AS OF DECEMBER 31, ~~2018~~2019 AND ~~JUNE 30, 2019~~MARCH 31, 2020

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

F-3

FOR THE THREE ~~AND SIX~~ MONTHS ENDED ~~JUNE 30, 2018~~MARCH 31, 2019 AND ~~2019~~2020

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

F-4

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CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE THREE ~~AND SIX~~ MONTHS ENDED ~~JUNE 30, 2018~~MARCH 31, 2019 AND ~~2019~~2020

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

F-5

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CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE ~~SIX~~THREE MONTHS ENDED ~~JUNE 30, 2018~~MARCH 31, 2019 AND ~~2019~~2020

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

F-6

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Other ~~assets~~Assets consisted of security deposits of $35,000 related to our ~~real estate~~business offices.

In February 2016, the FASB issued ASU Update No. 2016-02, “Leases,” which requires lessees to recognize most leases on their balance sheets as a right-of-use asset with a corresponding lease liability, and lessors to recognize a net lease investment. Additional qualitative and quantitative disclosures are also required. We adopted this standard effective January 1, 2019 using the effective date option, which resulted in a $399,000 gross up of assets and liabilities; this balance may fluctuate over time as we enter into new leases, extend or terminate current leases. Upon the transition to the ASC 842, the Company elected to use hindsight as a practical expedient with respect to determining the lease terms (as we considered our updated expectations of acceptance of the Westminster California facility lease renewal) and in assessing any impairment of right-of-use assets for existing leases. No impairment is expected at this time. As of March 31, 2020, the gross up of our balance sheet related to our operating leases totals $386,000.

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. ~~As of December~~For the three months ended March 31, ~~2018~~2019 and ~~June 30, 2019,~~2020, management determined that there was no impairment of its long-lived ~~assets.~~assets, including its In-process Research and Development at Clyra (see Note 8).

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

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. 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 three months ended March 31, 2020, the joint venture incurred a loss and our 40% ownership share reduced our investment interest by $1,000.

We report basic and diluted earnings (loss) per share (“EPS”) for common and common share equivalents. Basic EPS is computed by dividing ~~the loss attributable to common shareholders~~reported earnings by the weighted average shares outstanding. Diluted EPS is computed by adding to the weighted average shares the dilutive effect if stock options and warrants were exercised into common stock. For the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2019 and ~~2019,~~2020, the denominator in the diluted EPS computation is the same as the denominator for basic EPS due to the anti-dilutive effect of the warrants and stock options on the Company’s net loss.

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

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

We recognize compensation expense for stock option awards on a straight-line basis ~~for employees~~ over the applicable service period of the award, which is the vesting period. ~~We recognize compensation expense for stock option awards for non-employees at the fair~~Fair value is determined on the grant date. Generally, the options issued to non-employees have been earned upon issuance. For the instances that options are issued to non-employees with a vesting schedule, the fair value is recorded on each vesting 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.

For equity instruments issued and outstanding where performance is not complete, but the instrument has been recorded, those instruments are measured again at their then current fair market values at each of the reporting dates (they are “marked-to market”) until the performance and the contract are complete.

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

The following methodology and assumptions were used to calculate share-based compensation for the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 and ~~2019:~~2020:

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

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

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

Warrants issued with our convertible promissory notes, note payables, line of credit are accounted for under the fair value and relative fair value method.

The warrant is first analyzed per its terms as to whether it has derivative features or not. If the warrant is determined to be a derivative and not qualify for equity treatment, then it is measured at fair value using the Black Scholes option model, and recorded as a liability on the balance sheet. The warrant is re-measured at its then current fair value at each subsequent reporting date (it is “marked-to-market”).

If the warrant is determined to not have derivative features, it is recorded into equity at its fair value using the Black Scholes option model, however, limited to a relative fair value based upon the percentage of its fair value to the total fair value including the fair value of the convertible note.

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

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

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.

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

We ~~adopted ASU 2014-09, “Revenue~~account for revenue in accordance with ASC 606, “revenue from ~~Contracts~~Contacts with Customers”~~, Topic 606, on January 1, 2018.~~. The guidance focuses on the core principle for revenue ~~recognition.~~

~~The core principle of the guidance~~recognition, which is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, the guidance provides that an entity should apply the following steps:

Step 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.

~~For product~~We have revenue ~~we identify the~~from two subsidiaries, Odor-No-More and BLEST. Odor-No-More identifies its contract with the customer through a written purchase order, ~~(which may be part of a national purchasing agreement),~~ 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. ~~We recognize~~Odor-No-More recognizes revenue at a point in time when the order for its goods are shipped if ~~the~~its agreement with ~~our~~the customer is FOB ~~our~~Odor-No-More’s warehouse facility, and when goods are delivered to its customer if ~~the~~its agreement with ~~our~~the customer is FOB destination. Revenue is recognized with a reduction for sales discounts, as appropriate and negotiated in the customer’s purchase order. Odor-No-More 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.

~~For service revenue, we identify~~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. ~~Service~~BLEST’s contracts typically call for invoicing for time and materials incurred for that contract. A few contracts have called for milestone or fixed cost payments, where BLEST invoices an agreed-to amount per month for the life of the contract. In these instances, completed work, billed hourly, is recognized as revenue. If the billing amount is greater or lesser than the completed work, a receivable or payable is created. These accounts are adjusted upon additional billings as the work is completed. To date, there have been no discounts or other financing terms for the contracts.

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

We have been awarded multiple research grants from governmental and quasi-governmental institutions. The grants received are considered “other income” and are included in our Consolidated Statements of ~~Operations and Comprehensive Loss.~~Operations. We received our first grant in 2015 and have been awarded over 6075 grants totaling over $3.6 million. Some of the funds from these grants are given directly to third parties (such as the University of Alberta or a third-party research scientist) to support research on our technology. The grants have terms generally ranging between six and eighteen months and support a majority, but not all, of the related research budget costs. This cooperative research allows us to utilize (i) a depth of resources and talent to accomplish highly skilled work, (ii) financial aid to support research and development costs, (iii) independent and credible validation of our technical claims.

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

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

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

Management believes the carrying amounts of the Company’s financial instruments (excluding debt and equity instruments) as of December 31, ~~2018~~2019 and ~~June 30, 2019~~March 31, 2020 approximate their respective fair values because of the short-term nature of these instruments. Such instruments consist of cash, accounts receivable, prepaid assets, accounts payable, lines of credit, and other assets and liabilities.

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

In August 2018, the FASB issued Accounting Standards Update No. 2018-13, “Fair Value Measurement (Topic 820), Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.” The amendments in this update modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. ~~The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year.~~ Management has ~~not~~ concluded ~~its evaluation of the guidance. Its initial analysis is~~ that itnew guidance does not ~~believe the new guidance will substantially~~ impact the Company’s financial statements.

In June 2018, The FASB issued Accounting Standards Update No. 2018-07, “Compensation – Stock Compensation (topic 718): Improvements to Nonemployee Share-Based Payment Accounting”. The amendments in this update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts and Customers. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. This new guidance did not materially impact our stock compensation expense.

In February 2016, the FASB issued ASU Update No. 2016-02, “Leases,” which will require lessees to recognize most leases on their balance sheets as a right-of-use asset with a corresponding lease liability, and lessors to recognize a net lease investment. Additional qualitative and quantitative disclosures will also be required. We adopted this standard effective January 1, 2019 using the modified retrospective transition method approved by the FASB in July 2018, which resulted in a $399,000 gross up of assets and liabilities; this balance may fluctuate over time as we enter into new leases, extend or terminate current leases. As of June 30, 2019, the gross up of our balance sheet related to our operating leases totals $370,000.

Note 4. Debt Obligations

The following table summarizes our debt obligations outstanding as of December 31, ~~2018~~2019 and as of ~~June 30, 2019 (in thousands). The Company raised $2,360,000 new financing after June 30, 2019, and refinanced some of the obligations in the table (see Note 12).~~March 31, 2020.

December 31,
2018

June 30,
2019

Current liabilities:

Notes payable and line of credit

Notes payable, mature September 6, 2019
$ 400 $ 484
Note payable, due on demand 60 days’ notice (or March 8, 2023)
— 50
Line of credit, due on demand 30 days’ notice after September 1, 2019
430 430
Note payable issued by Clyra Medical to Scion, matures June 17, 2020 (Note 8)
— 1,007
Total notes payable and line of credit
$ 830 $ 1,971

Convertible notes payable:

Convertible note, matured January 11, 2019
300 —
Convertible notes, mature December 31, 2019⁽¹⁾
75 75
Convertible note, matures July 15, 2019
550 125
Convertible note, matures July 20, 2019⁽¹⁾
440 440
Convertible note, matures October 7, 2019
— 370
Convertible notes, mature November 5, 2019 and December 7, 2019
— 554
Convertible nine-month OID notes, mature beginning October 2019
— 213
Convertible note, matures April 18, 2020
— 220
Convertible notes, mature February 14 and March 17, 2020
— 200
Convertible note, matures March 4, 2020
— 110
Convertible 12-month OID notes, mature beginning June 2020
— 531
Convertible notes payable, mature June 20, 2020⁽¹⁾
— 25
Total convertible notes payable
$ 1,365 $ 2,863

Total current liabilities
$ 2,195 $ 4,834

Long-term liabilities:

Note payable issued by Clyra Medical to Scion, matures June 17, 2020 (See Note 8)
1,007 —
Convertible notes payable, mature June 20, 2020⁽¹⁾
25 —
Convertible notes payable, mature April 20, 2021⁽¹⁾
100 100
Convertible notes, mature June 15, 2021⁽¹⁾
110 110
Note payable, matures March 8, 2023 (or on demand 60 days’ notice)
50 —
Total long-term liabilities
$ 1,292 $ 210

Total
$ 3,487 $ 5,044

	December 31, 2019		March 31, 2020
Current liabilities:
Note payable, matures on demand 60 days’ notice (or March 8, 2023)	$	50	$	50
Line of credit, matures September 1, 2019 or later (on 30-day demand)		50		50
Note payable issued by Clyra Medical to Scion, matures June 17, 2020 Clyra note payable (See Note 8)		1,007		1,007
Total notes payable and line of credit	$	1,107	$	1,107
Convertible notes payable:
Convertible note, matures April 7, 2020		270		—
Convertible note, matures June 20, 2020⁽¹⁾		25		25
Convertible 12-month OID notes, mature beginning June 2020⁽¹⁾		3,112		2,948
Convertible notes, mature August 12 and 16, 2020		550		550
Total convertible notes payable		3,957		3,523
Total current liabilities	$	5,064	$	4,630

Long-term liabilities:
Convertible note payable, matures August 9, 2021		600		600
Convertible notes payable, mature April 20, 2021⁽¹⁾		100		100
Total long-term liabilities	$	700	$	700
Total	$	5,764	$	5,330

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

For the three months ended March 31, 2019 and 2020 we recorded $985,000 and $757,000 of interest expense related to the amortization of discounts on convertible notes payable, coupon interest from our convertible notes and line of credit.

The following discussion includes debt instruments to which amendments were made ~~during the three months ended June 30, 2019, and includes~~or included other activity that management deemed appropriate to disclose. Each of the debt instruments contained in the above table are disclosed more fully in the financial statements contained in the Company’s Annual Report filed March ~~29, 2019.~~31, 2020, as amended.

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~~BIOLARGO, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

~~Notes payable, mature September 6, 2019~~

On June 4, 2019, we exercised our right to extend the maturity dates of two promissory notes due June 5, 2019 which were originally issued September 19, 2018 to Vernal Bay Investments, LLC (“Vernal”) and Chappy Bean, LLC (“Chappy Bean”). Our election to extend the maturity dates increased the principal amount of each note by 10%, such that the aggregate principal balance of the two notes increased to $484,000 as of June 4, 2019. Subsequent to June 30, 2019, we refinanced one of the two notes (see Note 12).

~~Convertible Note, matures July 15, 2019 (Vista Capital)~~

On January 7, 2019, we and Vista Capital agreed to amend the convertible promissory note originally issued December 14, 2017 (“Vista 2017 Note”) and extend its maturity date to April 15, 2019. The principal amount of the note was increased to $605,100. The note will continue to earn interest at the rate of five percent per annum. The amendment re-defined the conversion price to equal 80% of the lowest closing bid price of the Company’s common stock during the 25 consecutive trading days immediately preceding the conversion date. The amendment also reduced the prepayment penalty from 20% to 15%, such that a prepayment requires the payment of an additional 15% of the then outstanding balance, and reduced the penalty for a default from 30% to 25% of the outstanding balance. The intrinsic value of the beneficial conversion feature resulted in a fair value totaling $487,000, all of which was recorded as interest expense during the six months ended June 30, 2019.

On March 28, 2019, we and Vista agreed to further extend the maturity date of the Vista 2017 Note, to July 15, 2019. In consideration for the extension, we agreed to increase the principal balance of the note by 10 percent, to $420,000. The increase in principal totaling $38,000 was recorded as a loss on debt extinguishment on our statement of operations. On July 16, 2019, we and Vista further agreed to extend the maturity date to August 31, 2019. No additional consideration was given for the extension (see Note 12).

During the six months ended June 30, 2019, Vista Capital elected to convert $515,000 of the outstanding principal of the Vista 2017 Note, and we issued 4,406,312 shares of our common stock to Vista pursuant to the conversions. As of June 30, 2019, the outstanding balance on the Vista Note totaled $125,000. Subsequent to June 30, 2019, we and Vista agreed to extend the maturity date of the Note to February 28, 2020 (see Note 12).

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

On January 7, 2019, Vista Capital Investments LLC (“Vista Capital”) invested $300,000 and in exchange we issued a convertible promissory note (the “Vista 2019 Note”) in the principal amount of ~~$330,000, maturing~~$330,000. Originally set to mature nine months from the date of issuance, ~~(October 7, 2019).~~the maturity date was extended multiple times. The ~~Vista 2019 Note~~note earned a one-time interest charge of 12%, which was recorded as a discount on convertible notes and ~~will be~~was amortized over the term of the note. The ~~Vista 2019 Note allows Vista Capital to convert~~note allowed conversion of the note tointo our common stock ~~at any time~~ at a price equal to 65% of the lowest closing bid price of the Company’s common stock during the 25 consecutive trading days immediately preceding the conversion date. The Vista 2019 Note contains standard provisions of default, and precludes the issuance of shares to the extent that Vista Capital would beneficially own more than 4.99% of our common stock. The Vista 2019 Note also includes a term that allows Vista Capital to adopt any term of a future financing more favorable than what is provided in the note. For example, these provisions could include a more favorable interest rate, conversion price, or original issue discount. The Vista 2019 Note also requires that we include the shares underlying conversion of the note on the next registration statement we file with the SEC (but not the registration statement filed November 6, 2018). The intrinsic value of the beneficial conversion feature resulted in a fair value totaling $300,000, and is recorded as a discount on convertible notes on our balance sheet. This discount will be amortized over the term of the note as interest expense, all of which ~~will be~~was recorded in 2019. ~~Subsequent to June 30, 2019, we and Vista agreed to extend the maturity date of the Note to April 7, 2020 (see Note 12).~~

~~Convertible Notes, mature November 5, 2019 and December 7, 2019 (Tangiers)~~

On January 31, 2019, we issued a 12% Convertible Promissory Note to Tangiers Global, LLC (“Tangiers”) in the aggregate principal amount of up to $495,000 (the “Tangiers Note”). The note allows for two payments, each due in nine months after receipt, and incurs a guaranteed interest of 12% at inception. The initial payment of $300,000 was received on February 5, 2019, representing a $330,000 principal amount and 10% original issue discount. It is due November 5, 2019. We received the second payment, in the amount of $150,000, on March 7, 2019, increasing the principal amount due under the note to $495,000. This second amount, plus guaranteed interest, is due December 7, 2019. In the aggregate, the principal amount of the note, plus guaranteed interest, totals $554,000.

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~~BIOLARGO, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

The Tangiers Note is convertible at the option of Tangiers at a conversion price equal to 75% of the lowest closing bid price of the Company’s common stock during the 25 consecutive trading days prior to the conversion date. The intrinsic value of the beneficial conversion feature resulted in a fair value totaling $185,000, and is recorded as a discount on convertible notes on our balance sheet. This discount will be amortized over the term of the note as interest expense, all of which will be recorded in 2019.

We may prepay the Tangiers Note up to 180 days after the effective date. If a prepayment is made within 90 days, we must pay a prepayment penalty of 25%; from 91 to 180 days, we must pay a prepayment penalty of 30%. We may pay such prepayment penalties, if we so choose, by issuing common stock at the conversion price. If such shares are not eligible for removal of restrictions pursuant to a registration statement or Rule 144 within 10 trading days following the six-month anniversary of the effective date, Tangiers may rescind the stock issuance and force the Company to pay the prepayment penalty in cash. Upon the occurrence of an event of default, as such term is defined under the Tangiers Note, additional interest will accrue from the date of the event of default at a rate equal to the lower of 22% per annum or the highest rate permitted by law, and an additional 25% shall be added to the principal amount of the note.

~~In connection with the Tangiers Note, the Company caused its transfer agent to reserve 3,000,000 shares of the Company’s common stock, in the event that the Tangiers Note is converted.~~

~~On July 29, 2019, Tangiers elected to convert $369,600 into equity, and subsequently agreed to invest an additional $350,000 (see Note 12).~~

~~Convertible Nine-Month OID Notes~~

During the three months ended March 31, ~~2019,~~2020, Vista Capital elected to convert the remaining balance of $270,000 of the outstanding principal and interest due on the note, and we issued ~~convertible promissory notes (each, an “OID Note”) in the aggregate principal amount of $213,000, with a 25% original issue discount. These notes were initially convertible into~~2,417,059 shares of the Company’s common stock at a conversion price of $0.25 per share, and mature nine months from the date of issuance. Our agreement with the investors provided that the initial conversion price may be adjusted downward in the event the Company subsequently issues a convertible promissory note at a lower conversion rate (with this lower conversion rate becoming the adjusted conversion rate under the OID Note), or conducts an equity offering at a per-share price less than $0.25. Each investor also received a stock purchase warrant equal to 75% of the principal amount, divided by the conversion price of $0.25 (see Note 6).

On June 7, 2019, we began issuing twelve-month OID notes at a lower conversion price ($0.17; see “Convertible Twelve-month OID notes”, below). As such, we reduced conversion prices of these notes to $0.17, resulting in an increase of 300,000 shares available for purchase under the warrants.

~~Convertible Note, matures April 18, 2020~~

On April 18, 2019, we received $188,000 and issued a convertible note to Bellridge Capital, LP (“Bellridge”) in the principal amount of $220,000 (the “Bellridge Note”), representing a 10% original issue discount, and a deduction of $10,000 for legal fees paid to the investor. The note is due April 18, 2020 and earns interest at 10% per annum. We and Bellridge concurrently entered into a Securities Purchase Agreement through which, upon our mutual consent, Bellridge may invest up to an additional $400,000 (in two tranches) that would be reflected in two additional notes, each of which would mature one year from the date of issuance.

The Bellridge Note is convertible at the option of Bellridge at a conversion price equal to 70% of the lowest closing bid price of the Company’s common stock during the 25 trading days prior to the conversion date. We may prepay the Bellridge Note at any time. If we do so up to 90 days after the effective date, the amount due is equal to 125% of the unpaid principal amount of the note along with any accrued interest, and thereafter, the amount due is 130% of the unpaid principal amount of the note along with any accrued interest. Upon the occurrence of an event of default, as such term is defined under the Bellridge Note, additional interest will accrue from the date of the event of default at a rate equal to the lesser of 24% per annum or the highest rate permitted by law. The intrinsic value of the beneficial conversion feature resulted in a fair value totaling $120,000, and is recorded as a discount on convertible notes on our balance sheet. This discount will be amortized over the twelve-month term of the note as interest expense.

