FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Year ended December 31, 2020
2023
OR
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For the Transition Period from to
Commission File Number: 000-19709
BIOLARGO, INC. |
(Exact Name of registrant as specified in its Charter) |
Delaware | 65-0159115 | |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
14921 Chestnut St., Westminster, CA | 92683 |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (888) 400-2863
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock | BLGO | 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 ☐ No ☒
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 ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 ☐ |
Non-accelerated filer ☒ | Smaller reporting company ☒ |
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant 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 ☐ No ☒
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 ☐ No ☒
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 $30,512,541.$40,905,542.
The number of shares outstanding of the issuer’s class of common equity as of March 24, 202129, 2024, was 238,776,271; no295,552,937. No preferred shares are issued or outstanding as of that date.
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 held June 15, 2021.filed within 120 days of the end of the Registrant’s fiscal year ended December 31, 2023.
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Item 1C. | Cybersecurity | 20 |
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Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
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Item 9. | Changes In and Disagreements with Accountants on Accounting and Financial Disclosure | |
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Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | |
Item 13. | Certain Relationships and Related Transactions, and Director Independence | |
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Consolidated Financial Statements for the Years Ended December 31, |
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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, 20202023 (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:
our business plan;
• | our business plan; |
the commercial viability of our technology and products incorporating our technology;
• | the commercial viability of our technology and products incorporating our technology; |
the effects of competitive factors on our technology and products incorporating our technology;
• | the effects of competitive factors on our technology and products incorporating our technology; |
expenses we will incur in operating our business;
• | expenses we will incur in operating our business; |
our liquidity and sufficiency of existing cash;
• | our liquidity and sufficiency of existing cash; |
the success of our financing plans; and
• | the success of our financing plans; and |
the outcome of pending or threatened litigation.
• | 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,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,“Company,” “our company,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 Water Investment Group,Energy Technologies, Inc. (“BETI”), formed to commercialize our proprietary battery technology; BioLargo Canada, Inc., which owns our Canadian subsidiary BioLargo Water, Inc., which developsprimary research and markets our AOS water treatment technologies;development team operating in Edmonton, Alberta Canada; BioLargo Engineering, Science & Technologies, LLC (“BLEST”), a professional engineering services division; anddivision 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. We also own approximately 45% ofemployees; and Clyra Medical Technologies, Inc. (“Clyra Medical”) as of December 31, 2020, an entity we formed to commercialize, 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.
The information contained in this Annual Report is as of December 31, 2020, unless expressly stated otherwise.
Our Business - Innovator and Solution Provider
BioLargo Inc. invents, develops, and commercializes innovative platformis in the business of creating new cleantech technologies to solve challengingtough, 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 advanced(per- and polyfluoroalkyl substances), water pollution by pharmaceuticals and wastewater treatment, industrial odormicropollutants, air pollution by VOCs, hard-to-treat odors from landfills and VOC control, air quality control,sewage plants, infection and infection control. With over thirteen yearswound healing and the creation of extensive R&D, BioLargo holdsenergy 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 widepipeline of other cleantech innovations in various stages of development associated with our expansive array of issued and pending patents, maintains a robust pipeline of products, and provides full-service environmental engineering. Our peer-reviewed scientific approach allows us to invent or acquire novel technologies and develop them to maturity through our operating subsidiaries. With a keen emphasis on collaborations with academic, municipal, and commercial organizations and associations, BioLargo has proven itself withthat have been funded in part by over 80 awarded grants and numerous pilot projects. We monetize through direct sales, recurring service contracts, licensing agreements, strategic joint venture formation and/or the sale of the IP.90 government grants.
In the last year, we developed and refined new technologies that are now ready for commercial trials (see Development of AEC to Combat PFAS Crisis, and New Technology – Mineral Extraction), formalized strategic relationships to expand sales and revenues (see South Korean Joint Venture, and Full Service Environmental Engineering), arranged for demonstration pilot projects forWe operate our AOS water treatment system (see Sunworks Farm Pilot and Municipal Wastewater Treatment Pilot – Montreal), increased revenues, including those of our flagship product, CupriDyne Clean (see Results of Operations), and began the process to register our CupriDyne technology with the EPA to make advanced sanitization and disinfection claims, all the while we and the world struggled through the challenges presented by the COVID-19 pandemic.
Several of our technologies are commercially available and are advancing as disruptersbusiness in their respective markets.
Formula for Success:Technology, Talent and Purpose
Technology
The company has continually advanced its robust portfolio of technologies since the first acquisition of early iterations of the BioLargo technology in the spring of 2007. Our innovations have primarily been developed through the company’s internal resources, and some through acquisition. These include patents, patents pending and trade secrets that include solutions for:distinct business segments:
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TalentOdor 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 have steadily grownsell privately labeled products based on our teamtechnologies to 27 team membersthird parties who market and numerous other part-time consultants,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 highly qualified PhDs, engineers, MDsWalmart, Amazon, and medical professionals, construction professionals, field service technicians, innovators,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 marketing specialists, entrepreneurial and executive leadership.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.
Purpose
Our mission to make life better centersThe success of Pooph is an example of our company on serving others with integrity, knowledge, technology, and solutions that protect the environment, improve quality of life, and protect lives. We are unique in our ability to tailor our offerings to serve our customers with proven expertise, proven technology and, if needed, we often have the abilitygoal to develop new technical solutionsdistribution channels that do not rely on our in-house sales and distribution infrastructure. We continue to meet our customer’s needs.explore potential partnerships and products along these lines with other parties, and to support existing private label products.
Development of AEC to Combat PFAS Crisis
Our engineers at BLEST have developed a novel water treatment system, called the AEC (Aqueous Electrostatic Concentrator), that removes per- and poly-fluoroalkyl substances (PFAS) from water at a fraction of the cost of existing solutions. PFAS chemicals can cause cancer, infertility, asthma, and other health problems in human beings, are present 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. Governments and industry are actively seeking less expensive technologies and processes to eliminate PFAS from groundwater and drinking water. The U.S. Environmental Protection Agency (“EPA”) has made finding an economical solution a priority, announcing in February 2021 final regulatory determinations on the safe maximum levels of PFAS in drinking water, paving the way for regulating the chemicals through the Safe Drinking Water Act and creating a regulatory environment where municipalities will be required to install technologies that help remove PFAS from their drinking water supplies prior to distribution.
Our AEC treatment system has been proven in lab-scale studies to meet or exceed the performance of current incumbent solutions (such as carbon-filtration and reverse osmosis) while consuming as little as $0.30 in electrical costs per 1,000 gallons treated. And most significantly, the AEC produces substantially less waste than carbon-filtration and reverse osmosis systems, creating far less of a disposal liability. We believe testing will show that total operating costs of the AEC represent a significant potential cost savings compared to reverse osmosis and carbon sequestration technologies.
PFAS water contamination is a significant problem worldwide. In the United States, PFAS chemicals have been estimated to be present in the blood of 98% of the population, and have been linked to a plethora of health problems including high cholesterol, liver dysfunction, immune disorders and various cancers. Over 1,400 communities so far in the U.S. have been proven to be affected by PFAS water contamination. In Orange County, California, where our corporate offices are located, more than 40 drinking water wells have been taken out of service due to PFAS contamination, and county officials estimate that treating the wells using existing technologies will cost more than $200 million in capital costs and more than $400 million in maintenance and operating costs. When PFAS-laden carbon is incinerated, not only does it produce vast volumes of greenhouse gases such as carbon dioxide, but new evidence suggests volatile fluorochemicals like carbon tetrafluoride, hexafluoroethane, and hydrogen fluoride are released into the air which may have serious human health impacts on adjacent communities. Our technology does not require incineration.
We are in the final stages of refining the AEC technology prior to commercial sales. We have received interest in the system from multiple municipal water agencies. We have completed third-party testing to validate the efficacy of the system. We have designed a modular system that can theoretically handle large projects. We are constructing a pilot unit for testing at an ongoing project at a municipal water treatment plant in Canada (see Wastewater Treatment Pilot – Montreal, below). We are hopeful to start multiple pre-commercial trials in the U.S. by the end of summer.
Broadly speaking, there are three main markets for PFAS water treatment in the U.S., each of which we intend to address in the coming years. The first is municipal water treatment – that is water which needs treatment for PFAS before it can be distributed to the public or water that must be treated from a wastewater treatment plant. Southern California, Michigan and Wisconsin may be hotbeds for this market, as the states have adopted stringent regulations on PFAS limits in drinking water and wastewater, and significant initiatives have begun to implement systems to address the problem. The second market is military bases, where the use of PFAS-containing fire-fighting foam has contaminated the soil and groundwater. These sites are numerous and have significant groundwater and soil contamination problems which regulators are likely to require remediation for in the coming years. The third market is treatment for water intake or outfalls of industrial facilities that use PFAS compounds in manufacturing and other industrial processes. Our first pilot projects are in municipal water treatment. As our engineers are already providing environmental engineering services on U.S. Airforce bases, we believe that work may lead to sales in that arena.
COVID-19 Response and Related Business Development
In response to the COVID-19 crisis, and because of our technology portfolio’s specialty focus on nature’s best disinfectant, iodine, at the outset of the pandemic we sponsored research with one of the country’s leading researchers in the study of pandemic diseases, Dr. Slobodan Paessler. Located at the Galveston National Laboratory at the University of Texas Medical Branch, his laboratory confirmed that our CupriDyne technology inactivated the Coronavirus that causes COVID-19.
Following this initial study, the laboratory of Dr. Paessler conducted a follow-up study whereby a more concentrated CupriDyne formula (See CupriDyne Plus, below) was tested against the COVID-19 virus. In this study, the CupriDyne Plus completely inactivated SARS-CoV-2 (the COVID-19 virus) in 10 minutes – roughly the same performance observed with highly concentrated bleach. As a consequence of these highly promising results, we are seeking the regulatory approvals to sell a CupriDyne based product to combat the pandemic (see EPA Registration of CupriDyne Plus, below).
ONM Environmental - Industrial Odor and VOC Solutions
In 2020, we changed the name of our odor control subsidiary Odor-No-More, Inc., to ONM Environmental, Inc., to reflect the expansion of its work from odor control sales to more robust environmental services. Its flagship product,We believe CupriDyne® Clean reduces and eliminates tough odors and volatile organic compounds (“VOCs”) in various industrial settings. CupriDyne Clean is delivered through misting systems, sprayers, water trucks and similar water delivery systems designed, manufactured and installed by ONM. We believe the product 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. In responseWe have been and expect to customer demand for expanded services,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 nowEnvironmental 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).
