cash equivalents. We have funded the majority of our activities through the issuance of equity securities, both at corporate level and through direct third-party investments in our subsidiaries. Although we are devoting more energy and money to our sales and marketing activities, and our revenues have increased year-over-year for the last eight years, we continue to anticipate net losses and negative cash flow for the foreseeable future. Our ability to reach positive cash flow depends on many factors, including our ability to fund sales and marketing activities, the rate of client adoption of our products, and the efforts and success of third parties, such as Ikigai Marketing Works that sells an odor-control product for pets based on our technology. We may continue to incur losses and experience negative cash flows from operations for the foreseeable future. If we cannot achieve positive cash flow from operations or net income, we may need to raise additional capital on acceptable terms.
Our cash requirements are significant. We will continue to require additional financing to sustain our operations and without it we may not be able to continue operations.
Our cash requirements and expenses continue to be significant. For the year ended December 31, 2023, we used $2,365,000 cash in operations, and at December 31, 2023, we had working capital of $3,652,000, and current assets of $6,362,000. In order to become profitable, we must significantly increase our revenues. Although our revenues are increasing through sales of our private-label products and from our engineering division, we expect to continue to use cash for the foreseeable future as it becomes available, and expect to continue to need to sell our securities to fund operations.
Our auditor’s report for the year ended December 31, 2023, includes an explanatory paragraph in their audit opinion stating that our recurring losses from operations and working capital deficiency raise substantial doubt about our ability to continue as a going concern. We do not currently have sufficient financial resources to fund our operations or those of our subsidiaries. Therefore, we need additional financing to continue these operations.
We have relied on private securities offerings, as well as sales of stock to Lincoln Park Capital Fund, LLC (“Lincoln Park”; see Part II, Item 9B), to provide cash needed to close the gap between operational revenue and expenses. Our ability to rely on private financing may change if the United States enters a recession, if the Dow Industrial Average or Nasdaq composite decline significantly, if interest rates rise, if real estate values decline, if international events affect the global economy, or many other factors that impact private investors’ willingness to invest in high-risk companies. Thus, while we have been able to rely on private investments in the past, we may not be able to do so in the near future.
During the year ended December 31, 2023, we received net proceeds of $4,600,000 through sales of our securities, both directly and through our subsidiaries. These sales are dilutive to our existing stockholders, and the stockholders of our subsidiaries. We intend to continue these financing activities, and thus intend to continue to dilute existing and future stockholders.
Our ability to access capital markets could be limited.
From time-to-time, we may need to access capital markets to obtain long-term and short-term financing. However, our ability to access capital markets could be limited or adversely affected by, among other things, the performance of the stock market in general, interest rates, our asset base, our track record in the industries in which we operate, our financial condition, and the health or market perceptions of the US or global economy. In addition, many of the factors that affect our ability to access capital markets, including the liquidity of the overall capital markets in general and the lack of liquidity for our common stock and the state of the economy, among others, are outside of our control. No assurance can be given that we will be able to access capital markets on terms acceptable to us when required to do so, which could adversely affect our business, financial condition and results of operations.
We expect to incur future losses and may not be able to achieve profitability.
Although we are generating revenue from the sale of our products and from providing services, and we expect to generate revenue from new products we are introducing, and eventually from other license or supply agreements, we anticipate net losses and negative cash flow to continue for the foreseeable future until our products are expanded in the marketplace and they gain broader acceptance by resellers and customers. Our current level of sales is not sufficient to support the financial needs of our business. We cannot predict when or if sales volumes will be sufficiently large to cover our operating expenses. We intend to expand our marketing efforts of our products as financial resources are available, and we intend to continue to expand our research and development efforts. Consequently, we will need to generate significant additional revenue or seek additional financings to fund our operations. This has put a proportionate corresponding demand on capital. Our ability to achieve profitability is dependent upon our efforts to deliver a viable product and our ability to successfully bring it to market, which we are currently pursuing. Although our management is optimistic that we will succeed in licensing our technology, we cannot be certain as to timing or whether we will generate sufficient revenue to be able to operate profitably. If we cannot achieve or sustain profitability, then we may not be able to fund our expected cash needs or continue our operations. If we are not able to devote adequate resources to promote commercialization of our technology, then our business plans will suffer and may fail.
Because we have limited resources to devote to sales, marketing and licensing efforts with respect to our technology, any delay in such efforts may jeopardize future research and development of technologies and commercialization of our technology. Although our management believes that it can finance commercialization efforts through sales of our securities and possibly other capital sources, if we do not successfully bring our technology to market, our ability to generate revenues will be adversely affected.
Some of our revenues are dependent on the marketing efforts of third parties.
We manufacture and sell private-labeled products to third parties who market those products to businesses, consumers and retailers. We have no control over the marketing budgets, sales activities or efforts of these third parties. We cannot predict if their current level of efforts will increase, decrease, or stay the same. A significant portion of our revenues - approximately 82% - comes from the sale of private label products. If they curtail their marketing efforts, currently through national television advertising, our sales to them could decrease. If they discontinue their marketing campaign, our sales to them would be significantly reduced.
A significant portion of our revenue is concentrated with one customer selling one product line.
In the year ended December 31, 2023, one customer selling our pet odor control products under a private label accounted for 82% of our total revenue. In the prior year, that one customer made up approximately 50% of our total revenue. A disruption in our relationship with this customer would adversely affect our results of operations. The customer's demand for our products may fluctuate due to factors beyond our control, including their willingness to spend money on advertising, the success of such advertising, their success of selling to retail accounts, and their reliance on the marketing and sale of a single line of products. Any significant reduction in orders from this customer could have a material adverse effect on our business, results of operations, or financial condition.
Our revenue growth rate may not be indicative of future performance and may slow over time.
Although our revenues have grown over the last several years and in recent quarters, our revenue growth rate may slow over time for a number of reasons, including increasing competition, market saturation, slowing demand for our products and services, increasing regulatory costs and challenges, and failure to capitalize on growth opportunities.
We do not have contracts with customers that require the purchase of a minimum amount of our products.
Very few of our customers provide us with firm, long-term or short-term volume purchase commitments. As a result, we could have periods during which we have no or limited orders for our products but will continue to have fixed costs. We may not be able to find new customers in a timely manner if we experience no or limited purchase orders. Periods of no or limited purchase orders for our products would adversely affect our business, financial condition and results of operations.
Supply Chain Challenges
As we emerge with new products like our AEC and AOS water treatment systems, and battery storage systems, we may face supply chain challenges, including supply and pricing volatility, that will be beyond our control that might include steel, electrodes, membranes, electronic components (like chips), raw chemicals. We predict that at some level we may face delays and or extended delivery times for systems sold to clients and that could lead to delays in our anticipated growth.
We need to outsource and rely on third parties for the manufacture of the chemicals, material components or delivery apparatus used in our technology and products, and part of our future success will be dependent on the timeliness and effectiveness of the efforts of these third parties.
We do not have the required financial and human resources or capability to manufacture the chemicals necessary to make our odor control products. Our business model calls for the outsourcing of the manufacture of these chemicals in order to reduce our capital and infrastructure costs as a means of potentially improving our financial position and the profitability of our business. Accordingly, we must enter into agreements with other companies that can assist us and provide certain capabilities, including sourcing and manufacturing, which we do not possess. We may not be successful in entering into such alliances on favorable terms or at all. Even if we do succeed in securing such agreements, we may not be able to maintain them. Furthermore, any delay in entering into agreements could delay the development and commercialization of our technology or reduce its competitiveness even if it reaches the market. Any such delay related to such future agreements could adversely affect our business. While we have been able to secure materials and supplies like plastic containers through the COVID-19 crisis, we have not assurances that our ability to purchase in large quantities on a continual basis.
If any party to which we have outsourced certain functions fails to perform its obligations under agreements with us, the commercialization of our technology could be delayed or curtailed.
To the extent that we rely on other companies to manufacture the chemicals used in our technology, our products, or sell or market products incorporating our technology, we will be dependent on the timeliness and effectiveness of their efforts. If any of these parties does not perform its obligations in a timely and effective manner, the commercialization of our technology could be delayed or curtailed because we may not have sufficient financial resources or capabilities to continue such efforts on our own.
We rely on a small number of key supply ingredients in order to manufacture our odor control products, including CupriDyne Clean and our private-label products.
The raw ingredients used to manufacture our liquid odor control products are readily available from multiple suppliers. However, commodity prices for these ingredients can vary significantly, and the margins that we are able to generate could decline if prices rise. If our manufacturing costs rise significantly, we may be forced to raise the prices for our products, which may reduce their acceptance in the marketplace. Given the current delays in supply chain delivery on a global scale, we are anticipating and developing strategies to manage the expected increases in our cost of raw goods and potential supply limitations which could impact our business and results of operations.
If our technology or products incorporating our technology do not gain market acceptance, it is unlikely that we will become profitable.
The potential markets for products into which our technology can be incorporated are rapidly evolving, and we have many successful competitors including some of the largest and most well-established companies in the world. The commercial success of products incorporating our technology will depend on the adoption of our technology by commercial and consumer end users in various fields.
Market acceptance may depend on many factors, including:
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the willingness and ability of consumers and industry partners to adopt new technologies from a company with little or no history in the industry; |
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our ability to convince potential industry partners and consumers that our technology is an attractive alternative to other competing technologies; |
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our ability to license our technology in a commercially effective manner; |
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our ability to continue to fund operations while our products move through the process of gaining acceptance, before the time in which we are able to scale up production to obtain economies of scale; and |
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our ability to overcome brand loyalties. |
If products incorporating our technology do not achieve a significant level of market acceptance, then demand for our technology itself may not develop as expected, and, in such event, it is unlikely that we will become profitable.
If we are not able to manage our anticipated growth effectively, we may not become profitable.
We anticipate that expansion will continue to be necessary to address potential market opportunities for our technologies and our products. Our existing infrastructure is limited. While we believe our current manufacturing processes as well as our office and warehousing provide the basic resources to expand to sales of more than $2 million per month, our infrastructure will need more staffing to support manufacturing, customer service, administration as well as sales/account executive functions. There can be no assurance that we will have the financial resources to create new infrastructure, or that any such infrastructure will be sufficiently scalable to manage future growth, if any. There also can be no assurance that, if we invest in additional infrastructure, we will be effective in expanding our operations or that our systems, procedures or controls will be adequate to support such expansion. In addition, we will need to provide additional sales and support services to our partners if we achieve our anticipated growth with respect to the sale of our technology for various applications. Failure to effectively manage an increase in customer demands could result in a material adverse effect on customer satisfaction, our ability to meet our contractual obligations, and our operating results.
Some of the products incorporating our technology will require regulatory approval.
The products in which our technology may be incorporated have both regulated and non-regulated applications. The regulatory approvals for certain applications may be difficult, impossible, time consuming and/or expensive to obtain. While our Company management believes such approvals can be obtained for the applications contemplated, until those approvals from the FDA or the EPA or other regulatory bodies, at the federal and state levels, as may be required are obtained, we may not be able to generate commercial revenues for regulated products. Certain specific regulated applications and their use require highly technical analysis and additional third-party validation and will require regulatory approvals from organizations like the FDA. Certain applications may also be subject to additional state and local agency regulations, increasing the cost and time associated with commercial strategies. Additionally, most products incorporating our technology that may be sold in the European Union (“EU”) will require EU and possibly individual country’s regulatory approval. All such approvals, including additional testing, are time-consuming, expensive and do not have assured outcomes of ultimate regulatory approval.
Our internal controls are not effective.
We have determined that our disclosure controls and procedures and our internal controls over financial reporting are currently not effective. The lack of effective internal controls, has not yet, but could in the future, materially adversely affect our financial condition and ability to implement our business plan, and the accuracy of our consolidated financial statements. As more financial resources become available, we need to invest in additional personnel to better manage the financial reporting processes.
If we lose our key personnel or are unable to attract and retain additional personnel, we may be unable to achieve profitability.
Our future success is substantially dependent on the efforts of our senior management, particularly Dennis P. Calvert, our president and chief executive officer. The loss of the services of Mr. Calvert or other members of our senior management may significantly delay or prevent the achievement of product development and other business objectives. Because of the scientific nature of our business, we heavily rely on our ability to attract and retain qualified marketing, scientific and technical personnel. There is intense competition among specialized and technologically-oriented companies for qualified personnel in the areas of our activities. If we lose the services of, or do not successfully recruit, key marketing, scientific and technical personnel, then the growth of our business could be substantially impaired. At present, we do not maintain key man insurance for any of our senior management, although management is evaluating the potential of securing this type of insurance in the future as may be available. As we expand the scope of our operations, we will need to obtain the full-time services of additional senior management and other personnel. Competition for highly-skilled personnel is intense, and there can be no assurance that we will be able to attract or retain qualified senior personnel. Our failure to do so could have an adverse effect on our ability to implement our business plan. As we add full-time senior personnel, our overhead expenses for salaries and related items will increase from current levels and, depending upon the number of personnel we hire and their compensation packages, these increases could be substantial.
Nondisclosure agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information.
In order to protect our proprietary technology and processes, we rely in part on nondisclosure agreements with our employees, potential licensing partners, potential manufacturing partners, testing facilities, universities, consultants, agents and other organizations to which we disclose our proprietary information. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover trade secrets and proprietary information, and in such cases we could not assert any trade secret rights against such parties. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position. Since we rely on trade secrets and nondisclosure agreements, in addition to patents, to protect some of our intellectual property, there is a risk that third parties may obtain and improperly utilize our proprietary information to our competitive disadvantage. We may not be able to detect unauthorized use or take appropriate and timely steps to enforce our intellectual property rights.
We may become subject to product liability claims.
As a business that manufactures and markets products for use by consumers and institutions, we may become liable for any damage caused by our products, whether used in the manner intended or not. Any such claim of liability, whether meritorious or not, could be time-consuming and/or result in costly litigation. Although we maintain general liability insurance, our insurance may not cover potential claims of the types described above and may not be adequate to indemnify for all liabilities that may be imposed. Any imposition of liability that is not covered by insurance or is in excess of insurance coverage could harm our business and operating results, and you may lose some or all of any investment you have made, or may make, in our company.
Litigation or the actions of regulatory authorities may harm our business or otherwise distract our management.
Substantial, complex or extended litigation could cause us to incur major expenditures and distract our management. For example, lawsuits by employees, former employees, investors, stockholders, partners, customers or others, or actions taken by regulatory authorities, could be very costly and substantially disrupt our business. As a result of our financing activities over time, and by virtue of the number of people that have invested in our company, we face increased risk of lawsuits from investors. Such lawsuits or actions could from time to time be filed against our company and/or our executive officers and directors. Such lawsuits and actions are not uncommon, and we cannot assure you that we will always be able to resolve such disputes or actions on terms favorable to our company.
If we suffer negative publicity concerning the safety or efficacy of our products, our sales may be harmed.
If concerns should arise about the safety or efficacy of any of our products that are marketed, regardless of whether or not such concerns have a basis in generally accepted science or peer-reviewed scientific research, such concerns could adversely affect the market for those products. Similarly, negative publicity could result in an increased number of product liability claims, whether or not those claims are supported by applicable law.
Our revenues and operating results are likely to continue to fluctuate from quarter to quarter.
We believe that our future operating results will fluctuate due to a variety of factors, including:
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delays in product development by us or third parties; |
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market acceptance of products incorporating our technology; |
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changes in the demand for, and pricing of, products incorporating our technology; |
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competition and pricing pressure from competitive products; and |
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fluctuations in the activities of third parties that market and sell products based on our technologies. |
Although our revenues have increased year-over-year for the past nine years, much of our revenue is dependent upon the activities of third parties, which are out of our control. We expect our operating expenses will continue to fluctuate significantly in future periods, as we continue to develop and introduce new products to market, and increase our sales, marketing and licensing efforts. Moreover, our operating results in some quarters may not meet the expectations of stock market analysts and investors; in that case, our stock price could decline.
The licensing of our technology or the manufacture, use or sale of products incorporating our technology may infringe on the patent rights of others, and we may be forced to litigate if an intellectual property dispute arises.
If we infringe or are alleged to have infringed another party’s patent rights, we may be required to seek a license, defend an infringement action or challenge the validity of the patents in court. Patent litigation is costly and time consuming. We may not have sufficient resources to bring these actions to a successful conclusion. In addition, if we do not obtain a license, do not successfully defend an infringement action or are unable to have infringed patents declared invalid, we may:
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incur substantial monetary damages; |
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encounter significant delays in marketing our current and proposed product candidates; |
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be unable to conduct or participate in the manufacture, use or sale of product candidates or methods of treatment requiring licenses; |
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lose patent protection for our inventions and products; or |
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find our patents are unenforceable, invalid or have a reduced scope of protection |
Parties making such claims may be able to obtain injunctive relief that could effectively block our company’s ability to further develop or commercialize our current and proposed product candidates in the United States and abroad and could result in the award of substantial damages. Defense of any lawsuit or failure to obtain any such license could substantially harm our company. Litigation, regardless of outcome, could result in substantial cost to, and a diversion of efforts by, our company.
Our patents are expensive to maintain, our patent applications are expensive to prosecute, and thus we are unable to file for patent protection in many countries.
Our ability to compete effectively will depend in part on our ability to develop and maintain proprietary aspects of our technology and either to operate without infringing the proprietary rights of others or to obtain rights to technology owned by third parties. Pending patent applications relating to our technology may not result in the issuance of any patents or any issued patents that will offer protection against competitors with similar technology. We must employ patent attorneys to prosecute our patent applications both in the United States and internationally. International patent protection requires the retention of patent counsel and the payment of patent application fees in each foreign country in which we desire patent protection, on or before filing deadlines set forth by the International Patent Cooperation Treaty (“PCT”). We therefore choose to file patent applications only in foreign countries where we believe the commercial opportunities require it, considering our available financial resources and the needs for our technology. This has resulted, and will continue to result, in the irrevocable loss of patent rights in all but a few foreign jurisdictions.
Patents we receive may be challenged, invalidated or circumvented in the future, or the rights created by those patents may not provide a competitive advantage. We also rely on trade secrets, technical know-how and continuing invention to develop and maintain our competitive position. Others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets.
We are subject to risks related to future business outside of the United States.
Over time, we may develop business relationships outside of North America, and as those efforts are pursued, we will face risks related to those relationships such as:
| ● |
foreign currency fluctuations; |
| ● |
unstable political, economic, financial and market conditions; |
| ● |
import and export license requirements; |
| ● |
trade restrictions; |
| ● |
increases in tariffs and taxes; |
| ● |
high levels of inflation; |
| ● |
restrictions on repatriating foreign profits back to the United States; |
| ● |
greater difficulty collecting accounts receivable and longer payment cycles; |
| ● |
less favorable intellectual property laws, and the lack of intellectual property legal protection; |
| ● |
regulatory requirements; |
| ● |
unfamiliarity with foreign laws and regulations; and |
| ● |
changes in labor conditions and difficulties in staffing and managing international operations. |
The volatility of certain raw material costs may adversely affect operations and competitive price advantages for products that incorporate our technology.
Most of the chemicals and other key materials that we use in our business, such as minerals, fiber materials and packaging materials, are neither generally scarce nor price sensitive, but prices for such chemicals and materials can be cyclical. Supply and demand factors, which are beyond our control, generally affect the price of our raw materials. We try to minimize the effect of price increases through production efficiency and the use of alternative suppliers, but these efforts are limited by the size of our operations. If we are unable to minimize the effects of increased raw material costs, our business, financial condition, results of operations and cash flows may be materially adversely affected.
Certain of our product sales historically have been highly impacted by fluctuations in seasons and weather.
Industrial odor control products have proven highly effective in controlling volatile organic compounds that are released as vapors produced by decomposing waste material. Such vapors are produced with the highest degree of intensity in temperatures between 40 degrees Fahrenheit (5 degrees Celsius) and 140 degrees Fahrenheit (60 degrees Celsius). When weather patterns are cold or in times of precipitation, our clients are less prone to use our odor control products, presumably because such vapors are less noticeable or, in the case of precipitation, can be washed away or altered. This leads to unpredictability in use and sales patterns for, especially, our CupriDyne Clean product line which accounts for over one-half our total sales.
There may be battery technologies that we are not aware of, and some of them may be subject to patent applications.
We may not be aware of technologies that are similar or identical to our liquid sodium battery. We may not be aware of patent applications that have been filed that may include claims that are similar or identical to portions of our liquid sodium battery or our manufacturing process. No assurance can be made that our liquid sodium battery, or our proprietary manufacturing process, does not infringe on the intellectual property rights of third parties. If our technology or manufacturing process infringes on the intellectual property rights of third parties, we may be subject to litigation, or required to pay royalties, to such third parties, and our results of operations and financial condition may be adversely affected.
We expect to face strong competition for our products from a growing list of established and new competitors.
The worldwide battery market is highly competitive today and we expect it will become even more so in the future. For example, Tesla is one of the largest companies in the United States as measured by its market capitalization, and sells lithium-ion batteries for grid-scale applications, commercial and home storage, as well as in its vehicles. There are many other well capitalized and established companies that manufacture and/or sell batteries. Many of the companies have significantly greater or better-established resources than we do to devote to the design, development, manufacturing, distribution, promotion, sale and support of their products. This competition may prevent us from entering the marketplace, or if we do, may prevent us from establishing market share.
There may not be a market for our liquid sodium battery.
While we believe that there will be customer demand for our liquid sodium battery provided that we are able to prove its competitive advantages, there is no assurance that there will be any market acceptance of it, or any broad market acceptance. There also may not be broad market acceptance of our liquid sodium battery if competitors offer batteries which are preferred by prospective customers. In such event, there may be a material adverse effect on the company’s results of operations and financial condition, and the company may not be able to achieve its goals.
Business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses.
Our operations, and those of our contractors and consultants, could be subject to pandemics, earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics, acts of terrorism, acts of war and other natural or man-made disasters or business interruptions, for which we are predominantly self-insured. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses. We rely in part on third-party manufacturers to produce and process our products or the raw materials used to make our products. Our ability to obtain supplies of our products or raw materials could be disrupted if the operations of these suppliers are affected by a man-made or natural disaster, pandemics, epidemics, or other business interruption. Our corporate headquarters and offices of ONM are in Southern California near major earthquake faults and fire zones. Our operations and financial condition could suffer in the event of a major earthquake, fire or other natural disaster.
General Risks
Increased information technology security threats and more sophisticated computer crime pose a risk to us and our subsidiaries, vendors, systems, networks, products and services.
We rely upon information technology systems and networks in connection with a variety of business activities, some of which are managed by third parties (which we refer to collectively as our “associated third parties”). Additionally, we and our associated third parties collect and store data that is of a sensitive nature, which may include names and addresses, bank account or financial information, and other types of personally identifiable information or sensitive business information. The secure operation of these information technology systems and networks, and the processing and maintenance of this data is critical to our business operations and strategy.