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~~BIOLARGO, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

~~Convertible notes, mature February 14 and March 17, 2020~~

On May 14, 2019, we received $95,000 and issued a convertible note to Crossover Capital Fund I, LP (“Crossover Capital”) in the principal amount of $110,000 , representing a 10% original issue discount, and a deduction of $5,000 for legal fees and due diligence. The note is due nine months from the date of issuance, on February 14, 2020.

On June 17, 2019, we received a second investment from Crossover Capital in the amount of $77,000 and issued a convertible note in the principal amount of $90,000, representing a 10% original issue discount, and a deduction of $5,000 for legal fees and due diligence. The note is due nine months from the date of issuance, March 17, 2020.

Concurrently with these two investments, we and Crossover Capital entered into Securities Purchase Agreements. The notes are convertible at the option of Crossover Capital at a conversion price equal to 70% of the lowest closing bid price of our common stock during the 25 trading days prior to the conversion date. We may prepay the notes up to 180 days after issuance, by paying a prepayment penalty that increases from 5% within the first 30 days, to 30% during the last 30. Upon the occurrence of an event of default, as such term is defined under the note, additional interest will accrue from the date of the event of default at a rate equal to the lesser of 24% per annum or the highest rate permitted by law. The intrinsic value of the beneficial conversion features resulted in an aggregate fair value of $134,000, and is recorded as a discount on convertible notes on our balance sheet. This discount will be amortized over the nine-month terms of the notes as interest expense.

~~Convertible note, matures March 4, 2020~~

On June 4, 2019, we received $95,000 and issued a convertible note to EMA Financial, LLC (“EMA”) in the principal amount of $110,000 (the “EMA Note”), representing a 10% original issue discount, and a deduction of $5,000 for legal and diligence fees. The note is due nine-months from the date of issuance, on March 4, 2020, and earns interest at a rate of 10% per annum.

The EMA Note is convertible at the option of EMA at a conversion price equal to 70% of the lowest closing bid price of the Company’s common stock during the 25 trading days prior to the conversion date. We may prepay the EMA Note at any time. If we do so up to 90 days after the effective date, the amount due is equal to 125% of the unpaid principal amount of the note along with any accrued interest, and thereafter, the amount due is 130% of the unpaid principal amount of the note along with any accrued interest. Upon the occurrence of an event of default, as such term is defined under the EMA Note, additional interest will accrue from the date of the event of default at a rate equal to the lesser of 24% per annum or the highest rate permitted by law. The intrinsic value of the beneficial conversion feature resulted in a fair value totaling $77,000, and is recorded as a discount on convertible notes on our balance sheet. This discount will be amortized over the nine-month term of the note as interest expense.stock.

Convertible Twelve-month OID notes

~~During the three months ended~~From June 7, 2019 through September 30, 2019, we received ~~$425,000~~$2,235,000 and issued convertible promissory notes (each, a “12-Month OID Note”) in the aggregate principal amount of ~~$531,000,~~$2,794,000, with a 25% original issue discount, to ~~four~~34 accredited investors. The original issuance discount totaled ~~$106,000~~$559,000 and is recorded as a discount on convertible notes payable on our balance sheet. The intrinsic value of the beneficial conversion features resulted in an aggregate fair value of ~~$425,000,~~$2,235,000, and is recorded as a discount on convertible notes on our balance sheet. The discounts will be amortized and recorded to interest expense over the term of the notes. These notes mature twelve months from the date of issuance.

Table of Contents

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

During the three months July 1, 2019 through September 30, 2019, in exchange for $305,000 of convertible note payables that were coming due, we issued an additional $381,000 convertible promissory notes (each, a “12-Month OID Note), with a 25% original issue discount. The ~~earliest maturity~~original issue discount totaled $76,000 and is recorded as a discount on convertible notes payable on our balance sheet. The intrinsic value of the beneficial conversion features resulted in an aggregate fair value of $381,000 and is recorded as debt extinguishment expense on our statement of operations. The discount will be amortized and recorded to interest expense over the term of the notes. These notes mature twelve months from the date ~~is June 7, 2020.~~of issuance.

Each Twelve-month OID Note is convertible by the investor at any time at $0.17 per share. This initial conversion price shall be adjusted downward in the event the Company subsequently issues a convertible promissory note at a lower conversion rate (with this lower conversion rate becoming the adjusted conversion rate under the note), or conducts an equity offering at a per-share price less than $0.17. The notes earn interest at a rate of five percent (5%) per annum, due at maturity. The Company may prepay the notes only upon 10 days’ notice to the investor, during which time the investor may exercise his/her right to convert the note to stock.

~~We must~~ The Company is obligated to prepay the ~~OID Notes upon the conclusion of a “qualifying offering” (an offering raising $3.5 million or more);~~notes in the event it receives at least $3.5 million gross proceeds in a ~~qualified offering is not concluded prior to the~~financing transaction. At maturity, ~~date, or the Note is otherwise not paid in full,~~ the Company ~~shall~~may redeem the notes ~~by issuing~~through the ~~number of shares~~issuance of common stock at a conversion price equal to the ~~outstanding balance divided by the~~ lower of ~~(i)~~ the ~~current conversion price~~“conversion price” (initially $0.17, as may be adjusted), and ~~(ii) seventy percent (70%)~~70% of the lowest daily volume weighted average price ~~(“VWAP”)~~of the Company’s common stock during the 25 trading days ~~immediately~~ preceding the ~~conversion.~~conversion date.

~~In addition~~During the three months ended March 31, 2020, noteholders elected to convert $165,000 of the ~~note, each~~outstanding principal of 12-Month OID ~~investor will receive a warrant to purchase common stock exercisable at $0.25 per share (see Note 6).~~

~~Subsequent to June 30, 2019,~~Notes and we issued ~~additional 12-month~~970,590 shares of our common stock. As of March 31, 2020, the outstanding balance on the 12-Month OID ~~notes and closed the offering (see Note 12).~~

~~Table of Contents~~

~~BIOLARGO, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~Notes was $2,948,000.

Note 5. Share-Based Compensation

Issuance of Common Stock in exchange for payment of payables

Payment of Officer Salaries

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

On March 29, 2019, we issued 579,996 shares of our common stock at $0.16 per share in lieu of $93,000 of accrued ~~salary~~ and ~~unreimbursed business expenses owed~~unpaid obligations to ~~two of~~ our officers. ~~The price-per-share of $0.16 was based on the closing price of our common stock on the last business day of the month. These shares were issued pursuant to our 2018 Equity Incentive Plan.~~

~~On June 28, 2019, we issued 465,875 shares~~Payment of our common stock in lieu of $107,000 of accrued salary and unreimbursed business expenses owed to two of our officers. The price-per-share of $0.23 was based on the closing price of our common stock on the last business day of the month. These shares were issued pursuant to our 2018 Equity Incentive Plan.Consultant Fees

On March 31, ~~2018,~~2020, we issued 323,030 shares of our common stock in lieu of $84,000 of accrued salary and unreimbursed business expenses owed to two of our officers. The price-per-share of $0.26 was based on the closing price of our common stock on the last business day of the month.

On June 29, 2018, we issued 176,947 shares of our common stock in lieu of $76,000 of accrued salary and unreimbursed business expenses owed to two of our officers. The price-per-share of $0.43 was based on the closing price of our common stock on the last business day of the month.

~~Payment of Consultant Fees~~

~~During the three months ended June 30, 2019, we issued 515,809~~390,735 shares of our common stock at a range of ~~$0.16 – $0.23~~$0.17 per share in lieu of ~~$107,000 accrued and unpaid obligations to consultants.~~

~~During the three months ended June 30, 2018, we issued 556,874 shares of our common stock, at prices ranging between $0.17 - $0.23 per share, in lieu of $174,000~~$67,000 of accrued and unpaid obligations to consultants.

On March 29, 2019, we issued 649,545 shares of our common stock at $0.16 per share in lieu of $113,000 of accrued and unpaid obligations to consultants.

Payment of Accrued Interest ~~on Notes~~

On March 31, 2020, we issued 19,278 shares of our common stock at $0.17 per share in lieu of $4,000 of accrued interest.

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

During the three months ended June 30, 2018, we issued 1,302,734 shares of our common stock, at prices ranging between $0.23 - $0.45 per share, in lieu of $329,000 of accrued interest due on promissory notes.

~~Restricted Stock Units~~

On May 28, 2019, our Compensation Committee, in conjunction with the approval of a new employment agreement for our Vice President of Operations and President of our subsidiary Odor-No-More, granted Joseph L. Provenzano a restricted stock unit of 500,000 shares of common stock, subject to the execution of a “lock-up agreement” whereby the shares remain unvested unless and until the earlier of (i) a sale of the Company, (ii) the successful commercialization of the Company’s products or technologies as demonstrated by its receipt of at least $3,000,000 in cash, or the recognition of $3,000,000 in revenue, over a 12-month period from the sale of products and/or the license of technology, and (iii) the Company’s breach of the employment agreement resulting in his termination.interest.

Stock Option Expense

During the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 and ~~2019,~~2020, we recorded an aggregate ~~$696,000~~$352,000 and ~~$648,000, respectively,~~$320,000, in selling general and administrative expense related to the issuance and vesting of stock ~~options. We~~options issued ~~options~~ through our 2018 Equity Incentive Plan, our (now expired) 2007 Equity Incentive Plan, and outside of ~~this plan.~~these plans (see Note 8 related to stock options issued by Clyra Medical).

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BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

2018 Equity Incentive Plan

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

Activity for our stock options under the 2018 Plan ~~from inception through June 30, 2018 and from December 31, 2018 through~~for the ~~six~~three months ended ~~June 30,~~March 31, 2019 and March 31, 2020, is as follows:

Weighted

Average

Aggregate

Options

Exercise

Price per

intrinsic

As of June 30, 2018:

Outstanding

Price per share

share

Value⁽¹⁾

Inception, June 22, 2018
— — —
Granted
296,976 0.43 0. 43
Balance, June 30, 2018
296,976 $ 0.43 $ 0.43 $ —

Weighted

Average

Aggregate

Options

Exercise

Price per

intrinsic

Outstanding

Price per share

share

Value⁽¹⁾

Balance, December 31, 2018
1,318,517 $0.22 – 0.43 $ 0.30
Granted
890,280 0.16 – 0.22 0.19
Expired
— — —
Balance, March 31, 2019
2,208,797 $0.16 – 0.43 $ 0.25

Weighted

Average

Aggregate

Options

Exercise

Price per

intrinsic

As of June 30, 2019:

Outstanding

Price per share

share

Value⁽¹⁾

Balance, December 31, 2018
1,318,517 $0.22 – 0.43 $ 0.30
Granted
3,728,366 0.16 – 0.22 0.18
Expired
— — —
Balance, June 30, 2019
5,046,833 $0.16 – 0.43 $ 0.21 $ 109,000
Balance, December 31, 2019
9,214,356 $0.22 – 0.43 $ 0.25
Granted
1,343,344 0.17 – 0.22 0.18
Expired
— — —
Balance, March 31, 2020
10,557,700 $0.16 – 0.43 $ 0.25
Non-vested
(4,677,385
)
0.17 – 0.45 0.27
Vested, March 31, 2020
5,880,315 $0.16 – 0.45 $ 0.22 $ 4,000

(1) – Aggregate intrinsic value based on closing common stock price of ~~$0.23~~$0.16 at ~~June 30, 2019.~~March 31, 2020.

The options granted to purchase ~~3,528,366~~1,343,344 shares ~~granted~~ during the ~~six~~three months ended ~~June 30, 2019 are comprised of options~~March 31, 2020 were issued to ~~employees, consultants, officers, and directors. We issued options to purchase 513,012 shares of our common stock to employees and consultants in lieu of salary and fees due at~~ an exercise price on the respective grant dates ranging between $0.16 - $0.25 per share. The fair value of these options totaled $93,000 and is recorded as selling, general and administrative expense. We issued options to purchase 715,354 shares of our common stock to members of ourofficer, board of directors, ~~for services performed, in lieu of cash, at an exercise price on the respective grant date of $0.16~~employees and ~~$0.23 per share. We~~consultants: (i) we issued options to purchase 300,000 shares of our common stock at an exercise price on the respective grant date of $0.22 per share to our ~~Chief Financial Officer~~CFO as described ~~immediately below. We~~below; and (ii) we issued options to purchase ~~1,000,000~~397,058 shares of our common stock at an exercise price on the respective grant date of $0.17 per share to ~~our Vice President of Operations as described below. We issued options to purchase 1,200,000 shares~~members of our ~~common stock at an exercise price on the respective grant date~~board of ~~$0.17 per share to our Vice President~~directors for services performed, in lieu of ~~Sales as described below.~~cash. The fair value of ~~the 2018 Plan~~these options ~~issued during the six months ended June 30, 2019,~~ totaled ~~$137,000~~$65,000 and is recorded as selling, general and administrative expenses. Additionally, we issued options to purchase 454,080 shares of our common stock to employees as part of an employee retention plan at an exercise price on the respective date of $0.17 per share. The fair value of employee retention plan options totaled $76,000 and vest quarterly over four years as long as they are retained as employees. We also issued options to purchase 64,706 shares of our common stock to consultants in lieu of cash for unpaid obligations totaling $11,000. All stock option expense is recorded on our consolidated statement of operations as selling, general and administrative expense.

Chief Financial Officer Contract Extension

On ~~January 16, 2019,~~February 25, 2020, 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) ~~with our~~, pursuant to which Mr. Dargan has been and continues to serve as the Company’s Chief Financial ~~Officer, Charles K. Dargan, II.~~Officer. The Engagement Extension Agreement dated as of ~~January 16, 2019~~February 25, 2020 (the “Engagement Extension Agreement”) provides for an additional term to begin retroactively on October 1, 2019, and to expire ~~September 30, 2019~~January 31, 2021 (the “Extended Term”), and is retroactively effective to the termination of the prior extension on September 30, 2018. Mr. Dargan has been serving as the Company’s Chief Financial Officer since such termination pursuant to the terms of the December 31, 2018 extension..

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BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

~~For~~As compensation for the Extended Term, Mr. Dargan was issued an option (“Option”) to purchase ~~300,000~~427,500 shares of our common stock. The Option vests over the ~~Company’s common stock, at a strike price equal to the closing price~~period of the ~~Company’s common stock on January 16, 2019 of $0.22, to expire January 16, 2029, and to vest over the term of the engagement~~Extended Term, with ~~75,000~~177,500 shares having vested as of ~~June 30, 2019,~~March 31, 2020, and the remaining 250,000 shares to vest ~~25,000 shares~~ monthly ~~beginning~~through January 31, ~~2019, and each month thereafter,~~2021, so long as the ~~Engagement Agreement~~agreement is in full force and effect. The Option is exercisable at $0.21 per share, the closing price of our common stock on February 25, 2020, expires ten years from the grant date, and was issued pursuant to the ~~Company’s~~ 2018 Equity Incentive Plan. ~~The fair value of the option totaled $67,000, of which $50,000 was recorded as selling, general and administrative expense during the six months ended June 30, 2019.~~

The ~~issuance of the~~ Option is Mr. Dargan’s sole ~~source of~~ compensation for the Extended Term. As was the case in all prior terms of his engagement, there is no cash component of his compensation for ~~this term.~~the Extended Term. Mr. Dargan is eligible to be reimbursed for business expenses he incurs in connection with the performance of his services as the Company’s Chief Financial Officer (although he has made no such requests for reimbursement in the past). All other provisions of the Engagement Agreement not expressly amended pursuant to the Engagement Extension Agreement remain the same, including provisions regarding indemnification and arbitration of disputes.

~~Vice President of Operations Contract Extension~~

On May 28, 2019, the Compensation Committee of the Board of Directors approved the terms of an employment agreement for our Vice President of Sales and issued him options to purchase an aggregate 1,200,000 shares of the Company’s common stock pursuant to the terms of our 2018 Plan. The exercise price of the first option to purchase 200,000 shares is equal to the closing price of our common stock on the May 28 grant date, at $0.17 per share. One-third of the option vests upon grant, the next third at the first anniversary of the grant, and the final third upon the second anniversary of the grant. Fair value of $34,000 was recorded as selling, general and administrative expenses at issuance. The remaining options to purchase an aggregate 1,000,000 shares are unvested at grant date, and contingent upon certain performance metrics based on sales of our Odor-No-More subsidiary, none of which have been met. As such, no additional fair value was recorded and we are unable to estimate at this time if these metrics will be met. Upon execution of his employment agreement on July 5, 2019, an additional option to purchase 300,000 shares was granted, with an exercise price as of July 5 ($0.25), vesting 100,000 shares on the first, second and third anniversary of the agreement.

~~Vice President of Sales~~

2007 Equity Incentive Plan

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

Activity for our stock options under the 2007 Plan for the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 and ~~2019~~2020 is as follows:

Weighted

Average

Aggregate

Options

Exercise

Price per

intrinsic

As of June 30, 2018:

Outstanding

price per share

share

Value⁽¹⁾

Balance, December 31, 2017
9,831,586 $0.23 – 1.89 $ 0.44
Expired
(70,000 ) 1.45 – 1.89 1.79
Balance, June 30, 2018
9,761,586 $0.23 – 1.65 $ 0.43 $ —

As of June 30, 2019:
Balance, December 31, 2018
9,691,586 $0.23 – 0.94 $ 0.43
Expired
(842,136 ) 0.28 – 0.70 0.49
Balance, June 30, 2019
8,849,451 $0.23 – 1.65 $ 0.46 $ —

Weighted

Average

Aggregate

Options

Exercise

Price per

intrinsic

Outstanding

price per share

share
Value⁽¹⁾
Balance, December 31, 2018
9,831,586 $0.23 – 1.89 $ 0.44
Expired
(50,000 ) 1.89 0.91
Balance, March 31, 2019
9,781,586 $0.23 – 1.65 $ 0.43 $ —

Balance, December 31, 2019
9,691,586 $0.23 – 0.94 $ 0.42
Expired
(870,000 ) 0.57 0.57
Balance, March 31, 2020
8,821,586 $0.23 – 1.65 $ 0.41 $ —

(1) – Aggregate intrinsic value based on closing common stock price of ~~$0.23~~$0.16 at ~~June 30, 2019.~~

~~Table of Contents~~

~~BIOLARGO, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~March 31, 2020.

Non-Plan Options issued

During the ~~six~~three months ended ~~June 30,~~March 31, 2020, we issued options to purchase 292,437 shares of our common stock at exercise prices ranging between $0.17 – $0.21 per share to vendors for fees for service. The fair value of the options issued totaled $50,000, is recorded in our selling, general and administrative expense.

During the three months ended March 31, 2019, we issued options to purchase ~~970,380~~731,250 shares of our common stock at exercise prices ranging between $0.16 – $0.25 per share to vendors for fees for service resulting in a fair value totaling $194,000. The fair value of the options issued and vested during the six months ended June 30, 2019 totaled $367,000, is recorded in our selling, general and administrative expense.

~~During the six months ended June 30, 2018, we issued options to purchase 1,008,268 shares of our common stock at exercise prices ranging between $0.23 – $0.43 per share to vendors and to~~ members of our board of directors ~~in exchange~~and vendors for ~~unpaid obligations~~fees for ~~their services. The fair value of the options totaled $261,000 and is recorded as selling, general and administrative expenses.~~services totaling $139,000.