Our customer baseSouth 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 odorPFAS solutions, we believe we will be better able to serve this market with a uniform identity and VOC business was expanding prioroperating 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 COVID-19 crisisCenter for Disease Control, PFAS are a group of chemicals used to make fluoropolymer coatings and we expect it to continue doing so asproducts 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 United States recovers frominsulation of electrical wire. PFAS are a concern because they do not break down in the pandemic. Weenvironment, 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 expectmany 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 selling product to push the largestmarket 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 handling companies inas possible, a favorable trend for our AEC that generates very little PFAS-laden waste. Detection of unsafe levels of PFAS around the country. Very recently, some of the capital projects that ONM previously had on hold dueworld has given rise to logistical limitations imposed by the pandemic have begun to come back online, with decision-makers from these clients requesting that ONM resume work on these projects. We also have a number of potential partners actively engagedmarket 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 globecountry, 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 activelywaiting 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 discussion with a number of groups to leverage our commercial focus through distribution partnerships.bidding and specification efforts for new projects.
AROS Minimal Liquid Discharge Water Treatment
In partnership with Garratt-Callahan, one of the fourth quartercountry’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 2020, ONM Environmental acquiredproviding 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 deodorizingwide 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 sanitizinginput 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 called EcoMist®, that helps raisehas 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 customer care bar for solid waste collectorsAOS an economical and versatile tool to treat all types of waste receptacles in real time during pick up. EcoMist® is a device installed directly onto any waste collection vehicle that automatically sprays odor control products and/or sanitizer into refuse bins or dumpsters during the waste collection process. ONM plans to test market the product directly with its major solid waste handling customers by packaging it with CupriDyne Clean. A video showing EcoMist® in operation can be viewed here: https://www.biolargo.com/ecomist-video. EcoMist® is easy to installenable wastewater treatment and use – it works “out-of-the-box”, allowing customers to install the system themselves, and will thus not require a significant investment in logistics and servicing to support sales. ONM’s acquisition of EcoMist® is part of its strategy to grow revenues of its air quality control division through chemistry deployment systems that lead to more scalable sales of CupriDyne Clean. It also helps ensure ONM can provide the largest waste handling companiesreuse in the country with a broad rangeface of tools to solve their odoremerging water contaminants and VOC control challenges in all facets of their business. ONM’s only obligation under the acquisition agreement is a 10% royaltyincreasing regulatory scrutiny on EcoMist® system sales.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.
Cannabis IndustryBioLargo Energy Technologies, Inc.
In 2019,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 granted non-exclusive rightsbelieve 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:
● | 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 | |
● | 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 | |
● | 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 Mabre Systemsbe 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 our CupriDyne Clean productat a profit to the Cannabis industry underjoint venture certain proprietary battery components, and (iii) receive a private-label brand. Testing showsroyalty 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 CupriDyne Clean eliminatesamount 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 odors emitted by Cannabis growworld. At this point, we do not intend to finance and production facilities. We have been installing CupriDyne Clean delivery misting systems for Mabre’s customers, and have over 20build our own manufacturing facilities, regularly buying product from our distributor. Mabre has expressed an intent to launch a consumer odor product basednor would we develop in-house sales channels, although that possibility remains on CupriDyne Clean in the near future.table if needed.
South Korean Joint VentureClyra Medical Technologies, Inc. - Bioclynse Wound Irrigation Solution
On February 12, 2020, we executed a “Joint Venture Framework Agreement” with a leading wastewater treatment solution provider based in South Korea (BKT Co. Ltd., “BKT”), to create a South Korean entity that would manufacture odor and VOC controlClyra Medical Technologies, Inc. is our partially owned subsidiary creating medical products based on our CupriDyne Clean products. We receivedtechnologies. Its primary product is a $350,000 investmentsurgical 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 BKTa 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 issued 1,593,087 sharessurgeons 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 ourits 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, and invested $100,000 into the joint venture for a 40% ownership share. BKT and its U.S. based subsidiary invested $150,000 into the joint venture for the remaining 60% ownership share. Although the joint venture established manufacturing and is marketing the product, the COVID-19 pandemic significantly impacted the expected growth of the company. In late 2020, the joint venture (under the name Odin) established corporate offices at the Korea Water Cluster, which is a new world-renowned water innovation campus located in Daegu, South Korea, a center for industrial innovation in Asia. The move positions Odin well to interface with other innovators in the water treatment sector as well as with industry leaders who may need Odin’s products for air quality control.support these efforts.
Full Service Environmental Engineering
Our subsidiary BioLargo Engineering, Science & Technologies, LLC (“BLEST”) offers full service environmental engineering to third parties and provides engineering support services to our internal teams to accelerate the commercialization of our technologies. Its website is found at www.BioLargoEngineering.com.
BLEST focuses its efforts in three areas:
● | providing engineering services to third-party |
● | supporting internal product |
● | advancing their own technical innovations such as the |
The subsidiary is locatedBLEST operates out of an engineering facility in Oak Ridge, Tennessee (a suburb of Knoxville, Tennessee)Knoxville), and employs sevena group of scientists and engineers, who collectively worked together for almost 30 years and experience in diverse engineering fields.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. TheMany of the other team members are also former employees of CB&I and Shaw.Shaw, with the exception of more recent staff hires. The team is highly experienced across multiple industries and theywe believe are considered experts in their respective fields, includingincluding: 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 established a partnership with Garratt-Callahan, a national industrial water treatment company,engineers generate revenue through services to developthird party clients, as well as for internal BioLargo projects such as the AEC and sell custom wastewater treatment equipment to recycle waterbattery (revenues from commercial facilities. Theyinternal projects are also working with themeliminated 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 salesthis 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 other BioLargo products.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.
New Technology Share Purchase Agreement with– Mineral ExtractionLincoln Park
BLEST developedOn December 13, 2022 we entered into a proprietaryregistration rights agreement (the “Registration Rights Agreement”) and patent-pending processpurchase agreement (the “Purchase Agreement”), with Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant to extract valuable minerals from certain types of industrial waste. As a result of this invention, a client is planning a substantial long-term project expectedwhich Lincoln Park has committed to generate over $1B in revenues, while avoiding expensive soil remediation costs. As the client’s engineering services provider, and developerpurchase up to $10.0 million of the extraction technology, BLESTCompany’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 discussionsthe 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 clientSecurities and Exchange Commission (the “SEC”) pursuant to secure its role as the project manager and/or lead engineer. We believe thereRegistration 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 multiple similarly situated industrial waste sites acrosssatisfied, the country and around the world that would benefit from our newly developed process, and, as resources permit, we intend to explore these opportunities.
BioLargo Water and the Advanced Oxidation System – AOS“Commencement Date”).
BioLargo Water is our wholly owned subsidiary locatedFrom and after the Commencement Date, on campusany 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 Universitytime such written notice is delivered to Lincoln Park (each, a “Regular Purchase”), provided, however, that the maximum number of Alberta, Edmonton, Canada,shares the Company may sell to Lincoln Park in a Regular Purchase may be increased to (i) up to 125,000 shares, provided that developed and is commercializing our Advanced Oxidation System (AOS). The AOS is our patented water treatment device that generates a series of highly oxidative species of iodine and other molecules that, because of its proprietary configuration and inner constituents, allow it to eliminate pathogenic organisms and organic contaminants as water passes through the device. The key value propositionclosing sale price of the AOSCommon Stock on the applicable purchase date is its abilitynot below $0.20, (ii) up to eliminate150,000 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 wide variety of contaminants with high performance while consuming extremely low levels of input electricity and extremely low levels of chemistry inputs –notice for a trait made possibleRegular Purchase to Lincoln Park on any business day selected by the complex set of highly oxidative iodine compounds generated withinCompany, provided that at least one Business Day has elapsed since the AOS reactor. Our proof-of-concept studies and case studies have generated results that project the AOS will be more cost- and energy-efficient than commonly used advanced water treatment technologies such as UV, electro-chlorination, and ozonation. This value proposition may enable advanced water treatment in applications where it otherwise would have been prohibitively costly. Secondly, the AOS has been proven effective against certain soluble organic molecules, pharmaceuticals and a host of other micropollutants which are difficult to treat with other conventional tertiary water treatment technologies like UV. This characteristic of the AOS may offer a significant incentive for prospective customers to choose this technology over established incumbents because of the need in certain contexts to address these hard-to-treat contaminants, in addition to traditional targets of tertiary treatment like microorganisms.
Sunworks Farm Pilot
Our efforts to establish our first commercial pilotpurchase date for the AOS system, at a poultry and livestock farm in Alberta, Canada, is progressing as planned. We expect to have installed a fully functional treatment train featuring our AOS water system at the client’s farm in the second quarter of 2021. When complete, the system will be the first of its kind to allow for the complete reuse of this industrial wastewater, allowing the client to significantly save on water costs and expand production. The project budget of approximately $600,000 will be funded in part by government grants and in partmost recent prior Regular Purchase effected by the client. We expectCompany under the project to be successful, and to set a precedent for the AOS and BioLargo’s total water treatment solutions for future customers seeking water reuse, or even “zero liquid discharge” systems, and we believe will lead to follow-up projects with customers who follow Sunworks’ example.
Municipal Wastewater Treatment Pilot - Montreal
BioLargo Water is working on a second commercial-scale AOS demonstration pilot, to be installed at a municipal wastewater treatment facility near Montreal, Quebec, to be run in partnership with acclaimed water experts at the Centre des Technologies de L’Eau (CTE). BLEST engineers have already built and delivered this commercial-scale AOS unit to the site near Montreal, and the project is expected to begin collecting important data throughout the first quarter of 2021. The purpose of the project is to assess the AOS (and eventually, an AEC unit to be added on to the treatment train) as effective, cost-efficient, and complementary solutions for disinfecting and eliminating a broad range of recalcitrant contaminants from municipal wastewater in an operating wastewater treatment plant. It is our belief that once these pre-commercial pilots have concluded with the AOS, our ability to entice major water industry players to partner with BioLargo Water to accelerate market adoption of the AOS will be increased dramatically.
In late 2019, BioLargo Water commenced a Regulation Crowdfunding offering in an attempt to raise internal capital to fund its operations. In 2020, the platform on which the offering was being marketed paused its operations, and we elected to place the effort on hold until such time as the platform was more well established. We continue to monitor and reevaluate the opportunity to utilize this funding source.