We may face attempts to gain unauthorized access to our information technology systems or products or those of our associated third parties for the purpose of improperly acquiring trade secrets or confidential business information. The theft or unauthorized use or publication of our trade secrets and other confidential business information as a result of such an incident could adversely affect our competitive position and the value of our investment in research and development.
Threats to our systems and our associated third parties’ systems can derive from human error, fraud, or malice on the part of employees or third parties, or may result from accidental technological failure. Globally, these types of threats have increased in number and severity and it is expected that these trends will continue. These threats pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of our data. Should an attack on our or our associated third parties’ information technology systems and networks succeed, it could expose us and our employees, customers, dealers and suppliers to misuse of information or systems, the compromising of confidential information, manipulation and destruction of data, production downtimes and operations disruptions.
The occurrence of any of these events could adversely affect our reputation, competitive position, business, results of operations and cash flows. While we have a cybersecurity program expenses, damages and claims arising from cybersecurity incidents cause a material adverse effect on our business. See Part I. Item 1C. Cybersecurity for additional details on our cybersecurity program.
Because of high inflation and increased Federal Reserve interest rates in response, and world events, the effect on the capital markets and the economy is uncertain, and we may have to deal with a recessionary economy and economic uncertainty.
Certain events have affected the global and United States economy including continued inflation, Federal Reserve interest rate increases in response, substantial increases in the prices of oil and gas, dramatic declines in the capital markets, and world events such as Russia’s invasion of Ukraine and other world power’s developing response to the invasion. The duration of Russia’s war and its impact are at best uncertain. The economy appears to be headed into a recession with uncertain and potentially severe impacts upon public companies and us. We cannot predict how this will affect the market for our products and services, but the impact may be adverse.
The global banking system has recently come under increased pressure and uncertainty about every bank’s ability to maintain solvency in times of crisis and when a ‘run on the bank’ occurs. While the US Government has taken action to stabilize the current banking situation, it is not possible to predict the future and the psychology of the market can be fickle and unpredictable. Our company is not exposed to the risk associated with smaller regional banks like Silicon Valley Bank, but we do maintain balances in excess of the $250,000 FDIC insurance level, at large money center banks and as such should the actions taken by the US Government fail to mitigate the situation, impacts could extend to the largest banks in the world, including ours.
A recession in the United States may affect our business.
If the U.S. economy were to contract into a recession or depression, our existing clients, and potential future clients, may divert their resources to other goods and services, and our business may suffer.
Risks Relating to our Common Stock
The sale or issuance of our common stock to Lincoln Park may cause dilution, and the sale of the shares of common stock acquired by Lincoln Park, or the perception that such sales may occur, could cause the price of our common stock to fall.
On December 13, 2022, we entered into a Purchase Agreement with Lincoln Park ("LPC Agreement"), pursuant to which Lincoln Park agreed to purchase from us at our request up to an aggregate of $10,000,000 of our common stock (subject to certain limitations) from time to time over a period of three years. We generally have the right to control the timing and amount of any sales of our shares to Lincoln Park. Sales of our common stock, if any, to Lincoln Park will depend on market conditions and other factors to be determined by us. We may ultimately decide to sell to Lincoln Park all, some or none of the shares of our common stock that may be available for us to sell pursuant to the LPC Agreement. If and when we do sell shares to Lincoln Park, after Lincoln Park has acquired the shares, Lincoln Park may resell all, some or none of those shares at any time or from time to time at its discretion. Therefore, sales to Lincoln Park by us could result in substantial dilution to the interests of other holders of our common stock, as well as sales of our stock by Lincoln Park into the open market causing fluctuations or reductions in the price of our common stock. Additionally, the sale of a substantial number of shares of our common stock to Lincoln Park, or the anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise desire to effect sales.
Our common stock is thinly traded and largely illiquid.
Our stock is currently quoted on the OTC Markets (OTCQB). Being quoted on the OTCQB has made it more difficult to buy or sell our stock and from time to time has led to a significant decline in the frequency of trades and trading volume. Continued trading on the OTCQB will also likely adversely affect our ability to obtain financing in the future due to the decreased liquidity of our shares and other restrictions that certain investors have for investing in OTCQB traded securities. While we intend to seek listing on the Nasdaq Stock Market (“Nasdaq”) or another national stock exchange when our company is eligible, there can be no assurance when or if our common stock will be listed on Nasdaq or another national stock exchange.
The market price of our stock is subject to volatility.
Our stock price has been and is likely to continue to be volatile. As a result of this volatility, investors may not be able to sell their common stock at or above their purchase price. The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:
| ● |
developments with respect to patents or proprietary rights; |
| ● |
announcements of technological innovations by us or our competitors; |
| ● |
announcements of new products or new contracts by us or our competitors; |
| ● |
actual or anticipated variations in our operating results due to the level of research and development expenses and other factors; |
| ● |
changes in financial estimates by securities analysts and whether any future earnings of ours meet or exceed such estimates; |
| ● |
conditions and trends in our industry; |
| ● |
new accounting standards; |
| ● |
the size of our public float; |
| ● |
short sales, hedging, and other derivative transactions involving our common stock; |
| ● |
sales of large blocks of our common stock including sales by our executive officers, directors, and significant stockholders; |
| ● |
general economic, political and market conditions and other factors; |
| ● |
our decision to sell our stock to Lincoln Park; | |
| ● |
the activities of third parties that market and distribute our products, and decisions made by them to increase or decrease such activities, resulting in increases or decreases in product purchases from us and thus our revenues; | |
| ● |
the occurrence of any of the risks described herein. |
You may have difficulty selling our stock because it is deemed a “penny stock” and not quoted on a national exchange.
Because our common stock is not quoted or listed on a national securities exchange, if the trading price of our common stock remains below $5.00 per share, which we expect for the foreseeable future, trading in our common stock will be subject to the requirements of certain rules promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which require additional disclosure by broker-dealers in connection with any trades involving a stock defined as a penny stock (generally, any non-Nasdaq equity security that has a market price of less than $5.00 per share, subject to certain exceptions). Such rules require the delivery, before any penny stock transaction, of a disclosure schedule explaining the penny stock market and the risks associated therewith and impose various sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors (generally defined as an investor with a net worth in excess of $1,000,000 or annual income exceeding $200,000 individually or $300,000 together with a spouse). For these types of transactions, the broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction before the sale. The broker-dealer also must disclose the commissions payable to the broker-dealer and current bid and offer quotations for the penny stock and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market. Such information must be provided to the customer orally or in writing before or with the written confirmation of trade sent to the customer. Monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. The additional burdens imposed on broker-dealers by such requirements could discourage broker-dealers from effecting transactions in our common stock, which could severely limit the market liquidity of our common stock and the ability of holders of our common stock to sell their shares.
Because our shares are deemed a “penny stock,” rules enacted by FINRA make it difficult to sell previously restricted stock.
Rules put in place by the Financial Industry Regulatory Authority (FINRA) require broker-dealers to perform due diligence before depositing unrestricted common shares of penny stocks, and as such, some broker-dealers, including many large national firms (such as eTrade and Charles Schwab), are refusing to deposit previously restricted common shares of penny stocks. We routinely issued non-registered restricted common shares to investors, vendors and consultants. The issuance of such shares is subjected to the FINRA-enacted rules. As such, it can be difficult for holders of restricted stock, including those issued in our private securities offerings, to deposit the shares with broker-dealers and sell those shares on the open market.
Because we will not pay dividends in the foreseeable future, stockholders will only benefit from owning common stock if it appreciates.
We have never declared or paid a cash dividend to stockholders. We intend to retain any earnings that may be generated in the future to finance operations. Accordingly, any potential investor who anticipates the need for current dividends from his investment should not purchase our common stock, and must rely on the benefit of owning shares, and presumably a rise in share price. We cannot predict the future price of our stock, and due to the factors enumerated herein, can make no assurance of a future increase in the price of our common stock.
We regularly issue stock, or stock options, instead of cash, to pay some of our operating expenses. These issuances are dilutive to our existing stockholders.
We are party to agreements that provide for the payment of, or permit us to pay at our option, securities rather than cash in consideration for services provided to us. We include these provisions in agreements to allow us to preserve cash. We anticipate that we will continue to do so in the future. All such issuances preserve our cash reserve but are also dilutive to our stockholders because they increase (and will increase in the future) the total number of shares of our common stock issued and outstanding, even though such arrangements assist us with managing our cash flow. These issuances also increase the expense amount recorded.
Our stockholders face further potential dilution in any new financing.
During the year ended December 31, 2023, we issued approximately 14.5 million shares of common stock. Our private securities offerings typically offer convertible securities, including notes and warrants. Those warrants often include provisions that require investors to pay for the underlying shares with cash, which if executed would generate working capital for the company. Any additional capital that we raise would dilute the interest of the current stockholders and any persons who may become stockholders before such financing. Given the price of our common stock, such dilution in any financing of a significant amount could be substantial.
Our stockholders face further potential adverse effects from the terms of any preferred stock that may be issued in the future.
Our certificate of incorporation authorizes 50 million shares of preferred stock. None are outstanding as of the date hereof. In order to raise capital to meet expenses or to acquire a business, our board of directors may issue additional stock, including preferred stock. Any preferred stock that we may issue may have voting rights, liquidation preferences, redemption rights and other rights, preferences and privileges. The rights of the holders of our common stock will be subject to, and in many respects subordinate to, the rights of the holders of any such preferred stock. Furthermore, such preferred stock may have other rights, including economic rights, senior to our common stock that could have a material adverse effect on the value of our common stock. Preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, can also have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock, thereby delaying, deferring or preventing a change in control of our company.
Risks Related to Privacy, Cybersecurity, and Our Technology
Our business involves the use, transmission and storage of confidential information, and the failure to properly safeguard such information could result in significant reputational harm.
We may at times collect, store, and transmit information of, or on behalf of, our clients that may include certain types of confidential information that may be considered personal or sensitive, and that are subject to laws that apply to data breaches. We believe that we take reasonable steps to protect the security, integrity, and confidentiality of the information we collect and store, but there is no guarantee that inadvertent or unauthorized disclosure will not occur or that third parties will not gain unauthorized access to this information despite our efforts to protect this information, including through a cyber-attack that circumvents existing security measures and compromises the data that we store. If such unauthorized disclosure or access does occur, we may be required to notify persons whose information was disclosed or accessed. Most states have enacted data breach notification laws and, in addition to federal laws that apply to certain types of information, such as financial information, federal legislation has been proposed that would establish broader federal obligations with respect to data breaches. We may also be subject to claims of breach of contract for such unauthorized disclosure or access, investigation and penalties by regulatory authorities and potential claims by persons whose information was disclosed. The unauthorized disclosure of information, or a cyber-security incident involving data that we store, may result in the termination of one or more of our commercial relationships or a reduction in client confidence and usage of our services. We may also be subject to litigation alleging the improper use, transmission, or storage of confidential information, which could damage our reputation among our current and potential clients and cause us to lose business and revenue.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
The Company has processes for assessing, identifying, and managing material risks from cybersecurity threats. These processes are integrated into the Company’s overall risk management systems, as overseen by the Company’s chief executive officer and board of directors. The Company engages information technology “managed service providers” (MSPs) to manage the Company’s computer and information systems at its three office locations and remote locations. The MSPs are responsible for evaluating and testing the Company’s risk management systems and assessing and remediating potential cybersecurity incidents as appropriate.
The executives in charge of each physical office location are responsible for assessing and managing cybersecurity risks for their locations, and the Company’s chief executive officer is responsible for assessing and managing cybersecurity risks to the Company as a whole. Because none of these individuals has specific training or experience in managing cybersecurity risks, MSPs that have expertise and experience in doing so are retained and relied upon. Our chief executive officer is responsible for escalating any cybersecurity matters as appropriate, in consultation with our legal counsel. Our board of directors is ultimately responsible for oversight of cybersecurity risk management and receives regular reports from Company management.
Our company owns no real property. We currently lease approximately 9,000 square feet of office and industrial space at 14921 Chestnut Street, Westminster, California. In addition to serving as our principal offices, it is also a manufacturing facility where we manufacture our products, including our CupriDyne Clean Industrial Odor control product, and the home of our subsidiary ONM Environmental.
We also lease approximately 22,000 square feet of office, warehouse, lab and manufacturing space at 105 Fordham Road, Oak Ridge, Tennessee, for our professional engineering division, BioLargo Engineering, Science & Technologies, LLC, and our battery company, BioLargo Energy.
We also lease approximately 1,500 square feet of office and lab space from the University of Alberta. These offices serve as our primary research and development facilities and is the home of our subsidiary, BioLargo Canada.
Our telephone number is (888) 400-2863.
Our company is not presently a party to any legal proceeding.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES
Market Information
Since January 23, 2008, our common stock has been quoted on the OTC Markets “OTCQB” marketplace (formerly known as the “OTC Bulletin Board”) under the trading symbol “BLGO”. The OTCQB is a regulated quotation service that displays real-time quotes, last-sale prices and volume information in over-the-counter equity securities. The OTCQB securities are traded by a community of market makers that enter quotes and trade reports. This market is limited in comparison to the national stock exchanges and any prices quoted may not be a reliable indication of the value of our common stock. Any over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
Holders
As of March 27, 2024, there were approximately 600 registered holders of our common stock. This does not include beneficial owners.
Dividends
We have never declared or paid a cash dividend to stockholders. We intend to retain any earnings which may be generated in the future to finance operations.
Securities Authorized for Issuance Pursuant to Equity Compensation Plans
Equity Compensation Plan Information as of December 31, 2023
| Number of securities to be |
Weighted average |
|||||||||||
| issued upon exercise of |
exercise price of |
Number of securities |
||||||||||
| outstanding options, |
outstanding options, |
remaining available for |
||||||||||
| warrants and rights |
warrants and rights |
future issuance |
||||||||||
| Plan Category |
(a) |
(b) |
(c) |
|||||||||
| Equity compensation plans approved by security holders |
42,672,533 (1) | $ | 0.20 | 9,327,467 | ||||||||
| Equity compensation plans not approved by security holders(2) |
17,375,044 | $ | 0.39 | n/a | ||||||||
| Total |
60,047,577 | $ | 0.26 | 9,327,467 | ||||||||
| (1) |
Includes 1,564,085 shares issuable under the 2007 Equity Plan, which expired September 6, 2017; includes 41,108,448 shares issuable under the 2018 Equity Incentive Plan adopted by the Board on March 7, 2018 and subsequently approved by stockholders on May 23, 2018. |
| (2) |
This includes various issuances of warrants or options to specific individuals either as a conversion of un-paid obligations pursuant to a plan adopted by our board of directors, or as part of their agreement for services. |
Sales of Unregistered Securities
The following is a report of the sales of unregistered securities in the past two years not previously reported in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K.
During the three months ended December 31, 2023, we issued 68,502 shares of our common stock to reduce amounts owed to a vendor in the aggregate amount of $11,000.
During the three months ended December 31, 2023, we sold 2,894,739 shares of our common stock and received $550,000 in gross proceeds, and $495,000 in net proceeds, from fourteen accredited investors. In addition to the shares, we issued the investors six-month warrants to purchase an aggregate 2,894,739 additional shares at $0.228 per share, and five-year warrants to purchase an aggregate 2,894,739 additional shares at $0.285 per share. Commissions paid to a licensed broker included a 10% cash fee and a warrant to purchase 10% of the shares purchased.
In December 2023, Clyra Medical began an offering of its common stock and warrants, and received $35,000 in gross and net proceeds from one accredited investor, and in exchange issued the investors 7,000 shares of its common stock and a warrant to purchase 3,500 shares of common stock at $7.50 per share.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our audited consolidated financial statements and the related notes to the consolidated financial statements included elsewhere in this report.
This discussion contains forward-looking statements that involve risks and uncertainties. Such statements, which include statements concerning future revenue sources and concentration, selling, general and administrative expenses, research and development expenses, capital resources, additional financings and additional losses, are subject to risks and uncertainties, including, but not limited to, those discussed above in Part I, Item 1 and elsewhere in this Annual Report, particularly in “Risk Factors,” that could cause actual results to differ materially from those projected. The forward-looking statements set forth in this Annual Report are as of December 31, 2023, unless expressly stated otherwise, and we undertake no duty to update this information.
Results of Operations—Comparison of the years ended December 31, 2023 and 2022
We operate our business in distinct business segments:
| ● |
ONM Environmental, which manufactures and sells our odor and VOC control products and services, including our flagship product, CupriDyne Clean; |
| ● |
BLEST, which provides professional engineering services 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; |
| ● |
Clyra Medical, which develops and sells medical products based on our technology; |
| ● |
BioLargo Canada, located in Edmonton, Alberta Canada, our primary research and development activities; and |
| ● |
Our corporate operations, which support the operating segments with legal, accounting, human resources, and other services. |
Our consolidated revenue for the year ended December 31, 2023 was $12,230,000, which is a 108% increase over the same period in 2022. Services revenue decreased 47% (by $680,000), while revenue from product sales increased by 158%, $7,026,000. The decrease in service revenues was related to the focus by our subsidiary BLEST on supporting internal projects such as the AEC and battery technology, as opposed to servicing third-party clients. The increase in product revenues was almost entirely due to an increase in the volume of sales of private-label odor-control products, specifically the Pooph branded pet-odor product.
ONM Environmental
Our wholly-owned subsidiary ONM Environmental generates revenues through sales of our flagship product CupriDyne Clean, by providing design, installation, and maintenance services on the systems that deliver CupriDyne Clean at its clients’ facilities, and through sales of private-label products based on our CupriDyne Clean technology.
Revenue (ONM Environmental)
ONM Environmental’s revenues for the year ended December 31, 2023, were $11,440,000, an increase of $7,066,000 or 162% from the same period in 2022. The increase in revenues was almost entirely due to an increase in the volume of sales of private label odor-control products, specifically the Pooph branded pet-odor product (which increased by $6,905,000). Because ONM Environmental has no control over the marketing and sales activity or levels of Pooph, it cannot predict sales volumes related to it in future periods. Pooph management has indicated their intentions to continue their national advertising campaign as they place the product in national retail chains, including the introduction of the product in Walmart nationally. While they have performed well in the past, their execution of those future plans has inherent risks that are out of our control. (See the Risk Factor above titled “A significant portion of our revenue is concentrated with one customer.”)
Cost of Goods Sold (ONM Environmental)
ONM Environmental’s cost of goods sold includes costs of raw materials, contract manufacturing, and portions of depreciation, salaries and expenses related to the manufacturing and installation of its products. As a percentage of revenue, ONM Environmental’s costs of goods increased 4% in 2023 to 49%. The increase was related to normal price fluctuations for raw materials.
Selling, General and Administrative Expense (ONM Environmental)
ONM Environmental’s SG&A expenses were $1,472,000 in 2023, compared to $1,276,000 in 2022. We expect these expenses to remain approximately the same in 2024.
Operating Income (ONM Environmental)
ONM Environmental generated operating income of $4,335,000 in 2023, compared to an operating income of $1,130,000 in 2022. The increase in operating income is due almost entirely to an increase in the sales of its Pooph branded pet odor product. As the marketing and sales of that product is in the sole control of a third party, we have no way of determining whether these sales will decrease or increase in the current year, and thus have no way to determining whether ONM Environmental will have an operating income in the current year.
BLEST (engineering division)
Revenue (BLEST)
BLEST generated $770,000 of revenue from third parties in 2023, compared to $1,453,000 in 2022, representing a 47% decrease from the prior year. In addition to providing service to third party clients, BLEST provides services to BioLargo and its subsidiaries for internal BioLargo projects. These services are billed internally, are considered intersegment revenue, and are eliminated in the consolidation of our financial statements. In the year ended December 31, 2023, it totaled $1,627,000, primarily used to further engineer and develop our AEC PFAS treatment system and battery technology. The decrease in third party revenue in 2023 as compared to 2022 is a result of BLEST's focus on these internal projects.
Cost of Goods (Services) Sold (BLEST)
BLEST’s cost of services includes employee labor, materials, as well as subcontracted labor costs. In 2023, its cost of services were 51% of its revenues, versus 61% in 2022. This decrease is due to contracts with better margins. We expect the cost of services to remain consistent in 2024 based on the contracts currently in progress.
Selling, General and Administrative Expense (BLEST)
BLEST's SG&A expenses were $722,000 in 2023, compared to $549,000 in 2022, due to increased head-count related expenses. We expect these expenses to continue to increase in the current year as more resources are devoted to BLEST's operations.
Operating Loss (BLEST)
BLEST had an operating loss of $1,619,000 in 2023, compared to an operating loss of $452,000 in 2022. This operating loss is reflective of the focus at BLEST on internal BioLargo projects. While we are unable to record revenues generated from services by the engineering group to other BioLargo operating divisions for important projects such as the development of the AOS and AEC technologies, it is important to note that its net loss would be eliminated if it were selling these services to a third party at fair market value. Because the subsidiary had a net loss, we invested cash during the year to allow it to maintain operations.
Selling, General and Administrative Expense – consolidated
Our Selling, General and Administrative expense (“SG&A”) include both cash (for example, salaries to employees) and non-cash expenses (for example, stock option compensation expense). Our consolidated SG&A increased by 20% ($1,327,000) in the year ended December 31, 2023, to $8,058,000. Our non-cash expenses (through the issuance of stock and stock options) were $2,508,000 in 2023, compared with $2,071,000 in 2022. Our SG&A expenses included (in thousands):
| December 31, 2023 |
December 31, 2022 |
|||||||
| Salaries and payroll related |
$ | 2,746 | $ | 2,754 | ||||
| Professional fees |
703 | 629 | ||||||
| Consulting |
1,413 | 867 | ||||||
| Office expense |
1,853 | 1,502 | ||||||
| Board of director expense |
434 | 401 | ||||||
| Sales and marketing |
481 | 287 | ||||||
| Investor relations |
428 | 291 | ||||||
| Totals | $ | 8,058 | $ | 6,731 | ||||
The increases in professional fees, consulting, office expense, and sales and marketing were due to increased company activities and revenues, including new company projects such as the liquid sodium battery. Office expense increased due to an increase in square footage of rented space and an increase in general office expenses related to expanded operations. Board of director expense increased due to the replacement of expired out-of-the-money options.
Impairment Expense
During each of the years ended December 31, 2023 and 2022, management recognized $394,000 and $197,000, respectively, impairment of Clyra’s prepaid marketing asset (see Note 10).
Research and Development
In the year ended December 31, 2023, we spent $2,282,000 in the research and development of our technologies and products. This was an increase of 73% ($963,000) compared to 2022, due to increased activity related to development of AEC and battery products.
Other Income and Expense
Primarily through our wholly owned Canadian subsidiary, we have been awarded more than 80 research grants over the years from various public and private agencies, including the Canadian National Research Institute – Industrial Research Assistance Program (NRC-IRAP), the National Science and Engineering Research Council of Canada (NSERC), and the Metropolitan Water District of Southern California’s Innovative Conservation Program “ICP”. The research grants received are considered reimbursement grants related to costs we incur and therefore are included as Other Income. The amount of grant income decreased $38,000 in the year ended December 31, 2023, to $36,000. Grant funds paid directly to third parties are not included as income in our financial statements.