Activity of our non-plan stock options issued for the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 and ~~2019~~2020 is as follows:

Weighted

Non-plan
average

Aggregate

Options Exercise
price per
intrinsic
As of June 30, 2018: outstanding price per share share
value⁽¹⁾

Balance, December 31, 2017
20,018,408 $0.25 – 1.00 $ 0.51
Granted
1,008,268 0.23 – 0.43 0.26
Expired
(2,400,000
)
0.99 0.99
Balance, June 30, 2018
18,626,676 $0.25 – 1.00 $ 0.45 $ —

As of June 30, 2019:
Balance, December 31, 2018
19,319,496 $0.23 – 1.00 $ 0.43
Granted
970,380 0.16 – 0.25 0.19
Expired
(691,975 ) 0.55 0.55
Balance, June 30, 2019
19,597,901 $0.16 – 1.00 $ 0.42 $ 34,000

Weighted

Non-plan

average

Aggregate

Options

Exercise

price per

intrinsic

As of March 31, 2019:

outstanding

price per share

share

value⁽¹⁾

Balance, December 31, 2018
19,319,496 $0.25 – 1.00 $ 0.51
Granted
731,250 0.16 – 0.25 0.19
Balance, March 31, 2019
20,050,746 $0.25 – 1.00 $ 0.45 $ —

Table of Contents

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

As of March 31, 2020:
Balance, December 31, 2019
19,888,718 $0.23 – 1.00 $ 0.41
Granted
292,437 0.17 – 0.21 0.18
Balance, March 31, 2020
20,181,155 $0.17 – 1.00 $ 0.41
Non-vested
(3,191,096
)
0.17 – 0.45 0.45
Vested, March 31, 2020
16,989,249 $0.23 – 1.00 $ 0.40 $ 5,000

(1) – Aggregate intrinsic value based on closing common stock price of ~~$0.23~~$0.16 at ~~June 30, 2019.~~March 31, 2020.

Table of Contents

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

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.

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

(1) ~~Includes 9,830 Series A Preferred shares (see below), and 1,690 common shares.~~

~~(2)~~ Does not include an additional 15,500 shares held in escrow subject to performance metrics.

~~Sanatio Capital purchased Series A Preferred~~(2) Does not include options to purchase 9,569 of shares of Clyra stock.

During 2019, Clyra began issuing options to its employees and consultants in ~~2015. Sanatio Capital is owned by Jack B. Strommen, who subsequently joined BioLargo’s board~~lieu of ~~directors. Preferred Shares accrue an annual dividend~~compensation owed. As of 8%December 31, 2019, the Company had issued options to purchase 7,624 shares of Clyra stock. In the three months ended March 31, 2020, Clyra issued options to purchase 1,945 shares of common stock to employees and vendors in exchange for a ~~period~~reduction of ~~five years. Although~~$206,000 in payables owed. Each option issued has an exercise price of $1.00 per share, are vested upon issuance and an expiration date 10 years from the ~~dividends began to accrue immediately, Clyra Medical has no obligation to declare a dividend until a product~~date of grant. The fair value of the company has received a premarket approval by the United States Federal Drug Administration (“FDA”), or for which a premarket notification pursuant to form 510(k) has been submitted and for which the FDA has given written clearance to market the productoptions issued in the ~~United States (either, “FDA Approval”). After FDA Approval, annually~~three months ended March 31, 2020, totaled $420,000, and the additional fair value totaling $214,000 was recorded as a loss on ~~December 20, and unless prohibited by California law governing distributions~~extinguishment of debt in our consolidated statement of operations. We used the Black-Scholes model to ~~shareholders,~~calculate the initial fair value, assuming a stock price on date of grant of $310 per share. Because Clyra ~~Medical~~ is ~~required to declare and pay any accruing dividends to holders of Preferred Shares then accrued but unpaid. As the declaration and payment of such dividends is contingent on an uncertain future event,~~a private company with no ~~liability has been recorded~~secondary market for ~~the dividends. The accumulated and undeclared dividend balance as of June 30, 2019 is $215,000.~~

Holders of Preferred Shares are entitled to preferential payments in the event of a liquidation, dissolution or winding up of the company, in an amount equal to any accrued and unpaid dividends. After such preference, any remaining assets are distributed pro-rata between holders of Clyra Medicalits common stock, ~~and Preferred Shares as if~~ the Preferred Shares had converted to Clyra Medical common stock. Holders of Preferred Shares may convert the shares to Clyra Medical common stock initially on a one-to-one basis. The conversion formula is subject to change in the event Clyra Medical sells stock at a lower price than the price paidresulting fair value was discounted by ~~Sanatio.~~30%.

~~Preferred shares may be converted to common shares on a one-to-one basis, and have voting rights equal to common shares on a one-to-one basis.~~

⁽¹⁾ – the “elimination” column reflects an adjustment for revenues generated between our related entities and are eliminated in consolidation.

Table of Contents

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

This quarterly report on Form 10-Q contains forward-looking statements. These forward-looking statements involve risks and uncertainties, including statements regarding BioLargo’s capital needs, business plans and expectations. Such forward-looking statements involve risks and uncertainties regarding BioLargo’s ability to carry out its planned development and production of products. Forward-looking statements are made, without limitation, in relation to BioLargo’s operating plans, BioLargo’s liquidity and financial condition, availability of funds, operating and exploration costs and the market in which BioLargo competes. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “expect”, “plan”, “intend”, “anticipate”, “believe”, “estimate”, “predict”, “potential” or “continue”, the negative of such terms or other comparable terminology. Actual events or results may differ materially. In evaluating these statements, you should consider various factors, including the risks outlined in our Form most recent annual report on Form 10-K, and, from time to time, in other reports BioLargo files with the SEC. These factors may cause BioLargo’s actual results to differ materially from any forward-looking statement. BioLargo disclaims any obligation to publicly update these statements, or disclose any difference between its actual results and those reflected in these statements. The information constitutes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

Unless otherwise expressly stated herein, all statements, including forward-looking statements, set forth in this Form 10-Q are as of ~~June 30, 2019,~~March 31, 2020, unless expressly stated otherwise, and we undertake no duty to update this information.

As used in this report, “we” and “Company” refers to (i) BioLargo, Inc., a Delaware corporation; (ii) its wholly-owned subsidiaries BioLargo Life Technologies, Inc., a California corporation, Odor-No-More, Inc., a California corporation, BioLargo Development Corp., a California corporation, , (iii) its majority-owned subsidiary BioLargo Engineering, Science & Technologies, LLC, a Tennessee limited liability company, and ~~BioLargo Water Investment Group, Inc., a California corporation, and parent corporation to~~ Canadian subsidiary BioLargo Water, Inc.; and ~~(iii)~~(iv) Clyra Medical Technologies, Inc. (“Clyra”), a partially owned subsidiary.

The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and the related notes to the consolidated financial statements included elsewhere in this report.

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.

BioLargo, Inc. is an innovative technology developer and environmental engineering company driven by a mission to “make life ~~better”~~better” by delivering robust, sustainable solutions for a broad range of industries and applications, with a focus on clean water, clean air, and advanced wound care. We develop and commercialize disruptive technologies by providing the capital, support, and expertise to expedite them from “cradle” to “maturity”. Our business strategy is straightforward: we invent or acquire technologies that we believe have the potential to be disruptive in large commercial markets; we incubate and develop these technologies to advance them and promote their commercial success as we leverage our considerable scientific, engineering, and entrepreneurial talent; we then monetize these technical assets through a variety of business structures that may include licensure, joint venture, sale, spin off, or by deploying direct to market strategies. We seek to unlock the value of our portfolio of underlying technologies to both advance our purposeful mission while we create value for our stockholders.

In response to the COVID-19 pandemic through which many states issued “shelter-at-home” orders, we took rapid action to bring forth solutions to assist in the crisis, stabilize operations, protect our staff, and shore up financial resources to continue growing the company. We have achieved the following over the past 6 weeks:

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We sponsored research with one of the leading researchers in the study of pandemic diseases, Dr Slobadan Praessler’s laboratory located at the Galveston National Laboratory at the University of Texas Medical Branch, to confirm that CupriDyne as well as Clyraguard, a product of Clyra Medical, inactivated the Coronavirus that causes COVID-19. The tests were successful. The research concluded that “CupriDyne was shown to be effective in inactivating the virus in a time-dependent manner, reducing virus titers by 99% (2 logs) after 30 minutes, and reducing virus titers to below the detection limit after 60 minutes. The novel iodine complex tested herein offers a safe and gentle alternative to conventional disinfectants for use on indoor and outdoor surfaces.” The actual report can be seen at the following link: https://www.biorxiv.org/content/10.1101/2020.05.08.082701v1. The CupriDyne abstract states:

“The coronavirus known as SARS-CoV-2, which causes COVID-19 disease, is presently responsible for a global pandemic wherein more than 3.5 million people have been infected and more than 250,000 killed to-date. There is currently ~~unfolding~~no vaccine for COVID-19, leaving governments and public health agencies with little defense against the virus aside from advising or enforcing best practices for virus transmission prevention, which include hand-washing, physical distancing, use of face covers, and use of effective disinfectants. In this study, a novel iodine complex called CupriDyne® was assessed for its ability to inactivate SARS-CoV-2. CupriDyne was shown to be effective in inactivating the virus in a time-dependent manner, reducing virus titers by 99% (2 logs) after 30 minutes, and reducing virus titers to below the detection limit after 60 minutes. The novel iodine complex tested herein offers a safe and gentle alternative to conventional disinfectants for use on indoor and outdoor surfaces.”

We intend to fully explore any and all alternatives available to develop a new CupriDyne based product to help combat COVID-19 and secure appropriate regulatory approvals.

The UTMB-Galveston National Laboratory also tested Clyra’s new Clyraguard product, and confirmed that it inactivates the SARS-CoV-2 (COVID-19) virus. The associated study results and academic paper is expected to publish soon.

While we are actively engaged in responding the COVID-19 crisis, we have not ceased operations of our ~~subsidiary, Odor-No-More, Inc., which is focused on odor~~previous and ~~volatile organic compound (“VOC”) control products sold under~~long-term operating activities or plans. However, our normal operations and rate of growth been negatively impacted during the ~~brands CupriDyne Clean and Nature’s Best Science. We are gearing up for rapid growth~~crisis, namely with delays by our customers until such time as our ~~products are experiencing more widespread market adoption~~customers operations resume some sense of normalcy. For example, our growth in the waste handling industry ~~through national purchasing agreements with four~~has reversed course as operators, in light of the ~~largest industry members. To this end,~~COVID-19 crisis, are less concerned about managing odor than during normal times. As such, we ~~have recently begun to offer a menu~~believe these commercial operations will resume its growth track after the crisis subsides.

Table of services to our clients including engineering design, construction, and installation of misting systems and related equipment used to deliver our liquid chemistry products, as well as ongoing maintenance services for installed systems. We have also begun expanding with early adopters into new vertical segments such as wastewater treatment, the cannabis industry and various industrial facilities like steel manufacturing and livestock processing operations. In 2019 we executed a five-year white-label distribution agreement with Cannabusters, Inc. a company organized and owned by Mabre Corporation to feature our odor and VOC control technology to the cannabis industry in combination with their air handling and air quality systems. We believe this to be an important opportunity for BioLargo’s odor and VOC control products, as the cannabis and hemp industries are predicted to grow significantly in the US in the coming years and are known to contend with significant odor and VOC challenges (read more under ~~Emerging High-Growth Opportunity in Cannabis / Hemp Industry~~).
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Our second commercial operation, BioLargo Engineering, Science & Technologies, LLC (“BLEST”), provides professional engineering and consulting services to third party clients on a fee-for-service basis, and also serves as our in-house engineering team to advance ~~the development of~~ our proprietary technologies and complement service offerings of our other business segments.

~~In addition~~near- and long-term prospects for substantial growth, all of which have been delayed due to ~~our two operating subsidiaries, we have technologies and products in~~ the ~~development pipeline progressing towards commercialization, including our water treatment system for decontamination and disinfection (our “Advanced Oxidation System”, or “AOS” – see~~ ~~Pilot Projects~~ ~~discussion below), and our medical products focused on healing chronic wounds, including our recently acquired stem cell therapy called the SkinDisc~~^TM~~, which is focused on regenerative tissue management and is licensed to our subsidiary Clyra Medical Technologies, Inc. (“Clyra Medical”).~~COVID-19 crisis.

~~We believe our current~~Each incremental success ~~with our industrial odor and VOC control products~~ serves to validate our overall business strategy which is focused on technology-based products and services capable of disrupting the status quo in their applicable industry market segment. We believe that the future of our medical and clean water technologies has similar and also very large market opportunities ahead as they are introduced commercially.

In addition to our two commercial operating subsidiaries, we have technologies and products in the development pipeline progressing towards commercialization, including our water treatment system for decontamination and disinfection (our “Advanced Oxidation System”, or “AOS” – see Pilot Projects discussion below), and our medical products focused on Clyraguard (Disinfecting Personal Protection Spray for Personal Protection Equipment, healing chronic wounds, including our stem cell therapy called the SkinDisc^TM, which is focused on regenerative tissue management and is licensed to our subsidiary Clyra Medical Technologies, Inc. (“Clyra Medical”). Clyra Medical is launching its Clyraguard (www.clyramedical.com/clyraguard ) product now, and given its unique value proposition as a disinfectant for personal protection equipment like facemasks, which is a safe and gentle solution (safe on skin) to help protect people from cross contamination and its proven effectiveness at inactivating the SARS-CoV-2 virus, and the fact that it FDA cleared and registered, we expect Clyraguard to experience rapid revenue growth.

Our CupriDyne Clean industrial products reduce and eliminate tough odors and VOC’s in various industrial settings, delivered through misting systems, sprayers, water trucks and similar water delivery systems. We believe the product is the number one performing odor-control product in the market, and offers substantial savings to our customers compared with competing products.

Our customer base for our odor and VOC business ~~is expanding.~~was expanding prior to the COVID-19 crisis and we expect it to continue doing so once the world returns back to work. We ~~are now~~have been and expect to continue selling product to ~~four~~three of the largest solid waste handling companies in the country, and also have secured multiple flagship clients in the wastewater treatment industry, which we expect to become a priority market. We are also expanding with early adopters into new industrial markets, including steel manufacturing, paper production, construction, building and facilities management, livestock production, ~~and~~ the cannabis industry. Opportunities for our products are available internationally. We have in the past and plan to continue marketing these products through industry associations like the “Technology Approval Group” program offered by Isle Utilities that serves the wastewater treatment industry. We also have a number of potential partners actively engaged in commercial trials around the globe and we are actively in discussion with a number of groups to leverage our commercial focus through distribution partnerships.

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Many of our customers have adopted CupriDyne Clean as a replacement for a non-performing and competitive products, some of which have been in use by customers for ~~decades.~~as many as 30 years. Upon using CupriDyne Clean, ~~our~~the majority of customers ~~consistently express~~have expressed a very high degree of satisfaction with its performance compared to prior solutions. Because of this, we ~~are~~were realizing systematic adoption by our very large corporate customers and expect to resume the adoption cycle post crisis, to serve these customers for years to come. Our experience has helped refine our value proposition and assemble a comprehensive menu of products and services. Our success in this market has validated the market opportunity for our products and services and encourages us to continue investing in infrastructure and sales and marketing to increase revenues. We estimate there are approximately 2,000 active landfills¹, 8,000 transfer stations², and 15,000 wastewater treatment agencies³ in the United States. While all may not have ongoing odor problems or neighbor complaints, we believe many of the facilities have need for a disruptive odor solution like CupriDyne Clean.

The total addressable market for the waste handling and wastewater treatment industries is greater than $1.3 billion. While we are still assessing the size of the cannabis, agriculture and steel manufacturing industries, we believe they could readily double the market opportunities for our product CupriDyne Clean.

¹ “Municipal Solid Waste Landfills - Economic Impact Analysis for the Proposed New Subpart to the New Source Performance Standards” (2014), by U.S. Environmental Protection Agency Office of Air and Radiation and Office of Air Quality Planning and Standards.

² The top 5 Waste Management companies in the US, as of 2011, operated 624 transfer stations, and 565 landfills. “Municipal Solid Waste Landfills - Economic Impact Analysis for the Proposed New Subpart to the New Source Performance Standards” (2014), by U.S. Environmental Protection Agency Office of Air and Radiation and Office of Air Quality Planning and Standards. This is a ratio of 1:4 (landfill to transfer stations). The estimated number of transfer stations is this ratio multiplied by the approximate 1,900 total landfills, and rounded.

³¹“Failure to Act, The Economic Impact of Current Investment Trends in Water and Wastewater Treatment Infrastructure” (2011), by American Society of Civil Engineers and Economic Development Research Group.

~~Figure includes treatment facilities owned and operated by municipalities, as well as those owned and/or operated by private entities contracting with municipalities.~~

At the request of our clients, we have begun offering a menu of services to landfills, transfer stations, and wastewater treatment facilities. These services include ongoing maintenance and on-site support services to assist our clients in the design and continued use of the various systems that deliver our liquid products in the field (such as misting systems). We have recently expanded these serves to engineering design, construction and installation. Our engineering team at BLEST has been instrumental in supporting these operations. ~~Our system design, build~~During late 2019 we were awarded and ~~install business continues to grow. We have~~ completed ~~multiple installs during the last quarter and have several bids outstanding for CupriDyne Clean delivery systems.~~ more than 15 projects.

~~Sales of~~On February 12, 2020, we executed a “Joint Venture Framework Agreement” with a leading wastewater treatment solution provider based in South Korea (BKT Co. Ltd., “BKT”), to create a South Korean entity that would manufacture odor and VOC control products based on our CupriDyne Clean ~~products~~products. We received a $350,000 investment from BKT and ~~related services were initially made at~~issued 1,593,087 shares of our common stock, and invested $100,000 into the ~~local level, on~~joint venture for a ~~per-location/facility basis. We would demonstrate our product~~40% ownership share. BKT and its U.S. based subsidiary invested $150,000 into the joint venture for the remaining 60% ownership share. The joint venture has established their manufacturing, and we expect will be proceeding with operations in the near future.

¹ “Municipal Solid Waste Landfills - Economic Impact Analysis for the Proposed New Subpart to the ~~manager~~New Source Performance Standards” (2014), by U.S. Environmental Protection Agency Office of ~~operations at a transfer station or landfill,~~Air and he or she ultimately would decide whether to use our products. If owned by a national company, in some instances before the operations manager could buy our products, we were required to obtain official “vendor” status with the companyRadiation and ~~sign a “national purchasing agreement” (“NPA”). Doing so required a tremendous amount~~Office of ~~effort~~Air Quality Planning and ~~time. These agreements typically include the addition of our line of products which will be offered through an online purchasing portal to the members around the nation.~~Standards.

² The process of integrating the data is often delayed by months from the start date of our agreements given their very technical nature. As an example, we just completed work to finish this portion of the startup process with our fourth national agreement account. These processes establish an easy and familiar selling and purchasing process for the ongoing and long-term relationships we seek to develop. We now have NPAs with four of the largest solid waste handlingtop 5 Waste Management companies in the ~~United States. Some~~US, as of ~~these accounts are now introducing us~~2011, operated 624 transfer stations, and 565 landfills. “Municipal Solid Waste Landfills - Economic Impact Analysis for the Proposed New Subpart to ~~regional managers around~~ the ~~country who have the ability to direct the facilities in their region to use our product. Because~~New Source Performance Standards” (2014), by U.S. Environmental Protection Agency Office of ~~our continued success with our existing clients, our national accounts are expanding their support for,~~Air and ~~expanding resources to encourage increased awareness~~Radiation and ~~broad adoption~~Office of ~~our products~~Air Quality Planning and ~~services. It is also important to note that we are often replacing companies that have served these customers for 20 to 30 years giving support for our claim of ‘disruption’ to an industry.~~

~~We believe that “regional adoption”~~Standards. This is a ~~scalable approach for the larger solid waste handling companies that, with sufficient resources, we can implement nationwide. Our current national accounts represent the opportunity~~ratio of 1:4 (landfill to ~~serve more than 3,000 local operations around North America. Because~~transfer stations). The estimated number of ~~our success serving the~~ transfer stations ~~material transfer~~is this ratio multiplied by the approximate 1,900 total landfills, and rounded.

Figure includes treatment facilities owned and ~~landfills, these very large companies are also evaluating the use of CupriDyne Clean in various transportation segments~~operated by municipalities, as ~~well.~~

~~We now have a body of evidence that has been developed through direct work~~well as those owned and/or operated by private entities contracting with our large national accounts that supports our product claims, namely superior performance, cost savings and service excellence. As a result, we are receiving support from the leadership of our national accounts to help expand our services within their organizations. This support has and will continue to demand that we increase our activity to deliver RFPs (requests for proposals), follow up with and make site visits as a result of introductions to local operators by regional and corporate leaders, follow up on referrals from local operators to other local operators and provide high level customer service and responsiveness to regional office requests for site visits, and offer our products and services to multiple locations with these regional operations. This activity is increasing and as a result we are focused on adding qualified staff to our team and believe that sales will continue to increase as a function of increased staffing. Our experience has shown that the cycle from identifying a new customer that wants to use our products to installing delivery systems and related equipment (if needed), to deploying our products can take from 60 to 180 days. The work is demanding but we know the up-front investment by our team will be rewarded with expanded adoption and recurring revenues. We are continually reminded that in many instances we are replacing companies that have been serving these customers for decades.