Clyra Medical Technologies
Clyra Medical Technologies, Inc. is our partially owned subsidiary creating medical products based on our technology.Purchase Agreement.
WhenIn addition to Regular Purchases, provided that we have directed Lincoln Park to purchase the COVID-19 crisis began,maximum amount of shares that we immediately responded by supportingare then able to sell to Lincoln Park in a Regular Purchase, and provided that the teamclosing 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 Clyra Medical to develop a productthe time of sale as computed under the Purchase Agreement. There are no upper limits on the price per share that could help frontline workers battleLincoln Park must pay for shares of Common Stock in any purchase under the pandemic. In response, they developed Clyraguard Personal Protection Spray. Testing and peer-reviewed published data confirmed that Clyraguard inactivates the SARS CoV-2 coronavirus. The product was registered with the FDA as a Class I general purpose disinfectant, and initially sales were brisk. After consultation with legal and regulatory advisors, we decided that that products claims required an EPA registration, and sales were stopped. We are actively working on this now (see CupriDyne Plus, below).Purchase Agreement.
ClyraThe 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 preparingobligated to launchmake purchases as the Company directs, subject to certain conditions.
Actual sales of shares of Common Stock to Lincoln Park will depend on a prescription-only productvariety 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 by orthopedic surgeons to reduce infections in kneefor working capital and hip replacement surgeries.general corporate purposes.
CupriDyne PlusThe 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.
AtThere are no restrictions on future financings, rights of first refusal, participation rights, penalties or liquidated damages in the outsetPurchase 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 Covid-19 pandemic, we set out to revisit and modifyCommon Stock or hedging transaction that establishes a net short position in the CupriDyne technology withCommon Stock during the goal of creating a powerful yet comparatively safer, non-toxic, and environmentally friendly disinfectant and/or surface sanitizer. The result of this redevelopment process, which involved over 500 hours by our engineers and scientists, was “CupriDyne Plus”, a product that delivers a potent concentrationterm of the active ingredient iodine (I2) as compared to traditional CupriDyne based formulations, meaning it can achieve much faster results.Purchase Agreement.
EPA RegistrationAs consideration for Lincoln Park’s commitment to purchase shares of CupriDyne Plusthe 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.
We are actively working to obtain an EPA registration for CupriDyne Plus for a numberThe Purchase Agreement and the Registration Rights Agreement contain customary representations, warranties, conditions and indemnification obligations of different applications. CupriDyne Plusthe parties. The Company has the potentialright to offer a safer, more environmentally friendly alternativeterminate 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 bleach andterminate the Purchase Agreement; however, the Company may not initiate any regular or other common antimicrobials for applications like hard surface disinfection, sanitizationpurchase of non-porous non-food contact surfaces, disinfectionshares by Lincoln Park, until such event of air, textiles, and more. Our scientists have conducted many of the tests required for EPA registration. Based on our extensive work, we are confident it meets the minimum performance requirements required for EPA registration as a disinfectant and/or surface sanitizer. We have met with and presented data to officials at the EPA for the purpose of refining our product and determining additional data requirements, and have retained a firm specializing in EPA registration work to help us through the process. While we are not able to predict the results of any EPA application we submit, or the time it will take to complete the process, we believe the market opportunities are large, with the U.S. market for surface disinfectants coming in at greater than $3.4 billion (https://www.grandviewresearch.com/industry-analysis/surface-disinfectant-market).default is cured.
ConclusionDuring 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
BioLargo has advanced its technologies and infrastructure to achieve a critical mass to capitalize on its commercial efforts and have a positive impact around the world with clean water, clean air, and infection control solutions. The company presents a scalable business model that targets high-impact cleantech market opportunities. We leverage our considerable scientific, engineering, and entrepreneurial talent to monetize our technologies and ensure high-quality customer service and increased revenue potential. We seek to unlock the value of our portfolio of disruptive technologies to advance our mission to “make life better” and continue creating shareholder value.
Intellectual Property
We have 2126 patents issued, including 1922 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. See the detailed discussion below of our patent portfolio.
We regard our intellectual property as critical to our ultimate success. Our goal is to obtain, maintain and enforce patent protection for our products and technologies in geographic areas of commercial interest and to protect our trade secrets and proprietary information through laws and contractual arrangements.
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
Our Chief Science Officer, Mr. Kenneth R. Code, has been involved
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 researchUS and development of the technology since 1997. He has participated in the Canadian Federal Scientific Research and Experimental Development program, and he was instrumental in the discovery, preparation and filing of the first technology patents. He has worked with manufacturers, distributors and suppliers in a wide variety of industries to gain a full appreciation of the potential applications and the methodologies applicable to our technology for their manufacture and performance. He continues to research methods and applications to continue to expand the potential uses of our technology as well as work to uncover new discoveries that may provide additional commercial applications to help solve real world problems in the field of disinfection.Canada.
We incurred approximately $1,300,000 in expense related to our research and development activities in 2020, a decrease of approximately $150,000 compared with the prior year. We increased research and development to develop products in response to the COVID-19 pandemic, and decreased in other areas as our water treatment technologies have neared commercialization.
We believe that our suite of intellectual property covers the presently targeted major areas of focus for our licensing strategy. The description of our intellectual property, at present, is as follows:
U.S. Patents
● U.S. Patent 10,238,990, issued on March 26, 2019, and 10,051,866, issued on August 21, 2018, which protect our AOS system.
● U.S. Patent 10,046,078, issued on August 14, 2018, relating to the misting systems that eliminate odors in waste transfer stations, landfills, and other waste handling facilities.
● U.S. Patent 9,883,653 issued on February 8, 2018, which encompasses a litter composition used in the absorption of animal wastes.
● US Patent 9,414,601 granted August 16, 2016, relating to the use of an article for application to a surface to provide antimicrobial and/or anti-odor activity. At least one of the reagents is coated with a water-soluble, water dispersible or water-penetrable covering that prevents ambient conditions of 50% relative humidity at 25ºC from causing more than 10% of the total reagents exposed to the ambient conditions from reacting in a twenty-four hour period.
● U.S. Patent 8,846,067, issued on September 30, 2014, which encompasses a method of treating a wound or burn on tissue to reduce microbe growth about a wound comprising applying an antimicrobial composition to the wound or burn on tissue using a proprietary stable iodine gel or liquid. This patent covers our technology as used in products being developed by our subsidiary, Clyra Medical Technologies.
● U.S. Patent 8,757,253, issued on June 24, 2014, relating to the moderation of oil extraction waste environments.
● U.S. Patent 8,734,559, issued on May 27, 2014, relating to the moderation of animal waste environments.
● U.S. Patent 8,679,515 issued on March 25, 2014, titled “Activated Carbon Associated with Alkaline or Alkali Iodide,” which provides protection for our BioLargo® AOS filter.
● U.S. Patent 8,642,057, issued on February 14, 2014, titled “Antimicrobial and Antiodor Solutions and Delivery Systems,” relating to our liquid antimicrobial solutions, including our gels, sprays and liquids imbedded into wipes and other substrates.
● U.S. Patent 8,574,610, issued on November 5, 2013, relating to flowable powder compositions, including our cat litter additive.
● U.S. Patent 8,257,749, issued on September 4, 2012, relating to the use of our technology as protection of against antimicrobial activity in environments that need to be protected or cleansed of microbial or chemical material. These environments include closed and open environments and absorbent sheet materials that exhibit stability until activated by aqueous environments. The field also includes novel particle technology, coating technology or micro-encapsulation technology to control the stability of chemicals that may be used to kill or inhibit the growth of microbes to water vapor or humidity for such applications.
● U.S. Patent 8,226,964, issued on July 24, 2012, relating to use of our technology as a treatment of residue, deposits or coatings within large liquid carrying structures such as pipes, drains, ducts, conduits, run-offs, tunnels and the like, using iodine, delivered in a variety of physical forms and methods, including using its action to physically disrupt coatings. The iodine’s disruptive activity may be combined with other physical removal systems such as pigging, scraping, tunneling, etching or grooving systems or the like.
● U.S. Patent 8,021,610, issued on September 20, 2011, titled “System providing antimicrobial activity to an environment,” relating to the reduction of microbial content in a land mass. Related to this patent are patents held in Canada and the European Union.
● U.S. Patent 7,943,158, issued on May 17, 2011, titled “Absorbent systems providing antimicrobial activity,” relating to the reduction of microbial content by providing molecular iodine to stabilized reagents.
● U.S. Patent 7,867,510, issued on January 11, 2011, titled “Material having antimicrobial activity when wet,” relating to articles for delivering stable iodine-generating compositions.
Pending Patent Applications
Most recently, we filed two patent applications in the United States for our advanced wound care formulas. The inventions in these applications form the basis for the work at Clyra Medical and the products for which that subsidiary intends to seek FDA approval. In addition to these applications, we have filed patent applications in multiple foreign countries, including the European Union, pursuant to the PCT, and other provisional applications.
Subject to adequate financing, we intend to continue to expand and enhance our suite of intellectual property through ongoing focus on product development, new intellectual property development and patent applications, and further third-party testing and validations for specific areas of focus for commercial exploitation. We currently anticipate that additional patent applications will be filed during the next 12 months with the USPTO and the PCT, although we are uncertain of the cost of such patent filings, which will depend upon the number of such applications prepared and filed. The expense associated with seeking patent rights in multiple foreign countries is expensive and will require substantial ongoing capital resources. However, we cannot give any assurance that adequate capital will be available. Without adequate capital resources, we will be forced to abandon patent applications and irrevocably lose rights to our technologies.
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 wholly-owned subsidiary entities, including: BioLargo Life Technologies, Inc., to hold our intellectual property; ONM Environmental, Inc., to manufacture, market, sell and distribute our odor control products; BioLargo Water Investment Group, Inc., which is the sole owner of a Canadian subsidiary, BioLargo Water, Inc., for our Canadian research and development and AOS commercialization operations; BioLargo Development Corp., through which our employees are employed; and BioLargo Engineering, Science & Technologies, LLC, our full service engineering firm in Oak Ridge, Tennessee. Additionally, we own 45% of Clyra Medical Technologies, Inc., formed to develop and market medical products based on our technology.
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.