Our Canadian subsidiary applied for and received a refund on our income taxes pursuant to the “Scientific Research and Experimental Development Program”, a Canadian federal tax incentive program designed to encourage Canadian businesses to conduct research and development in Canada. For the years ended December 31, 2023 and 2022, we recorded an expense of $54,000 and a refund of $63,000, respectively.
Interest expense
Our interest expense for the year ended December 31, 2023, was $91,000, an increase of 72% compared with 2022. The significant increase in interest expense is related to the timing of when we entered into our debt obligations as there was a full year of interest during 2023 versus 2022. During 2023, $58,000 was paid in cash and $33,000 related to the amortization of debt discounts related to warrants issued in conjunction with debt instruments. During 2022, $36,000 was paid in cash. Our non-cash interest expenses were $17,000 in amortization of debt discounts related to warrants issued in conjunction with debt instruments.
As of December 31, 2023, the total debt on our balance sheet was $258,000, not including $234,000 owed by Clyra Medical. The $258,000 is comprised of $190,000 is from SBA loans at low interest rates, and a $68,000 vehicle loan. We do not intend to take on additional debt in the current year, and expect our interest expense in 2024 to decrease as compared with 2023.
Net Loss
Net loss for the year ended December 31, 2023, was $4,648,000 a loss of $0.02 per share, compared to a net loss for the year ended December 31, 2022, of $5,132,000 a loss of $0.02 per share, a decrease in net loss of 13%. Our net loss this year declined because of the increase in gross margin related to our increase in revenues, offset by a smaller increase of selling, general and administrative expense.
The net income (loss) per business segment is as follows (in thousands):
| Year ended |
Year ended |
|||||||
| Net income (loss) |
December 31, 2023 |
December 31, 2022 |
||||||
| ONM Environmental |
$ | 4,329 | $ | 1,304 | ||||
| BLEST |
(1,619 | ) | (425 | ) | ||||
| Clyra Medical |
(2,097 | ) | (1,412 | ) | ||||
| BioLargo Canada |
(713 | ) | (604 | ) | ||||
| BETI |
(1,179 | ) | — | |||||
| BioLargo corporate |
(3,369 | ) | (3,995 | ) | ||||
| Consolidated net loss |
$ | (4,648 | ) | $ | (5,132 | ) | ||
In the year ended December 31, 2023, approximately 68% of our net loss was attributable to non-cash expenses, including $2,124,000 of stock option compensation expense (of which $260,000 was from options issued by Clyra Medical), $384,000 of services paid by the issuance of our common stock, and $394,000 related to the impairment of our Clyra prepaid marketing agreement. (See Note 10).
In the year ended December 31, 2022, approximately 50% of our net loss was attributable to non-cash expenses, including $2,071,000 of stock option compensation expense (of which $408,000 was from options issued by Clyra Medical), and $291,000 of services paid by the issuance of our common stock.
Liquidity and Capital Resources
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of our business. For the year ended December 31, 2023, we had a net loss of $4,648,000, used $2,295,000 cash in operations, and at December 31, 2023, we had working capital of $3,652,000, and current assets of $6,362,000. We do not believe gross profits in 2024 will be sufficient to fund our current level of operations, and therefore we will have to obtain further investment capital to continue to fund operations. We have been, and anticipate that we will continue to be, limited in terms of our capital resources. As of December 31, 2023, our cash and cash equivalents totaled $3,539,000, and our total liabilities included $492,000 in debt obligations, of which $234,000 were owed by Clyra Medical. Of the remaining amount, $66,000 is due within one year.
During the year ended December 31, 2023, we generated revenues of $12,230,000, through our subsidiaries (see Note 12). Other than ONM Environmental, our subsidiaries did not generate enough revenues or gross profits to fund their operations or fund our corporate operations or other business segments. To meet our cash obligations, during the year-ended December 31, 2023, we (i) sold $995,000 of our common stock to Lincoln Park Capital Fund, LLC (“Lincoln Park”) (see Note 3), (ii) sold $1,158,000 of our common stock and warrants to accredited investors (see Notes 3 and 6), (iii) sold $1,575,000 of Clyra Medical Series A Preferred Stock and $35,000 of Clyra Medical common stock (see Note 10), and (iv) sold 1,005,000 of BETI common stock (see Note 9). If we are unable to rely on our current arrangement with Lincoln Park to fund our working capital requirements, we will have to rely on other forms of financing, and there is no assurance that we will be able to do so, or if we do so, it will be on favorable terms. To reduce our operational cash burdens, we regularly issue officers and vendors stock or options in lieu of cash, and anticipate that we will continue to be able to do so in the future. We and Clyra Medical have continued to sell common stock to Lincoln Park for working capital subsequent to December 31, 2023 (see Note 14).
The foregoing factors raise substantial doubt about our ability to continue as a going concern, unless we are able to continue to raise funds through stock sales to Lincoln Park or other private financings, and in the long term, our ability to attain a reasonable threshold of operating efficiencies and achieve profitable operations by licensing or otherwise commercializing products incorporating our technologies. The consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
Critical Accounting Policies
Our discussion and analysis of our results of operations and liquidity and capital resources are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, valuation of offerings of debt with equity or derivative features which include the valuation of the warrant component, any beneficial conversion feature and potential derivative treatment, and share-based payments. We base our estimates on anticipated results and trends and on various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results that differ from our estimates could have a significant adverse effect on our operating results and financial position. We believe that the following significant accounting policies and assumptions may involve a higher degree of judgment and complexity than others.
The methods, estimates and judgments the Company uses in applying these most critical accounting policies have a significant impact on the results of the Company reports in its financial statements.
Revenue Recognition
We adopted ASU 2014-09, “Revenue from Contracts with Customers”, Topic 606, on January 1, 2018. The guidance focuses on the core principle for revenue recognition.
The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
We have revenue from two subsidiaries, ONM and BLEST. ONM identifies its contract with the customer through a written purchase order, in which the details of the contract are defined including the transaction price and method of shipment. The only performance obligation is to create and ship the product and each product has separate pricing. ONM recognizes revenue at a point in time when the order for its goods are shipped if its agreement with the customer is FOB ONM’s warehouse facility, and when goods are delivered to its customer if its agreement with the customer is FOB destination. Revenue is recognized with a reduction for sales discounts, as appropriate and negotiated in the customer’s purchase order. 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.
Warrants
Warrants issued with our convertible and non-convertible debt instruments are accounted for under the fair value and relative fair value method.
The warrant is first analyzed per its terms as to whether it has derivative features or not. If the warrant is determined to be a derivative and not qualify for equity treatment, then it is measured at fair value using the Black Scholes option model, and recorded as a liability on the balance sheet. The warrant is re-measured at its then current fair value at each subsequent reporting date (it is “marked-to-market”).
If the warrant is determined to not have derivative features, it is recorded into equity at its fair value using the Black Scholes option model, however, limited to a relative fair value based upon the percentage of its fair value to the total fair value including the fair value of the convertible note.
The warrant 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, 2023 and 2022, approximate their respective fair values because of the short-term nature of these instruments. Such instruments include cash, accounts receivable, prepaid assets, accounts payable, line of credit, and other assets and liabilities. The carrying amount of debt instruments are believed to approximate fair value as the stated interest rates are reflective of the prevailing market rates.
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our consolidated financial statements as of and for the years ended December 31, 2023 and 2022 are presented in a separate section of this report following Item 14 and begin with the index on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure 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 Annual 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. 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. In combination, these activities put stress on our overall controls and procedures. Based on this evaluation, our chief executive officer and chief financial officer 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.
Management’s Report on Internal Control over Financial Reporting
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”). Management evaluated the effectiveness of our internal controls, and concluded that due to our limited financial and personnel resources, and the fact that we operate our business in three distinct locations in the U.S. and Canada, we continue to have a material weakness in our internal controls with respect to the closing our financial statements. Until the Company has the financial resources to implement more robust automated systems, or to hire additional dedicated accounting personnel, we expect this material weakness to continue. In reaching this conclusion, management considered that despite this weakness, and others identified in past years, the company has not identified material misstatements in prior financial statements, and believes that the material weakness identified herein is not likely to lead to a material misstatement in the financial statements contained within this report.
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. While management has recognized the material weakness, nothing additionally has changed in internal controls over financial reporting in the fourth quarter or the fiscal year ended December 31, 2023.
This Annual Report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management’s report in this Annual Report.
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.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the fourth quarter of 2023, which were identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Certain information required by Part III is incorporated by reference from our definitive Proxy Statement to be filed with the SEC within 120 days of the end of the fiscal year ended December 31, 2023, in connection with the solicitation of proxies for our 2023 Annual Meeting of Stockholders (the “Proxy Statement”).
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The information required by this section is incorporated by reference from the section entitled “Proposal One—Election of Directors” in the Proxy Statement. Item 405 of Regulation S-K calls for disclosure of any known late filing or failure by an insider to file a report required by Section 16 of the Exchange Act. This disclosure is incorporated by reference to the section entitled “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement. The information required by this Item with respect to our executive officers is contained in Item 1 of Part I of this Annual Report under the heading “Business—Executive Officers”.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this section is incorporated by reference from the information in the section entitled “Executive Compensation” in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this section is incorporated by reference from the information in the section entitled “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this section is incorporated by reference from the information in the section entitled “Certain Relationships and Related Transactions” in the Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this section is incorporated by reference from the information in the section entitled “Ratification of Appointment of Independent Auditor” in the Proxy Statement.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following documents are filed as a part of this report:
1. Financial Statements. The consolidated financial statements required to be filed in this report are listed on the Index to Financial Statements immediately preceding the financial statements.
2. Financial Statement Schedules. Separate financial statement schedules have been omitted either because they are not applicable or because the required information is included in the consolidated financial statements or the notes thereto.
3. Exhibits. See the Exhibit Index for a list of the exhibits being filed or furnished with or incorporated by reference into this report.
Exhibit Index
| 10.17 |
Form of indemnity agreement between the Company at its officers and directors |
Form 10-K | 3/31/2022 |
| 10.18† |
Form 8-K |
3/27/2023 |
|
| 10.19 | Form of Share Exchange Agreement between BioLargo, Inc., and purchasers of Clyra Medical Series A Preferred Stock | Form 10-Q | 5/17/2023 |
| 10.20 | Form of Share Exchange Agreement between BioLargo, Inc., and purchasers of BioLargo Energy Technologies, Inc. common stock | Form 10-Q | 5/17/2023 |
| 14.1 |
Form 10-KSB |
11/16/2004 |
|
| 21.1* |
filed herewith |
||
| 23.1* | Consent of Hacker Johnson & Smith PA | filed herewith | |
| 23.2* |
filed herewith |
||
| 31.1* |
filed herewith |
||
| 31.2* |
filed herewith |
||
| 32* |
filed herewith |
||
| 101.INS** |
Inline XBRL Instance |
||
| 101.SCH** |
Inline XBRL Taxonomy Extension Schema |
||
| 101.CAL** |
Inline XBRL Taxonomy Extension Calculation |
||
| 101.DEF** |
Inline XBRL Taxonomy Extension Definition |
||
| 101.LAB** |
Inline XBRL Taxonomy Extension Labels |
||
| 101.PRE** |
Inline XBRL Taxonomy Extension Presentation |
||
| 104 |
Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101) |
* Filed herewith
** Furnished herewith
† Management contract or compensatory plan, contract or arrangement
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| BIOLARGO, INC. |
||
| Date: April 1, 2024 |
By: |
/s/ Dennis P. Calvert |
| Dennis P. Calvert President and Chief Executive Officer |
||
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints, jointly and severally, Dennis P. Calvert and Joseph L. Provenzano, and each of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the date indicated:
| Name |
Title |
Date |
||
| /s/ Dennis P. Calvert |
Chairman of the Board, Chief |
April 1, 2024 | ||
| Dennis P. Calvert |
Executive Officer and President |
|||
| /s/ Charles K. Dargan II |
Chief Financial Officer |
April 1, 2024 | ||
| Charles K. Dargan II |
(principal financial officer and principal accounting officer) |
|||
| /s/ Kenneth R. Code |
Chief Science Officer and Director |
April 1, 2024 | ||
| Kenneth R. Code |
||||
| /s/ Joseph L. Provenzano |
Executive Vice President, Corporate |
April 1, 2024 | ||
| Joseph L. Provenzano |
Secretary and Director |
|||
| /s/ Jack B. Strommen |
Director |
April 1, 2024 | ||
| Jack B. Strommen |
||||
| /s/ Dennis E. Marshall |
Director |
April 1, 2024 | ||
| Dennis E. Marshall |
||||
| /s/ Linda Park |
Director |
April 1, 2024 | ||
| Linda Park |
||||
| /s/Christina Bray |
Director |
April 1, 2024 | ||
| Christina Bray |
||||
| Report of Independent Registered Public Accounting Firm (PCAOB name: HACKER JOHNSON & SMITH PA and PCAOB ID: | |
| Report of Independent Registered Public Accounting Firm (PCAOB name: HASKELL & WHITE LLP and PCAOB ID: 200) | F-5 |
| Consolidated Balance Sheets as of December 31, 2023 and 2022 | |
| Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2023 and 2022 | |
| Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022 | |
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors BioLargo, Inc.
Westminster, California:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of BioLargo, Inc. and Subsidiaries (the "Company"), as of December 31, 2023 and the related consolidated statements of operations and comprehensive loss, stockholders' equity and cash flows for the year then ended and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2023, and the consolidated results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations, has negative cash flow from operations and has a significant accumulated deficit. These matters raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
To the Stockholders and the Board of Directors BioLargo, Inc.
Page Two
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Fair Value of Stock Options - Critical Audit Matter Description
As more fully described in Notes 2, 5 and 10 to the consolidated financial statements, the Company issues options from both BioLargo, Inc. as well as its partially-owned subsidiary, Clyra Medical. Management uses the Black-Scholes option-pricing model to estimate the fair value of its stock options. The Black-Scholes option-pricing model involves the use of significant estimates, including the following:
| - | Risk-free interest rate; |
| - | Expected stock price volatility; |
| - | Expected dividend yield; and |
| - | Expected life of the award. |
In addition, management discounts the estimated fair value of the Clyra Medical stock options because the partially-owned subsidiary is a private company with no secondary market for its common stock. Given the significant estimates involved in estimating the fair value of stock options, the related audit effort in evaluating management’s estimates in determining the fair value of stock options was extensive and required a high degree of auditor judgment.
To the Stockholders and the Board of Directors BioLargo, Inc.
Page Three
How the Critical Audit Matter was Addressed in the Audit
We obtained an understanding over the Company's process to estimate the fair value of stock options, including how the Company develops each of the estimates required to utilize the Black-Scholes option- pricing model. We applied the following audit procedures related to testing the Company's estimates utilized in the Black-Scholes option-pricing model:
| - | We compared the Company's risk-free interest rate used to the comparable United States Treasury yield for a term comparable to the stock options' expected term. |
| - | We recalculated the Company's historical stock price volatility for a term comparable to the stock options' expected term. For Clyra Medical, we recalculated a comparable public company's historical share price volatility for a term comparable to the stock options' expected term. |
| - | We performed a look-back at the Company's previously issued dividends, noting there were none. We inquired with management of the Company who informed us that no future dividends were currently anticipated. |
| - | We agreed the expected term of stock options granted to employees and nonemployees to the original contractual term of the option as management deems it likely they will remain outstanding for the entire original term. We further noted that this was consistent with historical options granted. |
In addition, we reviewed management's analysis over the fair value of the common stock price and discount that was used on the estimated fair value of the Clyra Medical stock options. We noted that Clyra Medical is a private company and therefore its common stock is not actively traded. We reviewed both the common stock and preferred stock sales history of Clyra Medical, noting the last sales prices. Management concluded that both the illiquidity and lack of marketability warranted a discount to the estimated fair value calculated using the Black-Scholes option-pricing model. From our review of the common stock sales history of Clyra Medical, we noted that the infrequent common stock sales support management's assertions of both illiquidity and lack of marketability. We further researched published articles on valuation discounts and noted that the liquidity and lack of marketability discount used by management was within a reasonable range.
We have served as the Company's auditor since 2023.
April 1, 2024
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
BioLargo, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of BioLargo, Inc. and Subsidiaries (the “Company”) as of December 31, 2022, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2022, and the consolidated results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has experienced recurring losses, negative cash flows from operations, and has limited capital resources. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Report of Independent Registered Public Accounting Firm (continued)
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion
Critical Audit Matters
The critical audit matters communicated below are matters arising from the 2022 audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Fair Value of Stock Options—Refer to Notes 2, 5 and 10 to the Consolidated Financial Statements
Critical Audit Matter Description
The Company issues options from both BioLargo, Inc. as well as its partially-owned subsidiary, Clyra Medical. Management uses the Black-Scholes option-pricing model to estimate the fair value of its stock options. The Black-Scholes option-pricing model involves the use of significant estimates, including the following:
| ■ | Risk-free interest rate; |
| ■ | Expected share price volatility; |
| ■ | Expected dividend yield; and |
| ■ | Expected life of the award. |
In addition, management discounts the estimated fair value of the Clyra Medical stock options because the partially-owned subsidiary is a private company with no secondary market for its common stock. Given the significant estimates involved in estimating the fair value of stock options, the related audit effort in evaluating management’s estimates in determining the fair value of stock options was extensive and required a high degree of auditor judgment.
Report of Independent Registered Public Accounting Firm (continued)
How the Critical Audit Matter was Addressed in the Audit
We obtained an understanding over the Company’s process to estimate the fair value of stock options, including how the Company develops each of the estimates required to utilize the Black-Scholes option-pricing model. We applied the following audit procedures related to testing the Company’s estimates utilized in the Black-Scholes option-pricing model:
| ■ | We compared the Company’s risk-free interest rate used to the comparable United States Treasury yield for a term comparable to the stock options’ expected term. |
| ■ | We recalculated the Company’s historical share price volatility for a term comparable to the stock options’ expected term. For Clyra Medical, we recalculated a comparable public company’s historical share price volatility for a term comparable to the stock options’ expected term. |
| ■ | We performed a look-back at the Company’s previously issued dividends, noting there were none. We inquired with management of the Company who informed us that no future dividends were currently anticipated. |
| ■ | We agreed the expected term of stock options granted to employees and non-employees to the original contractual term of the option as management deems it likely they will remain outstanding for the entire original term. We further noted that this was consistent with historical options granted. |
In addition, we reviewed management’s analysis over the fair value of the common stock price and discount that was used on the estimated fair value of the Clyra Medical stock options. We noted that Clyra Medical is a private company and therefore its common stock is not actively traded. We reviewed both the common stock and preferred stock sales history of Clyra Medical, noting the last sales prices. Management concluded that both the illiquidity and lack of marketability warranted a discount to the estimated fair value calculated using the Black-Scholes option-pricing model. From our review of the common stock sales history of Clyra Medical, we noted that the infrequent common stock sales support management’s assertions of both illiquidity and lack of marketability. We further researched published articles on valuation discounts and noted that the liquidity and lack of marketability discount used by management was within a reasonable range.
Impairment of Long-lived Asset – Refer to Notes 2 and 9 to the Consolidated Financial Statements
Critical Audit Matter Description
As reflected in the Company’s consolidated financial statements at December 31, 2022, the Company’s net carrying amount of Clyra Medical prepaid marketing is $394,000. As disclosed in Note 2 to the consolidated financial statements, long-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. As a result of these assessments, management concluded that there was an impairment to the Company’s prepaid marketing asset during the year ended December 31, 2022.
Report of Independent Registered Public Accounting Firm (continued)
Auditing management’s impairment test of its prepaid marketing asset was complex and highly judgmental due to the significant measurement uncertainty in determining the fair value of the prepaid marketing asset. In particular, the fair value estimate of the prepaid marketing asset was sensitive to changes in significant assumptions such as discount rates and revenue growth rates. These assumptions are affected by expected future market or economic conditions.
How the Critical Audit Matter was Addressed in the Audit
We obtained an understanding of the Company’s process to evaluate long-lived assets for impairment and related controls. We then obtained the projected revenues of Clyra Medical as well as the Company’s calculation of the expected present value of the prepaid marketing asset that were used by management to determine the fair value of the prepaid marketing asset, in accordance with ASC 350 (Intangibles – Goodwill and Other).
We applied the following audit procedures related to testing the fair value of the prepaid marketing asset:
| ■ | We assessed the valuation methodologies and tested the reasonableness of significant assumptions and underlying data used by management, including forecasted revenue and discount rates. |
| ■ | We agreed the triggering start date and term used in the present value calculation to the forecasted revenue and the original contractual term. |
| ■ | We compared management’s summary of the fair value of the prepaid marketing asset to its carrying value, noting that the carrying value exceeded the fair value of the prepaid marketing asset. As such, we concurred with management that there was an impairment of its prepaid marketing asset. |
HASKELL & WHITE LLP
We have served as the Company’s auditor from 2011 to 2023.
Irvine, California
March 31, 2023
BIOLARGO, INC. AND SUBSIDIARIES
(in thousands, except for per share data)
| DECEMBER 31, | ||||||||
| 2023 | 2022 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net of allowance | ||||||||
| Inventories, net of allowance | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Equipment and leasehold improvements, net of depreciation | ||||||||
| Other non-current assets | ||||||||
| Investment in South Korean joint venture | ||||||||
| Right of use, operating lease, net of amortization | ||||||||
| Clyra Medical prepaid marketing (Note 10) | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and stockholders’ equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Clyra Medical accounts payable and accrued expenses | ||||||||
| Clyra Medical debt obligations (Note 10) | ||||||||
| Debt obligations, net of discount (Note 4) | ||||||||
| Contract liabilities | ||||||||
| Lease liabilities | ||||||||
| Deposits | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities: | ||||||||
| Debt obligations, net of current (Note 4) | ||||||||
| Lease liability, net of current | ||||||||
| Clyra Medical debt obligations (Note 10) | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | ||||||||
| CONTINGENCIES (Note 1) | ||||||||
| STOCKHOLDERS’ EQUITY: | ||||||||
| Preferred Series A, $ par value, shares authorized, shares issued and outstanding, at December 31, 2023 and December 31, 2022 | ||||||||
| Common stock, $ par value, shares authorized, and shares issued and outstanding, at December 31, 2023 and December 31, 2022 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total BioLargo Inc. and subsidiaries stockholders’ equity | ||||||||
| Non-controlling interest (Note 9, 10 and 11) | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes to consolidated financial statements and report of Independent Registered Public Accounting Firm.