We believe that our products will become known as the odor and VOC elimination product that will become selected as a “best practices” tool for the waste handling industry. As we continue to achieve that level of recognition, we believe our large national accounts will want to modify their stance to encourage their local operators around the country to choose our product as the top performer and highest value provider.

CupriDyne Clean is gaining a reputation as “the one that actually works” to control odors and VOCs. We are constantly reminded that decision-makers in many industries, including the waste handling industry, have been conditioned to believe that “nothing actually works” to address industrial nuisance odors. We are working to help change the industry mindset to being proactive, investing to avoid problems rather than to rush to fix problems that have escalated to an emergency intervention status. One of our most important branding goals is to educate decision-makers that the “cost of doing nothing” can be the most expensive choice by a customer. The alternative is to use the best-performing odor mitigation product – CupriDyne Clean – to save them money and reduce or eliminate their risk and costs associated with managing odors and VOCs. Our company is committed to raise the bar of awareness with consistent performance, brand awareness and marketing to help industry see the value and make the correct choice to use and deploy CupriDyne Clean. In the past few months, we have received opening orders from more than 14 new customers, from both national accounts and new independent customers as a result of our marketing and branding awareness. We expect that trend to continue. New Product Expansion with Existing Customersmunicipalities.

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In line with our mandate as an innovator and full services solution provider, Odor-No-More was recently asked by one of its national customers to expand the use of its CupriDyne based products to include a wash out and odor control product for transportation devices, compactors and containers. While this work is still early, our first trials demonstrate that the new product saves our customers money and labor costs. Although sales for this new product have just begun, we believe the opportunity for this product is significant.

Additionally, we have been approached by two of our large customers to develop a series of educational and training tools to assist in their continuing focus to refine ‘best practices’ operating procedures for odor management at waste processing facilities. While this work is early, and our scope of services and role is still being defined, we believe this is another important validation of how we are being adopted as a reliable and high value total solutions provider.

~~Emerging High-Growth Opportunity in Cannabis / Hemp Industry~~

Odor-No-More recently entered into a 5-year “white-label” distribution agreement with Cannabusters, Inc., a sister company to Mabre Air Systems, to sell its CupriDyne Clean odor and VOC control products to Cannabis and Hemp grow and production facilities, which represent a target market that management’s research indicates is in sore need of new odor control products and services. Cannabusters has decades of experience with air quality management through their sister company Mabre Air Systems, a leader in air quality control systems in Italy. Cannabusters has committed to a comprehensive marketing program that includes more than 25 trade show events over the next two years to quickly introduce the Cannabusters product to the cannabis and hemp industries.

The cannabis industry is facing increased scrutiny by regulators to better control of hazardous air pollutants called terpenes that are a natural part of production and processing. These gases can also cause malodors that demand attention and can be problematic as these companies seek to maintain good community relations and avoid legal entanglements or lawsuits over nuisance odors. Odor abatement operating procedures are part and parcel to the permitting processes for companies involved in the industry and have typically included traditional carbon filters. With the growth and concentration of cannabis related operators, the industry has come to recognize that the volume of terpenes and air flow in a typical operation are often more than the traditional carbon filter-based systems can manage effectively. Odor complaints persist. We have been able to successfully demonstrate that our products are effective as eliminating these VOC’s and related odors, just as we have done in the waste handling industry. As a result, we have had a number of experts in the cannabis industry tell us that our products could become part of the ‘best practices’ operating procedures for this industry and are working toward that goal.

~~The global legal cannabis market is expected to grow to~~ ~~$146.4B in 2025~~ at an astounding 34.6% annual growth rate. Some call cannabis the 21st century’s gold rush. With an estimated 15,000 companies operating in our California alone, we believe the opportunity for our product is significant. A number of recent examples have surfaced with leading companies in this industry that highlight the nuisance odor issue and their inability to adequately manage the volume of terpenes escaping the operations. To that end, we are organizing a series of strategic relationships within the Cannabis industry to capture the opportunity quickly. We are working to finalize agreements with equipment manufacturers, regulatory consultants, key opinion leaders, and marketing partners. Our value proposition is unmatched for odor and VOC control and this is another great example how our platform continues to expand in high value markets.

~~Wastewater Treatment~~

We have begun selling products and services to wastewater treatment facilities in our local markets. Our clients are prominent municipal agencies and have indicated a desire to expand the use of our products and services to additional locations in their service areas. As a result of our success in the field, a client featured our product as an example of ‘Best Practices’ for the wastewater treatment industry at a national water quality conference hosted by the Water Environment Federation. We anticipate overall longer selling cycles given the technical sophistication of the customers in this market, and believe that channel partnerships with leading companies that already sell and service this highly technical market will be required for our ultimate success. We are encouraged and are evaluating various strategies to maximize our marketing and selling proposition into this mature and well-established market. We are actively engaged in discussions with potential distribution partners and leading engineering firms with well established relationships to the clients in order to service this very large market.

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~~Infrastructure and Capital Needs for Odor-No-More~~

We recognize the scope of the opportunity for CupriDyne Clean and related services, and understand the task of building the personnel and infrastructure to become a disruptive company in the waste handling industry. In the United States, we currently operate out of two locations – Southern California and Tennessee. As of now, our manufacturing facilities are located in California. However, we expect to expand our manufacturing and staffing in our Tennessee operation as we achieve critical mass in that region. We are also contemplating the opportunity to establish a manufacturing facility in Canada to serve the Canadian odor and VOC control market. In the meantime, as a result of the rapid adoption we are experiencing in our local Southern California market, we want to focus on adding staff and infrastructure to meet the obvious need for our products and services. We believe that we need to invest in qualified sales and support personnel to properly focus our energies on capturing the client opportunities already under contract with our national accounts and expand revenues accordingly. As of August 1, 2019, we added waste-industry veteran Mitch Noto to our team as Director of Business Development.

We believe that a significant number of personnel will be required to fully service the solid waste handling and wastewater treatment industries. We plan to expand as adequate capital to fund these needs becomes available.

Full Service Environmental Engineering

In September 2017, we formed a subsidiary (BioLargo Engineering, Science & Technologies, LLC, or “BLEST”), for the purpose of offering full service environmental engineering to third parties, and to provide engineering support services to our internal teams to accelerate the commercialization of our AOS technologies. Its website is found at www.BioLargoEngineering.com.

BLEST focuses its efforts in ~~four~~three areas:

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Providing engineering services to ~~third-party~~third party clients;

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Supporting the internal product development (e.g., the AOS ~~development efforts by working with our Canadian subsidiary, BioLargo Water;~~and AEC water treatment systems); and

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Supporting our team at Odor-No-More to provide engineering and design of the CupriDyne Clean delivery ~~systems to the waste handling industry; and~~

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~~Developing new products or engineered solutions for high value targets like:~~

~~our work on behalf of the US EPA as funded through a SBIR Phase I grants to develop potential solutions for managing PFAS contaminants in water;~~

~~our work to refine and validate the CupriDyne Clean’s efficacy and delivery systems for managing terpenes from cannabis production;~~

~~our work to provide initial proof of claim for CupriDyne Clean’s efficacy in high volume industrial settings for VOC and air contaminant mitigation; and~~

~~Legionella prevention and monitoring systems~~systems.

The subsidiary is ~~based~~located in Oak Ridge (a suburb of ~~Knoxville)~~Knoxville, Tennessee), ~~Tennessee,~~ and employs seven scientists and engineers who collectively have over two hundred years of experience in diverse engineering fields. The team is led by Randall Moore, who served as Manager of Operations for Consulting and Engineering for the Knoxville office of CB&I Environmental & Infrastructure and was formerly a leader at The Shaw Group, Inc., a Fortune 500 global engineering firm. The other team members are also former employees of CB&I and Shaw. The team is highly experienced across multiple industries and they are considered experts in their respective fields, including chemical engineering, wastewater treatment (including design, operations, data gathering and data evaluation), process safety, energy efficiency, air pollution, design and control, technology evaluation, technology integration, air quality management & testing, engineering management, permitting, industrial hygiene, applied research and development, air testing, environmental permitting, HAZOP review, chemical processing, thermal design, computational fluid dynamics, mechanical engineering, mechanical design, NEPDES permitting, RCRA/TSCA compliance and permitting, project management, storm water design & permitting, computer assisted design (CAD), bench chemistry, continuous emission monitoring system operator, data handling and evaluation and decommissioning and decontamination of radiological and chemical contaminated facilities.

~~Business~~ Development ~~at BLEST~~of AEC to Combat PFAS Crisis

BLEST has had success in several noteworthy areas in the past months. The company is increasing its customer base and executing more and larger projects than in its first year. Additionally, BLEST has made strides toward creating lucrative new opportunities through development of new processes, which BioLargo intend to seek new IP for where possible.

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In 2019, BLEST was recently awarded three subcontracts to do work on U.S. Air Force bases in Texas, Kansas, Illinois and Arizona. Primary contractor Bhate Environmental Associates, Inc. has bid multiple projects with BioLargo to conduct “Fence-to-Fence (F2F) environmental compliance”. The total value of the contracts awarded (split between the prime contractor Bhate and its subcontractors, including BLEST) is in excess of $15 million over five years (with one year guaranteed). BLEST is responsible for one of the three major components of the services: air quality compliance.

~~BLEST was recently~~ awarded an SBIR Phase I Competitive Grant by the Environmental Protection Agency in the amount of $100,000 to investigate solutions for the removal of per- and polyfluoroalkyl substances (PFAS) from water. PFAS have been linked to cancer, fertility problems, asthma, and more, and are present in a vast range of manufactured goods including food, common household products (e.g., cleaning products, cookware), and electronics. PFAS also pose widespread and serious water safety problems around the world, with governments and industry actively seeking new technologies and processes to eliminate PFAS from groundwater and drinking water. BLEST ~~will compete~~had applied for a Phase II ~~grant~~funding from the EPA to sponsor a go-to-market strategy for ~~$1,000,000 in~~its AEC and was notified on May 18, 2020, that its request for funding was not granted. While management is disappointed by this news, at the same time it is not deterred from pursuing what it believes will be a substantial business opportunity. The scale-up work on the AEC continues with our own resources, and we expect to ~~finish the product design and start a go to market campaign.~~

~~BLEST recently began a feasibility and placement study~~be ready for ~~1.1 million tons of magnesium rich production tailings in Northern California for a new client.~~

~~Notably, BLEST recently begun work to develop a new process by which to manage and mitigate~~ ~~Legionella~~ ~~contamination~~commercial trails in the water distribution systems of large buildings including hospitals, office buildings, condos, and more. BioLargo recently filed a patent for this new process, which is referenced below in the Intellectual Property section. BLEST intends to leverage this patented process to offer ~~Legionella~~ ~~mitigation services to customers.~~

BLEST has recently been notified that as a result of its recent audit work on assisting a leading healthcare products company in transitioning to the 2015 revision of the ISO 14001 standard for environmental management systems (EMS) it is being awarded another small project from the client. The new time and materials project involved preparing a detailed GAP analysis, and subsequently updating the client’s EMS procedures to reflect the significant changes to the new EMS standard which places new emphasis on upper management involvement, the life cycle of products and services, emergency preparedness and response, and sustainability. There is also a new focus on evaluating risks and opportunities and integrating this assessment into the EMS program.

The formation of BLEST was predicated on the concept that 60% of the revenue would be provided by external clients and the remaining 40% would be provided by internal clients (i.e. BioLargo Water or Odor-No-More). By reaching this goal, BLEST will provide direct positive cash flow to the BioLargo, Inc. while fulfilling its mission to provide professional engineering services to the internal client base. For calendar 2018, the ratio was approximately 40% of revenue provided by external clients and 60% provided by internal sources. In the second quarter of 2019, BLEST has now reached and exceeded its target threshold of 60% of revenues coming from external clients and less than 40% coming from internal sources, meaning BLEST has achieved its goal of generating the majority of its revenues from external contracts. . This occurred and is occurring principally because of an increasing number of perpetual contracts including the U.S. Air Force contracts, Citizens Gas Utility District, HAVCO, Powell Valley Utilities, and APTIM/Picatinny Arsenal. These perpetual contracts, which are anticipated to be renewed annually, will provide a steady base load of outside client revenue that is reasonably predictable and secure.

In addition to continued organic growth in the external client base, BLEST is developing new technologies and services for water pollution control, the microbrewery sector, legionella prevention in public buildings and hospitals. They are evaluating similar approaches for the cannabis industry as well. These markets are expanding in areas across the United States and represent significant opportunities for BLEST.

BLEST management believes the company can expect growth in several additional areas. For one, BLEST is under contract to design, build, and install wastewater treatment equipment and “treatment trains” for clients in collaboration with BioLargo’s water technology subsidiary BioLargo Water. Not only does this represent important synergy between two BioLargo business units, but it offers BLEST the opportunity to become a total water treatment solutions provider for customers in the widely under-served small industrial wastewater treatment sector. Another area of predicted growth is the conduct of environmental engineering and permitting work for large industrial facilities such as fuel conversion plants, an area in which BLEST has experienced an increasing number of contracts in the past quarter.near future.

BioLargo Water and the Advanced Oxidation System -– AOS

BioLargo Water is our wholly owned subsidiary located on campus at the University of Alberta, Canada, that has been primarily engaged in the research and development of our Advanced Oxidation System (AOS). The AOS is our patented water treatment device that generates a series of highly oxidative species of iodine and other molecules that, because of its proprietary configuration and inner constituents, allow it to eliminate pathogenic organisms and organic contaminants as water passes through the device and it performs with extreme efficacy while consuming very little electricity. Its key application is ~~rapid and~~extremely efficient decontamination and the disinfection of various ~~wastewaters.~~waste waters. The AOS recently began its first pre-commercial pilot project, wherein an AOS and treatment train has been installed on-site at Sunworks Farm, a poultry farm in Alberta. This pilot project is discussed in more detail in the Pre-commercial Pilot Projects section below.

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The key value proposition of the AOS is its ability to eliminate a wide variety of contaminants with high performance while consuming extremely low levels of ~~both~~ input electricity and extremely low levels of chemistry inputs – a trait made possible by the complex set of highly oxidative iodine compounds generated within the AOS reactor. Our proof-of-concept studies and case studies have generated results that project the AOS will be more cost- and energy-efficient than commonly used advanced water treatment technologies such as UV, electro-chlorination, and ozonation. This value proposition sets the AOS technology above other water treatment options, as we believe the AOS may allow safe and reliable water treatment for significantly lower cost compared to its competitors and may even enable advanced water treatment in applications where it otherwise would have been prohibitively costly.

The AOS has the potential to allow reliable and cost-effective water treatment in numerous industries and applications where high-level disinfection or elimination of hard-to-treat organic contaminants is required. We believe the total serviceable market for our AOS is $10.75 billion for the poultry processing, food & beverage, and storm water segments with a target beachhead market for poultry processing in North America at an estimated $240 million.

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Our AOS was the result of breakthroughs in both advanced iodine electrochemistry and advances in materials engineering, and its invention led to BioLargo’s co-founding of a multi-year industrial research chair whose goal was to solve the contaminated water issues associated with the Canadian Oil Sands at the University of Alberta Department of Engineering in conjunction with the top five oil companies in Canada, the regional water district, and various environmental agencies of the Canadian government. Based on recovering oil prices and our ongoing work in Canada, ~~in 2018 re~~we recently reinitiated discussions with a number of stakeholders in the oil sands industry to support the completion of AOS development for oil and gas water treatment and to discuss the initiation of pre-commercial and commercial pilots for our AOS to help treat and remediate oil sands process-affected water (“OSPW”) found in tailings ponds in the Canadian oil sands, an application that currently has no good economically viable solution. We ~~have been unsuccessful in raising~~continue to apply for significant grant ~~or private funds~~funding to re-initiate our work to help treat OSPW and other oil and gas wastewaters using the AOS. We believe that this opportunity requires substantial grant support to be viable for ~~this project,~~our company and, therefore we will continue to focus on energies on other markets until such time as ~~proper~~ resources are available.

Our AOS is an award-winning invention that is supported by science and engineering financial support and highly competitive grants (66 and counting) from various federal and provincial funding agencies in Canada such as NSERC, NRC- IRAP, and Alberta Innovates and in the United States by the Metropolitan Water District of Southern ~~California.~~California and National Water Research Institute.

Our immediate goals for the development and commercialization of the AOS are: 1) to secure direct investment into the BioLargo Water subsidiary to empower its staff to complete its development cycle, 2) complete the ongoing pre-commercial field pilot studies which are necessary to generate the techno-economic data required to secure commercial trials, entice future customers, and commence traversal of necessary regulatory pathways, 3) conduct the first commercial trials with the AOS, and 4) secure first sale of the AOS. It is our belief that once pre-commercial pilots have concluded with the AOS, ~~we will be able~~our ability to entice major water industry players to partner with BioLargo Water to accelerate market adoption of the ~~AOS..~~AOS will be increased dramatically.

Recent AOS Milestones

The most important advances in AOS development in recent months have been 1) recent validation of the AOS as an effective ~~and transformative water treatment technology able~~tool to eliminate hard-to-treat “micropollutants” from wastewater; 2) design and engineering advances and changes to the AOS in preparation for piloting and scale-up for industrial flow-rates and conditions; and 3) the planning and design of pre-commercial field pilot projects.

One recent and important AOS milestone was the demonstration that it eliminated or reduced the toxicity of certain high-concern pharmaceutical byproducts (micropollutants) common in some municipal wastewater (“MWW”) streams. Currently, there are no economically viable solutions to remove these compounds from MWW, and incumbent technologies fall short. We believe that the value proposition for our AOS for use as a ~~new technology solution~~tool for the municipal water treatment industry to efficiently remove micropollutants could increase our total serviceable market to 5% or more of the total industry which is recognized at + $700 billion globally or approximately $35 billion.

Several advances and improvements to the AOS have also been made in recent months with the purpose of preparing the technology for pre-commercial piloting, commercial piloting, and subsequent mass production, as well as to prepare it for scale-up to allow industrial flow rates. These advancements have largely been proprietary physical improvements to the AOS, including the transitioning of the AOS to using inner substrates more amenable to mass-production and greater flow rates and pressures. Management believes it will continue to advance the scale-up to higher volume throughputs of water flow and enhances the AOS ability to be more compact and longer lasting in the field. This work is not complete, but management believes it does represent a significant step forward to achieving high throughput quality results. Importantly, we have also designed and begun assembling our own proprietary water treatment train that will be used in pilots for the AOS and that will pave the way for complete wastewater treatment in industrial settings.

~~Pre-commercial Pilot Projects for AOS~~

~~We are now underway on multiple pre-commercial field pilot projects.~~

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The first project involves treating poultry wastewater on-site at a facility in Alberta Canada, with support from the Poultry Growers Association. In this pilot, the AOS is being assessed for its ability to eliminate bacteria and other contaminants from poultry processing wastewater effectively and cost-efficiently and to establish operating costs (OPEX) and capital costs (CAPEX) in a field setting. BioLargo Water built and installed a complete “treatment train” with equipment to address all aspects of the client’s water treatment needs, including organic contaminants, suspended solids, and biological organisms, in addition to the connected AOS unit. Therefore, this pilot also represents BioLargo’s first assessment as a “total solutions provider”, which could open the door for a wider array of future water treatment market opportunities. Funded in part by Canadian government grants, this system is operating successfully. We hope to report data from the project before the end of the year.