Executive Officers
As of December 31, 2020,2023, and as the date of this report, our executive officers were:
● | Dennis P. Calvert: Chief Executive Officer, President and Chairman of the Board |
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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 | Richard Smith |
Clyra Medical Technologies, Inc. | Steven V. Harrison |
BioLargo Equipment Solutions & Technologies, Inc. | Tonya Chandler |
Employees
As of December 31, 2020,March 29, 2024, we had 27 full time employees.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 Relatingrelating to our Business
COVID-19
The Covid-19 crisis creates an environment in which no person can be certain about what is next. The global reach and impact are far reaching and place extreme pressure on financing, sales, accounts receivable collection cycles, and any growth plan. We believe the Covid-19 virus crisis may have a delaying effect on our plans for growth and expansion. We urge the reader to consider our forward-looking statements in light of the extraordinary circumstances of today’s business, social and economic climate. While our company is mobilizing to be a solutions provider to help inhibit the spread of Covid-19, these business plans are not mature and may be more difficult that we expect. While it may be reasonable to assume that the crisis will subside, we cannot be certain about the timing and a host of impacts that cannot be easily predicted to occur.
Our limited operating history makes evaluation of our business difficult.
We have limited and only nominal historical financial data upon which to base planned operating expenses or forecast accurately our future operating results. Because our operations are not yet sufficient to fund our operational expenses, we rely on investor capital to fund operations. Our limited operational history makes it difficult to forecast the need for future financing activities. Further, our limited operating history will make it difficult for investors and securities analysts to evaluate our business and prospects. Our failure to address these risks and difficulties successfully could seriously harm us.Financial Condition
Wehave never generated significant revenues, have a history ofincurred net losses on an annual basis since our inceptionand may continue to experience losses and cannot assure you that we will ever become or remain profitable.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 convertible debt or equity securities.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, and the rate of client adoption. There can be no assuranceadoption 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 revenues will be sufficient for us to become profitable in 2021 or future years, or thereafter maintain profitability.technology. We may also face unforeseen problems, difficulties, expensescontinue to incur losses and experience negative cash flows from operations for the foreseeable future. If we cannot achieve positive cash flow from operations or delays in implementing our business plan, including regulatory hurdles.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. Our net cash used in continuing operations forFor the year ended December 31, 2020, was $4,154,000, almost $350,000 per month on average. During 2020,2023, we generated $2,432,000used $2,365,000 cash in consolidated gross revenues, about $200,000 per month on average. Thus, inoperations, 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 in 2021for the foreseeable future as it becomes available, and expect to continue to need to sell our securities to fund operations.
At December 31, 2020, we had working capital deficit of $2,039,000. Our auditor’s report for the year ended December 31, 20202023, includes an explanatory paragraph toin 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 (see below)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 declines,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.
InDuring the year ended December 31, 2020,2023, we relied onreceived net proceeds of $4,600,000 through sales of our agreements with Lincoln Park Capital to sell sharessecurities, both directly and raise capital, as well as other private investors. In total, received almost $3 million from stock sales. In the year ended December 31, 2020, we issued more than 17 million shares of stock to these investors. In the year ended December 31, 2019, we had received more than $4 million from the sale of convertible notes, and in the year ended December 31, 2020, we issued more than 30 million shares of stock to convert those notes to equity and fund operations and R&D for the year.through our subsidiaries. These issuancessales are dilutive to our existing stockholders.stockholders, and the stockholders of our subsidiaries. We intend to continue these financing activities, and thus intend to continue to dilute the existing stockholders.
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 reserves, 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.
In the year ended December 31, 2020, we issued almost 60 million shares of our common stock, almost all which was issued for current and past financing activities that included our retiring debt of almost $5 million plus funding current operating activities and R&D for the year. Our private securities offerings typically provide for 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.
We may be required to seek stockholder approval to amend our charter to increase our authorized number of shares
We have approximately 230 million common shares outstanding. We have reserved for further issuance almost 100 million shares: 25 million to Lincoln Park, 26 million in our 2018 Equity Plan, 17 million to “non-plan” option holders, and 30 million to warrant holders. As our Certificate of Incorporation authorizes us to issue 400 million shares, we currently have 70 million shares available. If we run out of shares to issue, the Company would be required to secure stockholder approval to amend the charter and increase the authorized number of shares. If our stockholders do not agree to increase the number of shares our Certificate of Incorporation authorizes us to issue, we may have to cease further financing activities. If we were forced to do so, we would run out of cash and significantly curtail our operations.future stockholders.
Our stockholders face further potential adverse effects from the terms of any preferred stock that mayability to access capital markets could be issued in the future.limited.
Our certificate of incorporation authorizes 50 million shares of preferred stock. None are outstanding asFrom 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 date hereof. In order to raise capital to meet expensesstock 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 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 rightsmarket perceptions of the holdersUS 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 will be subject to, and in many respects subordinate to, the rightsstate 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 valueeconomy, among others, are outside of our common stock. Preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes,control. No assurance 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.
Our revenue growth rate may not be indicative of future performance and may slow over time.
Althoughgiven that we have grown rapidly over the last several years, 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, the impact of COVID-19, 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.
None 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, particularly from one or more of our four largest customers,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.
There are several specific business opportunities we are considering in further development of our business. None of these opportunities is yet the subject of a definitive agreement, and many of these opportunities will require additional funding obligations on our part, for which funding is not currently in place.
In furtherance of our business plan, we are presently considering a number of opportunities to promote our business, to further develop and broaden, and to license, our technology with third parties. While discussions are underway with respect to such opportunities, there are no definitive agreements in place with respect to any of such opportunities at this time. There can be no assurance that any of such opportunities being discussed will result in definitive agreements or, if definitive agreements are entered into, that they will be on terms that are favorable to us.
Moreover, should any of these opportunities result in definitive agreements being executed or consummated, we may be required to expend additional monies above and beyond our current operating budget to promote such endeavors. No such financing is in place at this time for such endeavors, and we cannot assure you that any such financing will be available, or if it is available, whether it will be on terms that are favorable to our company.
We expect to incur future losses and may not be able to achieve profitability.
Although we are generating 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.
Our internal controlsSome of our revenues are not effective.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 determined that our disclosure controls and procedures and our internalno control over financial reporting arethe 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 not effective. The lackthrough 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 effective internal controls, has not yet, but couldour 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 the future, materiallyour relationship with this customer would adversely affect our financial condition and ability to carry out our business plan. As more financial resources come available, we need to invest in additional personnel to better manage the financial reporting processes.
If we are not able to manage our anticipated growth effectively, we may not become profitable.
We anticipate that expansion will continue to be required to address potential market opportunitiesresults of operations. The customer's demand for our technologiesproducts 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 our products. Our existing infrastructure is limited. While we believe our current manufacturing processes as well as our officetheir reliance on the marketing 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 properly manage an increasea single line of products. Any significant reduction in orders from this customer demands could result inhave a material adverse effect on customer satisfaction, our ability to meet our contractual obligations, and our operating results.
Somebusiness, results 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/operations, or expensive to obtain. While our management believes such approvals can be obtained for the applications contemplated, until those approvals from the FDA or the EPA or other regulatory bodies, at the federal and state levels, as may be required are obtained, we may not be able to generate commercial revenues for regulated products. Certain specific regulated applications and their use require highly technical analysis and additional third-party validation and will require regulatory approvals from organizations like the FDA. Certain applications may also be subject to additional state and local agency regulations, increasing the cost and time associated with commercial strategies. Additionally, most products incorporating our technology that may be sold in the European Union (“EU”) will require EU and possibly also individual country regulatory approval. All such approvals, including additional testing, are time-consuming, expensive and do not have assured outcomes of ultimate regulatory approval. 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.Clean and our private-label products.
The raw ingredients used to manufacture CupriDyne Cleanour 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:
● | 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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If products incorporating our technology do not achieve a significant level of market acceptance, then demand for our technology itself may not develop as expected, and, in such event, it is unlikely that we will become profitable.
Any revenues thatIf we are not able to manage our anticipated growth effectively, we may earn in the future are unpredictable, and our operating results are likely to fluctuate from quarter to quarter.not become profitable.
We believeanticipate that our future operating results will fluctuate due to a variety of factors, including:
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We expect our operating expensesexpansion will continue to fluctuate significantlybe 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 2021additional 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 beyond, assupport services to our partners if we continueachieve our research and development and increase our marketing and licensing activities. Although we expectanticipated growth with respect to generate revenues from licensingthe sale of our technology for various applications. Failure to effectively manage an increase in the future, revenues may decline or not grow as anticipated,customer demands could result in a material adverse effect on customer satisfaction, our ability to meet our contractual obligations, and our operating results could be substantially harmed for a particular fiscal period. Moreover, our operating results in some quarters may not meet the expectations of stock market analysts and investors. In that case, our stock price most likely would decline.
Some of our revenue may be dependent on the award of new contracts from the U.S. government, which we do not directly control.
Some of our revenue has been generated from sales to the U.S. Defense Logistics Agency through a bid process in response to request for bids. The timing and size of requests for bids is unpredictable and outside of our control. The number of other companies competing for these bids is also unpredictable and outside of our control. In the event of more competition for these awards, we may have to reduce our margins. These variables make it difficult to predict when or if we will sell more products to the U.S. government, which in turns makes it difficult to stock inventory and purchase raw materials.
We have limited product distribution experience, and we rely in part on third parties who may not successfully sell our products.
We have limited product distribution experience and rely in part on product distribution arrangements with third parties. In our future product offerings, we may rely solely on third parties for product sales and distribution. We also plan to license our technology to certain third parties for commercialization of certain applications. We expect to enter into additional distribution agreements and licensing agreements in the future, and we may not be able to enter into these additional agreements on terms that are favorable to us, if at all. In addition, we may have limited or no control over the distribution activities of these third parties. These third parties could sell competing products and may devote insufficient sales efforts to our products. As a result, our future revenues from sales of our products, if any, will depend on the success of the efforts of these third parties.results.
WeSome 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 attract or retain qualified senior personnel.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 believe wehave determined that our disclosure controls and procedures and our internal controls over financial reporting are currently ablenot 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 currentkey 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 withobjectives. Because of the scientific nature of our existingbusiness, 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, team. However,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.
If we lose our key personnel or are unable to attract and retain additional personnel, we may be unable to achieve profitability.