BIOLARGO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except for per share data)
| Year ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenue | ||||||||
| Product revenue | $ | $ | ||||||
| Service revenue | ||||||||
| Total revenue | ||||||||
| Cost of revenue | ||||||||
| Cost of goods sold | ( | ) | ( | ) | ||||
| Cost of service | ( | ) | ( | ) | ||||
| Total cost of revenue | ( | ) | ( | ) | ||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| Selling, general and administrative expenses | ||||||||
| Research and development | ||||||||
| Impairment expense | ||||||||
| Total operating expenses | ||||||||
| Operating loss | ( | ) | ( | ) | ||||
| Other income (expense): | ||||||||
| PPP forgiveness | ||||||||
| Grant income | ||||||||
| Tax credit (expense) income | ( | ) | ||||||
| Interest expense | ( | ) | ( | ) | ||||
| Total other income | ( | ) | ||||||
| Net loss | ( | ) | ( | ) | ||||
| Net loss attributable to noncontrolling interest | ( | ) | ( | ) | ||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | ||
| Net loss per share attributable to common stockholders: | ||||||||
| Loss per share attributable to stockholders – basic and diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average number of shares of common stock outstanding: | ||||||||
| Comprehensive loss attributable to common stockholders: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Foreign currency translation adjustment | ( | ) | ( | ) | ||||
| Comprehensive loss | ( | ) | ( | ) | ||||
| Comprehensive loss attributable to noncontrolling interest | ( | ) | ( | ) | ||||
| Comprehensive loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | ||
See accompanying notes to consolidated financial statements and report of Independent Registered Public Accounting Firm.
BIOLARGO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
YEARS ENDED DECEMBER 31, 2023 AND 2022
(in thousands, except for share data)
| Accumulated |
| |||||||||||||||||||||||||||
| Additional | other | Non- | Total | |||||||||||||||||||||||||
| Common stock | paid-in | Accumulated | comprehensive | controlling | stockholders' | |||||||||||||||||||||||
| Shares | Amount | capital | deficit | Loss | interest | equity | ||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||
| Sale of stock for cash | ||||||||||||||||||||||||||||
| Stock issued as commitment fee | ( | ) | ||||||||||||||||||||||||||
| Issuance of common stock for services | ||||||||||||||||||||||||||||
| Stock option exercise | ||||||||||||||||||||||||||||
| Stock option expense | — | |||||||||||||||||||||||||||
| Noncontrolling interest allocation | — | ( | ) | |||||||||||||||||||||||||
| Clyra stock option expense | — | |||||||||||||||||||||||||||
| Clyra preferred stock offering | — | |||||||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Foreign currency translation | — | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||
| Stock for cash | ||||||||||||||||||||||||||||
| Stock for service | ||||||||||||||||||||||||||||
| Stock share exchange - VB | — | — | — | — | — | — | ||||||||||||||||||||||
| Warrant Interest | — | |||||||||||||||||||||||||||
| Stock option expense | — | |||||||||||||||||||||||||||
| Clyra stock option expense | — | |||||||||||||||||||||||||||
| Clyra stock option exercise | — | |||||||||||||||||||||||||||
| Clyra preferred stock offering | — | |||||||||||||||||||||||||||
| Clyra common unit offering | — | |||||||||||||||||||||||||||
| Clyra Preferred Series A dividend | — | ( | ) | ( | ) | |||||||||||||||||||||||
| BETI common stock offering | — | |||||||||||||||||||||||||||
| Noncontrolling interest allocation | — | ( | ) | |||||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Foreign currency translation | — | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||
See accompanying notes to consolidated financial statements and report of Independent Registered Public Accounting Firm.
BIOLARGO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except for per share data)
| YEAR ENDED DECEMBER 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock option compensation expense | ||||||||
| Common stock issued for services | ||||||||
| Impairment expense | ||||||||
| Inventory reserve | ||||||||
| Amortization of right-of-use operating lease assets | ||||||||
| Interest expense related to amortization of the discount on convertible notes payable | ||||||||
| Fair value of warrants issued for interest | ||||||||
| Loss on investment in South Korean joint venture | ||||||||
| PPP forgiveness | ( | ) | ||||||
| Amortization and depreciation expense | ||||||||
| Bad debt expense | ||||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ( | ) | ||||
| Accounts payable and accrued expenses | ||||||||
| Clyra accounts payable and accrued expenses | ( | ) | ||||||
| Contract liabilities | ( | ) | ||||||
| Prepaid expenses and other assets | ( | ) | ||||||
| Lease liability, net | ( | ) | ||||||
| Deposits | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Equipment purchases | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from sale of common stock | ||||||||
| Proceeds from Clyra Medical stock option exercise | ||||||||
| Proceeds from BioLargo stock option exercise | ||||||||
| Proceeds from debt obligation, net | ||||||||
| Repayment by Clyra Medical on debt obligation | ( | ) | ( | ) | ||||
| Proceeds from sale of preferred stock in Clyra Medical | ||||||||
| Proceeds from sale of common stock in Clyra Medical | ||||||||
| Proceeds from Clyra Medical note payable | ||||||||
| Proceeds from sale of BETI common stock | ||||||||
| Net cash provided by financing activities | ||||||||
| Net effect of foreign currency translation | ( | ) | ( | ) | ||||
| Net change in cash | ||||||||
| Cash and cash equivalent at beginning of year | ||||||||
| Cash and cash equivalent at end of year | $ | $ | ||||||
| Supplemental disclosures of cash flow information | ||||||||
| Cash paid during the year for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Short-term lease payments not included in lease liability | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Clyra preferred series A dividend | $ | $ | ||||||
| BioLargo debt obligations exchanged for BETI noncontrolling interest | $ | $ | ||||||
| Fair value of common stock issued to Lincoln Park as finance fee | $ | $ | ||||||
| Present value of new operating right of use and lease liability | $ | $ | ||||||
| Allocation of stock option expense within noncontrolling interest | $ | $ | ||||||
See accompanying notes to consolidated financial statements and report of Independent Registered Public Accounting Firm
Note 1. Business and Organization
Description of Business
BioLargo, Inc. (“BioLargo”, or the “Company”) invents, develops, and commercializes innovative platform technologies to solve challenging environmental problems like PFAS contamination (per- and polyfluoroalkyl substances), advanced water and wastewater treatment, industrial odor control, air quality control, infection control, and myriad environmental remediation challenges. Our business strategy is straightforward: we invent or acquire technologies that we believe have the potential to be disruptive in large commercial markets; we develop and validate these technologies to advance and promote their commercial success as we leverage our considerable scientific, engineering, and entrepreneurial talent; we then monetize these technical assets through a variety of business structures that may include licensure, joint venture, sale, spin off, or by deploying direct to market strategies.
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. During the year ended December 31, 2023, we generated revenues of $
We intend to reinvest available cash into business operations and intend to continue to seek further investment capital for the remainder of this year. We have been, and anticipate that we will continue to be, limited in terms of our capital resources.
If we are unable to rely on our current arrangement with Lincoln Park to fund our working capital requirements, we will have to rely on other forms of financing, and there is no assurance that we will be able to do so, or if we do so, it will be on favorable terms.
The foregoing factors raise substantial doubt about our ability to continue as a going concern, unless we are able to continue to raise funds through stock sales to Lincoln Park or other private financings, and in the long term, our ability to attain a reasonable threshold of operating efficiencies and achieve profitable operations by licensing or otherwise commercializing products incorporating our technologies. The consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
Organization
We are a Delaware corporation formed in 1991. We have
Note 2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, and partially-owned subsidiaries. All intercompany accounts and transactions have been eliminated.
Foreign Currency
The Company has designated the functional currency of BioLargo Canada to be the Canadian dollar. Therefore, translation gains and losses resulting from differences in exchange rates are recorded in accumulated other comprehensive loss.
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.
As of December 31, 2023 and 2022, our cash balances were made up of the following (in thousands):
|
|
| |||||||
| December 31, 2023 | December 31, 2022 | |||||||
| BioLargo, Inc. and subsidiaries | $ | $ | ||||||
| Clyra Medical Technologies, Inc. | ||||||||
| Total | $ | $ | ||||||
Accounts Receivable
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, which sets out the principles for the recognition of measurement of credit losses on financial instruments, including trade receivables. The standard eliminates the probable initial recognition threshold and requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. The new standard was effective for the Company beginning January 1, 2023 and primarily impacted accounts receivable.
Accounts receivable are customer obligations that are unconditional. Accounts receivable are presented net of an allowance for doubtful accounts for expected credit losses, which represents an estimate of amounts that may not be collectible. The Company performs ongoing credit evaluations of its customers and, if necessary, provides an allowance for expected credit losses. A credit less expenses for expected credit losses is recorded based on factors including the length of time the receivables are past due, the current business environment, and the Company’s historical experience. Expected credit losses are recorded to general and administrative expenses. The Company writes off accounts receivable against the allowance when it determines a balance is uncollectible and no longer actively pursues collection of the receivable. The Company does not have any off-balance-sheet credit exposure related to customers. As of December 31, 2023, and December 31, 2022, the allowance for expected credit losses was $
Credit Concentration
We have a limited number of customers that account for significant portions of our revenue. During the year ended December 31, 2023, there was customer that accounted for more than
| December 31, 2023 | December 31, 2022 | |||||||
| Customer A | % | % | ||||||
| Customer B | % | % | ||||||
We had customer that accounted for more than
| December 31, 2023 | December 31, 2022 | |||||||
| Customer A | % | % | ||||||
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, 2023 and 2022 was $
| December 31, 2023 | December 31, 2022 | |||||||
| Raw material | $ | $ | ||||||
| Finished goods | ||||||||
| Total | $ | $ | ||||||
Other Non-Current Assets
Other non-current assets consisted of (i) security deposits related to our business offices, (ii) three patents acquired on October 22, 2021, for $
| December 31, 2023 | December 31, 2022 | |||||||
| Patents | $ | $ | ||||||
| Security deposits | ||||||||
| Tax credit receivable | — | |||||||
| Total | $ | $ | ||||||
Equity Method of Accounting
On March 20, 2020, we invested $
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 years ended December 31, 2023 and 2022, the joint venture incurred a loss and our
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 year ended December 31, 2023, management determined that there was complete impairment of Clyra’s prepaid marketing asset (see Note 10). Impairment expense related to Clyra's prepaid marketing asset for the years ended December 31, 2023 and 2022 is $
Loss Per Share
We report basic and diluted loss per share (“LPS”) for common and common share equivalents. Basic LPS is computed by dividing reported earnings by the weighted average shares outstanding. Diluted LPS is computed by adding to the weighted average shares the dilutive effect if convertible notes payable, stock options and warrants were exercised into common stock. For the years ended December 31, 2023 and 2022, the denominator in the diluted LPS computation is the same as the denominator for basic LPS due to the Company’s net loss which creates an anti-dilutive effect of the convertible notes payable, warrants and stock options.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") 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 consolidated financial statements, and revenues and expenses during the year reported. Actual results could differ from those estimates. Estimates are used when accounting for stock-based transactions, debt transactions, derivative liabilities, allowance for bad debt, asset depreciation and amortization, impairment expense, among others.
The methods, estimates and judgments we use in applying these most critical accounting policies have a significant impact on the results of our consolidated 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 years ended December 31, 2023 and 2022:
| 2023 | 2022 | |||||||||||||||
| Non Plan | 2018 Plan | Non Plan | 2018 Plan | |||||||||||||
| Risk free interest rate | % | % | % | % | ||||||||||||
| Expected volatility | % | % | % | % | ||||||||||||
| Expected dividend yield | ||||||||||||||||
| Forfeiture rate | ||||||||||||||||
| Life in years | ||||||||||||||||
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.
Warrants
Warrants issued with our convertible and non-convertible debt instruments are accounted for under the fair value and relative fair value method.
The warrant is first analyzed per its terms as to whether it has derivative features or not. If the warrant is determined to be a derivative and not qualify for equity treatment, then it is measured at fair value using the Black Scholes option model, and recorded as a liability on the consolidated balance sheets. The warrant is re-measured at its then current fair value at each subsequent reporting date (it is “marked-to-market”).
If the warrant is determined to not have derivative features, it is recorded into equity at its fair value using the Black Scholes option model, however, limited to a relative fair value based upon the percentage of its fair value to the total fair value including the fair value of the convertible note.
Convertible debt instruments are recorded at fair value, limited to a relative fair value based upon the percentage of its fair value to the total fair value including the fair value of the warrant.
The warrant relative fair values are also recorded as a discount to the convertible promissory notes. As present, these equity features of the convertible promissory notes have recorded a discount to the convertible notes that is substantially equal to the proceeds received.
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.
The Company’s products are sold through a contract with the customer and a written purchase order, in which the details of the contract are defined including the transaction price and method of shipment. The only performance obligation is to create and ship the product, and each product has separate pricing. Revenue is recognized at a point in time when the goods are shipped if the agreement is FOB manufacturer, and when goods are delivered if FOB destination. Revenue is recognized with a reduction for sales discounts, as appropriate and negotiated in the customer’s purchase order.
Service contracts are performed through a written contract, which specifies the performance obligations and the rate at which the services will be billed, typically by time and materials. Each service is separately negotiated and priced. Revenue is recognized as services are performed and completed, or, for services related to product installations, at the completion of the installation. A few contracts have called for milestone or fixed cost payments, where we invoice an agreed-to amount per month for the life of the contract. In these instances, completed work, billed hourly, is recognized as revenue. If the billing amount is greater or lesser than the completed work, a receivable or payable is created. These accounts are adjusted upon additional billings as the work is completed. To date, there have been no discounts or other financing terms for the contracts.
The Company has outstanding contract liability obligations of $
As we generate revenues from royalties or license fees from our intellectual property, a licensee will pay a license fee in one or more installments and ongoing royalties based on their sales of products incorporating or using our licensed intellectual property. We have entered into a licensing agreement for the CupriDyne Clean product, and we recognize royalty and license fees on a quarterly basis as the product is sold through to third parties and reported to us.
Government Grants
We have been awarded multiple research grants from the private and public Canadian research programs. Income we receive directly from grants is recorded as other income. We have been awarded over 80 grants since our first in 2015. Some of the funds from these grants are given directly to third parties (such as the University of Alberta or a third-party research scientist) to support research on our technology. The grants have terms generally ranging between and 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.
Income Taxes
The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of asset and liabilities. Deferred tax assets and liabilities are determined based on the differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The effect on deferred tax asset and liabilities of a change in tax rates is recognized in operations in the year that includes the enactment date.
We account for uncertainties in income tax law under a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns as prescribed by GAAP. Under GAAP, the tax effects of a position are recognized only if it is “more-likely-than-not” to be sustained by the taxing authority as of the reporting date. If the tax position is not considered “more-likely-than-not” to be sustained, then no benefits of the position are recognized. Management believes there are
The Company assessed its earnings history, trends and estimates of future earnings and determined that the deferred tax asset could not be realized as of December 31, 2023. Accordingly, a valuation allowance was recorded against the net deferred tax asset.
The Company recognizes interest and penalties on income taxes as a component of income tax expense, should such an expense be realized.
Fair Value of Financial Instruments
Management believes the carrying amounts of the Company’s financial instruments as of December 31, 2023 and 2022 approximate their respective fair values because of the short-term nature of these instruments. Such instruments consist of cash, accounts receivable, accounts payable, line of credit, and other assets and liabilities. The carrying amount of debt instruments are believed to approximate fair value as the stated interest rates are reflective of the prevailing market rates.
Tax Credits
Our research and development activities in Canada may entitle our Canadian subsidiary to claim benefits under the “Scientific Research and Experimental Development Program”, a Canadian federal tax incentive program designed to encourage Canadian businesses of all sizes and in all sectors to conduct research and development in Canada. Benefits under the program include credits to taxable income. If our Canadian subsidiary does not have taxable income in a reporting period, we will not receive tax refund from the Canadian Revenue Authority.
Leases
At inception of a lease contract, we assess whether the contract is, or contains, a lease. Our assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether we obtain the right to substantially all the economic benefit from the use of the asset throughout the period of the contract, and (3) whether we have the right to direct the use of the asset during such time period. At inception of a lease, we allocate the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments. Leases are classified as either finance leases or operating leases. A lease must be classified as a finance lease if any of the following criteria are met: the lease transfers ownership of the asset by the end of the lease term, the lease contains an option to purchase the asset that is reasonably certain to be exercised, the lease term is for a major part of the remaining useful life of the asset or the present value of the lease payments equals or exceeds substantially all of the fair value of the asset. A lease is classified as an operating lease if it does not meet any of these criteria. We have no leases classified as finance leases. For all leases at the lease commencement date, a right-of-use asset and a lease liability are recognized. The right-of-use asset represents the right to use the leased asset for the lease term. The lease liability represents the present value of the lease payments under the lease. The right-of-use asset is initially measured at cost, which primarily comprises the initial amount of the lease liability, plus any initial direct costs incurred, consisting mainly of brokerage commissions, less any lease incentives received. All right-of-use assets are reviewed for impairment. The lease liability is initially measured at the present value of the lease payments, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, management estimates the incremental borrowing rate, which currently is estimated to be
Equipment
Equipment and leasehold improvements is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range from
Noncontrolling Interest
A noncontrolling interest is defined as the portion of the equity in an entity not attributable, directly or indirectly, to the primary beneficiary. Noncontrolling interests are required to be presented as a separate component of equity on a consolidated balance sheets. Accordingly, the presentation of net income (loss) is modified to present the income (loss) attributed to controlling and non-controlling interests. The noncontrolling interest on the Company’s consolidated balance sheets represents equity not held by the Company. In accordance with ASC 810-10-20, “Noncontrolling Interests” BioLargo consolidates three non-wholly owned subsidiaries - Clyra, BLEST and BETI. Noncontrolling interest of Clyra represents
Recent Accounting Pronouncements
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures. The main provisions are:
| 1. | Require that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker (CODM) and included within each reported measure of segment profit or loss (collectively referred to as the “significant expense principle”). |
| 2. | Require that a public entity disclose, on an annual and interim basis, an amount for other segment items by reportable segment and a description of its composition. The other segment items category is the difference between segment revenue less the segment expenses disclosed under the significant expense principle and each reported measure of segment profit or loss. |
| 3. | Require that a public entity provide all annual disclosures about a reportable segment’s profit or loss and assets currently required by Topic 280 in interim periods. |
| 4. | Clarify that if the CODM uses more than one measure of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources, a public entity may report one or more of those additional measures of segment profit |
| 5. | Require that a public entity disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. |
| 6. | Require that a public entity that has a single reportable segment provide all the disclosures required by the amendments in this Update and all existing segment disclosures in Topic 280. |
This Update is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Management has evaluated the update and has adopted it for the year ended December 31, 2023 and future reporting periods. This adoption had no significant impact on our consolidated financial statements. Management has made the additional disclosures in our segment note (see Note 12), required by this ASU.
Note 3. Sale of Stock for Cash
Lincoln Park Financing
On December 13, 2022, we entered into a stock purchase agreement (the “2022 LPC Purchase Agreement”) with Lincoln Park, pursuant to which Lincoln Park agreed to purchase from us at our request up to an aggregate of $
During the years ended December 31, 2023 and 2022, we sold
Unit Offerings
During the year ended December 31, 2023, and 2022 we sold
Note 4. Debt Obligations
The following table summarizes our debt obligations outstanding as of December 31, 2023 and 2022 (in thousands). The table does not include debt obligations of our partially owned subsidiary Clyra Medical (see Note 10, “Debt Obligations of Clyra Medical”).
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Current portion of debt: | ||||||||
| SBA Paycheck Protection Program loan | $ | $ | ||||||
| Vehicle loan, current portion | ||||||||
| Convertible note payable, matures March 1, 2023 | ||||||||
| SBA EIDL Loan, matures July 2053, current portion | ||||||||
| Debt discount, net of amortization | ( | ) | ||||||
| Total current portion of debt | $ | $ | ||||||
| Long-term debt: | ||||||||
| SBA Paycheck Protection Program loans, matures May 2025 | $ | $ | ||||||
| Vehicle loan, matures March 2029 | ||||||||
| SBA EIDL Loan, matures July 2053 | ||||||||
| Total long-term debt, net of current | $ | $ | ||||||
| Total | $ | $ | ||||||
For the years ended December 31, 2023 and 2022, we recorded $
Convertible note payable, matures March 1, 2023
On March 6, 2023, we entered into an agreement with the holder of a $
SBA Program Loans
On February 7, 2022, we received notice that the SBA had forgiven $
On May 12, 2022, we received notice that the SBA had denied the forgiveness application of BLEST’s $
In July 2020, ONM Environmental received an Economic Injury Disaster Loan from the SBA in the amount of $
Note 5. Share-Based Compensation
Issuance of Common Stock in exchange for Services
During the years ended December 31, 2023, and 2022, we issued
Payment of Officer Salaries
During the year ended December 31, 2023, certain of our officers agreed to convert an aggregate $
During the year ended December 31, 2022, certain of our officers agreed to convert an aggregate $
Payment of Consultant Fees
During 2023, certain of our consultants agreed to convert an aggregate $
During 2022, certain of our consultants agreed to convert an aggregate $
All of these offerings and sales were made in reliance on the exemption from registration contained in Section 4(2) of the Securities Exchange Act and/or Regulation D promulgated thereunder as not involving a public offering of securities.