In another pilot project, the AOS is being used on-site at a Californian micro-brewery as a polishing (final) step in a wastewater “treatment train” whose goal is to reduce wastewater contaminant load to levels that would allow the microbrewery to reduce its wastewater discharge fines and enable water reuse. The treatment train includes several pieces of wastewater treatment equipment including a proprietary technology developed and manufactured by our project partner Aquacycl, an emerging wastewater treatment technology company based in the San Diego area that was introduced to our company by The Maritime Alliance, a trade organization in San Diego committed to fostering maritime business and technology innovation. This pilot will help establish the efficacy of the AOS in a field setting, the OPEX and CAPEX of the system, and the AOS’ ability to “plug and play” in the context of diverse supporting equipment and logistics.

In addition, we recently commenced a pre-commercial demonstration pilot that will utilize the company’s Advanced Oxidation System (AOS) to treat captured stormwater in Southern California at BioLargo’s Westminster, California facility. The pilot’s goal is to demonstrate the technical and economic feasibility of deploying the AOS to enable stormwater treatment and reuse, an important and emerging water management application in the US and Canada. The pilot project is supported in part by research and development funding of to up to $189,000 from the National Research Council of Canada Industrial Research Assistance Program (NRC IRAP). BioLargo Water is collaborating on the project with Richard Watson & Associates, Inc. and Carollo Engineers, Inc. Richard Watson has been active in stormwater quality management since 1990 and currently consults to three watershed management groups in Los Angeles County. Carollo Engineers, a leading environmental engineering firm providing cost-effective, innovative, and reliable water treatment solutions, will provide engineering and water treatment validation for the project. The goals of this demonstration pilot will focus on the efficacy of the AOS to treat captured stormwater to water reuse standards. The pilot will also help establish the capital and operating costs of the AOS in this application, a crucial step before potential commercial pilot clients and paying customers would consider the technology in this industrial setting.

All of these pilot projects represent an important step for our AOS technology, as well as for our company. We are confident in our disruptive water treatment technology and have proven its treatment capabilities in the lab. However, pilot projects for the AOS, as with any technology, are crucial to prove its reliability to industry stakeholders as well the capital cost and operating costs of our technology at-scale. These data will be critical to pave the way for future market adoption. As a reminder, we have many other pilots in evaluation to support this same cause.

We believe that our current designs for the AOS are cost-effective, commercially viable and should be ready for their first commercial launch in late ~~2019 or early~~ 2020. We secured a patent on the AOS in 2018, and another in March 2019. We intend to continue refining and improving the AOS continually to accomplish a series of goals: expanded patent coverage, extended useful life, lower capital costs, lower energy costs, optimized performance, precise configurations for specific industry challenges, portability, and identifying its performance limits. Our current and most pressing goal for the AOS, as evidenced by the pilot projects described above, is to demonstrate its efficacy in field settings, which is a crucial and necessary step for the commercialization of any water treatment system.

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~~Advanced Wound Care -~~

Clyra Medical Technologies

We initially formed Clyra Medical to commercialize our technology in the medical products industry, which we believe can be disruptive to many competing product lines. ~~Our initial~~

When the COVID-19 crisis began, we immediately responded by supporting the team at Clyra Medical in any way possible to help them create a product ~~designs focus in~~called Clyraguard (discussion above). Testing has confirmed that Clyraguard inactivates the ~~“advanced wound care” field, which includes traumatic injury, diabetic ulcers,~~COVID-19 pandemic Coronavirus. Clyraguard features a host of unique claims:

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Extremely high antimicrobial efficacy (99.999%) against virus, bacteria and fungus, including Coronavirus

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long lasting

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Non-irritating, non- sensitizing, non-toxic

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Clear, colorless, and odorless

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Can be applied to mask and other personal protective equipment as needed and reapplied throughout the day

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Derived from a formula specifically developed for use in hospitals by healthcare professionals.

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Registered with FDA as a Class I disinfectant.

The early development work at Clyra and chronic hard-to-heal wounds. We also have designs for products focused on preventing or controlling infections. In late 2018, we also acquired our second technology, a stem cell therapy technology, SkinDisc, that is both complementaryits long regulatory approval process was pivotal to ~~our antimicrobial product designs and it also presents a high value proposition~~enable Clyra to ~~offer stand-alone products~~respond to the advanced wound care industry to assist in regenerating tissue. With the addition of highly skilled team members with extensive experience and proven track record of success in the medical industry and, the addition of the SkinDisc, we have expanded our plans to focus and build out a complete line of products to deliver state of the art solutions to assist in healing wounds. Therefore, we are also presently evaluating a number of additional licensing opportunities to add complementary technologies and products to our medical products portfolio with the goal of offering a complete menu of proprietary and patent protected products to better serve the advanced wound care patient population with state-of-the-art medical products. We are presently seeking pre-market clearance for our first advanced wound care product (application in process), from the U.S. Food & Drug Administration (“FDA”) under Section 510(k) of the Food, Drug, and Cosmetic Act.COVID-19 crisis.

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We believe the total addressable market for Clyra Medical’s existing product designs in the advanced wound care market, dental, orthopedics and regenerative tissue markets will exceed $2.5 billion by 2022.

Our first and original advanced wound care product combines the broad-spectrum antimicrobial capabilities of iodine in a platform complex that promotes and facilitates wound healing. Our products are highly differentiated from existing antimicrobials in multiple ways - by the gentle nature in which they perform, extremely low dosing of active ingredients, reduced product costs, extended antimicrobial activity, and biofilm efficacy. In addition, iodine has no known acquired microbial resistance, unlike many competing products. We believe the future markets for some of our product designs may also include infection control and wound therapy in orthopedics, dental and veterinary markets. We also intend to pursue and study the use of our technology as a complimentary and synergistic platform for use with regenerative tissue therapy.

We have three patent applications pending for medical products, and are preparing additional applications. While these patent applications are pending, we intend to continue expanding patent coverage as we refine and expand our medical products.

We are in the process of obtaining regulatory approval (pre-market clearance) from the FDA for our first advanced wound care product. These efforts are ongoing as of the date of this report. Although the process has taken considerable time and money, and we have faced a number of delays as a result of the FDA’s requirements of us, we remain highly encouraged by our current interactions with the FDA staff and our current position. The process has confirmed that our product design falls in the scope of the 510(k) process and the pathway to clearance has now been better defined by senior staff at FDA. We are preparing to report to the FDA results of a 30-day animal study that confirmed the Clyra product has no adverse effects on wound healing. This animal study is the last material item asked of us by FDA staff, and we believe we can submit this new data and have a response back from the FDA as soon as possible, with expectations of delivery within weeks and a timely response from the FDA promptly thereafter. While we remain confident that we will ultimately receive premarket clearance for this product, and we continue to invest substantial recourses in anticipation of our ultimate success, we are continually reminded by legal counsel that we can make no assurance or prediction as to success of these efforts, or whether additional information will be requested after this animal study, and must wait patiently for the process with the FDA to conclude. Notwithstanding these disclosures, having spent a significant amount of time and money responding to the various technical questions by the staff, including two trips to Washington D.C., we are confident we will see a successful conclusion.

We believe this product’s future role in the advanced wound care industry will be disruptive to many incumbent competing products like silver, hypochlorous acid and even other iodine-based products and therefore our extraordinary investment of time and money will have significant opportunity to generate a considerable return on investment as the products find their way through the FDA process for clearance and then to market adoption. Simply stated, we believe it is worth it and that we will succeed.

Our second technology and its related products center around the SkinDisc technology which we acquired in late 2018 from Scion Solutions, LLC (“Scion”). Scion is led by Spencer Brown, a medical device industry veteran with more than 35 years’ experience in sales, account management, and distribution in the medical device industry. The SkinDisc product was developed by Dr. Brock Liden, a renowned medical podiatrist and expert in wound care and diabetic limb salvage. The SkinDisc is a therapy product that uses a patient’s own bone marrow and plasma in a unique mixture to generate a cell-rich bio gel for use with chronic wounds. It has been tested in over 250 patient cases with no adverse effects, and has successfully aided in the salvage of limbs that otherwise would have been amputated. The regenerative tissue therapy technique has been shown to assist in successful wound closure in time frames as short at 4 to 7 weeks with one or two applications and is patent pending.

~~Clyra Medical also continues to actively work on the development of new products.~~

Clyra is currently successfully recruiting Key Opinion Leaders from the medial field to join Clyra’s Medical Advisory Board and is actively evaluating a number of technologies and products to add to its product portfolio in anticipation of its near-term plans to launch its commercial sales efforts.

We are committed to see these advanced wound care products go to market and we believe they will make a positive impact for a greater good around the world and generate meaningful financial results for our stockholders.

~~Scion Solutions Acquisition – SkinDisc™~~

On September 26, 2018, we and Clyra Medical agreed to a transaction whereby we would acquire the intangible assets of Scion Solutions, LLC (“Scion”), and in particular its stem cell-based technology, the SkinDisc, and the know-how of key team members to support further research as well as the sale and distribution of Clyra Medical’s products based on our BioLargo technologies.

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The parties entered into a Stock Purchase Agreement and Plan of Reorganization (“Purchase Agreement”) whereby Clyra Medical acquired (and then sold to BioLargo) the Scion intangible assets, including the SkinDisc. The consideration provided to Scion is subject to an escrow agreement and earn out provisions and includes: (i) 21,000 shares of the Clyra Medical common stock; (ii) 10,000 shares of Clyra Medical common stock redeemable for BioLargo common shares (detailed below); and (iii) a promissory note in the principal amount of $1,250,000 to be paid through new capital investments and revenue, as detailed below. The Clyra Medical common stock was initially held in escrow subject to the new entity raising $1,000,000 “base capital” to fund its business operations, which was raised effective December 17, 2018 (see below). One-half of the common stock was released to scion, and the second half remains subject to the following performance metrics, each vesting one-fifth of the remaining shares of common stock: (a) notification of FDA premarket clearance of certain orthopedics products, or recognition by Clyra Medical of $100,000 gross revenue; (b) the recognition by Clyra Medical of $100,000 in aggregate gross revenue; (c) the granting of all or any part of the patent application for the SkinDisc product, or recognition by Clyra Medical of $500,000 in gross revenue; (d) recognition by Clyra Medical of $1,000,000 in aggregate gross revenue; and (e) recognition by Clyra Medical of $2,000,000 in gross revenue. In addition, Clyra and Scion entered into the $1,250,000 promissory note called for by the Purchase Agreement. The promissory note accrues interest at the rate of 5%. Principal and interest due under the note are to be paid periodically at a rate of 25% of investment proceeds received. If the note is not paid off within 18 months after the date of issuance, it is automatically extended for additional 12-month periods until the note is repaid in full. Payments after the initial 18-month maturity date are required to be made as investment proceeds are received, at a rate of 25% of such proceeds, and 5% of Clyra Medical’s gross revenues.

Immediately following Clyra Medical’s purchase of Scion’s assets, Clyra Medical sold to BioLargo the assets, along with 12,755 Clyra Medical common shares. In exchange, BioLargo issued Clyra Medical 7,142,858 shares of BioLargo common stock. Concurrently, BioLargo licensed back to Clyra Medical the Scion assets. Scion may exchange its 10,000 Clyra Medical common shares for the 7,142,858 shares of BioLargo common stock issued to Clyra Medical, subject to the escrow and earn-out provisions described above. As of December 31, 2018, per the Closing Agreement, one-half of these shares have been earned and thus may be redeemed, and one-half remain subject to the earn-out provisions.

On December 17, 2018, we entered into a closing agreement (“Closing Agreement”) reflecting the satisfaction of the obligation to raise $1,000,000 “base capital” established under the Purchase Agreement. With the satisfaction of the obligation to raise $1,000,000 in base capital, Clyra Medical agreed to release to Scion one-half of the shares of Clyra common stock exchanged for the Scion assets. The remaining Clyra Medical common shares remain subject to the Escrow Agreement dated September 26, 2018, subject to the metrics identified above. We were initially introduced to the SkinDisc product and Scion Solutions through Dr. Liden and Tanya Rhodes’s consulting work with Clyra Medical (both Dr. Liden and Ms. Rhodes have ownership interest in Scion). Prior to the execution of the above-described agreements, BioLargo did not have any material relationship with Scion’s founder Spencer Brown.

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Results of Operations

We operate our business in distinct business segments:

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Odor-No-More, which manufactures and sells our odor and VOC control products and services, including our flagship product, CupriDyne Clean;

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BLEST, our professional engineering services division supporting our internal business units and serving outside clients on a fee for service basis;

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BioLargo Water, our Canadian division that has been historically pure research and development, and is now transitioning to focus on commercializing our AOS system;

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Clyra Medical, our partially owned subsidiary focused on the Advanced Wound Care industry; and

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Our corporate operations, which support the operating segments with legal, accounting, human resources, and other services.

We invest cash into each of these segments on a regular basis, as none of the segments yet generates enough cash to fund their operations. However, both Odor-No-More and BLEST are trending towards cash-flow positive, and we expect each of those two segments to begin to generate positive cash for BioLargo in 2019. Additionally, Clyra Medical raises capital directly, rather than relying on BioLargo for cash to operate.

~~Revenue~~Consolidated revenue for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 was ~~$426,000 and $790,000, respectively. This~~$439,000, which is a ~~30% and 34%~~$75,000 increase over the same ~~periods~~period in ~~2018.~~2019 and a $98,000 decrease as compared with the three months ended December 31, 2019. The quarter-to-quarter decrease is directly related to the COVID-19 pandemic. We generated revenue from two of our operating divisions – Odor-No-More and BLEST. Our business segments obtain cash to support operations in different ways. Odor-No-More and BLEST generate revenues from third parties, and receive funding as needed from ~~their parent corporation, BioLargo.~~BioLargo, Inc. Our Canadian team, BioLargo Water, receives funds from government research grants (reported on our financial statements as “Other income – Grant income”), and receives funding as needed from ~~BioLargo.~~BioLargo, Inc. Clyra Medical, however, relies on direct investment from third parties for 100% of its operating costs and is not supported with capital from BioLargo’s corporate budget or fundraising.

In response to the COVID-19 pandemic, each of the four operating segments developed products to help the world deal with the crisis. (See “Response to COVID-19 Pandemic”, above.) Our results of operations discussed below do not include revenues from those products, as they were all released subsequent to March 31, 2020.

Odor-No-More

~~Our~~During the three months ended March 31, 2020, our wholly owned subsidiary Odor-No-More ~~generates~~generated revenues through sales of ~~our~~its flagship product CupriDyne Clean, by providing design, installation, and maintenance services on the systems that deliver CupriDyne Clean at its clients’ facilities, and through sales of odor absorption products to the U.S. Government. Of its gross sales, in the three months ended March 31, 2020, approximately 75% were to the waste handling industry.

Revenue (Odor-No-More)

Odor-No-More’s revenues for the ~~six~~three months ended ~~June 30, 2019, increased $76,000 (34%)~~March 31, 2020, decreased $18,000 or 6% from the same period in ~~2018. Its revenue for~~2019, and decreased $164,000 or 37% from the prior three months ended ~~June 30, 2019, was equal to that~~December 31, 2019. Approximately 99% of ~~the same period in 2018. The fluctuation in our revenues is due to timing of orders, weather at customer facilities (such as rain and snow), and shipping schedules. Approximately three-quarters of our~~ revenue is ~~generated~~ from sales of CupriDyne Clean products, and ~~related services, and~~ the remaining ~~mostly~~ from sales of our absorption products to the U.S. military. The decrease in revenue was directly attributable to the COVID-19 pandemic and state governments ordering non-essential businesses to close and residents to “stay-at-home”. (See “Response to Covid-19 Pandemic”, above.)

Sales of our CupriDyne Clean products increased ~~31% and 24%~~20% in the three ~~and six~~ months ended ~~June 30, 2019,~~March 31, 2020, as compared to same ~~periods~~period in ~~2018,~~2019, due to the acquisition of more clients and client locations, and the sale and delivery of more products. Of our CupriDyne Clean sales, approximately one-half were made pursuant to “national purchasing agreements” (“NPA”) with the ~~four~~three largest waste handling companies in the United States. ~~With~~Given the ~~addition~~COVID-19 pandemic and ongoing status of ~~an industry veteran as Director of Business Development,~~the “stay-at-home” orders in California and ~~increased capital resources,~~elsewhere, we expect sales of CupriDyne Clean products to ~~our NPA clients as well as new independent customers will increase~~the waste handling industry to continue to decrease in the ~~remainder~~second quarter of ~~2019.~~2020.

~~Sales~~As a result of our decision to ~~the U.S. military are primarily~~focus our efforts on higher-margin products, sales of our Specimen Transport Solidifier pouches ~~and are made to the U.S. Defense Logistics Agency through our distributor Downeast Logistics. These sales~~ decreased by ~~65% and 59%~~97% in the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 as compared with the same ~~periods~~period in 2018. The vast majority of these sales are made through a bid process in response to a request for bids to which any qualified government vendor can respond, and our decreased revenue in 2019 is due to a reduced number of opportunities from the government for our products, and to the cyclical nature and timing of the government procurement process. We cannot know in advance the frequency or size of such requests from the US Government, or whether our bids will be successful, and as such we are uncertain as to our future revenues through this system. We believe that the sales of CupriDyne Clean will continue to grow and help offset this segment of our business which we do not view as a high growth opportunity.2019.

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Cost of Goods Sold (Odor-No-More)

Odor-No-More’s cost of goods sold includes costs of raw materials, contract manufacturing, and portions of salaries and expenses related to the manufacturing of our products. ~~For installation and other services, it includes labor and materials.~~ As a percentage of ~~gross sales,~~revenue, Odor-No-More’s costs of goods was ~~43% and~~ 45% in the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 versus ~~61%~~47% in the same ~~periods~~period in 2018. In mid-2018, because of higher volumes, Odor-No-More was able to decrease its costs by purchasing raw materials directly from manufacturers at more favorable prices, resulting in the year-to-year cost of goods decrease.2019.

Selling, General and Administrative Expense (Odor-No-More)

Odor-No-More’s ~~Selling, General~~selling, general and ~~Administrative (“SG&A”)~~administrative expenses ~~are remaining consistent between~~increased by 28% to $316,000 in the three ~~and six~~ months ended ~~June 30, 2019 and 2018. They are averaging $235,000 per quarter~~March 31, 2020, as compared with $247,000 in ~~2019 compared to an average of $223,000 in 2018.~~2019. These expenses have increased alongside Odor-No-More’s efforts to increase revenues by hiring additional sales and support staff. We do not expect ~~its SG&A~~these expenses to increase ~~in 2019 as it continues to add sales~~further unless and ~~support personnel as its number of customers and~~until our revenues increase.

~~Operating~~Net Loss (Odor-No-More)

For the three months ended March 31, 2020, Odor-No-More generated $298,000 in revenue, a gross margin of $154,000, and had total costs and expenses of $320,000, resulting in a net ~~operating~~ loss of $51,000 and $141,000 for the three and six months ended June 30, 2019. This was a 65% and 45% improvement over the same periods in 2018. Odor-No-More is continuing to increase sales to work toward profitability. Its gross margin from product sales is at 55%, and its loss from operations is trending downward. We believe these trends will continue. The loss from operations is trending downward for two reasons. First, Odor-No-More was able to reduce its product costs as a result of its increased volume (purchasing power). Second, increased sales resulted in increased gross margin contributing to the company’s operational costs.

We expect that Odor-No-More’s sales will continue to increase. By the end of 2019, assuming the company is properly capitalized with a marketing budget and additional salespeople, we expect that Odor-No-More will no longer require a cash subsidy to operate.$158,000.

BLEST (engineering division)

Revenue (BLEST)

~~BLEST~~Our engineering segment (BLEST) generated $241,000 and $424,000 of revenue for the three and six months ended June 30, 2019. Included in that total is intersegment revenue of $130,000 and $250,000 for the three and six months ended June 30, 2019. Intersegment revenue is eliminated in consolidation.