Our future success is substantially dependent on the efforts of our senior management, particularly Dennis P. Calvert, our president and chief executive officer. The loss of the services of Mr. Calvert or other members of our senior management may significantly delay or prevent the achievement of product development and other business objectives. Because of the scientific nature of our business, we depend substantially on our ability to attract and retain qualified marketing, scientific and technical personnel. There is intense competition among specialized and technologically-oriented companies for qualified personnel in the areas of our activities. If we lose the services of, or do not successfully recruit, key marketing, scientific and technical personnel, then the growth of our business could be substantially impaired. At present, we do not maintain key man insurance for any of our senior management, although management is evaluating the potential of securing this type of insurance in the future as may be available.
Nondisclosure agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information.
In order to protect our proprietary technology and processes, we rely in part on nondisclosure agreements with our employees, potential licensing partners, potential manufacturing partners, testing facilities, universities, consultants, agents and other organizations to which we disclose our proprietary information. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover trade secrets and proprietary information, and in such cases we could not assert any trade secret rights against such parties. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position. Since we rely on trade secrets and nondisclosure agreements, in addition to patents, to protect some of our intellectual property, there is a risk that third parties may obtain and improperly utilize our proprietary information to our competitive disadvantage. We may not be able to detect unauthorized use or take appropriate and timely steps to enforce our intellectual property rights.
We may become subject to product liability claims.
As a business that manufactures and markets products for use by consumers and institutions, we may become liable for any damage caused by our products, whether used in the manner intended or not. Any such claim of liability, whether meritorious or not, could be time-consuming and/or result in costly litigation. Although we maintain general liability insurance, our insurance may not cover potential claims of the types described above and may not be adequate to indemnify for all liabilities that may be imposed. Any imposition of liability that is not covered by insurance or is in excess of insurance coverage could harm our business and operating results, and you may lose some or all of any investment you have made, or may make, in our company.
Litigation or the actions of regulatory authorities may harm our business or otherwise distract our management.
Substantial, complex or extended litigation could cause us to incur major expenditures and distract our management. For example, lawsuits by employees, former employees, investors, stockholders, partners, customers or others, or actions taken by regulatory authorities, could be very costly and substantially disrupt our business. As a result of our financing activities over time, and by virtue of the number of people that have invested in our company, we face increased risk of lawsuits from investors. Such lawsuits or actions could from time to time be filed against our company and/or our executive officers and directors. Such lawsuits and actions are not uncommon, and we cannot assure you that we will always be able to resolve such disputes or actions on terms favorable to our company.
If we suffer negative publicity concerning the safety or efficacy of our products, our sales may be harmed.
If concerns should arise about the safety or efficacy of any of our products that are marketed, regardless of whether or not such concerns have a basis in generally accepted science or peer-reviewed scientific research, such concerns could adversely affect the market for those products. Similarly, negative publicity could result in an increased number of product liability claims, whether or not those claims are supported by applicable law.
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:
● | delays in product development by us or third parties; |
● | market acceptance of products incorporating our technology; |
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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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Parties making such claims may be able to obtain injunctive relief that could effectively block our company’s ability to further develop or commercialize our current and proposed product candidates in the United States and abroad and could result in the award of substantial damages. Defense of any lawsuit or failure to obtain any such license could substantially harm our company. Litigation, regardless of outcome, could result in substantial cost to, and a diversion of efforts by, our company.
Our patents are expensive to maintain, our patent applications are expensive to prosecute, and thus we are unable to file for patent protection in many countries.
Our ability to compete effectively will depend in part on our ability to develop and maintain proprietary aspects of our technology and either to operate without infringing the proprietary rights of others or to obtain rights to technology owned by third parties. Pending patent applications relating to our technology may not result in the issuance of any patents or any issued patents that will offer protection against competitors with similar technology. We must employ patent attorneys to prosecute our patent applications both in the United States and internationally. International patent protection requires the retention of patent counsel and the payment of patent application fees in each foreign country in which we desire patent protection, on or before filing deadlines set forth by the International Patent Cooperation Treaty (“PCT”). We therefore choose to file patent applications only in foreign countries where we believe the commercial opportunities require it, considering our available financial resources and the needs for our technology. This has resulted, and will continue to result, in the irrevocable loss of patent rights in all but a few foreign jurisdictions.
Patents we receive may be challenged, invalidated or circumvented in the future, or the rights created by those patents may not provide a competitive advantage. We also rely on trade secrets, technical know-how and continuing invention to develop and maintain our competitive position. Others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets.
We are subject to risks related to future business outside of the United States.
Over time, we may develop business relationships outside of North America, and as those efforts are pursued, we will face risks related to those relationships such as:
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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 productsproduct 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.
The cost of maintainingThere may not be a market for our public company reporting obligations is high.liquid sodium battery.
We are obligated to maintain our periodic public filings and public reporting requirements, on a timely basis, under the rules and regulations of the SEC. In order to meet these obligations,While we will need to continue to raise capital. If adequate funds are not available, webelieve that there will be unablecustomer demand for our liquid sodium battery provided that we are able to comply with those requirementsprove 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 could ceasefinancial condition, and the company may not be able to be qualified to have our stock traded in the public market. As a public company, we incur significant legal, accounting and other expenses. In addition, the Sarbanes-Oxley Act of 2002, as well as related rules adopted by the SEC, has imposed substantial requirements on public companies, including certain corporate governance practices and requirements relating to internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act.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, including the recent novel strain of coronavirus (SARS‑CoV‑2 aka COVID-19) that originally surfaced in Wuhan, China in December 2019. The extent to which COVID‑19 impacts our business will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID‑19 and the actions to contain 2 or treat its impact, among others.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 COVID-19 coronavirus pandemicsecure operation of these information technology systems and networks, and the processing and maintenance of this data is ongoingcritical 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 significant disruptionsnumber and severity and it is expected that these trends will continue. These threats pose a risk to the security of our clients and/systems and networks and the confidentiality, availability and integrity of our data. Should an attack on our or supply chain whichour 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 businessbusiness. See Part I. Item 1C. Cybersecurity for additional details on our cybersecurity program.
Because of high inflation and revenues.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 COVID-19 pandemic is still ongoing asduration of the date of this report, is still evolvingRussia’s war and much of its impact remains unknown. It is impossibleare 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 impact it may have on the development of our business and on our revenues in 2021.
Our corporate headquarters and offices of our ONM Environmental division are in Southern California. On March 19, 2020, California’s Governor issued an executive order that all residents of the State must stay at home indefinitely except as needed to maintain “essential critical infrastructure”. Varying forms of this initial order were in place as of December 31, 2020, and are expected to remain in placemarket for the foreseeable future. COVID cases are currently increasing in certain European countries, and that may foretell an additional surge of cases in the United States or in California in the next months. As a result of the initial stay-at-home order, and subsequent restrictions, many businesses have closed and many people are out of work. Although many of our clients are included in the definitions of “essential critical infrastructure”, such as wastewater treatment plants and refuse collection infrastructure, these restrictions have affected our clients’ willingness to purchase our products and services, and adversely affected our revenues in 2020 at various times, andbut the impact may continue to do so.
The severity of the coronavirus pandemic could also make access to our existing supply chain difficult or impossible by delaying the delivery of key raw materials used in our product candidates and therefore delay the delivery of our products. Any of these results could materially impact our business and have an adverse effect on our business.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 March 30, 2020,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 $10,250,000$10,000,000 of our common stock (subject to certain limitations) from time to time over a period of three years, noted above in our Risks Related to our Business.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 inat 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 and warrants may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:
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You may have difficulty selling our sharesstock because they areit 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 13,00022,000 square feet of office, warehouse, lab and warehousemanufacturing space at 105 Fordham Road, Oak Ridge, Tennessee, for our professional engineering division, BioLargo Engineering, Science & Technologies, LLC.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 Water.Canada.
Our telephone number is (888) 400-2863.
Our company is not presently a party to any legal proceeding.
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 table below representsOTCQB 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 quarterly highnational stock exchanges and low closingany prices quoted may not be a reliable indication of the value of our common stock for the last two fiscal years as reported by Yahoo Finance.
2020 | 2019 | |||||||||||||||
High | Low | High | Low | |||||||||||||
First Quarter | $ | 0.29 | $ | 0.12 | $ | 0.27 | $ | 0.16 | ||||||||
Second Quarter | $ | 0.20 | $ | 0.14 | $ | 0.31 | $ | 0.16 | ||||||||
Third Quarter | $ | 0.22 | $ | 0.15 | $ | 0.38 | $ | 0.22 | ||||||||
Fourth Quarter | $ | 0.16 | $ | 0.12 | $ | 0.36 | $ | 0.22 |
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.
The closing bid price for our common stock on March 24, 2021, was $0.227 per share. Holders
As of such date,March 27, 2024, there were approximately 650600 registered owners of approximately 125,000,000 sharesholders of our common stock, and approximately 4,000 non-objectingstock. This does not include beneficial owners of approximately 114,000,000 shares.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, 20202023
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance (c) | |||||||||
Equity compensation plans approved by security holders | 24,554,888(1) | $0.29 | 25,134,475 | |||||||||
Equity compensation plans not approved by security holders(2) | 20,749,583 | $0.40 | n/a | |||||||||
Total | 45,304,471 | $0.34 | 25,134,475 |
Number of securities to be | Weighted average | |||||||||||
issued upon exercise of | exercise price of | Number of securities | ||||||||||
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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 |
(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.
OnDuring the three months ended December 31, 2020,2023, we issued 150,00068,502 shares of our common stock to a vendor to reduce amounts owed to thea vendor in the aggregate amount of $18,000.$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, 20202023, unless expressly stated otherwise, and we undertake no duty to update this information.
Recent Events
The COVID-19 pandemic is currently impacting countries, communities, supply chains and markets as well as the global financial markets. Governments have imposed laws requiring social distancing, travel bans and quarantine, and these laws may limit access to our facilities, customers, management, support staff and professional advisors. These factors, in turn, may not only impact our operations, financial condition and demand for our goods and services, but our overall ability to react timely to mitigate the impact of this event. Also, it may hamper our efforts to comply with our filing obligations with the Securities and Exchange Commission. Depending on the severity and longevity of the COVID-19 pandemic, our business, customers, and stockholders may experience a significant negative impact.