Stock Option Expense
During the years ended December 31, 2023 and 2022, we recorded an aggregate $
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 issued under this plan for a period of
Activity for our stock options under the 2018 Plan during the year ended December 31, 2023, and the year ended December 31, 2022, is as follows:
| Weighted | Weighted | ||||||||||
| average | average | Aggregate | |||||||||
| Options | exercise price per | remaining | intrinsic | ||||||||
| outstanding | share | Term | value(1) | ||||||||
| Balance, December 31, 2021 | $ | ||||||||||
| Granted | $ | ||||||||||
| Exercised | ( | ) | $ | ||||||||
| Expired | ( | ) | $ | ||||||||
| Balance, December 31, 2022 | $ | ||||||||||
| Granted | $ | ||||||||||
| Balance, December 31, 2023 | $ | ||||||||||
| Non-vested | ( | ) | $ | ||||||||
| Vested, December 31, 2023 | $ | | $ | ||||||||
(1) – Aggregate intrinsic value based on closing common stock price of $
The options granted to purchase
As of December 31, 2023, there remains $
The options granted to purchase
Chief Financial Officer Contract Extension
On March 21, 2023, we and our Chief Financial Officer Charles K. Dargan, II formally agreed to extend the engagement agreement dated February 1, 2008 (the “Engagement Agreement”, which had been previously extended multiple times), pursuant to which Mr. Dargan has been and continues to serve as the Company’s Chief Financial Officer. The Engagement Extension Agreement dated as of March 21, 2023 (the “Engagement Extension Agreement”) provides for an additional -year term to expire January 31, 2024 (the “Extended Term”), after which Mr. Dargan will continue to serve as CFO, unless and until either party terminates the agreement. As the sole compensation for the Extended Term, Mr. Dargan was issued an option (“Option”) to purchase
On March 22, 2022, we and our Chief Financial Officer Charles K. Dargan, II formally agreed to extend the engagement agreement dated February 1, 2008 (the “Engagement Agreement”, which had been previously extended multiple times), pursuant to which Mr. Dargan has been and continues to serve as the Company’s Chief Financial Officer. The Engagement Extension Agreement dated as of March 22, 2022 (the “Engagement Extension Agreement”) provides for an additional -year term through January 31, 2023 (the “Extended Term”). As the sole compensation for the Extended Term, Mr. Dargan was issued an option (“Option”) to purchase
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
Activity for our stock options under the 2007 Plan for the years ended December 31, 2023 and 2022 is as follows:
| Weighted | Weighted | ||||||||||
| average | average | Aggregate | |||||||||
| Options | exercise price | remaining | intrinsic | ||||||||
| outstanding | per share | term | value(1) | ||||||||
| Balance, December 31, 2021 | $ | ||||||||||
| Expired | ( | ) | |||||||||
| Balance, December 31, 2022 | $ | ||||||||||
| Expired | ( | ) | |||||||||
| Balance, December 31, 2023 | $ | $ | — | ||||||||
(1) – Aggregate intrinsic value based on closing common stock price of $
Non-Plan Options issued
Activity of our non-plan stock options issued for the years ended December 31, 2023 and 2022 is as follows:
| Weighted | Weighted | ||||||||||
| Non-plan | average | average | Aggregate | ||||||||
| options | exercise price | remaining | intrinsic | ||||||||
| outstanding | per share | term | value(1) | ||||||||
| Balance, December 31, 2021 | $ | ||||||||||
| Granted | $ | ||||||||||
| Expired | ( | ) | $ | ||||||||
| Balance, December 31, 2022 | $ | ||||||||||
| Granted | $ | ||||||||||
| Expired | ( | ) | $ | ||||||||
| Balance, December 31, 2023 | $ | ||||||||||
| Unvested | ( | ) | $ | ||||||||
| Vested and outstanding, December 31, 2023 | $ | $ | |||||||||
(1) – Aggregate intrinsic value based on closing common stock price of $
During the year ended December 31, 2023, we issued options to purchase an aggregate
During the year ended December 31, 2022, we issued options to purchase an aggregate
Note 6. Warrants
We have certain warrants outstanding to purchase our common stock, at various prices, as described in the following table:
| Weighted | Weighted | |||||||||||
| average | average | Aggregate | ||||||||||
| Warrants | price per | remaining | intrinsic | |||||||||
| outstanding | share | term | value(1) | |||||||||
| Balance, December 31, 2021 | $ | |||||||||||
| Granted | $ | |||||||||||
| Expired | ( | ) | $ | |||||||||
| Balance, December 31, 2022 | $ | |||||||||||
| Granted | $ | |||||||||||
| Expired | ( | ) | $ | |||||||||
| Balance, December 31, 2023 | $ | $ | ||||||||||
(1) – Aggregate intrinsic value based on closing common stock price of $
Warrants issued in Unit Offerings
During the year ended December 31, 2023, pursuant to our Unit Offerings (see Note 3), we issued -month stock purchase warrants to purchase an aggregate
During the year ended December 31, 2022, pursuant to our Unit Offering (see Note 3), we issued -month stock purchase warrants to purchase an aggregate
Warrant issued in conjunction with amendment to note payable
On March 6, 2023, we entered into an agreement with the holder of a $
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:
| 2023 | 2022 | |||||||
| Risk free interest rate | % | % | ||||||
| Expected volatility | % | % | ||||||
| Expected dividend yield | — | — | ||||||
| Forfeiture rate | — | — | ||||||
| Expected life in years | .5 – 5 | 3 | ||||||
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
As of December 31, 2023, accounts payable and accrued expenses included the following (in thousands):
| Intercompany | ||||||||||||||||||||||||||
| Category | BioLargo | ONM | BLEST | Canada | BETI | amounts | Totals | |||||||||||||||||||
| Accounts payable | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Accrued payroll | ||||||||||||||||||||||||||
| Accrued interest | ||||||||||||||||||||||||||
| Total | $ | |||||||||||||||||||||||||
As of December 31, 2022, accounts payable and accrued expenses included the following (in thousands):
| Intercompany | ||||||||||||||||||||||||
| Category | BioLargo | ONM | BLEST | Canada | amounts | Totals | ||||||||||||||||||
| Accounts payable | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||
| Accrued payroll | ||||||||||||||||||||||||
| Accrued interest | ||||||||||||||||||||||||
| Total | $ | |||||||||||||||||||||||
See Note 10, “Accounts Payable and Accrued Expenses”, for the accounts payable and accrued expenses of Clyra Medical.
Note 8. Provision for Income Taxes
Given our historical losses from operations, income tax obligations have been limited to the minimum franchise tax assessed by the State of California. Since 2016, we have not consolidated for tax purposes with our subsidiary Clyra Medical, as our ownership interest was less than 80%. Our subsidiary BLEST is a Tennessee limited liability company and as a pass-through entity does not pay federal taxes. However, the state of Tennessee charges franchise and excise taxes for limited liability companies, and thus BLEST will incur a nominal franchise tax and will not pay an excise tax unless and until it is profitable. The Company’s losses before income taxes consist primarily of losses from domestic operations, but also included relatively nominal losses from foreign operations.
A reconciliation of income tax expense (benefit) computed at the statutory federal tax rates to income taxes as reflected in the financial statements is as follows:
| 2023 | 2022 | ||||||
| Rate | Rate | ||||||
| Statutory U.S. federal tax rate | ( | %) | ( | %) | |||
| Permanent differences: | |||||||
| State and local income taxes, net of federal benefit | | % | | % | |||
| Stock compensation | % | % | |||||
| Other | % | % | |||||
| Valuation Allowance | | % | | % | |||
| Total | % | % | |||||
Deferred taxes are recognized for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes. The significant components of the Company’s deferred tax assets and liabilities as of December 31, 2023 and 2022 are comprised of the following:
| 2023 | 2022 | |||||
| Net operating loss carryforwards | $ | | $ | |||
| Valuation allowance | ( | ) | ( | ) | ||
| Total net deferred tax assets | $ | $ | — | |||
The Company has evaluated the positive and negative evidence bearing upon its ability to realize its deferred tax assets, which are comprised primarily of net operating loss carryforwards. Management has considered the Company’s history of cumulative net losses in the United States, estimated future taxable income and prudent and feasible tax planning strategies and has concluded that it is more likely than not that the Company will not realize the benefits of its U.S. federal and state deferred tax assets. Accordingly, a full valuation allowance has been established against these net deferred tax assets as of December 31, 2023 and 2022, respectively. The Company reevaluates the positive and negative evidence at each reporting period.
At December 31, 2023, the Company had utilizable federal net operating loss carry forwards of approximately $
The Company is subject to tax in the United States (“U.S.”) and files income tax returns in the U.S. Federal jurisdiction and several states and local jurisdictions where the Company has determined it has tax nexus. The Company is subject to U.S. Federal, state and local income tax examinations by tax authorities for periods after 2019. The Company currently is not under examination by any tax authority.
Note 9. Noncontrolling Interest – BioLargo Energy Technologies, Inc. (BETI)
BioLargo Energy Technologies, Inc. (“BETI”) was formed for the purpose of commercializing a liquid sodium battery technology. BioLargo purchased
As of December 31, 2023, BETI had
Note 10. Noncontrolling Interest – Clyra Medical
As discussed in Note 2 above, we consolidate the operations of our partially owned subsidiary Clyra Medical, of which we owned
On December 15, 2023, Clyra filed a Certificate of Conversion with the Delaware Secretary of State, formally changing its corporate domicile from California to Delaware. In association with the change, for each one share of common stock of the California corporation,
Impairment of Other Asset, Prepaid Marketing
On December 30, 2015, Clyra entered into a consulting agreement with Beach House Consulting, LLC, through which Jack B. Strommen is obligated to provide consulting services to Clyra Medical related to its sales and marketing activities, in exchange for $
During 2023, Clyra Medical's revenue did not improve, and it continues to pursue surgical wash product opportunities, Management determined as of December 31, 2023, to impair the remaining asset balance totaling $
During 2022, in light of Clyra's small revenue and its shift of focus to a surgical wash product, Management determined to impair a portion of the prepaid marketing asset by $
Debt Obligations of Clyra Medical
Promissory Note
On April 8, 2022, Clyra Medical issued a promissory note in the principal amount of $
Line of Credit
On June 30, 2020, Clyra Medical entered into a Revolving Line of Credit Agreement whereby Vernal Bay Capital Group, LLC ("Vernal") committed to provide a $
On December 13, 2022, Clyra and Vernal entered into an amendment of the Revolving Line of Credit Agreement whereby the maturity date of the line of credit was extended to September 30, 2024, and the payment terms were modified such that amounts of principal due in each month are capped at a maximum of
As of December 31, 2023, the balance outstanding on this line of credit totals $
Equity Transactions
As of December 31, 2023, Clyra had an aggregate
Sales of Common Stock
During the year ended December 31, 2023, Clyra sold
On March 2, 2022, BioLargo converted $
Sales of Series A Preferred Stock
During the year ended December 31, 2023, Clyra sold
On December 20, 2022, Clyra sold
On July 20, 2023, BioLargo converted $
Stock Options
| Weighted | Weighted | |||||||||||
| Clyra | average | average | ||||||||||
| options | exercise price | remaining | ||||||||||
| outstanding | per share | term | ||||||||||
| Balance, December 31, 2021 | $ | |||||||||||
| Granted | $ | |||||||||||
| Balance, December 31, 2022 | $ | |||||||||||
| Granted | $ | |||||||||||
| Exercised | ( | ) | $ | |||||||||
| Balance, December 31, 2023 | $ | |||||||||||
| Unvested | ( | ) | $ | |||||||||
| Balance, December 31, 2023 | $ | |||||||||||
Clyra issues options to its employees and consultants in lieu of compensation owed on a regular basis. During the years ended December 31, 2023 and 2022, Clyra issued options to purchase
Accounts Payable and Accrued Expenses
At December 31, 2023 and 2022, Clyra had the following accounts payable and accrued expenses (in thousands):
| Category | December 31, 2023 | December 31, 2022 | ||||||
| Accounts payable | $ | $ | ||||||
| Accrued payroll | ||||||||
| Accrued dividend | — | |||||||
| Accrued interest | ||||||||
| Total | $ | $ | ||||||
Note 11. 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 12 “Business Segment Information”.) BLEST was capitalized with two classes of membership units: Class A,
The BLEST Compensation Committee has met regularly since the subsidiary commenced operations. In 2018, it reviewed the operating performance and determined that the performance metrics were not met and as a result, did award any Class B units or stock options. In December 2022, the committee again reviewed the operating performance and determined that a portion of the performance metrics were met. In December 2023, the committee again reviewed the operating performance and determined that a portion of the performance metrics were met. It was agreed that an additional one-half and one-quarter of the eligible profits interests would be vested (
Note 12. Business Segment Information
For the years ended December 31, 2023 and 2022, BioLargo had 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 -- which sells odor and volatile organic control products and services, located in Westminster, California; | |
| 2. | 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; | |
| 3. | Clyra Medical Technologies (“Clyra Medical”) -- which develops and sells medical products based on our technologies; | |
| 4. | BioLargo Energy Technologies, Inc. ("BETI") - which is developing our proprietary battery technology; and | |
| 5. | BioLargo Canada (formerly named BioLargo Water) -- the main hub of our scientists researching and developing our technologies, located in Edmonton, Alberta Canada. |
Other than ONM Environmental, none of our operating business units have operated at a profit, and therefore each required additional cash to meet its monthly expenses, funded through BioLargo’s sales of debt or equity, research grants, and tax credits. Clyra Medical and BETI have been funded by third party investors who invest directly in in these entities in exchange for equity ownership in that entity.
The Chief Operating Decision Makers for the segments are: Joseph Provenzano, President of ONM, Randall Moore, President of BLEST, Steven Harrison, President of Clyra Medical, Dennis Calvert, President of BETI, and Richard Smith, President of BioLargo Canada.
The segment information for the years December 31, 2023 and 2022, is as follows (in thousands):
| 2023 | 2022 | |||||||
| Revenues | ||||||||
| BioLargo corporate | $ | $ | ||||||
| ONM Environmental | ||||||||
| BLEST | ||||||||
| Clyra Medical | ||||||||
| BioLargo Canada | ||||||||
| Intersegment revenue | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
| Research and development | ||||||||
| BioLargo corporate | $ | ( | ) | $ | ( | ) | ||
| ONM Environmental | ( | ) | ||||||
| BLEST | ( | ) | ( | ) | ||||
| Clyra Medical | ( | ) | ( | ) | ||||
| BETI | ( | ) | ||||||
| BioLargo Canada | ( | ) | ( | ) | ||||
| Intersegment research and development | ||||||||
| Total | $ | ( | ) | $ | ( | ) | ||
| Depreciation expense | ||||||||
| BioLargo corporate | $ | $ | ||||||
| ONM Environmental | ||||||||
| BLEST | ||||||||
| Clyra Medical | ||||||||
| Total | $ | $ | ||||||
| Stock option expense | $ | $ | ||||||
| BioLargo corporate | ||||||||
| Clyra Medical | $ | $ | ||||||
| Total | ||||||||
| Operating income (loss) | ||||||||
| BioLargo corporate | $ | ( | ) | $ | ( | ) | ||
| ONM Environmental | ||||||||
| BLEST | ( | ) | ( | ) | ||||
| Clyra Medical | ( | ) | ( | ) | ||||
| BETI | ( | ) | ||||||
| BioLargo Canada | ( | ) | ( | ) | ||||
| Total | $ | ( | ) | $ | ( | ) | ||
| Interest expense | ||||||||
| BioLargo corporate | $ | ( | ) | $ | ( | ) | ||
| ONM Environmental | $ | ( | ) | |||||
| Clyra Medical | ( | ) | ( | ) | ||||
| Total | $ | ( | ) | $ | ( | ) | ||
| Net income (loss) | ||||||||
| BioLargo corporate | $ | ( | ) | $ | ( | ) | ||
| ONM Environmental | ||||||||
| BLEST | ( | ) | ( | ) | ||||
| Clyra Medical | ( | ) | ( | ) | ||||
| BETI | ( | ) | ||||||
| BioLargo Canada | ( | ) | ( | ) | ||||
| Consolidated net loss | $ | ( | ) | $ | ( | ) | ||
| As of December 31, 2023 | BioLargo | ONM | Clyra | BLEST | BETI | Canada | Elimination | Total | ||||||||||||||||||||||||
| Tangible assets | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||
| Right of use | ||||||||||||||||||||||||||||||||
| Investment in South Korean joint venture | ||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||
| As of December 31, 2022 | BioLargo | ONM | Clyra | BLEST | BETI | Canada | Elimination | Total | ||||||||||||||||||||||||
| Tangible assets | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||
| Right of use | ||||||||||||||||||||||||||||||||
| Investment in South Korean joint venture | ||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||
Note 13. 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. Short-term leases less than one-year are not included in our analysis. For the years ended December 31, 2023 and 2022, rental expense was $
As of December 31, 2023, our weighted average remaining lease term is years and the total remaining operating lease payments is $
| BioLargo | ||||||||||||
| Year ending | Corp / ONM | BLEST | Total | |||||||||
| December 31, 2024 | ||||||||||||
| December 31, 2025 | ||||||||||||
| December 31, 2026 | ||||||||||||
| December 31, 2027 | ||||||||||||
| December 31, 2028 | ||||||||||||
| Thereafter | ||||||||||||
| Total minimum lease payments | $ | $ | $ | |||||||||
| Less imputed interest | ) | |||||||||||
| Total operating lease liability | $ | |||||||||||
Note 14. Subsequent Events.
Management has evaluated subsequent events through the date of the filing of this Annual Report and management noted the following for disclosure.
Sales of Common Stock
From January 1, 2024, through March 29, 2024, we sold
From January 1, 2024, through March 29, 2024, we sold
Warrants
From January 1, 2024, through March 29, 2024, we issued
Clyra Medical
From January 1, 2024, through March 29, 2024, Clyra Medical sold
EXHIBIT 10.1
LICENSE AGREEMENT
(BioLargo to Clyra)
This License Agreement (the “Agreement”) is made this 1st day of March, 2024, by and between BioLargo, Inc., a Delaware corporation and its wholly owned subsidiary BioLargo Life Technologies, Inc., a California corporation, having a principal place of business at 14921 Chestnut St., Westminster, California 92683 (collectively referred to as “Licensor”), and Clyra Medical Technologies, Inc., a Delaware corporation, having a principal place of business at 3802 Spectrum Blvd, Suite 115, Tampa, FL 33612 (“Licensee”). Each of BioLargo and Clyra is a “Party” and are collectively referred to herein as the “Parties.”
RECITALS
WHEREAS, Licensor has developed a proprietary iodine technology protected under certain patents, trade secrets and know-how that include, disclose and claim significant and commercially viable inventions which Licensee desires to make, use, sell and sublicense in the medical field;
WHEREAS, Licensor and Licensee previously entered into a License Agreement effective as of December 17, 2012 (“Prior License Agreement”) which by its terms along with all its subsequent amendments has expired and is no longer of any force or effect; and
WHEREAS, the Parties desire to enter into this new Agreement to set forth their rights and obligations under an arrangement whereby Licensor licenses to Licensee its technology in certain limited fields of use related to the medical and medical products industry, including in-hospital and outpatient surgery, wound and burn care, and dental procedures and oral care.
NOW, THEREFORE, the Parties agree as follows:
|
1. |
Definitions. |
|
a. |
“Bankruptcy Act” means Title 11 of the United States Code, as now or hereafter in effect or any successor statute. |
|
b. |
“Change of Control” means with respect to Licensee, that: (a) any third party acquires directly or indirectly the beneficial ownership of any voting security of Licensee, or if the percentage ownership of such third party in the voting securities of Licensee is increased through stock redemption, cancellation, or other recapitalization, and immediately after such acquisition or increase such third party is, directly or indirectly, the beneficial owner of voting securities representing more than fifty (50%) of the total voting power of all of the then outstanding voting securities of Licensee; (b) a merger, consolidation, recapitalization, or reorganization of Licensee is consummated which results in shareholders or equity holders of Licensee immediately prior to such transaction, no longer owning at least fifty (50%) of the outstanding voting securities of the surviving entity (or its parent entity) immediately following such transaction; or (c) there is a sale or transfer to a third party of all or substantially all of Licensee’s consolidated assets taken as a whole, through one or more related transactions. |
|
c. |
“Confidential Information” means all proprietary confidential information, including Trade Secrets and Know-How, that is generated by or on behalf of a Party under this Agreement, or that one Party has provided or otherwise made available to the other Party, whether made available orally, in writing, or in electronic form, including (a) such information or Know-How comprising or relating to concepts, discoveries, inventions, data, designs or formulae arising from this Agreement, (b) any unpublished patent applications disclosed hereunder, and (c) royalty reports and any confidential information about Licensee’s business or products in development. All Licensed Know-How, and the existence and terms of this Agreement, are deemed to be the Confidential Information of both Parties. |
|
d. |
“Divested Business” means, with respect to a Partial Change of Control, the (i) one or more well-defined division(s) or business line(s) of Licensee relating to copper-iodine technology in the Field of Use or the operation of which, but for the license granted pursuant to this Agreement, would infringe or misappropriate the Patent Rights or Licensed Know-How and/or (ii) one or more Licensed Product(s), in either case related to and for use in a specific market segment within the Field of Use (such as, by way of example and without limitation, Licensee’s orthopedic, surgical, and/or wound care products business lines) that were sold, assigned, transferred, or licensed as part of the Partial Change of Control. |
|
e. |
“Effective Date” means the date first written above. |
|
f. |
“Field of Use” means the following defined fields of any and all direct application in human medical uses, including both prescription-based and over the counter products: |
|
i. |
The commercial field of articles, compositions, and methods for medical treatment to treat a condition comprising damage to a human patient, the condition including substantive traumatic or non-traumatic condition, without necessarily breach of the derma. Such medical treatment may include extended application of an article of manufacture (wraps, bandages, band aids and appliqués) over the epidermis, or wipes or direct application of medication such as liquid, ointment, gel, spray, cream or paste, including any chemistry used on or in a patient during surgery. As non-limiting examples of traumatic damage are cuts, scrapes, punctures, incisions and other intentional or accidental penetration damage through the epidermis. As non-limiting examples of non-traumatic conditions or treatment, prophylaxis or prevention of sores, topical infections, insect bites, sub-epidermal infections, boils, and lesions (in the absence of a previous wound at the site). This includes surgical damage to tissues and organs during surgical or other medical procedures as well as from accidental damage to tissues and organs. Surgical and medical procedures, and traumatic events, also include care of the mouth, gums, eyes, optical system and all other organs and tissues; and |
|
ii. |
the commercial field of oral, dental, and periodontis products and processes including mouthwash and rinse; and |
|
iii. |
the commercial field of the prevention and/or treatment of dermatological diseases or conditions by application of compositions onto humans excluding over-the-counter products. Such prevention or treatment does not include treatment of apparel, bedding, furniture, inanimate surfaces, animals (other than humans), or other applications not to humans, or, with respect to humans, prevention or treatment of odorous conditions; and |
|
iv. |
“Field of Use” does not include the commercial field of products or processes intended for use on inanimate surfaces (e.g., disinfection of a hospital floor or other a hard surface) or other devices usable in a medical setting (e.g., disinfection of a metal instrument used to treat a patient). |
|
g. |
“Know-How” means any and all information, methods, trade secrets, discoveries, ideas, data, databases, data analytic tools, results, instructions, processes, techniques, formulas, algorithms, inventions, models (including but not limited to computational models and predictive models), computer hardware and/or software (including but not limited to source code), and expert knowledge. Know-How also includes Trade Secrets as defined by the California Uniform Trade Secrets Act. |
|
h. |
“License” means collectively the Know-How License and the Patent License. |
|
i. |
“Licensed Know-How” means all Know-How which is necessary to exploit the Patent Rights, to the extent not disclosed explicitly in invention disclosures, issued patents, patent applications, publications, or other publicly available documents at time of use by Licensee, that is owned or controlled by Licensor, disclosed by Licensor to Licensee to foster commercialization of the Patent Rights or products utilizing a copper-iodine complex, which Licensor makes reasonable efforts to maintain as confidential and which derives independent economic value from its confidential nature. |
|
j. |
“Licensed Know-How Product” means (i) any article, kit, equipment, system, apparatus, composition, or unit within the Field of Use that incorporates as the primary component a copper-iodine complex which is not covered by a valid claim of Patent Rights but which incorporates Licensed Know-How and (ii) any composition, method, process, modality, procedure, practice, or course of action within the Field of Use not covered by a valid and enforceable claim of Patent Rights but which incorporates Licensed Know-How. |
|
k. |
“Licensed Patent Product” means (i) any composition, article, kit, equipment, system, apparatus, or unit within the Field of Use covered by a valid claim of Patent Rights and (ii) any composition, method, process, modality, procedure, practice, or course of action within the Field of Use covered by a valid claim of Patent Rights. |
|
l. |
“Licensed Product” means a Licensed Know-How Product or Licensed Patent Product. |
|
m. |
“Net Sales Revenue” of a Licensed Product means gross sales revenue less any taxes, returns, allowances, quantity discounts, freight, and insurance when the same are actually paid or allowed for said Licensed Product. If any Licensed Product(s) is(are) sold together with one or more other products or services that are not the Licensed Product(s) (each, an “Other Product”), all at a single price (such group of Licensed Product(s) and Other Product(s) is hereinafter referred to as “Combination Product”), then, for purposes of calculating Net Sales Revenue, the gross invoice price for such Combination Product (and any relevant Net Sales Revenue deductions) shall be allocated among the Licensed Product(s) and the Other Product(s) in the Combination Product based on the market price for such products when sold separately. If any such Licensed Product(s) and Other Product(s) are not being sold separately, Licensee and Licensor shall agree upon a fair market percentage allocation for the Licensed Product(s), which mutually agreed allocation shall be used to calculate Net Sales Revenue therefor. |
|
n. |
"Partial Change of Control” means the sale, assignment, transfer and/or license to a third party of (i) one or more well-defined division(s) or business line(s) of Licensee relating to copper-iodine technology in the Field of Use or the operation of which, but for the license granted pursuant to this Agreement, would infringe or misappropriate the Patent Rights or Licensed Know-How and/or (ii) one or more Licensed Product(s), in either case related to and for use in a specific market segment within the Field of Use (such as, by way of example and without limitation, Licensee’s orthopedic, surgical, and/or wound care products business lines). |
|
o. |
“Patent Rights” means: |
The patents having following U.S. Patent Numbers (“U.S. Patents”), and corresponding patents and applications in other countries as well as the patent having the European Patent Number identified in section 1(o)(6):
|
1) |
8,021,610: Systems providing antimicrobial activity to an environment |
|
2) |
7,943,158: Absorbent systems providing antimicrobial activity |
|
3) |
7,867,510: Material having antimicrobial activity when wet |
|
4) |
6,328,929: Method of delivering disinfectant in an absorbent substrate |
|
5) |
6,146,725: Absorbent composition |
|
6) |
Euro Pat No: 2 081 605 DE FR GB |
And, such other patents or patent applications developed solely by Licensor and applicable to the Fields of Use, which will be automatically added to this Agreement as soon as such Patent Right is filed by Licensor.