~~BLEST generated $111,000 and $174,000~~$141,000 of revenues from third party clients in the three ~~and six~~ months ended ~~June 30, 2019, compared to $11,000 and $50,000~~March 31, 2020, versus $63,000 in revenue in ~~same periods~~comparable period in ~~2018.~~2019. The increase is due to an increase in the number of client contracts being serviced. ~~The impact~~BLEST revenues reported on our consolidated statement of operations do not include work performed on internal BioLargo projects, such as its ~~recently signed subcontracts~~further engineering and development of the AOS water filtration system, or development of the AEC to ~~service~~combat the ~~United States Air Force will begin generating revenues~~PFAS crisis (see Development of AEC to Combat PFAS Crisis), which if billed to third party clients exceeded $143,000 in the ~~third quarter~~first quarter. Our engineers are performing a critical role in internal projects, some of ~~2019.~~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 Odor-No-More operating unit.

Cost of Goods (Services) Sold (BLEST)

BLEST’s cost of services includes employee labor as well as subcontracted labor costs. In the three ~~and six~~ months ended ~~June 30, 2019,~~March 31, 2020, its cost of services were ~~84% and 83%~~46% of its revenues, versus ~~72% and 62%~~27% in the three ~~and six~~ months ended ~~June 30, 2018. Costs were higher~~March 31, 2019. We expect the cost of services to remain closer to 50% in the ~~six-month comparison as we utilized sub-contractors with lower margins and we had fixed fee contracts that were not profitable. Those trends are declining as we add new, profitable contracts.~~reminder of the year ending December 31, 2020, based on our current client activity.

Selling, General and Administrative Expense (BLEST)

~~BLEST selling, general and administrative~~BLEST’S SG&A expenses ~~during the three and six months ended June 30, 2019 totaled $107,000 and $198,000, which is comparable~~include expense related to ~~the same periods in 2018. BLEST~~its operations, although because it primarily delivers services to its clients, most of its labor costs are included in its cost of services (for third party clients), and research and development for its work on BioLargo technologies. BLEST selling, general and administrative expenses during the three months ended March 31, 2020 totaled $101,000 compared to $106,000 for the three months ended March 31, 2019.

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~~Operating~~Net Loss (BLEST)

BLEST generated $285,000 in revenue, a gross margin of $153,000, and had total costs and expenses of $195,000, resulting in a net ~~operating~~ loss of ~~$108,000~~$41,000.

While we are unable to record revenues generated from intracompany services by the engineering group to other operating divisions, it is important to note that the net loss would be eliminated if BLEST were an outside contract for hire services company selling services to our water company or our industrial odor and ~~$137,000 during the three and six months ended June 30, 2019, compared to $69,000 and $117,000 for the same periods in 2018.~~ VOC control operating unit.

Because the subsidiary had ~~an operating~~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.~~considerably towards the end of calendar year 2019. We expect this trend to continue, and expect that in ~~the remainder of 2019~~2020 its ~~revenues~~sales will continue to increase. ~~We expect that this subsidiary will become profitable and contribute cash to our corporate operations.~~

Other Income

Our wholly owned Canadian subsidiary has been awarded more than 6775 research grants over the years from various Canadian public and private agencies, including the Canadian National Research Institute – Industrial Research Assistance Program (NRC-IRAP), the National Science and Engineering Research Council of Canada (NSERC), and the Metropolitan Water District of Southern California’s Innovative Conservation Program “ICP”. The research grants received are considered reimbursement grants related to costs we incur and therefore are included as Other Income. We continued to win grants and it is important to note that amounts paid directly to third parties are not included as income in our financial statements. Our grant income increased $9,000 and $86,000 in the three and six months ended June 30, 2019, compared with the same periods in 2018. This increase is due to additional and higher value grants awarded in 2019.

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Although we are continuing to apply for government and industry grants, and indications from the various grant agencies is highly encouraging, we cannot be certain of continuing those successes in the future.

Selling, General and Administrative Expense – ~~company-wide~~ consolidated ~~results~~

Our SG&A expenses include both cash expenses (for example, salaries to employees) and non-cash expenses (for example, stock option compensation expense). Our SG&A expenses ~~decreased~~increased by 1%10% ($~~14,000) during~~138,000) in the three months ended ~~June 30, 2019~~March 31, 2020 compared to the three months ended ~~June 30, 2018,~~March 31, 2019. Our non-cash expenses totaled $922,000, through the issuance of stock and stock options, increased ~~by 8% ($210,000)~~$339,000 for the ~~six-month periods.~~three months ended March 31, 2020 compared to the three months ended March 31, 2019. Our employees, vendors and consultants chose to receive a greater number of stock and stock options in lieu of cash owed and as part of an employee retention program. The largest components of our SG&A expenses included (in thousands):

	Three months				Six months
	June 30, 2018		June 30, 2019		June 30, 2018		June 30, 2019		March 31, 2019		March 31, 2020
Salaries and payroll related	$	521	$	476	$	972	$	969	$	494	$	548
Professional fees		187		164		379		360		196		228
Consulting		192		299		353		590		291		289
Office expense		258		224		468		464		240		283
Sales and marketing		63		34		117		93
Investor relations		28		37		61		82
Board of director expense		68		68		135		135

The increase in salaries and payroll expenses is primarily related to the implementation of a stock option bonus compensation program for employees and other related stock option compensation expenses, and also the hiring of additional personnel to support increasing operations. Consulting expense ~~increased~~decreased as we’ve engaged less consultants to identify business opportunities and are focusing on our current opportunities.

Research and Development

In the three months ended March 31, 2020, we spent approximately $335,000 in ~~2019 due to increased cash at Clyra and resulting increased~~the research and development ~~activities,~~of our technologies and ~~our hiring firms related to business development and brand exposure. We have also increased our investor relations expense to continue to develop and spread the word about our company.~~

~~Research and Development~~

~~Our company-wide research and development expenses decreased by 14% and 17%~~products. This was a decrease of 21% ($91,000) compared to the three ~~and six~~ months ended June 30, 2018. In some areas, such as in our medical subsidiary, these expenses increased as the company was better financed and ramping up activities in anticipation of an FDA decision regarding their first wound care product. In Canada, we have transitioned from pure research and development towards a focus on commercializing the AOS system, decreasing R&D.March 31, 2019.

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Interest expense

Our interest expense for the three ~~and six~~ months ended ~~June 30, 2019 decreased by $1,231,000 (71%) and $1,078,000 (42%)~~March 31, 2020 was $757,000, an decrease of $228,000 compared with the three ~~and six~~ months ended ~~June 30, 2018. Of our total interest expense, $40,000~~March 31, 2019, of which $25,000 was paid in cash, and $668,000 is related to the amortization of discount on convertible notes, and the remaining to other non-cash expense. During 2019, it was necessary to extend the maturity dates of some of our outstanding convertible notes, which resulted in additional interest expense. As most of these convertible notes have now been fully paid, the discount on our convertible notes is ~~non-cash expenses~~less resulting in less interest expense in the three months ended March 31, 2020, compared to the same period in 2019.

Loss on extinguishment of debt

In the three months ended March 31, 2020, we recorded a loss on extinguishment of debt related to ~~financing transactions. Our interest expense decreased~~transactions with current vendor and employees where Clyra Medical is unable to pay obligations in ~~2019 primarily because (i) over $5 million in debt matured in~~cash. In lieu of cash, the ~~first six months~~vendors and employees accepted options to purchase shares of 2018, and (ii) we accepted cash from some convertible noteholders to reduce their conversion prices. We expect our interest expense to increase in the second half of 2019 due to the recent issuance of more than $2 million in Twelve Month OID Notes. Each investor also received a stock purchase warrant and we record the relativeClyra stock. The fair value of those options exceeded the warrants and the intrinsic value of the beneficial conversion feature sold with the convertible notes which typically results in a full discount on the proceeds from the convertible notes. This discount is then amortized as interest expense over the term of the convertible notes. Ultimately, it is management’s objective to secure equity and discontinue the use of convertible interest-bearing debt ~~to finance its ongoing growth.~~ that was converted by $214,000.

In the ~~six~~three months ended ~~June 30,~~March 31, 2019, we recorded ~~non-cash expenses~~a loss on extinguishment of ~~$1,254,000~~debt related to ~~amortization~~transactions with prior investors to extend the maturity dates of promissory notes. As consideration, we increased principal amounts, modified conversion terms, and/or issued stock purchase warrants. We had no such activities in the comparable period in 2020. We extended the maturity dates of the ~~fair value~~promissory notes due to a lack of ~~warrants issued in connection with~~sufficient cash to satisfy the obligations at maturity. Unless our ~~debt, and $228,000 related~~cash position changes substantially, we anticipate we will continue to ~~debt extension.~~do so as additional notes come due.

Net Loss

Net loss for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 was ~~$1,987,000 ($0.01~~$2,616,000 a loss of $0.01 per ~~share) and $4,736,000 ($0.03 per share). Net~~share, compared to a net loss for the three ~~and six~~ months ended ~~June 30, 2018 was $3,600,000 ($0.03~~March 31, 2019 of $2,749,000 a loss of $0.02 per ~~share) and $6,029,000 ($0.05 per share). Our~~share. The reduction in the net loss infor the period ended March 31, 2020 versus 2019 ~~has decreased primarily~~is due to ~~lower~~a small improvement in gross profit and a reduction in interest ~~expense and an increase in revenue. Of our total net loss, approximately $2.9 million (60%) was non-cash expense, and the remaining $1.85 million (40%) was cash used in operating activities.~~expense.

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The net loss per business segment is as follows (in thousands):

	Three months						Six months
	June 30, 2018			June 30, 2019			June 30, 2018			June 30, 2019
BioLargo corporate		(3,056	)		(1,486	)		(4,980	)		(3,591	)
Odor-no-more		(145	)		(51	)		(254	)		(141	)
Clyra		(177	)		(332	)		(376	)		(631	)
Net loss													March 31, 2019			March 31, 2020
Odor-No-More													$	(90	)	$	(153	)
BLEST		(71	)		(26	)		(117	)		(137	)		(110	)		(43	)
Clyra Medical														(299	)		(535	)
BioLargo Water		(151	)		(92	)		(302	)		(237	)		(145	)		(171	)
Net loss		(3,600	)		(1,987	)		(6,029	)		(4,736	)
Corporate														(2,105	)		(1,715	)
Consolidated net loss													$	(2,749	)	$	(2,616	)

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 ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, we had a net loss of ~~$4,736,000,~~$2,616,000, used ~~$1,851,000~~$753,000 cash in operations, and at ~~June 30, 2019,~~March 31, 2020, we had a working capital deficit of ~~$3,473,000~~$3,651,000, and current assets of ~~$1,001,000.~~$1,080,000. We do not ~~have sufficient working capital and do not~~ believe ~~gross profits~~net revenues will be sufficient to fund our current level of operations or pay our debt due prior to December 31, ~~2019,~~2020, and will have to obtain further investment capital to continue to fund operations and seek to refinance our existing debt. We have been, and anticipate that we will continue to be, limited in terms of our capital resources. During the ~~year ended December 31, 2018, and the six~~three months ended ~~June 30, 2019,~~March 31, 2020, we generated revenues of ~~$1,364,000 and $790,000~~$439,000 through ~~our~~two business segments (Odor-No-More and BLEST – see Note 10, “Business Segment Information”). Neither generated enough revenues to fund their ~~operations.~~operations, or fund our corporation operations or other business segments, and thus to continue to operate, we conducted private securities offerings. We ~~have $2,119,000~~intend to refinance or renegotiate the $550,000 in debt obligations due in August 2020; the ~~next 12 months (see Notes 4 and 12): (i) $1,724,000in notes that are~~remainder of debt due in 2020 is convertible at the option of the holder, (ii) a $145,000 note due September 6, 2019, and (iii) a line of credit in the amount of $250,000 due on 30-day demand beginning September 1, 2019. We intend to either refinance or renegotiate these obligations, as ourmaturity. Our cash position is insufficient to maintain our current level of operations and ~~pay these liabilities. Thus,~~research and development, and thus we will be required to raise substantial additional ~~capital.~~capital to continue to fund our operations in calendar year 2020, as well as our future business plans. We continue to raise money through private securities offerings and our LPC Purchase Agreement (see Note 3), and continue to negotiate for more ~~substantial financings~~financing from private and institutional investors. During the six months ended June 30, 2019, we received $1,924,000 net cash provided by financing activities, and at June 30, 2019 had cash of $706,000. Subsequent to June 30, 2019, we received $2,360,000 from new financing activities. No assurance can be made of our success at raising money through private or public offerings.

Clyra Medical is unique in that it funds its operations through third party ~~investments, as it has done since 2016.~~investments. We do not ~~currently~~ intend ~~and are under no obligation~~ to subsidize its operations in the future.

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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.

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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.

~~For service revenue, we identify~~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. ~~Service~~BLEST’s contracts typically call for invoicing for time and materials incurred for that contract. A few contracts have called for milestone or fixed cost payments where BLEST bills an agreed to amount per month for the life of the contract. In these instances, completed work, billed hourly, is recognized as revenue. If the billing amount is greater or lesser than the completed work, a receivable or payable is created. These accounts are adjusted upon additional billings as the work is completed. To date, there have been no discounts or other financing terms for the contracts.

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

Warrants and Conversion Features

Warrants issued with our convertible and non-convertible debt instruments are accounted for under the fair value and relative fair value method.

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

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

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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, 2018 and ~~June 30,~~March 31, 2019 approximate their respective fair values because of the short-term nature of these instruments. Such instruments consist of cash, accounts receivable, prepaid assets, accounts payable, convertible notes, and other assets and liabilities.

Recent Accounting Pronouncements

See Note 2 to the Consolidated Financial Statements, “Summary of Significant Accounting Policies – Recent Accounting Pronouncements”, for the applicable accounting pronouncements affecting the Company.

~~Item 4.~~

Item 4. Controls and Procedures

We conducted an evaluation, under the supervision and with the participation of management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Report.

Our procedures have been designed to ensure that the information relating to our company, including our consolidated subsidiaries, required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow for timely decisions regarding required disclosure. However, as our Company ~~continues~~is continuing to grow and evolve in 2018, as we have added a new accounting manager for Odor-No-More and ~~remains underfunded, implementing~~the engineering division and implemented more detailed reviews of the accounting records. In late 2017, we added an engineering division operating in Tennessee. The volume of our product sales continues to grow, increasing strain on our accounting systems. And, our operations do not yet generate enough cash to fund operations, and thus we rely on financing activities to maintain our level of operations and fund our anticipated growth. These activities put stress on our overall controls and ~~procedures to ensure so can be challenging.~~procedures. Although we ~~continue to improve,~~have made some improvements, our chief executive officer and chief financial officer have concluded that, as of the evaluation date, our disclosure controls and procedures were not effective, due to the material weakness identified below.

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It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

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Under the supervision and with the participation of our management, including our chief executive officer and the chief financial officer, we have established internal control procedures in accordance with the guidelines established in the 2013 Framework —Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Recognizing the dynamic nature and growth of the Company’s business during the ~~past two years,~~prior 12 months, including the addition of an engineering division, 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, management has concluded that its internal controls over financial reporting are not effective. Management identified a material weakness with respect to deficiencies in its financial closing and reporting procedures. Management believes this is due to a lack of resources. Management intends to add accounting personnel and operating staff and more sophisticated systems in order to improve its reporting procedures and internal controls, subject to available capital. A material weakness is a significant deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected. There was no further change in our internal control over financial reporting that occurred during the three-month period covered by this Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Our management, including our chief executive officer and chief financial officer, does not expect that our disclosure controls or our internal control over financial reporting, or any system we design or implement in the future, will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

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PART II

OTHER INFORMATION

~~Item 2.~~

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following is a report of the sales of unregistered securities during the period covered by this report not previously reported in an annual report on Form 10-K, a Quarterly Report on Form 10-Q, or a Current Report on Form ~~8-K.During the three months ended June 30,~~8-K.

Stock

On January 15 and March 20, 2019, we issued ~~267,494~~44,288 and 54,305 shares, respectively, of our common stock for $20,000 of interest due to our note and line of credit holders.

On March 11 and March 29, 2019, we issued 100,000 and 138,252 shares, respectively, of our common stock pursuant to consulting agreements totaling $47,000 for services to our company.

On January 24, February 13, March 6 and March 26, 2019, we issued a total of 1,679,248 shares of our common stock to Vista Capital upon its election to convert $215,000 of the Vista 2017 Note. Of that amount, 1,638,479 shares were issued as payment of principal, and 40,769 shares as payment of interest.

On March 13, 2020, we issued 1,593,807 shares of our common stock to BKT Co. Ltd., pursuant to the Joint Venture Agreement (see “South Korean Joint Venture” in ~~exchange for a reduction of $50,000 owed to vendors~~Item I, above) and ~~consultants.~~in exchanged received $350,000 from BKT.

During the three months ended ~~June 30, 2019, we issued options to purchase 330,434 shares of our common stock for $0.23 per share in exchange for a reduction of $38,000 owed to vendors and consultants.~~

~~During the three months ended June 30, 2019, a noteholder~~March 31, 2020, Vista Capital elected to convert ~~$296,000~~the remaining balance of $269,600 of the outstanding principal ~~of a~~and interest due on its promissory note ~~due August 31,~~dated October 7, 2019, ~~into 2,767,833~~and we issued 2,417,059 shares of our common stock.

During the three months ended ~~June 30,~~March 31, 2020, noteholders elected to convert $165,000 of the outstanding principal of 12-Month OID Notes and we issued 970,590 shares of our common stock.

Options

During the three months ended March 31, 2019, we issued ~~87,748~~options to purchase 731,250 shares of our common stock ~~in lieu~~at exercise prices ranging between $0.16 – $0.25 per share to vendors for fees for service, and an aggregate 138,252 shares of ~~accrued and unpaid interest totaling $15,000.~~our common stock to a consultant for fees for service at $0.22 per share.

Promissory Notes

During the three months ended ~~June 30,~~March 31, 2019, ~~an investor~~certain investors converted ~~$300,000 of principal amount due on a~~ promissory ~~note~~notes to our common stock (see Note 4 to our Consolidated Financial Statements titled “Debt Obligations”, and specifically the subsection titled ~~“Convertible Note, matures July 15, 2019 (Vista Capital)~~“Conversion of Debt Obligations”).

During the three months ended ~~June 30,~~March 31, 2019, we incurred ~~$1,061,000 in~~ new debt obligations (see Note 4 to our Consolidated Financial Statements titled ~~“Debt Obligations”~~“Debt Obligations”, and specifically the subsections titled “Notes payable, mature January 5, 2019,” “Convertible Note, matures June 15, 2021 (OID Note),” and “Line of credit, matures September 1, 2019.” We also extended a debt obligation that had been due on September 18, 2018 (see Note 4, subsection titled “Convertible Note, matures ~~April~~December 18, ~~2020”, “Convertible notes, mature February 14 and March 17, 2020”, “Convertible note, matures March 4, 2020”, “OID Twelve-Month Note Offering.~~2018 (Vista Capital)”

~~The discussion set forth in Part II, Item 5 “Other Information”, is incorporated herein by this reference as though fully set forth.~~.)

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

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~~Item 5.~~

Item 5. Other Information

Since June 1, 2019, we have received over $2.5 million in new investments, and converted to equity or refinanced approximately $1.3 million in current liabilities. These new investments and refinancing activities added approximately $3 million in current liabilities and $600,000 in long term liabilities to our balance sheet. The following sections describe these transactions.

~~Twelve-month OID Notes~~On March 30, 2020, we entered into a purchase agreement (the “Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant to which the Company has the right to sell to Lincoln Park up to $10,250,000 in shares of the Company’s common stock, $0.00067 par value per share (the “Common Stock”), over the 36 month term of the Purchase Agreement, subject to certain limitations and conditions set forth in the Purchase Agreement.

Concurrently with the execution of the Purchase Agreement on March 30, 2020, we entered into a registration rights agreement (the “Registration Rights Agreement”) with Lincoln Park pursuant to which the Company agreed, among other things, to file a registration statement with the SEC to register for sale under the Securities Act of 1933, as amended (the “Act”), the shares of common stock that may be issued and sold to Lincoln Park from time to time under the Purchase Agreement. We ~~accepted subscriptions~~filed a registration statement on Form S-1 with the SEC, which was deemed effective on April 21, 2020.