Results of Operations—Comparison of the years ended December 31, 20202023 and 20192022
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; |
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● | 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 |
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| Our corporate operations, which support the operating segments with legal, accounting, human resources, and other services. |
ConsolidatedOur consolidated revenue for the year ended December 31, 20202023 was $2,432,000,$12,230,000, which is a 31%108% increase over the same period in 2019. Sales at2022. 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 operating divisions decreased uponsubsidiary BLEST on supporting internal projects such as the initial shutdownsAEC and battery technology, as opposed to servicing third-party clients. The increase in late Marchproduct revenues was almost entirely due to an increase in the COVID-19 pandemic, but have since rebounded. Our product revenue includesvolume of sales of our CupriDyne Clean industrial odor control product, Clyraguard Personal Protection Spray, and hand sanitizers. While we expect revenues to continue to increase, givenprivate-label odor-control products, specifically the considerable extended time of the COVID-19 pandemic, we cannot be certain.Pooph branded pet-odor product.
ONM Environmental (formerly, Odor-No-More)
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 odor absorptionprivate-label products to the U.S. Government. During 2020, ONM Environmental added two employees to focusbased on business development, increasing sales and increased levels of construction and maintenance contracts.our CupriDyne Clean technology.
Revenue (ONM)(ONM Environmental)
ONM’sONM Environmental’s revenues for the year ended December 31, 2020,2023, were $1,554,000,$11,440,000, an increase of $95,000$7,066,000 or 7%162% from the same period in 2019. Sales on a quarter-to-quarter basis had been increasing until the COVID-19 pandemic shut down businesses across the country, and have since rebounded. ONM’s fourth quarter revenue were approximately $617,000,2022. The increase in revenues was almost entirely due to an increase in the volume of 74%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 prior quarter duemarketing 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 installationproduct in national retail chains, including the introduction of large custom CupriDyne Clean misting systems. Of its gross salesthe product in 2020, approximately two-thirds were toWalmart nationally. While they have performed well in the waste handling industry.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)(ONM Environmental)
ONM’sONM 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’sONM Environmental’s costs of goods improved 2%increased 4% in 20202023 to 41%49%. The slight decrease in cost of goods is dueincrease was related to increase sales of higher-margin products and services, and an increase in product prices.normal price fluctuations for raw materials.
Selling, General and Administrative Expense (ONM)(ONM Environmental)
ONM’s selling, general and administrativeONM Environmental’s SG&A expenses increased by 22%were $1,472,000 in 2023, compared to $1,418,000 during the year ended December 31, 2020. These expenses have increased alongside its efforts to increase revenues by hiring additional sales and support staff.$1,276,000 in 2022. We expect these expenses to remain consistentapproximately the same in 2021 unless and until its revenues increase.2024.
Net Loss (ONM)Operating Income (ONM Environmental)
ONM Environmental generated $1,554,000operating income of $4,335,000 in revenue,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 gross marginthird party, we have no way of $925,000,determining whether these sales will decrease or increase in the current year, and had total costs and expenses of $1,408,000, resultingthus have no way to determining whether ONM Environmental will have an operating income in a net loss of $483,000, compared with $337,000 in 2019. To increase its revenues, ONM had continued to invest in expanding its sales and operations, resulting in a continuing loss from operations, up and until the COVID-19 crisis occurred, but is now focused primarily on developing distribution and strategic alliances as it seeks to expand sales with existing staff.current year.
BLEST (engineering division)
Revenue (BLEST)
Our engineering segment (BLEST)BLEST generated $615,000$770,000 of revenue from third parties in 2020,2023, compared to $401,000$1,453,000 in 2019. The increase is due to an increased number of client contracts, including those as2022, representing a subcontractor for Bhate pursuant to which BLEST is providing services to U.S. Air Force bases.
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 is thereforeare eliminated in consolidation.the consolidation of our financial statements. In the year ended December 31, 2020,2023, it totaled $435,000,$1,627,000, primarily used to further engineer and develop our flagship AOS water filtration system and our AEC PFAS treatment system. In addition, BLEST engineers are performingsystem and battery technology. The decrease in third party revenue in 2023 as compared to 2022 is a critical role in the AOS pilot projects, someresult of which are supported by third-party research grants and has been instrumental in developing and supporting a professional engineered design service for misting systems being sold by our ONM operating unit.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 2020,2023, its cost of services were 77%51% of its revenues, versus 80%61% in 2019.2022. This decrease is due to contracts with better margins. We expect the cost of services to remain consistent in 20212024 based on the contracts currently in progress.
Selling, General and Administrative Expense (BLEST)
BLEST’SBLEST's SG&A expenses were $413,000$722,000 in 2020,2023, compared to $478,000$549,000 in 2019.2022, due to increased head-count related expenses. We expect these expenses to remain flat in 2020, as the staff requiredcontinue to increase servicein the current year as more resources are devoted to its clients and revenues will be included in cost of services.BLEST's operations.
NetOperating Loss (BLEST)
BLEST generated $615,000 in revenue from third parties, a gross margin of $145,000, and had total costs and expenses of $764,000, resulting in a netan operating loss of $619,000,$1,619,000 in 2023, compared with a netto an operating loss of $749,000$452,000 in 2019.
2022. This operating loss is reflective of the focus at BLEST provides substantial support to BioLargo’s other operations, includingon internal BioLargo Water and Odor-No-More.projects. While we are unable to record revenues generated from services by the engineering group to other BioLargo operating divisions for important projectprojects 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. BLEST’s need for a cash subsidy to support its operations has decreased over time. We expect that in 2021 its sales and thus its gross profit will continue to increase. Our goal for this operation is that it produces a profit and contributes to corporate overhead in a significant way, although predicting when that will happen given the COVID-19 pandemic and other uncertainties in the market, and our limited resources, is difficult.
Other IncomeSelling, 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, haswe have been awarded more than 80 research grants over the years from various Canadian public and private agencies, including the Canadian National Research Institute – Industrial Research Assistance Program (NRC-IRAP), the National Science and Engineering Research Council of Canada (NSERC), and the Metropolitan Water District of Southern California’s Innovative Conservation Program “ICP”. The research grants received are considered reimbursement grants related to costs we incur and therefore are included as Other Income. The amount of grant income decreased $81,000$38,000 in 2020the year ended December 31, 2023, to $137,000. We continued to win grants and it is important to note that amounts$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 (SR&ED) 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, 20202023 and 2019,2022, we receivedrecorded an expense of $54,000 and a refund of $99,000 and $63,000.
Although we are continuing to apply for government and industry grants, and indications from the various grant agencies is highly encouraging, we cannot be certain of continuing those successes in the future. We are very active in both the US and Canada, pursuing grant support for various uses of our products that we believe can help in managing the COVID-19 crisis.$63,000, respectively.
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 in the aggregate by 22% ($1,333,000) in the year ended December 31, 2020 to $7,473,000. Our non-cash expenses (through the issuance of stock and stock options) increased in 2020 compared with 2019 ($3,125,000 compared to $2,232,000) because of options issued for Clyra Medical expenses increased and to option issuances to our employees, vendors and consultants resulted in a greater number of stock and stock options in lieu of cash owed. The largest components of our SG&A expenses included (in thousands):
Year ended December 31, 2020 | Year ended December 31, 2019 | |||||||
Salaries and payroll related | $ | 2,855 | $ | 2,186 | ||||
Professional fees | 859 | 809 | ||||||
Consulting | 1,624 | 1,278 | ||||||
Office expense | 1,207 | 1,124 | ||||||
Board of director expense | 259 | 300 | ||||||
Sales and marketing | 494 | 262 | ||||||
Investor relations | 175 | 181 |
Our salaries and payroll-related and office-related expenses increased in 2020 due to increased sales personnel at ONM Environmental. Consulting expense increased due primarily to new sales activity at Clyra Medical requiring the supporting infrastructure. There was a slight increase in professional fees and sales and marketing as Biolargo increased its sales and business development efforts in its subsidiaries.
Research and Development
In the year ended December 31, 2020, we spent approximately $1,338,000 in the research and development of our technologies and products. This was a decrease of 9% ($134,000) compared to 2019, primarily due to a change in focus from pure research activities to commercializing our technologies and inventions, including the AOS and AEC water treatment systems. We incurred approximately $1,300,000 in expense related to our research and development activities in 2020, a decrease of approximately $150,000 compared with the prior year. We increased research and development to develop products in response to the COVID-19 pandemic, and decreased in other areas as our water treatment technologies have neared commercialization.
Interest expense
Our interest expense for the year ended December 31, 20202023, was $1,923,000, a decrease$91,000, an increase of 52%72% compared with 2019.2022. The significant decreaseincrease in interest expense is related to the significant decreasetiming of when we entered into our debt obligations and debt issuedas there was a full year of interest during 20202023 versus 2019. Of our total interest expense in 2020, $118,0002022. During 2023, $58,000 was paid in cash and $33,000 related to the remainder, $1,805,000, was paid by issuing sharesamortization of our common stock. Our non-cash interest related expenses were comprised primarily as follows: (i) $1,618,000 non-cash debt discounts related to warrants issued in conjunction with debt instruments being amortized over the lifeinstruments. During 2022, $36,000 was paid in cash. Our non-cash interest expenses were $17,000 in amortization of the debt instrument (in 2019, it was $3,376,000), and (ii) $184,000discounts 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 instruments convertedin the current year, and expect our interest expense in 2024 to common stock.decrease as compared with 2023.
Our outstanding debt as of December 31, 2020 was lower than as of December 31, 2019, and thus we expect our interest expense in 2021 to be less than that in 2020, provided we do not issue more debt with attached warrants during the remainder of the year. Additionally, we record the relative fair value of the warrants and the intrinsic value of the beneficial conversion feature sold with the convertible notes payable which typically results in a full discount on the proceeds from the convertible notes. This discount is amortized as interest expense over the term of the convertible notes. We expect our interest expense to decrease in 2021 because total amount we amortize (the line item on our balance sheet “Discount on convertible notes payable and line of credit, net of amortization”) decreased by $1,550,000 in 2020 – from $1,654,000 at December 31, 2019, to $104,000 at December 31, 2020. We also are currently selling units of common stock and warrants instead of using convertible debt for financing our working capital needs, which if continued, will continue to reduce our ongoing interest expense as compared with prior years.
Net Loss
Net loss for the year ended December 31, 20202023, was $9,700,000$4,648,000 a loss of $0.05$0.02 per share, compared to a net loss for the year ended December 31, 20192022, of $11,440,000$5,132,000 a loss of $0.08$0.02 per share.share, a decrease in net loss of 13%. Our net loss this year declined because of anthe increase in revenuegross margin related to our increase in revenues, offset by a smaller increase of selling, general and a reduction in interestadministrative expense.