|
p. |
“Sublicense Income” means any payments or other consideration that Licensee receives from a sublicensee in consideration of the grant of a sublicense of the Patent Rights or Licensed Know-How in an arrangement not comprising a Change of Control or Partial Change of Control, including without limitation upfront license fees, milestone payments, royalties and license maintenance fees, but excluding any payments to Licensee for the costs of research and development activities undertaken by Licensee which are directly related to the sublicense. |
|
2. |
Prior License Agreement. The Parties agree that the Prior License Agreement has expired and is no longer of any force or effect, and that the provisions of Section 6.a regarding IP Ownership of the Prior License Agreement and Section 6 of the Second Amendment to License Agreement entered into as of June 30, 2020 are void ab initio as if they never existed. Any patents or patent applications which would be covered by such clauses having inventors who assigned their patent rights to Licensee are, as between Licensor and Licensee, the sole and exclusive property of Licensee. Licensor represents and warrants that it has not and covenants that it will not record the Prior License Agreement or Second Amendment to License Agreement with the USPTO or any patent ownership recordation system to claim any ownership of such patents or patent applications. |
|
3. |
Grant of License. |
|
a. |
Patent License. In consideration of the license fees and royalties to be paid by Licensee hereunder, and unless otherwise terminated pursuant to Section 11 below, Licensor grants to Licensee a world-wide, exclusive, assignable (upon a Change of Control or Partial Change of Control), sublicensable, royalty bearing license (the “Patent License”) under the Patent Rights in the Field of Use, to make, have made, use, sell, offer for sale, import, and practice Licensed Patent Products. In addition, Licensee has the option to expand the Field of Use to other medical fields of use (“Option”) upon commercially reasonable terms to be negotiated at the time that Licensee indicates to Licensor its desire and intent to exercise the Option. |
|
b. |
Know-How License. Subject to the terms and conditions set forth in this Agreement, Licensor hereby grants to Licensee a world-wide, non-exclusive, assignable (upon a Change of Control or Partial Change of Control), sublicensable, royalty-bearing license to use the Licensed Know-How to develop, make, have made, use, sell, offer to sell, lease, and import Licensed Products (the “Know-How License”). In support of this license, Licensor shall use reasonable efforts to provide to Licensee any tangible manifestations of the Know-How in its possession and control (or copies thereof, as appropriate) as soon as reasonably practicable after disclosure of same to Licensee. |
|
c. |
Limitations. This grant of license rights is subject to the following limitations: |
|
i. |
the rights granted herein are granted only to the extent defined and described herein within the Field of Use and for such time period that Licensee is in compliance with the terms and conditions set forth herein; |
|
ii. |
no right or license is granted or implied to the Licensee or any person claiming through the Licensee under any patent or patent application of Licensor other than those specifically identified as the Patent Rights; |
|
iii. |
the Licensor reserves to itself all intellectual property rights that are not expressly granted by this Agreement; and |
|
iv. |
nothing herein should be construed to grant the Licensee the right to register or claim any trademark or trade name confusingly similar in sound, appearance or meaning to those claimed or registered by Licensor. |
|
d. |
Sublicensing Rights. With respect to sublicenses to third parties by Licensee to the Patent Rights and Licensed Know-How outside the scope of a Change of Control or a Partial Change of Control, subject to Licensor’s written approval, such approval to be in Licensor’s sole and absolute discretion, Licensee may enter into an agreement with a third party granting the third party any of the rights granted to Licensee pursuant to this Agreement within the Field of Use (each, a “Sublicense”). For the avoidance of doubt, Licensee shall be free to sublicense the Patent Rights and Licensed Know-How in the Field of Use in the context of a Change of Control or Partial Change of Control in its sole and absolute discretion. |
Upon payment of the Extinguishment Fee, Licensee (or its successor in interest or sublicensee) shall be free to grant Sublicenses in the Field of Use in its sole and absolute discretion and Licensor’s right to approve or reject Sublicenses in the Field of Use shall extinguish (i) entirely in the event of a Change of Control, and (ii) partially with respect to the Divested Business in the event of a Partial Change of Control.
|
e. |
Research and Development. During the Term, Licensee shall have the right to conduct research and development activities, and pursue regulatory approval, clinical trials, and all other work necessary to develop and commercialize Licensed Products and its own products. However, in the event that Licensee uses the rights granted herein to develop a product which would fall outside the scope of the Field of Use, Licensee agrees that it shall not commercialize such product without the express written permission of Licensor. The Parties agree that such written permission may require a good-faith negotiation of a royalty-bearing license or an amendment to this License. |
|
f. |
Reporting. Within three months after the end of each of Licensee’s fiscal years, Licensee shall submit to Licensor reports detailing research, development, and other activities, including a summary of expenditures on such research and development activities, conducted by Licensee concerning or in any manner related to the Patent Rights and Licensed Products hereunder during the applicable fiscal year. Licensor shall have the right, upon reasonable prior notice, to inspect and audit Licensee’s records concerning the subject matter of each such report once over every two-year period. Once commercialization of a product has occurred, no further reporting shall be required on activities related to that commercialized product. |
|
4. |
Royalty and Payments for the License. In consideration of the License granted to Licensee in Section 3, Licensee shall pay to Licensor each of the following royalties and payments: |
|
a. |
Initial License Fee. Licensee has issued Licensor 2,251,303 shares of Licensee’s common stock, paid at $3.10 per share, as the Initial License Fee. The Initial License Fee is fully earned by Licensor when made, is non-refundable and shall not be credited to royalties or any other fees due pursuant to this Agreement. |
|
b. |
Royalty. Starting from the Effective Date and continuing until the end of the Term, Licensee shall pay to Licensor an ongoing royalty at the rate of six percent (6%) of Licensee’s Net Sales Revenue (the “Royalty”), paid quarterly in arrears within thirty days after the end of each calendar quarter. Each Royalty payment shall be paid in good and immediately collectible funds. Upon payment of the Extinguishment Fee, such Royalty payments shall cease (i) entirely upon any Change of Control, and (ii) partially upon any Partial Change of Control, with respect to the Divested Business only. |
|
c. |
Sublicensing Fees. Licensee shall have the right to grant sublicenses of its rights under this Agreement to third parties during the term of this Agreement in the Field of Use or any subcategory of the Field of Use, subject to Licensee’s payment to Licensor of Sublicense Fees pursuant to and on terms consistent with this Agreement when such sublicense is not part of a Change of Control or Partial Change of Control, and subject to Licensor’s written consent. Licensee shall pay Licensor fifty percent (50%) of all Sublicense Income received by Licensee (“Sublicense Fee”). For the avoidance of doubt, the Sublicense Fee shall be the sole compensation Licensee shall be obligated to pay Licensor as consideration for the sublicense. All such Sublicensee Fee payments shall cease upon any Change of Control and the payment to Licensor of the Extinguishment Fee. Upon payment of the Extinguishment Fee, Sublicense Fee payments shall cease and shall not apply to a sublicense of the Patent Rights or a transfer of this Agreement to a third-party entity in connection with any Partial Change of Control, but only with respect to the Divested Business. Unless this Agreement terminates and a sublicense granted by Licensee converts to a direct license from Licensor as provided in Section 12.d, no sublicensee shall be obligated to make any direct payments to Licensor arising from a valid sublicense to such sublicensee granted by Licensee. |
|
d. |
Royalty Extinguishment Payment. Upon the assignment of this Agreement to a third party upon a Change of Control or Partial Change of Control of Licensee, Licensor shall be compensated for the extinguishment of the Royalty and the Sublicense Fee consistent with Sections 4(b) and 4(c) of this Agreement. The compensation due from Licensee to Licensor shall be calculated as follows: |
Upon Clyra board acceptance and approval of a Change of Control or Partial Change of Control in exchange for a payment hereinafter referred to as the “Sale Price,” the following computation shall be made. The total revenues over the previous six (6) months of all Licensee’s business activities in the event of a Change of Control, or of the specific division(s) or business line(s) associated with a Partial Change of Control in that event, shall be multiplied by two (2) to arrive at an annualized Effective Revenue. The Effective Revenue shall be multiplied by six (6) percent (.06) to arrive at an Effective Royalty. The Sale Price shall then be divided by the Effective Revenue to compute a Sales Multiple. The Effective Royalty shall then be multiplied by the Sales Multiple to compute the “Extinguishment Fee” associated with that Change of Control or Partial Change of Control. The Extinguishment Fee shall be payable to Licensor out of the Sales Price, with the balance of the Sales Price then going to Clyra for its use or distribution as appropriate.
|
5. |
License Term. Subject to early termination pursuant to Section 11, this License Agreement (i) as it relates to the Patent License, will expire upon the expiration of the last to expire of the Patent Rights, and (ii) as it relates to any right herein other than the Patent License or Patent Rights, including without limitation the Know-How License, shall survive expiration of the Patent Rights and continue thereafter as a royalty bearing license subject to the rights and limitations set forth herein. The Royalty rate set forth in Section 4.a. above shall be reduced to five- and one-half percent (5.5%) upon expiration of the last to expire of the Patent Rights. |
|
6. |
Reporting. |
|
a. |
Books of Accounts. Licensee shall keep full and accurate books of account showing the amount of Patent Royalties and Sublicense Fees due pursuant to this Agreement. These books of account shall be kept at Licensee’s place of business, and shall be made available to Licensor at reasonable times for inspection by an independent certified public account retained by Licensor and shall be kept and made available to Licensor for the later of (i) the end of the Term, including any extensions thereof, or (ii) three years following the end of the calendar year to which they pertain. |
|
b. |
Royalty Report. Not later than thirty (30) days after the beginning of each calendar quarter of each year (a “Reporting Period”), Licensee shall deliver to Licensor a true and accurate report (a “Royalty Report”), giving particulars of the business conducted by Licensee during the preceding Reporting Period as are relevant to an accounting for Patent Royalties and Sublicense Fees due under this Agreement. The Royalty Report shall include at least the following: (i) the quantity of Licensed Products sold by Licensee; (ii) the revenues arising from sales of Licensed Products; (iii) the calculated Patent Royalty due to Licensor; (iv) revenues generated by any Sublicense Agreements, identifying the sublicensee, the amount, and the basis of the calculations; and (v) any other revenues received from third parties. Simultaneously with the delivery of each Royalty Report, Licensee shall pay to Licensor the applicable Patent Royalty and Sublicense Fee due, as set forth in Paragraphs 4 and 5 above. |
|
c. |
Independent Accounting Report. Not later than 60 days following the end of each fiscal year, Licensee agrees to provide Licensor, at Licensee’s sole expense, a report from an independent certified public accountant which attests to the accuracy of Licensee’s information, computations and the Patent Royalty and Sublicense Fees due for each Reporting Period during the previous fiscal year. |
|
d. |
Audit Rights. Licensor shall be entitled, no more than once annually and upon no less than five (5) days written notice to Licensee and during business hours at Licensee’s office or such other place as Licensee shall designate within the state of California, to inspect and examine those books and records of Licensee relating to the determination of Patent Royalties or Sublicense Fees set forth in any Royalty Report. The inspection of Licensee’s records shall be performed by a national public accounting firm (a “Qualified Firm”). The examination must be conducted within ten (10) days of such books and records being made available to Licensor (“Examination Period”). The Qualified Firm shall prepare a report indicating the results of the review (the “Audit Report”). If the Audit Report discloses that the amount of Royalties or Sublicense Fees reported to Licensor was incorrect, Licensee shall pay to Licensor the deficiency, unless Licensee disputes the Report within thirty (30) days after the receipt of the Report by Licensee. If Licensee disputes the Report within this thirty (30) day period, Licensee and Licensor shall agree upon another of the national independent accounting firms to review and verify the Royalties and Sublicense Fees, and provide the results thereof to Licensee and Licensor (the “Reconciliation Audit”) and the determination as set forth in the Reconciliation Audit shall be binding upon Licensee and Licensor. All costs and expenses of the auditor generating the Report shall be paid by Licensor unless the audit shows that Licensee understated Royalties or Sublicense Fees in the Royalty Report by more than five percent (5%), in which case Licensee shall pay the cost and expenses of such audit. Notwithstanding the foregoing, in the event the Reconciliation Audit is performed, Licensee and Licensor shall each pay on-half (1/2) of the cost of the Reconciliation Audit. The exercise by Licensor of its audit rights hereunder shall not relieve Licensee of its obligations to pay prior to the request for and inspection and examination of Licensee’s books and records or permit Licensor the right to audit any other sums with the exception of the amounts set forth in this Royalty Report. If Licensor does not elect to exercise its rights to audit during the Audit Period, and/or does not elect to examine the books and records during the Examination Period, then Licensee’s Royalty Report shall conclusively be deemed to be correct, and Licensor shall be bound by Licensee's determination. Additionally, Licensor agrees and acknowledges that the audit right as set forth herein and the review of books and records shall be confidential and, apart from Licensor’s auditors, Licensor may not disclose or discuss the audit or the results of the audit to any other parties. |
|
7. |
IP Maintenance and Enforcement. |
|
a. |
Maintenance. As between the Parties, Licensor will retain the first right and responsibility to prosecute and maintain the Patent Rights in the Field of Use. Licensor shall keep Licensee reasonably informed as to the status of the Patent Rights and shall consult with Licensee in a timely manner concerning (i) the scope and content of patent applications within the Patent Rights prior to filing such patent applications, and (ii) the content of and proposed responses to official actions of the United States Patent and Trademark Office and foreign patent offices during prosecution of such patent applications. In the event Licensor decides to abandon any patent within the licensed Patent Rights, Licensee shall have the right to undertake prosecution and maintenance of such licensed Patent Rights at its expense. Upon Licensee’s request, Licensor shall file patent applications within the Patent Rights in any jurisdiction(s) requested by Licensee, provided that Licensee shall reimburse Licensor for the reasonable, documented, out-of-pocket expenses incurred by Licensor for such additional patent filings. Except as expressly provided herein, Licensor shall bear all the costs incurred in connection with the filing, prosecution, and maintenance of all Patent Rights. |
|
b. |
Enforcement. In the event that either Party reasonably believes that any licensed Patent Right is being infringed by a third party or is subject to a declaratory judgment action arising from such infringement, in each case within the Field of Use, such Party shall promptly notify the other Party. In such event, Licensee shall have the initial right (but not the obligation) to enforce such Patent Rights with respect to such infringement in the Field of Use, or to defend any declaratory judgment action with respect thereto (an “Enforcement Action”) with respect to any patent claims of the licensed Patent Rights that apply primarily to the Field of Use, at Licensee’s expense. In the event that Licensee fails to initiate an Enforcement Action to enforce such Licensed Patent against an infringement in the Field of Use within ninety (90) days of a request by Licensor to do so, Licensor may initiate an Enforcement Action against such infringement at its own expense. The Party initiating or defending any such Enforcement Action (the “Enforcing Party”) shall keep the other Party reasonably informed of the progress of any such Enforcement Action, and such other Party shall have the right to participate with counsel of its own choice at its own expense. In any event, the other Party shall reasonably cooperate with the Enforcing Party, including providing information and materials, at the Enforcing Party’s request and expense. Licensee shall not enter into any consent judgment or other voluntary final disposition of any Infringement Action within the Field of Use without the prior written consent of Licensor, which consent shall not be unreasonably conditioned, withheld or delayed. Any recovery received as a result of any Enforcement Action to enforce Patent Rights shall be used first to reimburse the Parties for the costs and expenses (including attorneys’ and professional fees) incurred in connection with such Enforcement Action (and not previously reimbursed), and the remainder of the recovery shall be shared seventy-five percent (75%) to the Enforcing Party and twenty-five percent (25%) to the other Party. Neither Party shall enter into any settlement of any claim described in this Section 8 that adversely affects the other Party’s rights or interests without such other Party’s written consent, which consent shall not be unreasonably conditioned, withheld or delayed. Licensee shall have the unrestricted right at its sole option to enforce or to defend any declaratory judgement with respect to any patent claims for all independent patents which Licensee developed and prosecuted, and shall have the unrestricted right to assign or license such enforcement rights. |
|
8. |
Marking of Patent Rights. All Licensed Patent Products, including those produced pursuant to the rights granted in any sublicense agreement, shall include appropriate patent marking, including reference to specific Licensed Patents covering the Licensed Patent Products applicable in the territory of sale of the Licensed Patent Products. Licensee shall impose the patent marking obligations of this Section 9 on all sublicensees. |
|
9. |
Insurance Requirements. Licensee shall maintain, at Licensee’s expense, during the period that any Licensed Product is made, used, sold or otherwise made available to others pursuant to this Agreement, comprehensive liability insurance, including product liability insurance, with a reputable and financially secure insurance carrier(s) to cover the activities of Licensee and its sublicensees, if any, contemplated by this Agreement, for minimum limits of five million dollars ($5,000,000.00) per occurrence. Such insurance shall name Licensor as an additional insured. Licensee shall furnish a Certificate of Insurance, upon request, evidencing coverage of five million dollars ($5,000,000.00) with thirty (30) days of written notice of cancellation or material change to Licensor. Licensee’s insurance shall be written to cover claims incurred, discovered, manifested, or made during the term, or after the expiration, of this Agreement. Licensee shall at all times comply, through insurance or self-insurance, with all statutory workers’ compensation and employers’ liability requirements covering any and all employees with respect to activities performed under this Agreement. All such liability insurance policies shall be written as primary policies not contributing with and not in excess of coverage which Licensor may carry. |
|
10. |
Events of Default and Termination. |
|
a. |
This Agreement shall terminate automatically in the event that Licensee files a petition, or has a petition filed against it, under any laws relating to insolvency, including, without limitation, any filing under any provision of the Bankruptcy Act; or enters into any voluntary arrangement for the benefit of its creditors; or appoints, or has appointed on its behalf, a receiver, liquidator or trustee of its property or assets. |
|
b. |
The following shall be considered an “Event of Default”: |
|
i. |
Licensee’s uncured failure to timely pay to Licensor during a particular Reporting Period an amount equal to at least the sum of the undisputed Royalty and Sublicensing Fees due for such Reporting Period; |
|
ii. |
Licensor’s grant of a license to the Patent Rights to a third party in the Field of Use during the Term; and |
|
iii. |
Licensor’s failure to pay any necessary fees for the continuation of the Patent Rights; and |
|
iv. |
Any breach or default by either Party in the performance or observance of any of its obligations under this Agreement. |
Upon an Event of Default, the non-breaching Party may, at its sole option, terminate this Agreement by giving 30 days’ notice (the “Grace Period”) to the breaching Party. The termination shall become effective at the end of the Grace Period, unless before the completion of the Grace Period the breaching Party shall cure the breach or default in full; provided, however, that if a breaching Party has breached this Agreement three times within any 24-month period, the non-breaching Party may terminate this Agreement immediately without providing any Grace Period to the breaching Party.