Lincoln Park agreed to make an initial purchase of $250,000 of shares for ~~an aggregate $2,185,000~~$0.14 per share. That purchase was completed March 31, 2020.

The Purchase Agreement provides that, commencing on the date that a registration statement is declared effective by the SEC and a final prospectus in connection therewith is filed and the other terms and conditions of the Purchase Agreement are satisfied from time to time on any trading day the Company selects, the Company has the right, in its sole discretion, subject to the conditions and limitations in the Purchase Agreement, to direct Lincoln Park to purchase ~~our Twelve-Month OID Notes and stock~~up to 100,000 shares of Common Stock (each such purchase, ~~warrants from 33 accredited investors. Once these subscriptions are fully processed, we~~a “Regular Purchase”) over the 36-month term of the Purchase Agreement, provided that at least one trading day has passed since the last Regular Purchase. The purchase price of shares of Common Stock pursuant to the Purchase Agreement will ~~have issued convertible promissory notes due in 12 months~~be based on the prevailing market price at the time of sale as set forth in the ~~aggregate principal amount of $2,731,250, and warrants to purchase 12,049,635 shares at $0.25 per share.~~

~~Each OID note matures 12 months from~~Purchase Agreement. There are no trading volume requirements or restrictions under the ~~date of issuance, and accrues interest at an annual rate of 5%. It may be converted by~~Purchase Agreement. Lincoln Park’s obligation under each Regular Purchase shall not exceed $500,000. There is no upper limit on the ~~investor at any time at $0.17~~price per share ~~and automatically converts to equity at maturity at~~that Lincoln Park must pay for Common Stock under the lower of the fixed conversion rate and seventy percent (70%) of the lowest daily volume weighted average price during the 25 trading days immediately preceding the conversion. It must be prepaid upon conclusion of a securities offering in which we raise at least $3.5 million in a single financing. The $0.17 initial conversion rate may be adjusted downward in the event the Company issues a fixed-price convertible note at a lower conversion rate, or conducts an equity offering at a per-share price less than the conversion price. The Company may prepay the notes at any time upon 10 days’ notice to the investor, during which time they may convert the note to stock.Purchase Agreement.

In addition to regular purchases, as described above, the ~~note, each investor receives a warrant~~Company may also direct Lincoln Park to purchase ~~BioLargo common stock for $0.25 per share, expiring 5 years~~additional amounts as accelerated purchases. In all instances, the Company may not sell shares of its Common Stock to Lincoln Park under the Purchase Agreement if it would result in Lincoln Park beneficially owning more than 4.99% of the Common Stock.

Lincoln Park represented to the Company, among other things, that it was an “accredited investor” (as such term is defined in Rule 501(a) of Regulation D under the Securities Act of 1933, as amended), and the Company sold the securities in reliance upon exemptions from the ~~date~~registration requirements of issuance. The number of shares purchasable under the warrant is equal to the 75% of the principal balance of the note divided by .17. If the warrant shares are not registered within 18 months of the warrant issue date, the warrant allows for a cashless exercise. Once the investments are fully processed, the Company expects to issue warrants to purchase approximately 10.2 million shares.

~~This offering was closed on July 29, 2019.~~

~~Two-year Convertible Note~~

~~On August 9, 2019, we received $600,000 from one accredited investor~~United States federal and issued a promissory note in the principal amount of $600,000, maturing in two years, accruing interest at 15% to be paid in cash monthly, and which converts to common stock at the holder’s option at $0.30 per share. This investor also received a warrant to purchase 1,200,000 shares of our common stock at $0.30 per share, expiring five years from the grant date.

~~Warrant Exercise~~state securities laws.

The ~~holder~~Purchase Agreement and the Registration Rights Agreement contain customary representations, warranties, agreements and conditions to completing future sale transactions, indemnification rights and obligations of ~~warrants issued July 2016 and December 2016,~~ the ~~underlying~~parties. The Company has the right to terminate the Purchase Agreement at any time, at no cost or penalty. During any “event of default” under the Purchase Agreement, all of which are outside of Lincoln Park’s control, Lincoln Park does not have the right to terminate the Purchase Agreement; however, the Company may not initiate any regular or other purchase of shares ~~for which were registered with~~by Lincoln Park, until such event of default is cured. There are no restrictions on future financings, rights of first refusal, participation rights, penalties or liquidated damages in the ~~SEC, purchased 1,500,000~~Purchase Agreement or Registration Rights Agreement, other than a prohibition on entering into any “Variable Rate Transaction,” as defined in the Purchase Agreement.

Actual sales of shares of ~~our common~~Common Stock to Lincoln Park under the Purchase Agreement will depend on a variety of factors to be determined by the Company from time to time, including, among others, market conditions, the trading price of the Common Stock and determinations by the Company as to the appropriate sources of funding for the Company and its operations. As set forth in the Purchase Agreement, in consideration for entering in the Purchase Agreement, the Company has agreed to issue to Lincoln Park 1,785,715 shares of Common Stock. The Company will not receive any cash proceeds from the issuance of these shares.

The net proceeds under the Purchase Agreement to the Company will depend on the frequency and prices at which the Company sells shares of its stock to Lincoln Park. The Company expects that any proceeds received by the Company from such sales to Lincoln Park will be used for ~~$180,000.~~working capital and general corporate purposes.

47
39

Table of Contents

~~Tangiers – Note Conversion, New Investment~~

On July 29, 2019, Tangiers (see Note 4, “Convertible Notes, mature November 5, 2019 and December 7, 2019 (Tangiers)”) elected to convert $330,000 principal amount and $39,600 accrued interest due on its promissory note issued January 31, 2019, into 2,640,000 shares of common stock.

Additionally, Tangiers invested $350,000 into a Twelve-Month OID Note (see Note 4) in the principal amount of $437,500, and a stock purchase with the same terms and conditions as those issued to the Twelve-Month OID Note investors, allowing for the purchase of 1,930,147 shares.

~~Line of Credit Refinancing~~

Three holders of a secured line of credit issued in 2018 elected to convert $205,000 of principal owed into Twelve-Month OID Notes in the principal amount of $256,250, and stock purchase warrants allowing for the purchase of 1,130,515 shares. The balance due on the line of credit as of the date of this report is $225,000.

~~Satisfaction of $440,000 Two-year Note~~

On the July 20, 2019 maturity date, the holder of a note in the principal amount of $440,000 elected to convert the principal amount due on the note into 2,000 shares of Clyra Medical common stock held by BioLargo, and $105,600 in accrued and unpaid interest into 384,980 shares of BioLargo common stock at $0.2743 per share (the 20-day closing average). This reduced BioLargo’s ownership in Clyra Medical by 3% to 38.9%.

~~Refinance of Note due September 6, 2019~~

A holder of a note in the principal amount of $338,800, for which we would have been required to satisfy in cash on September 6, 2019, agreed to satisfy the note through the issuance an amended and restated convertible promissory note due in 12 months with a 25% original issue discount (see Note 4, subheading “Notes payable, mature September 6, 2019”). The entire note balance, including $41,200 in accrued and unpaid interest, was satisfied through the issuance of an amended and restated note in the principal amount of $475,000, and a warrant to purchase 2,095,588 shares of our common stock. The amended and restated note is convertible by the holder at $0.17 per share. The interest rate was reduced from 18% to 5% per annum. The warrant expires in five years and may be exercised at $0.25 per share. After 18 months, it allows the holder to do a “cashless” exercise unless the shares underlying the warrant are registered with the SEC.

~~Item 6.~~

Item 6. Exhibits

See the Exhibit Index for a list of exhibits filed as part of this report and incorporated herein by reference.

Exhibit Index

			Incorporated by ~~Reference~~ Reference Herein
Exhibit Number			Exhibit Description	Form	File Date
3.1		Bylaws of BioLargo, Inc., as amended and restated	Form 10-KSB	5/23/2003
3.2		Amended and Restated Certificate of Incorporation for BioLargo, Inc. filed March 16, 2007	Form 10-KSB	5/4/2007
3.3		Certificate of Amendment to Certificate of Incorporation, filed May 25, 2018	Pos Am	6/22/2018
~~4.1~~3.4		~~Form~~Amended and Restated Articles of ~~Stock Options issued in exchange for reduction in accounts payable.~~Incorporation of Clyra Medical Technologies, Inc.	Form ~~10-K~~8-K	~~3/31/2015~~1/6/2016
~~4.2~~4.1		2018 Equity Incentive Plan	Form S-8	6/22/2018
~~4.3~~4.2		Stock Option Award Agreement under 2018 Equity Incentive Plan	Form S-8	6/22/2018
~~4.4~~4.3		Notice of Stock Option Grant under 2018 Equity Incentive Plan	Form S-8	6/22/2018
~~4.5~~4.4		Restricted Stock Unit Award Agreement under 2018 Equity Incentive Plan	Form S-8	6/22/2018
~~4.6~~4.5		Notice of Restricted Stock Unit Award under 2018 Equity Incentive Plan	Form S-8	6/22/2018
~~10.1~~4.6		Form of Stock Options issued in exchange for reduction in accounts payable.	Form 10-K	3/31/2015
4.7		Form of Warrant issued to One Year Note holder ~~in July~~dated December 30, 2016	Form ~~10-Q~~S-1	~~8/15/2016~~
~~10.2~~	~~Two-year Note in face amount of $440,000 issued July 2017~~	~~Form 10-Q~~	~~8/14/~~1/25/2017
~~10.3~~4.8		Purchase Agreement, dated as of August 25, 2017 by and between BioLargo, Inc. and Lincoln Park Capital Fund, LLC	Form 8-K	8/31/2017
~~10.4~~4.9		$50,000 convertible note, matures March 8, 2020	Form 10-Q	5/14/2018
4.10		Promissory note issued by Clyra Medical Technologies dated September 26, 2018	Form 8-K	10/2/2018
4.11		Convertible Promissory Note issued to Vista Capital Investments LLC dated ~~December 14, 2017~~	~~Form 8-K~~	~~12/22/2017~~
~~10.5~~	~~December 18, 2017, amendment to Promissory Note dated December 14, 2017 issued to Vista Capital Investments, LLC.~~	~~Form 8-K~~	~~12/22/2017~~
~~10.6~~	~~Line of credit, matures September 1,~~January 7, 2019	~~Form 10-Q~~	~~5/14/2018~~
~~10.7~~	~~Amendment to $440,000 convertible notes that matures July 20, 2019~~	~~Form 10-Q~~	~~5/14/2018~~
~~10.8~~	~~Promissory Note issued to Vernal Bay Investments, LLC on September 19, 2018~~	~~Form 8-K~~	~~9/24/2018~~
~~10.9~~	~~Promissory Note issued to Chappy Bean, LLC on September 19, 2018~~	~~Form 8-K~~	~~9/24/2018~~

~~Table of Contents~~

~~10.10†~~	~~January 16, 2019 Engagement Extension Agreement by and between BioLargo, Inc. and Charles K. Dargan~~	Form 8-K	1/~~18/~~11/2019
~~10.11~~4.12		Convertible Promissory Note issued to Tangiers Global, LLC dated January 31, 2019	Form 8-K	2/11/2019
4.13		Stock Purchase Warrant Issued to Lincoln Park Capital on January 31, 2019	Form 8-K	2/11/2019
4.14		Amendment dated March 5, 2019 to Promissory Note issued to Vernal Bay Investments, LLC on September 19, 2018	Form 8-K	3/8/2019
~~10.12~~4.15		Amendment dated March 5, 2019 to Promissory Note issued to Chappy Bean, LLC on September 19, 2018	Form 8-K	3/8/2019
~~10.13~~4.16		~~Securities Purchase Agreement by and between BioLargo, Inc., and Bellridge Capital, LP dated April 18, 2019~~	~~Form 8-K~~	~~4/23/2019~~
~~10.14~~	~~10% Convertible Promissory Note issued to Bellridge Capital, LP dated April 18, 2019~~	~~Form 8-K~~	~~4/23/2019~~
~~10.15~~	~~Securities Purchase Agreement by and between BioLargo, Inc., and Crossover Capital dated May 10, 2019~~	~~Form 10-Q~~	~~5/15/2019~~
~~10.16~~	~~Convertible Promissory Note issued to Crossover Capital dated May 10, 2019~~	~~Form 10-Q~~	~~5/15/2019~~
~~10.17~~	~~Securities Purchase Agreement by and between BioLargo, Inc., and EMA Financial, LP dated June 4, 2019~~	~~Form 8-K~~	~~6/7/2019~~
~~10.18~~	~~10% Convertible Promissory Note issued to EMA Financial, LP dated June 4, 2019~~	~~Form 8-K~~	~~6/7/2019~~
~~10.19~~	~~Amendment #1 to the Convertible Note issued on June 4, 2019 to EMA Capital, LP~~	~~Form 8-K~~	~~6/7/2019~~
~~10.20†~~	~~Provenzano Employment Agreement dated May 28, 2019~~	~~Form 8-K~~	~~6/24/2019~~
~~10.21†~~	~~Provenzano Lock-Up Agreement dated May 28, 2019~~	~~Form 8-K~~	~~6/24/2019~~
~~10.22~~	OID twelve-month promissory note	Form 8-K	8/2/2019
~~10.23~~4.17		Stock purchase warrant issued to OID twelve-month investors	Form 8-K	8/2/2019

Table of Contents

10.24*4.18		$600,000 Promissory note dated August 9, 2019	Form 10-Q	8/14/2019
10.25*4.19		Warrant to purchase 1.2 million shares issued August 9, 2019 ~~to $600,000 note holder~~	Form 10-Q	8/14/2019
10.26* 4.20		Amendment to $440,000 convertible notes that matures July 20, 2019	Form 10-Q	5/14/2018
4.21		Amendment dated August 12, 2019 to Promissory Note issued to Vernal Bay Investments, LLC on September 19, 2018	Form 10-Q	8/14/2019
10.27* 4.22		Amended and restated note issued to Vernal August 12, 2019	Form 10-Q	8/14/2019
10.28* 4.23		Warrant issued to Vernal August 12, 2019	Form 10-Q	8/14/2019
4.24		Warrant issued March 2018, expiring March 2023	S-1	8/29/2019
4.25		Form of warrant issued January 2019 to Lincoln Park, expiring January 2024	S-1	8/29/2019
10.1		License Agreement to Clyra Medical Technologies, Inc., dated December 17, 2012	Form 8-K	1/6/2016
10.2		December 30, 2015 amendment to License Agreement with Clyra Medical Technologies, Inc.	Form 8-K	1/6/2016
10.3		Consulting Agreement dated December 30, 2015 with Beach House Consulting LLC	Form 8-K	1/6/2016
10.4		Commercial Office Lease Agreement for 14921 Chestnut St., Westminster, CA 92683	Form 8-K	8/24/2016
10.5†		January 16, 2019 Engagement Extension Agreement by and between BioLargo, Inc. and Charles K. Dargan	Form 8-K	1/18/2019
31.1*	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Rules 13(a)-14 and 15(d)-14 under the Securities Exchange Act of 1934
31.2*	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Rules 13(a)-14 and 15(d)-14 under the Securities Exchange Act of 1934
32*	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.
101.INS**	XBRL Instance
101.SCH**	XBRL Taxonomy Extension Schema
101.CAL**	XBRL Taxonomy Extension Calculation
101.DEF**	XBRL Taxonomy Extension Definition
101.LAB**	XBRL Taxonomy Extension Labels
101.PRE**	XBRL Taxonomy Extension Presentation

* Filed herewith

** Furnished herewith

† Management contract or compensatory plan, contract or arrangement

~~Table of Contents~~

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: ~~August 14, 2019~~May 19, 2020		BIOLARGO, INC. By: /s/ DENNIS P. CALVERT
			Dennis P. Calvert Chief Executive Officer


Date: ~~August 14, 2019~~May 19, 2020		By: /s/ CHARLES K. DARGAN, II
	Charles K. Dargan, II
	Chief Financial Officer

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common stock	BLGO	OTC Markets (OTCQB)

Large accelerated filer ☐	Accelerated filer ☐

Non-accelerated filer ☐	Smaller reporting company ☒

	Emerging growth company ☐

		DECEMBER 31, 2018			JUNE 30, 2019 (unaudited)				DECEMBER 31, 2019			MARCH 31, 2020 (unaudited)
Assets	Assets							Assets
Current assets:
Cash and cash equivalents		$	655		$	706			$	655		$	744
Accounts receivable			257			232				355			259
Inventories, net of allowance			26			38				16			33
Prepaid expenses and other current assets			17			25				39			44
Total current assets			955			1,001				1,065			1,080

In-process research and development (Note 8)			1,893			1,893				1,893			1,893
Equipment, net of depreciation			126			108
Property and equipment, net of depreciation										95			63
Other non-current assets			35			35				35			35
Right-of-use, operating lease, net of amortization			—			370				411			386
Deferred offering cost			176			176				122			—
Investment in South Korean Joint Venture										—			99
Total assets		$	3,185		$	3,583			$	3,621		$	3,556
Liabilities and stockholders’ equity (deficit)

Liabilities and stockholders’ deficit								Liabilities and stockholders’ deficit
Current liabilities:
Accounts payable and accrued expenses		$	501		$	676			$	602		$	812
Clyra Medical note payable (Note 8)			—			1,007				1,007			1,007
Notes payable			400			534
Note payable										50			50
Line of credit			430			430				50			50
Convertible notes payable			1,365			2,863				3,957			3,523
Discount on convertible notes payable, and line of credit, net of amortization			(205	)		(1,180	)			(1,472	)		(834	)
Lease liability			—			116				125			114
Customer deposit			—			28
Deferred revenue										35			9
Total current liabilities			2,491			4,474				4,354			4,731

Long-term liabilities:
Convertible notes and note payable			285			210				700			700
Clyra Medical note payable (Note 8)			1,007			—
Liability to Clyra Medical shareholder (Note 8)			643			643				643			643
Discount on convertible notes payable, net of amortization			(118	)		(79	)			(182	)		(153	)
Lease liability			—			254				286			271
Total long-term liabilities			1,817			1,028
Total liabilities			4,308			5,502				5,801			6,192
COMMITMENTS, CONTINGENCIES (Note 11)
STOCKHOLDERS’ EQUITY (DEFICIT):
Preferred Series A, $.00067 Par Value, 50,000,000 Shares Authorized, -0- Shares Issued and Outstanding, at December 31, 2018 and June 30, 2019, respectively.			—			—
Common stock, $.00067 Par Value, 400,000,000 Shares Authorized, 141,466,071 and 152,054,904 Shares Issued, at December 31, 2018 and June 30, 2019, respectively.			95			102



Commitments and contingencies (Note 11)

Stockholders’ equity (deficit):
Preferred Series A, $.00067 Par Value, 50,000,000 shares authorized, -0- shares issued and outstanding, at December 31, 2019 and March 31, 2020, respectively.										—			—
Common stock, $.00067 Par Value, 400,000,000 shares authorized, 166,256,024 and 178,479,317 shares issued, at December 31, 2019 and March 31, 2020.										111			119
Additional paid-in capital			110,222			114,745				121,327			123,121
Accumulated other comprehensive loss			(90	)		(98	)			(99	)		(99	)
Accumulated deficit			(111,723	)		(116,876	)			(123,492	)		(125,866	)
Total BioLargo Inc. and Subsidiaries stockholders’ equity (deficit)			(1,496	)		(2,127	)
Total BioLargo, Inc. and subsidiaries stockholders’ deficit										(2,153	)		(2,725	)
Non-controlling interest (Note 8)			373			208				(27	)		89
Total stockholders’ equity (deficit)			(1,123	)		(1,919	)
Total stockholders’ deficit										(2,180	)		(2,636	)
Total liabilities and stockholders’ equity (deficit)		$	3,185		$	3,583			$	3,621		$	3,556