The net lossincome (loss) per business segment is as follows (in thousands):
Net loss | Year ended December 31, 2020 | Year ended December 31, 2019 | ||||||||||||||
Year ended | Year ended | |||||||||||||||
Net income (loss) | December 31, 2023 | December 31, 2022 | ||||||||||||||
ONM Environmental | $ | (483 | ) | $ | (337 | ) | $ | 4,329 | $ | 1,304 | ||||||
BLEST | (619 | ) | (749 | ) | (1,619 | ) | (425 | ) | ||||||||
Clyra Medical | (2,139 | ) | (1,283 | ) | (2,097 | ) | (1,412 | ) | ||||||||
BioLargo Water | (466 | ) | (447 | ) | ||||||||||||
BioLargo Canada | (713 | ) | (604 | ) | ||||||||||||
BETI | (1,179 | ) | — | |||||||||||||
BioLargo corporate | (5,993 | ) | (8,624 | ) | (3,369 | ) | (3,995 | ) | ||||||||
Consolidated net loss | $ | (9,700 | ) | $ | (11,440 | ) | $ | (4,648 | ) | $ | (5,132 | ) |
It is important to note that over halfIn the year ended December 31, 2023, approximately 68% of our net loss is duewas attributable to non-cash expenses, such as interest and stock/stock options issued to employees and vendors in lieu of cash. Of the net loss of $9,700,000, interest expense was $1,923,000, of which $1,805,000 was non-cash expense. Additionally, we recorded $2,459,000including $2,124,000 of stock option compensation expense an additional $666,000(of which $260,000 was from options issued by Clyra Medical), $384,000 of services were paid by the issuance of our common stock, and we recorded $442,000 loss on extinguishment of debt. The total of these non-cash items account for $5,372,000 of$394,000 related to the consolidated loss of $9,700,000. Assuming they continue to expand sales, we believe that ONM and BLEST (engineering) can achieve positive cash flow from operations at some point in the future, although predicting when that will happen given the COVID-19 pandemic and other uncertainties in the market, and our limited resources, is difficult. As we are still in the early stages of commercializationimpairment of our products, and intend to invest substantial resources into launchingClyra prepaid marketing agreement. (See Note 10).
In the AOS and AEC water treatment systems, we expect to continue to incur ayear ended December 31, 2022, approximately 50% of our net loss forwas 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 foreseeable future.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, 2020,2023, we had a net loss of $9,700,000,$4,648,000, used $4,154,000$2,295,000 cash in operations, and at December 31, 2020,2023, we had a working capital deficit of $2,039,000,$3,652,000, and current assets of $1,505,000.$6,362,000. We do not believe gross profits in 20212024 will be sufficient to fund our current level of operations, or pay our debts as they become due during the next 12 months, and therefore we will have to obtain further investment capital to continue to fund operations and seek to refinance our existing debt.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, 2020,2023, we generated revenues of $2,432,000$12,230,000, through our subsidiaries. (Seesubsidiaries (see Note 12.) Our segments12). Other than ONM Environmental, our subsidiaries did not individually or in the aggregate generate enough revenues or gross profits to fund their operations or fund our corporate operations or other business segments. Thus,To meet our cash obligations, during the year-ended December 31, 2023, we (i) sold $995,000 of our common stock to operate throughout 2020, we continuedLincoln Park Capital Fund, LLC (“Lincoln Park”) (see Note 3), (ii) sold $1,158,000 of our common stock and warrants to sell securities to raise cashaccredited 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 were able to borrow money through programs administered by the Small Business Administration.
As of December 31, 2020, our cash and cash equivalents totaled $716,000, and our total liabilities included $1,006,000 in debt that is convertible at the option of the debtholders, $100,000 of debt that we may convert to equity at the April 2021 maturity date, $100,000 notes due on demand, $224,000 owed by our partially owned subsidiary Clyra Medical Technologies, Inc. (“Clyra”) due in June 2021, and $1,007,000 owed by Clyra that must be paid out of operational cashBETI common stock (see Note 4 and 10), with a maturity date that automatically extends each June. Since December 30, 2020, we have received over $2 million in proceeds from stock sales to Lincoln Park (see Note 3), and paid off $650,000 in debt (see also Note 14)9). We have two promissory notes due in August, 2021, (see Note 4, “Notes payable, mature August 12 and 16, 2021”), each of which may be converted by the holder into equity at $0.14 per share. If the holders do not voluntarily convert the notes to equity, we intend to pay the notes with cash raised through sales of stock to Lincoln Park, although there is no guarantee that we will be able to do so. The proceeds we receive from stock sales to Lincoln Park is a function of stock price and volume – a lower stock price and less trading volume results in less money we can receive from Lincoln Park. Our agreement with Lincoln Park precludes us from selling shares to Lincoln Park on a daily basis if our stock price falls below $0.10 per share. If we are unable to make daily sales, it is not likely we will be able to sell enough shares to Lincoln Park to pay the debt due in August, 2021. In such event, we intend to negotiate for a delay in repayment with the holders of the notes.
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. In the year endedWe and Clyra Medical have continued to sell common stock to Lincoln Park for working capital subsequent to December 31, 2020, our CEO and CSO accepted stock in lieu2023 (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.
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, 2020, we had a net loss of $9,700,000, used $4,154,000 cash in operations, and at December 31, 2020, had a working capital deficit of $2,039,000, and current assets of $1,505,000.
We operate our business in five distinct business segments. Each of these segments obtains cash to fund operations in unique ways. ONM and BLEST generate cash by selling products and services. Clyra Medical obtains cash from revenues, and third party investments of sales of its common stock. BioLargo Water generates cash through government research grants and tax credits. Our corporate operations generate cash through private offerings of stock, debt instruments, and warrants. Cash was generated as follows (in thousands):
Year ended December 31, 2020 | Year ended December 31, 2019 | |||||||
SOURCES OF CASH | ||||||||
Revenue from operations | $ | 2,432 | $ | 1,861 | ||||
Grant income | 137 | 218 | ||||||
Tax credit income | 111 | 63 | ||||||
Stock for cash (BioLargo) | 2,783 | 125 | ||||||
Stock for cash (Clyra Medical) | 851 | 536 | ||||||
Proceeds from warrant exercise (BioLargo) | -- | 560 | ||||||
Debt (BioLargo) | 507 | 4,335 | ||||||
Debt (Clyra Medical) | 260 | -- | ||||||
Total: | $ | 7,081 | $ | 7,698 |
Although ONM, BLEST, and Clyra Medical generated revenues in the year ended December 31, 2020, neither generated operating profits. As such, we provided cash subsidies to each of these business segments to allow them to continue operations. While revenues have increased in both operating segments, both continue to expand operations and thus continue to generate losses.
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.
Convertible debt instruments are recorded at fair value, limited to a relative fair value based upon the percentage
The warrant and BCF relative fair values are also recorded as a discount to the convertible promissory notes. At present, these equity features of the convertible promissory notes have recorded a discount to the convertible notes that is substantially equal to the proceeds received.
Share-based Payments
It is the Company’s policy to expense share-based payments as of the date of grant or over the term of the vesting period in accordance with Auditing Standards Codification Topic 718 “Share-Based Payment.” Application of this pronouncement requires significant judgment regarding the assumptions used in the selected option pricing model, including stock price volatility and employee exercise behavior. Most of these inputs are either highly dependent on the current economic environment at the date of grant or forward-looking expectations projected over the expected term of the award.
Fair Value Measurement
Generally accepted accounting principles establishes a hierarchy to prioritize the inputs of valuation techniques used to measure fair value. The hierarchy gives the highest ranking to the fair values determined by using unadjusted quoted prices in active markets for identical assets (Level 1) and the lowest ranking to fair values determined using methodologies and models with unobservable inputs (Level 3). Observable inputs are those that market participants would use in pricing the assets based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s assumptions about inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The Company has determined the appropriate level of the hierarchy and applied it to its financial assets and liabilities.
Management believes the carrying amounts of the Company’s financial instruments as of December 31, 20202023 and 20192022, approximate their respective fair values because of the short-term nature of these instruments. Such instruments consist ofinclude cash, accounts receivable, prepaid assets, accounts payable, convertible notes,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, 20202023 and 20192022 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 personalpersonnel 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 companyCompany has the financial resources to implement more robust automated systems, or to hire additional dedicated accounting personal,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.
Recognizing the dynamic nature and growth of the Company’s business, including the addition of an engineering division in late 2017, growth of the core operations, and the increase in the number of employees, management has recognized the strain on the overall internal control environment. As a result, managementManagement 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, 2020.2023.
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.
None.None.
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 20212023 Annual Meeting of Stockholders currently scheduled to be held on June 15, 2021 (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
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.
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:
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:
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:
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. HACKER, JOHNSON & SMITH PA Tampa, Florida 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
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
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
Critical Audit Matters
The critical audit matters communicated below are matters arising from the
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:
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:
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.
Critical Audit Matter Description
Auditing management’s impairment test of its prepaid marketing asset was complex and highly judgmental due to the significant
How the Critical Audit Matter was Addressed in the Audit
We obtained an understanding We applied the following audit procedures related to testing the
We have served as the Company’s auditor from 2011 to 2023.
Irvine, California March
BIOLARGO, INC. AND SUBSIDIARIES (in thousands, except for per share data)
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)
See accompanying notes to consolidated financial statements and report of Independent Registered Public Accounting Firm.
BIOLARGO, INC. AND SUBSIDIARIES CONSOLIDATED YEARS ENDED DECEMBER 31, 2023 AND 2022 (in thousands, except for share data)
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)
See accompanying notes to consolidated financial statements and report of Independent Registered Public Accounting Firm
Note
Description of Business
BioLargo, Inc.
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.
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.
F- 13 Organization
We are a Delaware corporation formed in 1991. We have
Note
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, partially-owned subsidiaries. All intercompany accounts and transactions have been eliminated. Foreign Currency
The Company has designated the functional currency of BioLargo
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
As of December 31, 2023 and 2022, our cash balances were made up of the following (in thousands):
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 $84,000 and $12,000, respectively. During the year ended December 31, 2023, the Company wrote off as bad debt expense $85,000.