|
11. |
Obligations and Rights Upon Termination. |
|
a. |
Upon termination of this Agreement by Licensor due to an Event of Default by Licensee, Licensee shall: |
|
i. |
promptly return to Licensor all technical writings, business writings, materials, samples, data, drafts, proposals, sales information, business information and all other materials transferred and created during the term of this Agreement that specifically and directly pertain to the Licensed Know-How, retaining a confidential copy of this Agreement, and cause one or more of its officers to execute a certification, under penalty of perjury, that all such items have been returned; and |
|
ii. |
immediately stop all business, sales, marketing, publication, public disclosure, research and development on Licensed Products; and |
|
iii. |
immediately terminate or assign to Licensor all of Licensee’s right, title, and interest in, to or under any agreements pursuant to which a third party is given rights relating to Patent Rights, including without limitation Sublicense Agreements. |
|
b. |
Upon termination of this Agreement by Licensee due to an Event of Default by Licensor, the Patent License shall survive and become a perpetual, exclusive and fully-paid-up license, and the Know-How License shall survive and become a perpetual, non-exclusive and fully-paid-up license. |
|
c. |
Upon termination of this Agreement, Licensor shall have no obligation to refund any payment or fee made to it or received by it under any provision of this Agreement, regardless of purpose. |
|
d. |
Upon any termination of this Agreement, any sublicenses granted by Licensee in compliance with the terms of this Agreement prior to the notice of termination, to the extent applicable to the Patent Rights, shall continue in full force and effect as direct licenses from Licensor and any obligations sublicensee would have to Licensee under such sublicenses to the extent related to the sublicense of the Patent Rights shall become direct obligations to Licensor. |
|
12. |
Representations and Warranties of Licensor. Licensor represents and warrants to Licensee as follows: |
|
a. |
Licensor is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and has all requisite power and authority to own, lease and operate its property and to carry on its business as now being conducted. |
|
b. |
Licensor has full power and authority to enter into, execute and deliver this Agreement and perform its obligations hereunder. This Agreement has been duly authorized by all necessary corporate action of Licensor. This Agreement has been duly executed and delivered by Licensor and, assuming this Agreement is duly executed and delivered by Licensee, constitutes a valid and legally binding obligation of Licensor enforceable against Licensor in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and other similar laws relating to or affecting creditors’ rights generally, or the availability of equitable remedies. |
|
c. |
The execution and delivery by Licensor of this Agreement do not, and compliance by Licensor with the provisions of this Agreement will not, conflict with or result in a breach or default under any of the terms, conditions, or provisions of any contract to which Licensor is a party or otherwise bound. |
|
d. |
EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, LICENSOR, ITS DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS, AGENTS, CONSULTANTS AND AFFILIATES MAKE NO REPRESENTATIONS AND EXTEND NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND VALIDITY OF THE CLAIMS OF ANY PATENTS ON THE TECHNOLOGY ISSUED OR PENDING, OR FREEDOM OF A PRODUCT THAT EMBODIES TECHNOLOGY FROM INFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE. IN NO EVENT SHALL LICENSOR, ITS TRUSTEES, DIRECTORS, OFFICERS, EMPLOYEES, AND AFFILIATES BE LIABLE FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND, INCLUDING BUT NOT LIMITED TO ECONOMIC DAMAGE OR INJURY TO PROPERTY AND LOST PROFITS, WHETHER LICENSOR SHALL BE ADVISED, SHALL HAVE OTHER REASON TO KNOW, OR IN FACT SHALL KNOW OF THE POSSIBILITY OF THE FOREGOING. LICENSOR REPRESENTS AND WARRANTS IN RESPECT TO THE PATENT RIGHTS HAT IT HAS LEGAL RIGHT TO EXTEND THE RIGHTS TO LICENSEE, AND THAT IT HAS NOT MADE AND WILL NOT MAKE ANY COMMITMENTS TO OTHERS INCONSISTENT WITH OR IN DEROGATION OF SUCH RIGHTS. |
|
13. |
Representations and Warranties of Licensee. Licensee represents and warrants to Licensor as follows: |
|
a. |
Licensee is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and has all requisite power and authority to own, lease and operate its property and to carry on its business as now being conducted. |
|
b. |
Licensee has full power and authority to enter into, execute and deliver this Agreement and perform its obligations hereunder. This Agreement has been duly authorized by all necessary corporate action of Licensee. This Agreement has been duly executed and delivered by Licensee and, assuming this Agreement is duly executed and delivered by Licensor, constitutes a valid and legally binding obligation of Licensee enforceable against Licensee in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and other similar laws relating to or affecting creditors’ rights generally, or the availability of equitable remedies. |
|
c. |
The execution and delivery by Licensee of this Agreement do not, and compliance by Licensee with the provisions of this Agreement will not, conflict with or result in a breach or default under any of the terms, conditions, or provisions of any contract to which Licensee is a party or otherwise bound. |
|
14. |
Confidentiality. |
|
a. |
Duty of Confidence. During the Term and for seven (7) years thereafter (or in the case of trade secrets, until such time as the trade secret passes into the public domain, provided such trade secrets are identified as trade secrets at the time of disclosure by the disclosing Party), all Confidential Information disclosed by one Party to the other Party hereunder shall be maintained in confidence by the receiving Party and shall not be disclosed to any third party or used for any purpose, except as set forth herein, without the prior written consent of the disclosing Party. The receiving Party may use Confidential Information of the other Party only for purposes of exercising its rights and fulfilling its obligations under this Agreement and may disclose Confidential Information of the other Party to employees, agents, contractors, consultants and advisers of the receiving Party and its licensees and Sublicensees only to the extent reasonably necessary for such purposes; provided that such persons and entities are bound by written obligations of confidentiality and non-use of the Confidential Information consistent with the confidentiality provisions of this Agreement as they apply to the receiving Party. |
|
b. |
Exceptions. The obligations under this Section 14 shall not apply to any information to the extent the receiving Party can demonstrate by competent evidence that such information: |
|
i. |
is (at the time of disclosure) or becomes (after the time of disclosure) known to the public or part of the public domain through no breach of this Agreement by the receiving Party; |
|
ii. |
was known to, or was otherwise in the possession of, the receiving Party without obligation of confidentiality prior to the time of disclosure by the disclosing Party, as evidenced by its contemporaneous written records; |
|
iii. |
is disclosed to the receiving Party on a non-confidential basis by a third party that is entitled to disclose it without breaching any confidentiality obligation to the disclosing Party or any third party; or |
|
iv. |
is independently developed by or on behalf of the receiving Party, as evidenced by its contemporaneous written records, without use of or reference to the Confidential Information disclosed by the disclosing Party under this Agreement. |
|
c. |
Authorized Disclosures. Subject to this Section 15(c), the receiving Party may disclose Confidential Information belonging to the other Party to the extent permitted as follows: |
|
i. |
such disclosure is deemed necessary to the receiving Party to be disclosed to such Party’s attorneys, independent accountants or financial advisors for the sole purpose of enabling such attorneys, independent accountants or financial advisors to provide advice or services to the receiving Party in connection with this Agreement, on the condition that such attorneys, independent accountants and financial advisors are bound by confidentiality and non-use obligations consistent with the confidentiality provisions of this Agreement as they apply to the receiving Party; |
|
ii. |
disclosure by Licensee or its Sublicensees (a) to obtain or maintain approval to conduct clinical trials for a Licensed Product, or (b) to obtain and maintain regulatory approval or to otherwise research, develop, manufacture, commercialize and exploit Licensed Products; provided that such disclosure shall be limited to the Confidential Information reasonably necessary to be disclosed for the foregoing purposes and subject to Licensee or its Sublicensees seeking confidential protection for Confidential Information disclosed pursuant to this Section 15(c)(ii); or |
|
iii. |
disclosure required in connection with any judicial or administrative process relating to or arising from this Agreement (including any enforcement hereof) or to comply with applicable court orders, governmental regulations or applicable law (including the rules of any recognized stock exchange or quotation system), in each case subject to Section 15(d) or Section 15(e), as applicable; or |
|
iv. |
disclosure to potential or actual investors, collaborators, licensors, merger partners or acquirers in connection with due diligence or similar investigations by such third parties or, in the case of Licensee’s actual Sublicensees, the practice of such sublicense; provided, in each case, that (i) any such potential or actual disclosee agrees to be bound by written obligations of confidentiality and non-use consistent with those contained in this Agreement as they apply to the receiving Party; (ii) Confidential Information disclosed is limited to only information for which disclosure is reasonably necessary to accomplish the permitted purpose; and (iii) receiving Party shall remain liable to the disclosing Party for such disclosee’s use or disclosure of such Confidential Information in any manner inconsistent with the provisions of this Section 14. |
|
d. |
Required Disclosures. If the receiving Party is required by judicial or administrative process or applicable law (including the rules of any recognized stock exchange or quotation system) to disclose Confidential Information that is subject to the non-disclosure provisions of this Section, such Party shall promptly inform the other Party of the disclosure that is being sought in order to provide the other Party an opportunity to challenge or limit the disclosure obligations. Confidential Information that is disclosed as permitted by this Section 15(d) shall remain otherwise subject to the confidentiality and non-use provisions of this Section 14, and the Party disclosing Confidential Information as permitted by this Section 14(d) shall take all steps reasonably necessary, including obtaining an order of confidentiality and otherwise cooperating with the other Party, to ensure the continued confidential treatment of such Confidential Information. |
|
e. |
Securities Filings. If a Party is required by applicable laws (e.g., securities laws, rules and regulations), to disclose the existence, or the terms, of this Agreement or material developments hereunder, such Party shall promptly inform the other Party of the disclosure that is being sought and provide for a period of at least ten (10) Business Days, or if the period provided by such applicable law is less than ten (10) Business Days, maximum reasonable period allowable thereunder, in order to provide the other Party an opportunity to review and comment on the disclosure. The Party disclosing such information required by applicable law shall take all steps reasonably necessary, to ensure the continued confidential treatment of such information provided that each Party shall have the right to make any such disclosure that such Party determines is necessary under such applicable laws. The Party making such disclosure shall consider in good faith any timely comments to such disclosure provided by the other Party. |
|
15. |
Indemnification. |
|
a. |
Licensee Indemnification. Licensee shall indemnify, save and hold harmless Licensor and each of its officers, directors, employees, agents and affiliates, and each of their successors and assigns (collectively, the “Licensor Indemnified Parties”) from and against any and all costs, losses, claims, liabilities, fines, penalties, consequential damages (other than lost profits) whatsoever, including but not limited to death or injury to person or damage to property, and expenses (including interest which may be imposed in connection therewith, court costs and actual attorneys’ and expert witness fees and disbursements of counsel) (collectively, “Damages”) incurred in connection with, arising directly or indirectly out of, resulting from or incident to (i) Licensee’s exercise of any of its rights or conduct of any activities granted hereunder, (ii) the commercial sale and/or use, clinical or otherwise, of Patent Rights, Licensed Products by Licensee, its sublicensees, or any customers of any of them in any manner whatsoever; (iii) the performance, non-performance, or harmful effects of the sale, manufacture, or use of the Licensed Products, including without limitation product liability claims; or (iv) third party patent infringement claims stemming from Licensee’s use of any Patent Rights or Licensed Products. |
|
b. |
Licensor Indemnification. Licensor shall defend, indemnify and hold Licensee harmless from and against any damages, claims, lawsuits, causes of action, liabilities, costs, obligations and expenses (including reasonable attorneys’ fees and court costs) arising solely out of any claim or allegation (whether or not proven) by any third party that the Patent Rights and Licensed Know-How licensed to Licensee pursuant to this Agreement infringes upon or violates a valid intellectual property right or represents a misappropriation of a trade secret of a third party. |
|
c. |
Claims. If a claim for Damages (a “Claim”) is to be made by a Party entitled to indemnification hereunder (an “Indemnified Party”) against the indemnifying Party (the “Indemnifying Party”), the Indemnified Party shall give written notice (a “Claim Notice”) to the Indemnifying Party, which notice shall specify whether the Claim arises as a result of a claim by a person against the Indemnified Party (a “Third-Party Claim”) or whether the Claim does not so arise (a “Direct Claim”), and shall also specify (to the extent that the information is available) the factual basis for the Claim and the amount of the Damages, if known. If the Claim is a Third-Party Claim, the Indemnified Party shall provide the Claim Notice as soon as practicable after such Party becomes aware of any fact, condition or event which may give rise to Damages for which indemnification may be sought under this Section 16. If any lawsuit or enforcement action is filed against any Indemnified Party, written notice thereof shall be given to the Indemnifying Party as promptly as practicable (and in any event within 15 calendar days after the service of the citation or summons). The failure of any Indemnified Party to give timely notice hereunder shall not affect rights to indemnification hereunder, except to the extent that the Indemnifying Party has been damaged by such failure. |
|
16. |
General Provisions. |
|
a. |
Notices. All Notices, requests, and other communications that a Party is required or elects to deliver shall be in writing and shall be delivered personally, or by email, or by a recognized overnight courier service, to the other Party at its address set forth below or to such other address as such Party may designate by notice given pursuant to this Section: |
If to Licensor: BioLargo, Inc.
14921 Chestnut St., Westminster, CA 92683
Attn: Dennis P. Calvert
Email: dennis.calvert@biolargo.com
If to Licensee: Clyra Medical Technologies, Inc.
3802 Spectrum Blvd, Suite 115, Tampa, FL 33612
Attn: Steven V. Harrison, President
Email: steveh@clyramedical.com
All such notices, requests and other communications will: (i) if delivered personally to the address as provided in this Section 17.a, be deemed given upon delivery; (ii) if delivered by email to the email address as provided for in this Section 17.a, be deemed given upon email read receipt; and (iii) if delivered by messenger or courier to the address as provided in this Section 17.a, be deemed given on the earlier of the first business day following the date sent by such messenger or courier upon receipt (in each case regardless of whether such notice, request or other communication is received by any other Person to whom a copy of such notice is to be delivered pursuant to this Section 17.a. A Party from time to time may change its address, email address or other information for the purpose of notices to that Party by giving notice specifying such change to the other Parties hereto.
|
b. |
Publicity. Neither Party shall issue any public announcement regarding this Agreement, or which contains the name of the other Party, without giving prior reasonable notice to the other Party, and receiving written approval thereon; provided, however, that (i) Licensor may withhold its approval in its sole and absolute discretion and (ii) written approval from Licensee shall not be required for any disclosures that are required or which counsel advises Licensor are required by applicable law, including without limitation Federal securities laws, in which instance, Licensor shall so notify Licensee as reasonably promptly as commercially possible. |
|
c. |
Entire Agreement. This Agreement contains the sole and entire agreement and understanding of the Parties with respect to the entire subject matter of this Agreement, and any and all prior discussions, negotiations, commitments and understandings, whether oral or otherwise, related to the subject matter of this Agreement are hereby merged herein. |
|
d. |
Waiver and Amendment. No provision of this Agreement may be waived unless in writing signed by all the Parties to this Agreement, and waiver of any one provision of this Agreement shall not be deemed to be a waiver of any other provision. This Agreement may be amended only by a written agreement executed by all the Parties to this Agreement. |
|
e. |
Governing Law. This Agreement has been made and entered into in the State of Delaware and shall be construed in accordance with the laws of the State of Delaware without giving effect to the principles of conflicts of law thereof. |
|
f. |
Severability. Whenever possible each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be or become prohibited or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement. |
|
g. |
Captions. The various captions of this Agreement are for reference only and shall not be considered or referred to in resolving questions of interpretation of this Agreement. |
|
h. |
Costs and Attorney’s Fees. If any action, suit, arbitration, or other proceeding is instituted to remedy, prevent, or obtain relief from a default in the performance by any Party to this Agreement of its obligations under this Agreement, the prevailing Party shall recover all of such Party’s attorneys’ fees incurred in each and every such action, suit, arbitration or other proceeding, including any and all appeals or petitions therefrom. As used in this Section 17.h, attorneys’ fees shall be deemed to mean the full and actual costs of any legal services actually performed in connection with the matters involved calculated on the basis of the usual fee charged by the attorney performing such services and shall not be limited to “reasonable attorneys’ fees” as defined in any statute or rule of court. |
|
i. |
Rights Cumulative. No right granted to the Parties under this Agreement on default or breach is intended to be in full or complete satisfaction of any damages arising out of such default or breach, and each and every right under this Agreement, or under any other document or instrument delivered hereunder, or allowed by law or equity, shall be cumulative and may be exercised from time to time. |
|
j. |
Judicial Interpretation. Should any provision of this Agreement require judicial interpretation, it is agreed that a court interpreting or construing the same shall not apply a presumption that the terms hereof shall be more strictly construed against any person by reason of the rule of construction that a document is to be construed more strictly against the person who itself or through its agent prepared the same, it being agreed that all Parties have participated in the preparation of this Agreement. |
|
k. |
Force Majeure. If any Party to this Agreement is delayed in the performance of any of its obligations under this Agreement or is prevented from performing any such obligations due to causes or events beyond its control, including, without limitation, acts of God, fire, flood, war, terrorism, earthquake, strike or other labor problem, injunction or other legal restraint, present or future law, governmental order, rule or regulation, then such delay or nonperformance shall be excused and the time for performance thereof shall be extended to include the period of such delay or nonperformance. |
|
l. |
Assignment and Transfers. Except as otherwise expressly provided herein, Licensee may not assign or delegate either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of Licensor, provided, however, that Licensee may assign this Agreement without such consent of Licensor upon a Change of Control or a Partial Change of Control of Licensee. Subject to the foregoing, this Agreement shall be binding upon and shall inure to the benefit of the Parties hereto and their respective successors and permitted assigns. |
|
m. |
Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Party, it being understood that all Parties need not sign the same counterpart. Counterparts may be delivered via facsimile, electronic mail, electronic signatures, or other transmission methods, and so delivered shall be deemed have been duly and validly delivered and be valid and effective for all purposes. |
IN WITNESS WHEREOF, the Parties have executed this License Agreement (BioLargo to Clyra) as of the date first set forth above.
Licensor
BioLargo, Inc.
/s/Dennis P. Calvert
By:___________________________
Name: Dennis P. Calvert
Title: President
Date: March 1, 2024
BioLargo Life Technologies, Inc.
/s/Dennis P. Calvert
By:___________________________
Name: Dennis P. Calvert
Title: President
Date: March 1, 2024
Licensee
Clyra Medical Technologies, Inc.
/s/Steven V. Harrison
By:___________________________
Name: Steven V. Harrison
Title: President
Date: March 1, 2024
EXHIBIT 10.2
LICENSE AGREEMENT
(Clyra to BioLargo)
This License Agreement (the “Agreement”) is made this 1st day of March, 2024, by and between BioLargo, Inc., a Delaware corporation and its wholly owned subsidiary BioLargo Life Technologies, Inc., a California corporation, having a principal place of business at 14921 Chestnut St., Westminster, California 92683 (collectively referred to as “Licensee”), and Clyra Medical Technologies, Inc., a Delaware corporation, having a principal place of business at 3802 Spectrum Blvd, Suite 115, Tampa, FL 33612 (“Licensor”). Each of BioLargo and Clyra is a “Party” and are collectively referred to herein as the “Parties.”
RECITALS
WHEREAS, Licensor has developed certain proprietary inventions claiming iodine and copper complexes and their uses as further described below; and
WHEREAS, the Parties desire to enter into this new Agreement to set forth their rights and obligations under an arrangement whereby Licensor licenses to Licensee its technology outside certain limited fields of use.
NOW, THEREFORE, the Parties agree as follows:
|
1. |
Definitions. |
|
a. |
“Bankruptcy Act” means Title 11 of the United States Code, as now or hereafter in effect or any successor statute. |
|
b. |
“Confidential Information” means all proprietary confidential information that is generated by or on behalf of a Party under this Agreement, or that one Party has provided or otherwise made available to the other Party, whether made available orally, in writing, or in electronic form, including (a) such information comprising or relating to concepts, discoveries, inventions, data, designs or formulae arising from this Agreement, (b) any unpublished patent applications disclosed hereunder, and (c) royalty reports and any confidential information about Licensee’s business or products in development. |
|
c. |
“Effective Date” means the date first written above. |
|
d. |
“Field of Use” means any and all uses of the licensed Patent Rights, other than the Excluded Fields of Use. |
|
e. |
“Excluded Fields of Use” means the following defined fields of any and all direct application in human medical uses, including both prescription-based and over the counter products: |
|
i. |
The commercial field of articles, compositions, and methods for medical treatment to treat a condition comprising damage to a human patient, the condition including substantive traumatic or non-traumatic condition, without necessarily breach of the derma. Such medical treatment may include extended application of an article of manufacture (wraps, bandages, band aids and appliqués) over the epidermis, or wipes or direct application of medication such as liquid, ointment, gel, spray, cream or paste, including any chemistry used on or in a patient during surgery. As non-limiting examples of traumatic damage are cuts, scrapes, punctures, incisions and other intentional or accidental penetration damage through the epidermis. As non-limiting examples of non-traumatic conditions or treatment, prophylaxis or prevention of sores, topical infections, insect bites, sub-epidermal infections, boils, and lesions (in the absence of a previous wound at the site). This includes surgical damage to tissues and organs during surgical or other medical procedures as well as from accidental damage to tissues and organs. Surgical and medical procedures, and traumatic events, also include care of the mouth, gums, eyes, optical system and all other organs and tissues; and |
|
ii. |
the commercial field of oral, dental, and periodontis products and processes including mouthwash and rinse; and |
|
iii. |
the commercial field of the prevention and/or treatment of dermatological diseases or conditions by application of compositions onto humans excluding over-the-counter products. Such prevention or treatment does not include treatment of apparel, bedding, furniture, inanimate surfaces, animals (other than humans), or other applications not to humans, or, with respect to humans, prevention or treatment of odorous conditions. |
|
f. |
“Licensed Product” means (i) any article, kit, equipment, system, apparatus, or unit within the Field of Use covered by a valid claim of Patent Rights and (ii) any method, process, modality, procedure, practice, or course of action within the Field of Use covered by a valid claim of Patent Rights. |
|
g. |
“Patent Rights” means: |
The following patents and patent applications as well as any divisions, substitutions, continuations, and reissues, re-examinations and extensions thereof, and foreign counterparts thereto.