	THREE MONTHS						SIX MONTHS						MARCH 31, 2019			MARCH 31, 2020
	JUNE 30, 2018			JUNE 30, 2019			JUNE 30, 2018			JUNE 30, 2019
Revenues
Revenue
Product revenue	$	316		$	316		$	540		$	617		$	301		$	283
Service revenue		11			110			50			173			63			156
Total revenue		327			426			590			790			364			439

Cost of revenue
Cost of goods sold		(194	)		(136	)		(328	)		(276	)		(140	)		(128	)
Cost of service		(7	)		(92	)		(36	)		(143	)		(52	)		(132	)
Total cost of revenue														(192	)		(260	)
Gross profit		126			198			226			371			172			179

Operating expenses:
Selling, general and administrative expenses		1,316			1,302			2,486			2,696			1,408			1,546
Research and development		425			367			947			793			426			335
Depreciation		13			16			23			31
Operating loss:		(1,628	)		(1,487	)		(3,230	)		(3,149	)
Other (expense) income:
Total operating expenses														1,834			1,881
Operating loss														(1,662	)		(1,702	)

Other income (expense):
Grant income														82			57
Interest expense		(1,729	)		(498	)		(2,561	)		(1,483	)		(985	)		(757	)
Debt conversion expense		(276	)		—			(276	)		—
Loss on debt extinguishment		—			(44	)		—			(228	)
Grant income		33			42			38			124
Total other expense:		(1,972	)		(500	)		(2,799	)		(1,587	)
Loss on extinguishment of debt														(184	)		(214	)
Total other (expense) income														(1,087	)		(914	)

Net loss		(3,600	)		(1,987	)		(6,029	)		(4,736	)		(2,749	)		(2,616	)

Net loss attributable to noncontrolling interest		(95	)		(192	)		(202	)		(365	)		(173	)		(342	)
Net loss attributable to common shareholders	$	(3,505	)	$	(1,795	)	$	(5,827	)	$	(4,371	)	$	(2,576	)	$	(2,274	)

Net loss per share attributable to common shareholders:
Net loss per share attributable to common stockholders:
Loss per share attributable to shareholders – basic and diluted	$	(0.03	)	$	(0.01	)	$	(0.05	)	$	(0.03	)	$	(0.02	)	$	(0.01	)
Weighted average number of common shares outstanding:		118,748,451			145,700,515			111,760,954			143,983,182			142,246,766			168,873,233

Comprehensive loss:
Comprehensive loss attributable to common shareholders
Net loss	$	(3,600	)	$	(1,987	)	$	(6,029	)	$	(4,736	)	$	(2,749	)	$	(2,616	)
Foreign currency translation		13			(4	)		1			(8	)
Foreign translation adjustment														(4	)		—
Comprehensive loss		(3,587	)		(1,991	)		(6,028	)		(4,744	)		(2,753	)		(2,616	)
Comprehensive loss attributable to noncontrolling interest		(95	)		(192	)		(202	)		(365	)		(173	)		(342	)
Comprehensive loss attributable to common stockholders	$	(3,492	)	$	(1,799	)	$	(5,826	)	$	(4,379	)
Comprehensive loss attributable to shareholders													$	(2,580	)	$	(2,274	)

	JUNE 30, 2018			JUNE 30, 2019			MARCH 31, 2019			MARCH 31, 2020
Cash flows from operating activities
Net loss	$	(6,029	)	$	(4,736	)	$	(2,749	)	$	(2,616	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock option compensation expense		696			648			352			526
Common stock issued in lieu of salary to officers and fees for services from vendors		446			419			206			178
Common stock issued for interest		484			40			25			4
Interest expense related to amortization of the discount on convertible notes payable and line of credit and deferred financing costs		2,019			1,254
Interest expense related to amortization of the discount on convertible notes payable and line of credit								851			668
Interest expense related to the fair value of warrants issued as consent for variable debt		—			54			54			—
Debt conversion expense		276			—
Loss on extinguishment of debt		—			229			184			214
Bad debt expense		1			—
Deferred offering expense		8			—
Depreciation expense		23			31			16			16
Changes in assets and liabilities:
Accounts receivable		3			24			47			96
Inventories		28			(12	)		—			(17	)
Deferred revenue								—			(26	)
Accounts payable and accrued expenses		31			178			129			210
Prepaid expenses and other current assets		(39	)		(8	)		(17	)		(5	)
Customer deposits		—			28			32			(1	)
Net cash used in operating activities		(2,053	)		(1,851	)		(869	)		(753	)

Cash flows from investing activities
Leasehold improvements		(26	)		(14	)
Investment in South Korean joint venture								—			(100	)
Sale of equipment								—			16
Net cash used in investing activities		(26	)		(14	)		—			(84	)

Cash flows from financing activities
Proceeds from sales of common stock								—			901
Proceeds from convertible notes payable		463			1,825			750			—
Proceeds from conversion inducement		357			—
Proceeds from warrant exercise-price reduction		148			—
Proceeds from warrant exercise		—			104
Proceeds from the sale of stock in Clyra Medical		—			295			110			25
Repayment of note payable		—			(300	)		(300	)		—
Proceeds from sale of stock to Lincoln Park Capital		381			—
Proceeds from line of credit		390			—
Proceeds from notes payable								170			—
Net cash provided by financing activities		1,739			1,924			730			926
Net effect of foreign currency translation		1			(8	)		(4	)		—
Net change in cash		(339	)		51			(143	)		89
Cash at beginning of year		990			655			655			655
Cash at end of period	$	651		$	706		$	512		$	744

Supplemental disclosures of cash flow information
Cash paid during the year for:
Cash paid for:
Interest	$	5		$	40		$	32		$	25
Income taxes	$	5		$	3		$	3		$	2
Non-cash investing and financing activities
Fair value of warrants issued with convertible notes	$	225		$	1,817		$	1,061		$	—
Conversion of convertible notes payable into common stock	$	530		$	515		$	220			434
Convertible Notes issued with Original Issue Discount	$	—		$	373
Exercise of stock options	$	2		$	—
Fair value of stock issued for financing fees	$	85		$	—
Right of use, operating lease and liability	$	—		$	370
Convertible notes issued with original issue discount							$	217		$	—
Lincoln Park deferred offering costs, recorded as additional paid-in capital							$	—		$	(122	)
Deemed dividend	$	297		$	782		$	342		$	100
Allocation of stock option expense within noncontrolling interest							$	—		$	448


Item 1	Financial Statements

Item 2	Management's Discussion and Analysis and Financial Condition and Results of Operations

Item 4	Controls and Procedures


Item 2	Unregistered Sales of Equity Securities and Use of Proceeds

Item 5	Other Information

Item 6	Exhibits

	Signatures

	Exhibit Index

	Common stock				Additional paid-in		Accumulated			Accumulated other comprehensive			Non- controlling
	Shares		Amount		capital		deficit			loss			interest			Total
Balance, December 31, 2017		104,164,465	$	70	$	97,093	$	(101,205	)	$	(62	)	$	695		$	(3,409	)
Issuance of common stock for services		714,436		—		196		—			—			—			196
Issuance of common stock for interest		617,072		—		165		—			—			—			165
Financing fee in stock		252,385		—		85		—			—			—			85
Sale of stock for cash		658,226		—		168		—			—			—			168
Stock option compensation expense		—		—		320		—			—			—			320
Warrants and beneficial conversion feature issued as discount on convertible notes payable, note payable and line of credit		—		—		282		—			—			—			282
Deemed dividend		—		—		297		(297	)		—			—			—
Net loss		—		—		—		(2,323	)		—			(107	)		(2,430	)
Foreign currency translation		—		—		—		—			8			—			8

Balance, March 31, 2018		106,406,584	$	70	$	98,606	$	(103,825	)	$	(54	)	$	588		$	(4,615	)
Conversion of notes		19,298,723		13		6,215		—			—			—			6,228
Issuance of common stock for services		733,821		—		250		—			—			—			250
Issuance of common stock for interest		1,302,734		1		327		—			—			—			329
Sale of stock for cash		617,145		—		212		—			—			—			212
Warrant exercise price reduction for cash		—		—		149		—			—			—			149
Stock option compensation expense		—		—		376		—			—			—			376
Warrants and beneficial conversion feature issued as discount on convertible notes payable, note payable and line of credit		—		—		32		—			—			—			33
Net loss		—		—		—		(3,505	)		—			(95	)		(3,600	)
Foreign currency translation		—		—		—		—			(7	)		—			(7	)

Balance, June 30, 2018		128,359,007	$	84	$	106,167	$	(107,330	)	$	(61	)	$	493		$	(645	)

	December 31, 2018		June 30, 2019
BioLargo, Inc. and wholly owned subsidiaries	$	193	$	553
Clyra Medical Technologies, Inc.		462		153
Total	$	655	$	706

	March 31, 2019			March 31, 2020
Customer A		<10	%		14	%
Customer B		<10	%		11	%
Customer C		<10	%		10	%
Customer D		43	%		<10	%
Customer E		10	%		<10	%
Customer F		26	%		<10	%

	December 31, 2018			June 30, 2019

Customer W		12	%		11	%
Customer X		31	%	<10		%
Customer Y	<10		%		10	%
Customer Z	<10		%		10	%

	December 31, 2019			March 31, 2020
Customer G		<10	%		12	%
Customer H		25	%		<10	%
Customer I		11	%		<10	%

	2018						2019						2019						2020
	Non Plan			2018 Plan			Non Plan			2018 Plan			Non Plan			2018 Plan			Non Plan			2018 Plan
Risk free interest rate	2.43	-	2.91%		2.91	%	2.00	-	2.65%	2.00	-	2.65%	1.68	-	2.65%	1.68	-	2.65%		0.88	%	0.88	-	1.90%
Expected volatility	548	-	563%		548	%	147	-	152%	147	-	152%	133	-	152%	133	-	152%		131	%	131	-	133%
Expected dividend yield		—			—			—			—			—			—			—			—
Forfeiture rate		—			—			—			—			—			—			—			—
Life in years		7			7			7			7			10			10			10			10

	December 31, 2018		June 30, 2019
Current liabilities:
Notes payable and line of credit
Notes payable, mature September 6, 2019	$	400	$	484
Note payable, due on demand 60 days’ notice (or March 8, 2023)		—		50
Line of credit, due on demand 30 days’ notice after September 1, 2019		430		430
Note payable issued by Clyra Medical to Scion, matures June 17, 2020 (Note 8)		—		1,007
Total notes payable and line of credit	$	830	$	1,971

Convertible notes payable:
Convertible note, matured January 11, 2019		300		—
Convertible notes, mature December 31, 2019⁽¹⁾		75		75
Convertible note, matures July 15, 2019		550		125
Convertible note, matures July 20, 2019⁽¹⁾		440		440
Convertible note, matures October 7, 2019		—		370
Convertible notes, mature November 5, 2019 and December 7, 2019		—		554
Convertible nine-month OID notes, mature beginning October 2019		—		213
Convertible note, matures April 18, 2020		—		220
Convertible notes, mature February 14 and March 17, 2020		—		200
Convertible note, matures March 4, 2020		—		110
Convertible 12-month OID notes, mature beginning June 2020		—		531
Convertible notes payable, mature June 20, 2020⁽¹⁾		—		25
Total convertible notes payable	$	1,365	$	2,863

Total current liabilities	$	2,195	$	4,834

Long-term liabilities:
Note payable issued by Clyra Medical to Scion, matures June 17, 2020 (See Note 8)		1,007		—
Convertible notes payable, mature June 20, 2020⁽¹⁾		25		—
Convertible notes payable, mature April 20, 2021⁽¹⁾		100		100
Convertible notes, mature June 15, 2021⁽¹⁾		110		110
Note payable, matures March 8, 2023 (or on demand 60 days’ notice)		50		—
Total long-term liabilities	$	1,292	$	210

Total	$	3,487	$	5,044

					Weighted
					Average		Aggregate
	Options		Exercise		Price per		intrinsic
As of June 30, 2018:	Outstanding		Price per share		share		Value⁽¹⁾
Inception, June 22, 2018		—		—		—
Granted		296,976		0.43		0. 43
Balance, June 30, 2018		296,976	$	0.43	$	0.43	$	—

Shareholder	Shares	Percent	Shares			Percent
BioLargo, Inc.	28,053	41.4%		26,203			36%
Sanatio Capital⁽¹⁾	11,520	17.0%		15,064			21%
Scion Solutions⁽²⁾	15,500	22.9%
Scion Solutions⁽¹⁾				15,500			21%
Other	12,697	18.7%		15,979			22%
Total	67,770			72,746	⁽²⁾

Balance, December 31, 2019	9,214,356		$0.22	–	0.43	$	0.25
Granted	1,343,344		0.17	–	0.22		0.18
Expired	—			—			—
Balance, March 31, 2020	10,557,700		$0.16	–	0.43	$	0.25
Non-vested	(4,677,385	)	0.17	–	0.45		0.27
Vested, March 31, 2020	5,880,315		$0.16	–	0.45	$	0.22	$	4,000

Balance, December 31, 2019	9,691,586		$0.23	–	0.94	$	0.42
Expired	(870,000	)		0.57			0.57
Balance, March 31, 2020	8,821,586		$0.23	–	1.65	$	0.41	$	—

							Weighted
	Non-plan						average		Aggregate
	Options			Exercise			price per		intrinsic
As of June 30, 2018:	outstanding			price per share			share		value⁽¹⁾
Balance, December 31, 2017		20,018,408		$0.25	–	1.00	$	0.51
Granted		1,008,268		0.23	–	0.43		0.26
Expired		(2,400,000	)		0.99			0.99
Balance, June 30, 2018		18,626,676		$0.25	–	1.00	$	0.45	$	—

As of June 30, 2019:
Balance, December 31, 2018		19,319,496		$0.23	–	1.00	$	0.43
Granted		970,380		0.16	–	0.25		0.19
Expired		(691,975	)		0.55			0.55
Balance, June 30, 2019		19,597,901		$0.16	–	1.00	$	0.42	$	34,000

As of March 31, 2020:
Balance, December 31, 2019	19,888,718		$0.23	–	1.00	$	0.41
Granted	292,437		0.17	–	0.21		0.18
Balance, March 31, 2020	20,181,155		$0.17	–	1.00	$	0.41
Non-vested	(3,191,096	)	0.17	–	0.45		0.45
Vested, March 31, 2020	16,989,249		$0.23	–	1.00	$	0.40	$	5,000

						Weighted average		Aggregate
	Warrants		Exercise			price per		intrinsic
As of March 31, 2019:	outstanding		price per share			share		value⁽¹⁾
Balance, December 31, 2018		26,872,430	$0.25	–	1.00	$	0.42
Issued		3,861,041	0.16	–	0.25		0.24
Balance, March 31, 2019		30,733,471	$0.16	–	1.00	$	0.40	$	—

As of March 31, 2020:
Balance, December 31, 2019	43,231,161		$0.16	–	1.00	$	0.35
Issued	791,260				0.13		0.13
Expired	(266,000	)			0.30		0.30
Balance, March 31, 2020	43,756,421		$0.16	–	1.00	$	0.35	$	131,000

	June 30, 2018			June 30, 2019			March 31, 2019			March 31, 2020
Risk free interest rate		2.54%		1.70	–	2.62%	2.18	–	2.62%		0.23	%
Expected volatility		252%		86	–	110%	86	–	110%		112	%
Expected dividend yield		—			—			—			—
Forfeiture rate		—			—			—			—
Expected life in years	5	–	10	2	–	5	2	—	5		2

	1. ~~Odor-No-More (“ONM”) -- which is selling odor and volatile organic control products and services (located in Westminster, California);~~ ~~2. Clyra Medical (“Clyra”) -- which is engaged in developing medical products and preparing launch into commercial activity with approval of its FDA 510 (K) application in process;~~ ~~3. BLEST -- which provides professional engineering services on a time and materials basis for outside clients and supports our internal operations as needed (located in Oak Ridge, Tennessee);~~ ~~4. BioLargo Water (“Water”) -- which has now shifted its focus from R&D/product development to commercializing the AOS technology (located in Edmonton, Alberta Canada).~~	Odor-No-More (“ONM”) -- which is selling odor and volatile organic control products and services (located in Westminster, California);
	2.	Clyra Medical (“Clyra”) -- which is engaged in developing medical products and preparing launch into commercial activity featuring its new product Clyraguard;
	3.	BLEST -- which provides professional engineering services on a time and materials basis for outside clients and supports our internal operations as needed (located in Oak Ridge, Tennessee);
	4.	BioLargo Water (“Water”) -- which historically focused entirely on R&D, and has now shifted its focus to commercializing the AOS technology, developing manufacturing operations for hand sanitizers and supporting the development of iodine based disinfecting products for the company (located in Edmonton, Alberta Canada); and

	Three months ended June 30,						Six months ended June 30,
	2018			2019			2018			2019
Revenue
Odor-No-More	$	316		$	315		$	540		$	616
BLEST		161			241			350			424
BLEST - Intercompany revenue		(150	)		(130	)		(300	)		(250	)
Total	$	327		$	426		$	590		$	790


Operating loss
BioLargo corporate	$	(1,052	)	$	(956	)	$	(2,145	)	$	(1,904	)
Odor-No-More		(145	)		(51	)		(254	)		(141	)
Clyra		(177	)		(319	)		(376	)		(606	)
BLEST		(70	)		(27	)		(115	)		(137	)
Water		(184	)		(134	)		(340	)		(361	)
Total	$	(1,628	)	$	(1,487	)	$	(3,230	)	$	(3,149	)


Interest expense
BioLargo Corporate	$	(1,729	)	$	(485	)	$	(2,559	)	$	(1,458	)
Clyra		—			(13	)		(2	)		(25	)
Total	$	(1,729	)	$	(498	)	$	(2,561	)	$	(1,483	)


Research and development expense
BioLargo Corporate	$	(281	)	$	(210	)	$	(624	)	$	(382	)
Odor-No-More		—			—			—			—
Clyra		(57	)		(106	)		(144	)		(155	)
BLEST		(105	)		(73	)		(205	)		(195	)
Water		(132	)		(108	)		(274	)		(317	)
Intersegement BioLargo corporate		150			130			300			256
Total	$	(425	)	$	(367	)	$	(947	)	$	(793	)

March 31, 2020	BioLargo			ONM			Clyra			BLEST			Water			Elimination⁽¹⁾			Total
Revenue	$	—		$	298		$	—		$	284		$	—		$	(143	)	$	439
Intersegment revenue		—			—			—			(143	)		—			143			—
Operating loss		(972	)		(153	)		(306	)		(43	)		(228	)		—			(1,702	)
Grant income		—			—			—			—			57			—			57
Interest expense		(744	)		—			(13	)		—			—			—			(757	)
Depreciation		—			(5	)		—			(11	)		—			—			(16	)
Research and development		(202	)		—			(14	)		(82	)		(180	)		143			(335	)
Net loss		(1,716	)		(153	)		(533	)		(43	)		(171	)		—			(2,616	)

As of June 30, 2019	BioLargo		ONM		Clyra		BLEST		Water		Elimination			Total
Tangible assets	$	1,000	$	198	$	302	$	163	$	33	$	(6	)	$	1,690
Intangible assets		1,893		—		—		—		—		—			1,893

As of December 31, 2018	BioLargo		ONM		Clyra		BLEST		Water		Elimination			Total
As of March 31, 2020																BioLargo		ONM		Clyra		BLEST		Water		Elimination⁽¹⁾			Total
Tangible assets	$	353	$	220	$	462	$	230	$	33	$	(6	)	$	1,292	$	844	$	423	$	8	$	275	$	57	$	(42	)	$	1,565
Investment in South Korean joint venture																	99		—		—		—		—		—			99
Intangible assets		1,893		—		—		—		—		—			1,893		1,893		—		—		—		—		—			1,893

As of December 31, 2019	BioLargo		ONM		Clyra		BLEST		Water		Elimination⁽¹⁾			Total
Tangible assets	$	862	$	410	$	3	$	396	$	77	$	(31	)	$	1,728
Intangible assets		1,893		—		—		—		—		—			1,893