Credit Concentration
We have a limited number of customers that account for significant portions of our revenue. During the year ended December 31,
We had
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,
Other Non-Current Assets
Other
EquityMethod ofAccounting
On March 20, 2020, we invested $100,000 into a South Korean entity (Odin Co. Ltd., “Odin”) pursuant to a Joint Venture agreement we had entered into with BKT Co. Ltd. and its U.S. based subsidiary, Tomorrow Water. We received a 40% non-dilutive equity interest, and BKT and Tomorrow Water each received 30% equity interests for an aggregate $150,000 investment.
We account for our investment in the joint venture under the equity method of accounting. We have determined that while we have significant influence over the joint venture through our technology license and our position on the Board of Directors, we do not control the joint venture or are otherwise involved in managing the entity and we own less than a majority of the equity. Therefore, we record the asset on our consolidated balance sheet and record an increase or decrease the recorded balance by our percentage ownership of the profits or losses in the joint venture. During the
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
We report basic and diluted 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
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. F- 16 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,
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
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
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
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.
As we generate revenues from royalties or license fees from our intellectual property,
Government Grants
We have been awarded multiple research grants from the private and public Canadian
F- 18 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 maybe 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
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
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,
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
Tax Credits
Our research and development activities in Canada mayentitle 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
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 18%. Lease payments included in the measurement of the lease liability comprise the following: the fixed noncancelable lease payments, payments for optional renewal periods where it is reasonably certain the renewal period will be exercised, and payments for early termination options unless it is reasonably certain the lease will not be terminated early. Lease components are included in the measurement of the initial lease liability. Additional payments based on a change in our portion of the operating expenses, including real estate taxes and insurance, are recorded as a period expense when incurred. Lease modifications result in remeasurement of the lease liability. Lease expense for operating leases consists of the lease payments plus any initial direct costs, primarily brokerage commissions, and is recognized on a straight-line basis over the lease term. We have elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a term of 12 months or less. The effect of short-term leases on our right-of-use asset and lease liability was not material. As of December 31, 2023 and 2022, the right-of-use assets totaled $1,092,000, and $867,000, respectively. As of December 31, 2023 and 2022, the lease liability totaled $1,109,000 and $870,000, respectively, on our consolidated balance sheets related to our operating leases. 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 3 - 10 years. Additions, renewals, and betterments that significantly extend the life of the asset are capitalized. Expenditures for repairs and maintenance are charged to expense as incurred. For assets sold or otherwise disposed of, the cost and related accumulated depreciation and amortization are removed from the accounts, and any related gain or loss is reflected in income for the period. 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 47% as of December 31, 2023 and 2022. Noncontrolling interest of BLEST represents 23% and 18% as of December 31, 2023, and 2022, respectively. Noncontrolling interest of BETI represents 4% as of December 31, 2023. BETI started operations in 2023. Recent Accounting Pronouncements
In
This Update
Note
Lincoln Park Financing
On
January 19, 2023. Pursuant to the
During the years ended December 31,
Note
The following table summarizes our debt obligations outstanding as of December 31,
For the years ended December 31,
payable, matures
On SBAProgramLoans
On
On
In
Note
Issuance of Common Stock in exchange for
During the years ended December 31, 2023, and 2022, we issued 1,951,541 and 1,448,512 shares, respectively, to officers, consultants, and other third parties as payment of amounts owed for services provided to our company, and recorded an aggregate $384,000 and $291,000, respectively, in selling general and administrative expense related to these issuances. Payment of Officer Salaries
During the year ended December 31,
During the year ended December 31,
Payment of Consultant Fees
During
During
All of these offerings and sales were made in reliance on the exemption from registration contained in Section
Stock Option Expense
During the years ended December 31,
2018 Equity Incentive Plan
On June 22, 2018, our stockholders adopted the BioLargo 2018 Equity Incentive Plan
F- 23 Activity for our stock options under the 2018 Plan during the year ended December 31,
(1) – Aggregate intrinsic value based on closing common stock price of
The options granted
As of December 31, 2023, there remains $918,000 of stock option expense to be expensed over the next 4 years. 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 one-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 25,000 shares of the Company’s common stock for each month during the Extended Term (thus, an option to purchase 300,000 shares reflecting an extended term of 12 months). The Option vests over the period of the Extended Term, with 25,000 shares having vested as of March 21, 2023, and the remaining shares to vest 25,000 shares monthly beginning March 31, 2023, and each month thereafter, so long as the agreement is in full force and effect. The Option is exercisable at $0.20 per share, the closing price of BioLargo’s common stock on the March 21, 2023, grant date, expires ten years from the grant date, and was issued pursuant to the Company’s 2018 Equity Incentive Plan. 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 one-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 25,000 shares of the Company’s common stock for each month during the Extended Term (thus, an option to purchase 300,000 shares reflecting an extended term of 12 months). The Option vests over the period of the Extended Term, with 25,000 shares having vested as of March 22, 2022, and the remaining shares to vest 25,000 shares monthly beginning March 22, 2022, and each month thereafter, so long as the agreement is in full force and effect. The Option is exercisable at $0.24 per share, the closing price of BioLargo’s common stock on March 22, 2022, the grant date, expires ten years from the grant date, and was issued pursuant to the Company’s 2018 Equity Incentive Plan.
On
Activity for our stock options under the 2007 Plan for the years ended December 31,
Non-Plan Options issued Activity of our non-plan stock options issued for the years ended December 31, 2023 and 2022 is as follows:
(1) – Aggregate intrinsic value based on closing common stock price of $0.17 at December 31, 2023.
During the year ended December 31,
During the year ended December 31,
Note
We have certain warrants outstanding to purchase our common stock, at various prices, as described in the following table:
(1) – Aggregate intrinsic value based on closing common stock price of
Warrants issued in
During the year ended December 31, During the year ended December 31, 2022, pursuant to our Unit Offering (see Note 3), we issued six-month stock purchase warrants to purchase an aggregate 13,568,524 shares of our common stock at prices from
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:
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
As of December 31,
See Note 10
Note
Given our historical losses from operations, income
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:
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:
The At December 31, 2023, the Company had utilizable federal net operating loss carry forwards of approximately $95 million. The federal operating losses prior to 2003 have expired. Utilization of the U.S. federal and state net operating loss may be subject to a substantial annual limitation under Section 382 and Section 383 of the Internal Revenue Code of 1986, as amended, and corresponding provisions of state law, due to ownership changes that have occurred previously or that could occur in the future. These ownership changes may limit the amount of net operating loss that can be utilized annually to offset future taxable income and tax liabilities, respectively. The Company has not completed a study to assess whether a change of ownership has occurred, or whether there have been multiple ownership changes since its formation. Any limitation may result in expiration of a portion of the net operating loss carryforwards or research and development tax credit carryforwards before utilization. The Company is subject to Note 9. Noncontrolling Interest – BioLargo Energy Technologies, Inc. (BETI)
F- 28 Note
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, 100 shares of the Delaware corporation were issued. All share numbers stated herein, regardless of date, reflect the foregoing 1-for-100 stock split.
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 $23,000 per month for a period of four years. On June 30, 2020, at Clyra’s request, Beach House Consulting agreed to accept 3,639 shares of Clyra common stock valued at $788,000, in lieu of cash, as full prepayment of the consulting fee. The obligation to provide the consulting services is dependent on Clyra generating an average of $250,000 in monthly sales over three consecutive months, which has not been met. The value of the shares issued to Beach House totaled $788,000, and the obligation is recorded as a non-current asset on our consolidated balance sheet. 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 $394,000. 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 $197,000. The impairment amount was charged to impairment expense on our consolidated statements of operations. Debt Obligations of Clyra Medical
Promissory Note
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 $1,000,000 inventory line of
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 15% of the principal amount then due under the note. Additionally, BioLargo agreed to allow Vernal Bay to elect to convert, any time prior to the note’s maturity date, the 32,200 shares of Clyra common stock it received as consideration for the line of credit into shares of BioLargo common stock based on the volume weighted average price of BioLargo common stock for the 30 business days preceding the election. Vernal Bay elected to convert these shares into 527,983 shares of BioLargo common stock in January 2023. As of December 31, 2023, the balance outstanding on this line of credit totals $134,000. As of December 31, 2022, the balance outstanding on this line of credit totaled $161,000. Equity Transactions As of December 31, 2023, Clyra had an aggregate 10,000,749 shares outstanding, of which 746,418 were Series A Preferred shares. Of that amount, BioLargo owned 5,322,775 shares, of which 165,765 were Series A Preferred shares. Sales of Common Stock During the year ended December 31, 2023, Clyra sold 7,000 shares of its common stock, and issued a warrant to purchase 3,500 shares of its common stock at $7.50 per share, expiring February 28, 2027, from one accredited investor. In exchange, it received $35,000 in gross and net proceeds. The fair value of this warrant issued total $4,000 and is 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 Clyra stock. On March 2, 2022, BioLargo converted $633,000 owed to it by Clyra into 204,223 shares of Clyra common stock.
During the year ended December 31, On December 20, 2022, Clyra sold 72,581 shares of its Series A Preferred Stock, and in exchange received $225,000 in gross and net proceeds, from two accredited investors. Each investor also received a 3-year warrant to purchase the same number of additional shares of common stock for $3.72 per share. The fair value of these warrants totaled $55,000. Shares of Series A Preferred Stock earn a dividend of 15% each year. Each share of Series A Preferred stock can be converted by the holder at any time for one share of common stock. Accrued dividends maybe converted to common stock at a conversion rate of $3.10 per share. Each investor also entered into an agreement with BioLargo whereby the investor may exchange some or all of its Series A Preferred stock, plus accrued dividends, into shares of BioLargo common stock, at a price equal to a 20% discount of the volume weighted average price over the 30 prior trading days. Elections may made during the period beginning January 1, 2025, and ending on June 30, 2026. On July 20, 2023, BioLargo converted $96,000 owed to it by Clyra into 30,833 shares of Clyra Series A preferred common stock. On December 31, 2022, BioLargo converted $418,000 owed to it by Clyra into 134,932 shares of Clyra Series A preferred stock. Stock Options
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 191,981 and 182,908 shares of its common stock,
30%. During the year ended December 31,
Note 11
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
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 not award any Class B units or stock options. In
Note
For the years ended December 31, 2023 and 2022,BioLargo
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,
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,
As of December 31,
Note
Management has evaluated subsequent events through the date of the filing of this Annual Report and management noted the following for disclosure.
From January 1,
Clyra Medical From January 1, 2024, through March 29, 2024,Clyra Medical sold 95,000 shares of its common stock, and issued warrants to
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