|
Country |
Title |
Application Number |
Application Date |
Patent Number |
Grant Date |
Status |
Inventors |
|
US - (United States of America) |
DISINFECTANTS WITH IODINE AND COPPER COMPLEXES FOR USE AGAINST CORONAVIRUS |
16/874,525 |
5/14/2020 |
11,457,632 |
10/4/2022 |
Issued |
Douglas J. MORGAN; Steve HARRISON; Tanya RHODES |
|
US - (United States of America) |
DISINFECTANTS WITH IODINE AND COPPER COMPLEXES FOR USE AGAINST CORONAVIRUS |
17/819,439 |
8/12/2022 |
11,744,249 |
9/5/2023 |
Issued |
Douglas J. MORGAN; Steve HARRISON; Tanya RHODES |
|
US - (United States of America) |
DISINFECTANTS WITH IODINE AND COPPER COMPLEXES (as amended) |
18/053,224 |
11/7/2022 |
Published |
Douglas J. MORGAN; Steve HARRISON; Tanya RHODES |
||
|
US - (United States of America) |
DISINFECTANTS WITH IODINE AND COPPER COMPLEXES FOR BIOFILM ERADICATION AND PREVENTION |
18/345,895 |
6/30/2023 |
Pending |
Douglas J. MORGAN; Steve HARRISON; Tanya RHODES |
||
|
US - (United States of America) |
SYSTEMS AND METHODS FOR REDUCING CONTAMINANTS IN A PORTION OF A PATIENT |
16/714,288 |
11,103,657 |
8/31/2021 |
Issued |
Spencer Brown, Brock Liden, Tanya Rhodes, Joe Almasy, Steven V. Harrison, Douglas J. Morgan |
|
2. |
Grant of License. |
|
a. |
Patent License. Unless otherwise terminated pursuant to Section 7 below, Licensor grants to Licensee a world-wide, exclusive, non-transferrable, sublicensable, royalty-free license (the “Patent License”) under the Patent Rights in the Field of Use, to make, have made, use, sell, offer for sale, import, and practice Licensed Products. |
|
b. |
Limitations. This grant of license rights is subject to the following limitations: |
|
i. |
the rights granted herein are granted only to the extent defined and described herein within the Field of Use and for such time period that Licensee is in compliance with the terms and conditions set forth herein; |
|
ii. |
no right or license is granted or implied to the Licensee or any person claiming through the Licensee under any patent or patent application of Licensor other than those specifically identified as the Patent Rights; |
|
iii. |
the Licensor reserves to itself all intellectual property rights that are not expressly granted by this Agreement; and |
|
iv. |
nothing herein should be construed to grant the Licensee the right to register or claim any trademark or trade name confusingly similar in sound, appearance or meaning to those claimed or registered by Licensor. |
|
c. |
Research and Development. During the Term, Licensee shall have the right to conduct research and development activities, and pursue other work necessary to develop and commercialize Licensed Products. |
|
d. |
Ownership. As between the Parties, Licensor shall own and retain all right, title and interest in, to and under the Licensed Patents and any improvements made by Licensor thereto. |
|
3. |
No Royalty. Licensee shall owe no royalty or other compensation in exchange for the licenses granted hereunder. |
|
4. |
License Term. Subject to early termination pursuant to Section 7, this License Agreement will expire upon the expiration of the last to expire of the Patent Rights. |
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5. |
IP Maintenance and Enforcement. |
|
a. |
Maintenance. As between the Parties, Licensor will retain the right and responsibility to prosecute and maintain the Patent Rights in the Field of Use. Licensor shall bear all the costs incurred in connection with the filing, prosecution, and maintenance of all Patent Rights. |
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b. |
Enforcement. In the event that either Party reasonably believes that any licensed Patent Right is being infringed by a third party or is subject to a declaratory judgment action arising from such infringement, in each case within the Field of Use, such Party shall promptly notify the other Party. In such event, Licensor shall have the right (but not the obligation) to enforce such Patent Rights with respect to any infringement, or to defend any declaratory judgment action with respect thereto (an “Enforcement Action”) with respect to any patent claims of the licensed Patent Rights, at Licensor’s expense. |
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6. |
Marking of Patent Rights. All Licensed Products, including those produced pursuant to the rights granted in any sublicense agreement, shall include appropriate patent marking, including reference to specific Licensed Patents covering the Licensed Products applicable in the territory of sale of the Licensed Products. Licensee shall impose the patent marking obligations of this Section 6 on all sublicensees. |
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7. |
Events of Default and Termination. |
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a. |
This Agreement shall terminate automatically in the event that Licensee files a petition, or has a petition filed against it, under any laws relating to insolvency, including, without limitation, any filing under any provision of the Bankruptcy Act; or enters into any voluntary arrangement for the benefit of its creditors; or appoints, or has appointed on its behalf, a receiver, liquidator or trustee of its property or assets. |
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b. |
Licensee may terminate this Agreement at any time upon providing written notice to Licensor. |
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c. |
Licensor may terminate this Agreement upon thirty (30) days prior written notice should Licensee make use, sell, or offer for sale a product covered by a valid claim of the Licensed Patents and intended for use or sale outside the Field of Use and not cease making, using, selling, or offering for sale such products within thirty (30) days of Licensor’s providing to Licensee a breach notice (an “Event of Default”). |
|
8. |
Obligations and Rights Upon Termination. |
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a. |
Upon termination of this Agreement by Licensor due to an Event of Default by Licensee, Licensee shall: |
|
i. |
immediately stop all business, sales, marketing, publication, public disclosure, research and development on Licensed Products; and |
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ii. |
immediately terminate or assign to Licensor all of Licensee’s right, title, and interest in, to or under any agreements pursuant to which a third party is given rights relating to Patent Rights, including without limitation Sublicense Agreements. |
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b. |
Upon termination of this Agreement, Licensor shall have no obligation to refund any payment or fee made to it or received by it under any provision of this Agreement, regardless of purpose. |
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c. |
Upon any termination of this Agreement, any sublicenses granted by Licensee in compliance with the terms of this Agreement prior to the notice of termination, to the extent applicable to the Patent Rights and consistent with the Field of Use, shall continue in full force and effect as direct licenses from Licensor and any obligations sublicensee would have to Licensee under such sublicenses to the extent related to the sublicense of the Patent Rights, including payment obligations, shall become direct obligations to Licensor. |
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9. |
Representations and Warranties of Licensor. Licensor represents and warrants to Licensee as follows: |
|
a. |
Licensor is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and has all requisite power and authority to own, lease and operate its property and to carry on its business as now being conducted. |
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b. |
Licensor has full power and authority to enter into, execute and deliver this Agreement and perform its obligations hereunder. This Agreement has been duly authorized by all necessary corporate action of Licensor. This Agreement has been duly executed and delivered by Licensor and, assuming this Agreement is duly executed and delivered by Licensee, constitutes a valid and legally binding obligation of Licensor enforceable against Licensor in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and other similar laws relating to or affecting creditors’ rights generally, or the availability of equitable remedies. |
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c. |
The execution and delivery by Licensor of this Agreement do not, and compliance by Licensor with the provisions of this Agreement will not, conflict with or result in a breach or default under any of the terms, conditions, or provisions of any contract to which Licensor is a party or otherwise bound. |
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d. |
EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, LICENSOR, ITS DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS, AGENTS, CONSULTANTS AND AFFILIATES MAKE NO REPRESENTATIONS AND EXTEND NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND VALIDITY OF THE CLAIMS OF ANY PATENTS ON THE TECHNOLOGY ISSUED OR PENDING, OR FREEDOM OF A PRODUCT THAT EMBODIES TECHNOLOGY FROM INFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE. IN NO EVENT SHALL LICENSOR, ITS TRUSTEES, DIRECTORS, OFFICERS, EMPLOYEES, AND AFFILIATES BE LIABLE FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND, INCLUDING BUT NOT LIMITED TO ECONOMIC DAMAGE OR INJURY TO PROPERTY AND LOST PROFITS, WHETHER LICENSOR SHALL BE ADVISED, SHALL HAVE OTHER REASON TO KNOW, OR IN FACT SHALL KNOW OF THE POSSIBILITY OF THE FOREGOING. LICENSOR REPRESENTS AND WARRANTS IN RESPECT TO THE PATENT RIGHTS HAT IT HAS LEGAL RIGHT TO EXTEND THE RIGHTS TO LICENSEE, AND THAT IT HAS NOT MADE AND WILL NOT MAKE ANY COMMITMENTS TO OTHERS INCONSISTENT WITH OR IN DEROGATION OF SUCH RIGHTS. |
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10. |
Representations and Warranties of Licensee. Licensee represents and warrants to Licensor as follows: |
|
a. |
Licensee is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and has all requisite power and authority to own, lease and operate its property and to carry on its business as now being conducted. |
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b. |
Licensee has full power and authority to enter into, execute and deliver this Agreement and perform its obligations hereunder. This Agreement has been duly authorized by all necessary corporate action of Licensee. This Agreement has been duly executed and delivered by Licensee and, assuming this Agreement is duly executed and delivered by Licensor, constitutes a valid and legally binding obligation of Licensee enforceable against Licensee in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and other similar laws relating to or affecting creditors’ rights generally, or the availability of equitable remedies. |
|
c. |
The execution and delivery by Licensee of this Agreement do not, and compliance by Licensee with the provisions of this Agreement will not, conflict with or result in a breach or default under any of the terms, conditions, or provisions of any contract to which Licensee is a party or otherwise bound. |
|
11. |
Confidentiality. |
|
a. |
Duty of Confidence. During the Term and for seven (7) years thereafter (or in the case of trade secrets, until such time as the trade secret passes into the public domain, provided such trade secrets are identified as trade secrets at the time of disclosure by the disclosing Party), all Confidential Information disclosed by one Party to the other Party hereunder shall be maintained in confidence by the receiving Party and shall not be disclosed to any third party or used for any purpose, except as set forth herein, without the prior written consent of the disclosing Party. The receiving Party may use Confidential Information of the other Party only for purposes of exercising its rights and fulfilling its obligations under this Agreement and may disclose Confidential Information of the other Party to employees, agents, contractors, consultants and advisers of the receiving Party and its licensees and Sublicensees only to the extent reasonably necessary for such purposes; provided that such persons and entities are bound by written obligations of confidentiality and non-use of the Confidential Information consistent with the confidentiality provisions of this Agreement as they apply to the receiving Party. |
|
b. |
Exceptions. The obligations under this Article 11 shall not apply to any information to the extent the receiving Party can demonstrate by competent evidence that such information: |
|
i. |
is (at the time of disclosure) or becomes (after the time of disclosure) known to the public or part of the public domain through no breach of this Agreement by the receiving Party; |
|
ii. |
was known to, or was otherwise in the possession of, the receiving Party without obligation of confidentiality prior to the time of disclosure by the disclosing Party, as evidenced by its contemporaneous written records; |
|
iii. |
is disclosed to the receiving Party on a non-confidential basis by a third party that is entitled to disclose it without breaching any confidentiality obligation to the disclosing Party or any third party; or |
|
iv. |
is independently developed by or on behalf of the receiving Party, as evidenced by its contemporaneous written records, without use of or reference to the Confidential Information disclosed by the disclosing Party under this Agreement. |
|
c. |
Authorized Disclosures. Subject to this Section 11(c), the receiving Party may disclose Confidential Information belonging to the other Party to the extent permitted as follows: |
|
i. |
such disclosure is deemed necessary to the receiving Party to be disclosed to such Party’s attorneys, independent accountants or financial advisors for the sole purpose of enabling such attorneys, independent accountants or financial advisors to provide advice or services to the receiving Party in connection with this Agreement, on the condition that such attorneys, independent accountants and financial advisors are bound by confidentiality and non-use obligations consistent with the confidentiality provisions of this Agreement as they apply to the receiving Party; |
|
ii. |
disclosure by Licensee or its Sublicensees to obtain and maintain regulatory approval or to otherwise research, develop, manufacture, commercialize and exploit Licensed Products; provided that such disclosure shall be limited to the Confidential Information reasonably necessary to be disclosed for the foregoing purposes and subject to Licensee or its Sublicensees seeking confidential protection for Confidential Information disclosed pursuant to this Section 11(c)(ii); or |
|
iii. |
disclosure required in connection with any judicial or administrative process relating to or arising from this Agreement (including any enforcement hereof) or to comply with applicable court orders, governmental regulations or applicable law (including the rules of any recognized stock exchange or quotation system), in each case subject to Section 11(d) or Section 11(e), as applicable; or |
|
iv. |
disclosure to potential or actual investors, collaborators, licensors, merger partners or acquirers in connection with due diligence or similar investigations by such third parties or, in the case of Licensee’s actual Sublicensees, the practice of such sublicense; provided, in each case, that (i) any such potential or actual disclosee agrees to be bound by written obligations of confidentiality and non-use consistent with those contained in this Agreement as they apply to the receiving Party; (ii) Confidential Information disclosed is limited to only information for which disclosure is reasonably necessary to accomplish the permitted purpose; and (iii) receiving Party shall remain liable to the disclosing Party for such disclosee’s use or disclosure of such Confidential Information in any manner inconsistent with the provisions of this Article 11. |
|
d. |
Required Disclosures. If the receiving Party is required by judicial or administrative process or applicable law (including the rules of any recognized stock exchange or quotation system) to disclose Confidential Information that is subject to the non-disclosure provisions of this Article, such Party shall promptly inform the other Party of the disclosure that is being sought in order to provide the other Party an opportunity to challenge or limit the disclosure obligations. Confidential Information that is disclosed as permitted by this Section 11(d) shall remain otherwise subject to the confidentiality and non-use provisions of this Article 11, and the Party disclosing Confidential Information as permitted by this Section 11(d) shall take all steps reasonably necessary, including obtaining an order of confidentiality and otherwise cooperating with the other Party, to ensure the continued confidential treatment of such Confidential Information. |
|
e. |
Securities Filings. If a Party is required by applicable laws (e.g., securities laws, rules and regulations), to disclose the existence, or the terms, of this Agreement or material developments hereunder, such Party shall promptly inform the other Party of the disclosure that is being sought and provide for a period of at least ten (10) Business Days, or if the period provided by such applicable law is less than ten (10) Business Days, maximum reasonable period allowable thereunder, in order to provide the other Party an opportunity to review and comment on the disclosure. The Party disclosing such information required by applicable law shall take all steps reasonably necessary, to ensure the continued confidential treatment of such information provided that each Party shall have the right to make any such disclosure that such Party determines is necessary under such applicable laws. The Party making such disclosure shall consider in good faith any timely comments to such disclosure provided by the other Party. |
|
12. |
Indemnification. |
|
a. |
Licensee Indemnification. Licensee shall indemnify, save and hold harmless Licensor and each of its officers, directors, employees, agents and affiliates, and each of their successors and assigns (collectively, the “Licensor Indemnified Parties”) from and against any and all costs, losses, claims, liabilities, fines, penalties, consequential damages (other than lost profits) whatsoever, including but not limited to death or injury to person or damage to property, and expenses (including interest which may be imposed in connection therewith, court costs and actual attorneys’ and expert witness fees and disbursements of counsel) (collectively, “Damages”) incurred in connection with, arising directly or indirectly out of, resulting from or incident to (i) Licensee’s exercise of any of its rights or conduct of any activities granted hereunder, (ii) the commercial sale and/or use, clinical or otherwise, of Patent Rights, Licensed Products by Licensee, its sublicensees, or any customers of any of them in any manner whatsoever; (iii) the performance, non-performance, or harmful effects of the sale, manufacture, or use of the Licensed Products, including without limitation product liability claims; or (iv) third party patent infringement claims stemming from Licensee’s use of any Patent Rights or Licensed Products. |
|
b. |
Claims. If a claim for Damages (a “Claim”) is to be made by Licensor entitled to indemnification hereunder (the “Indemnified Party”) against the Licensee (the “Indemnifying Party”), the Indemnified Party shall give written notice (a “Claim Notice”) to the Indemnifying Party, which notice shall specify whether the Claim arises as a result of a claim by a person against the Indemnified Party (a “Third-Party Claim”) or whether the Claim does not so arise (a “Direct Claim”), and shall also specify (to the extent that the information is available) the factual basis for the Claim and the amount of the Damages, if known. If the Claim is a Third-Party Claim, the Indemnified Party shall provide the Claim Notice as soon as practicable after such Party becomes aware of any fact, condition or event which may give rise to Damages for which indemnification may be sought under this Section 12. If any lawsuit or enforcement action is filed against the Indemnified Party, written notice thereof shall be given to the Indemnifying Party as promptly as practicable (and in any event within 15 calendar days after the service of the citation or summons). The failure of the Indemnified Party to give timely notice hereunder shall not affect rights to indemnification hereunder, except to the extent that the Indemnifying Party has been damaged by such failure. |
|
13. |
General Provisions. |
|
a. |
Notices. All Notices, requests, and other communications that a Party is required or elects to deliver shall be in writing and shall be delivered personally, or by email, or by a recognized overnight courier service, to the other Party at its address set forth below or to such other address as such Party may designate by notice given pursuant to this Section: |
If to Licensee: BioLargo, Inc.
14921 Chestnut St., Westminster, CA 92683
Attn: Dennis P. Calvert
Email: dennis.calvert@biolargo.com
If to Licensor: Clyra Medical Technologies, Inc.
3802 Spectrum Blvd, Suite 115, Tampa, FL 33612
Attn: Steven V. Harrison, President
Email: steveh@clyramedical.com
All such notices, requests and other communications will: (i) if delivered personally to the address as provided in this Section 13.a, be deemed given upon delivery; (ii) if delivered by email to the email address as provided for in this Section 13.a, be deemed given upon email read receipt; and (iii) if delivered by messenger or courier to the address as provided in this Section 13.a, be deemed given on the earlier of the first business day following the date sent by such messenger or courier upon receipt (in each case regardless of whether such notice, request or other communication is received by any other Person to whom a copy of such notice is to be delivered pursuant to this Section 13.a. A Party from time to time may change its address, email address or other information for the purpose of notices to that Party by giving notice specifying such change to the other Parties hereto.
|
b. |
Publicity. Neither Party shall issue any public announcement regarding this Agreement, or which contains the name of the other Party, without giving prior reasonable notice to the other Party, and receiving written approval thereon; provided, however, that (i) Licensor may withhold its approval in its sole and absolute discretion and (ii) written approval from Licensee shall not be required for any disclosures that are required or which counsel advises Licensor are required by applicable law, including without limitation Federal securities laws, in which instance, Licensor shall so notify Licensee as reasonably promptly as commercially possible. |
|
c. |
Entire Agreement. This Agreement contains the sole and entire agreement and understanding of the Parties with respect to the entire subject matter of this Agreement, and any and all prior discussions, negotiations, commitments and understandings, whether oral or otherwise, related to the subject matter of this Agreement are hereby merged herein. |
|
d. |
Waiver and Amendment. No provision of this Agreement may be waived unless in writing signed by all the Parties to this Agreement, and waiver of any one provision of this Agreement shall not be deemed to be a waiver of any other provision. This Agreement may be amended only by a written agreement executed by all the Parties to this Agreement. |
|
e. |
Governing Law. This Agreement has been made and entered into in the State of Delaware and shall be construed in accordance with the laws of the State of Delaware without giving effect to the principles of conflicts of law thereof. |
|
f. |
Severability. Whenever possible each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be or become prohibited or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement. |
|
g. |
Captions. The various captions of this Agreement are for reference only and shall not be considered or referred to in resolving questions of interpretation of this Agreement. |
|
h. |
Costs and Attorney’s Fees. If any action, suit, arbitration, or other proceeding is instituted to remedy, prevent, or obtain relief from a default in the performance by any Party to this Agreement of its obligations under this Agreement, the prevailing Party shall recover all of such Party’s attorneys’ fees incurred in each and every such action, suit, arbitration or other proceeding, including any and all appeals or petitions therefrom. As used in this Section 13.h, attorneys’ fees shall be deemed to mean the full and actual costs of any legal services actually performed in connection with the matters involved calculated on the basis of the usual fee charged by the attorney performing such services and shall not be limited to “reasonable attorneys’ fees” as defined in any statute or rule of court. |
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i. |
Rights Cumulative. No right granted to the Parties under this Agreement on default or breach is intended to be in full or complete satisfaction of any damages arising out of such default or breach, and each and every right under this Agreement, or under any other document or instrument delivered hereunder, or allowed by law or equity, shall be cumulative and may be exercised from time to time. |
|
j. |
Judicial Interpretation. Should any provision of this Agreement require judicial interpretation, it is agreed that a court interpreting or construing the same shall not apply a presumption that the terms hereof shall be more strictly construed against any person by reason of the rule of construction that a document is to be construed more strictly against the person who itself or through its agent prepared the same, it being agreed that all Parties have participated in the preparation of this Agreement. |
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k. |
Force Majeure. If any Party to this Agreement is delayed in the performance of any of its obligations under this Agreement or is prevented from performing any such obligations due to causes or events beyond its control, including, without limitation, acts of God, fire, flood, war, terrorism, earthquake, strike or other labor problem, injunction or other legal restraint, present or future law, governmental order, rule or regulation, then such delay or nonperformance shall be excused and the time for performance thereof shall be extended to include the period of such delay or nonperformance. |
|
l. |
Assignment and Transfers. Except as otherwise expressly provided herein, Licensee may not assign or delegate either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of Licensor. Subject to the foregoing, this Agreement shall be binding upon and shall inure to the benefit of the Parties hereto and their respective successors and permitted assigns. |
|
m. |
Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Party, it being understood that all Parties need not sign the same counterpart. Counterparts may be delivered via facsimile, electronic mail, electronic signatures, or other transmission methods, and so delivered shall be deemed have been duly and validly delivered and be valid and effective for all purposes. |
IN WITNESS WHEREOF, the Parties have executed this License Agreement (Clyra to BioLargo) as of the date first set forth above.
Licensee
BioLargo, Inc.
/s/Dennis P. Calvert
By:___________________________
Name: Dennis P. Calvert
Title: President
Date: March 1, 2024
BioLargo Life Technologies, Inc.
/s/Dennis P. Calvert
By:___________________________
Name: Dennis P. Calvert
Title: President
Date: March 1, 2024
Licensor
Clyra Medical Technologies, Inc.
/s/Steven V. Harrison
By:___________________________
Name: Steven V. Harrison
Title: President
Date: March 1, 2024
86331331.v1
Exhibit 21.1
List of Subsidiaries of Registrant
BioLargo Life Technologies, Inc., a California corporation
ONM Environmental, Inc., a California corporation
BioLargo Energy Technologies, Inc., a California corporation*
BioLargo Equipment Solutions & Technologies, Inc., a California corporation
BioLargo Canada, Inc., a Canadian corporation
BioLargo Development Corp., a California corporation
BioLargo Engineering, Science & Technologies, LLC, a Tennessee limited liability company*
Clyra Medical Technologies, Inc., a Delaware corporation*
* BioLargo owns less than 100% of the ownership interests in this entity.
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements of BioLargo, Inc. on Form S-8 (File Nos. 333-225821 and 333-153193) of our report dated April 1, 2024, appearing in the Annual Report on Form 10-K of BioLargo, Inc. for the year ended December 31, 2023.
Our report dated April 1, 2024, contains an explanatory paragraph that states the Company has experienced recurring losses, negative cash flows from operations, and has limited capital resources. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ HACKER, JOHNSON & SMITH PA
Tampa, Florida
April 1, 2024
Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements of BioLargo, Inc. on Form S-8 (File Nos. 333-225821 and 333-153193) of our report dated March 31, 2023, appearing in the Annual Report on Form 10-K of BioLargo, Inc. for the year ended December 31, 2023.
Our report dated March 31, 2023, contains an explanatory paragraph that states the Company has experienced recurring losses, negative cash flows from operations, and has limited capital resources. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ HASKELL & WHITE LLP
Irvine, California
April 1, 2024
Exhibit 31.1
I, Dennis P. Calvert, certify that:
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1. |
I have reviewed this Annual Report on Form 10-K of BioLargo, Inc. (the “Registrant”); |
|
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; |
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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; |
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4. |
The Registrant's other certifying officer(s) 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: |
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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; |
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||
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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; |
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|
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||
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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; and |
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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; and |
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5. |
The Registrant's other certifying officer(s) 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): |
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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 |
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||
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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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Dated: April 1, 2024 |
/s/ DENNIS P. CALVERT |
|
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Dennis P. Calvert Chief Executive Officer |
Exhibit 31.2
I, Charles K. Dargan, II, certify that:
|
1. |
I have reviewed this Annual Report on Form 10-K of BioLargo, Inc. (the “Registrant”); |
|
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; |
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4. |
The Registrant's other certifying officer(s) 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: |
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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; |
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||
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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; |
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||
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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; and |
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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; and |
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5. |
The Registrant's other certifying officer(s) 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): |
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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 |
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||
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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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Dated: April 1, 2024 |
/s/ CHARLES K. DARGAN II |
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Charles K. Dargan, II 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, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of BioLargo, Inc. on Form 10-K for the fiscal year ended December 31, 2023 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 Annual Report on Form 10-K fairly presents in all material respects the financial condition and results of operations of BioLargo, Inc.
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Dated: April 1, 2024 |
/s/ DENNIS P. CALVERT |
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Dennis P. Calvert Chief Executive Officer |
A signed original of this written statement required by Section 906 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, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of BioLargo, Inc. on Form 10-K for the fiscal year ended December 31, 2023 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 Annual Report on Form 10-K fairly presents in all material respects the financial condition and results of operations of BioLargo, Inc.
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Dated: April 1, 2024 |
/s/ CHARLES K. DARGAN II |
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Charles K. Dargan II Chief Financial Officer |
A signed original of this written statement required by Section 906 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.