UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~March 31,~~June 30, 2020.

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

For the transition period from to

Commission File Number 000-19709

BIOLARGO, INC.

(Exact name of registrant as specified in its charter)

Delaware

65-0159115

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

14921 Chestnut St.

Westminster, CA 92683

(Address of principal executive offices)

(888) 400-2863

(Registrant’s telephone number, including area code)

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

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

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

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

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

	Large accelerated filer ☐		Accelerated filer ☐

	Non-accelerated filer ☐		Smaller reporting company ☒

			Emerging growth company ☐

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

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

The number of shares of the Registrant’s Common Stock outstanding as of ~~May 12,~~August 10, 2020 was ~~179,191,783~~213,563,236 shares.

		DECEMBER 31, 2019			MARCH 31, 2020 (unaudited)				DECEMBER 31, 2019			JUNE 30, 2020 (unaudited)
Assets	Assets							Assets
Current assets:
Cash and cash equivalents		$	655		$	744			$	655		$	1,207
Accounts receivable			355			259
Accounts receivable, net of allowance										355			258
Inventories, net of allowance			16			33				16			170
Prepaid expenses and other current assets			39			44				39			43
Total current assets			1,065			1,080				1,065			1,678

In-process research and development (Note 8)			1,893			1,893				1,893			1,893
Property and equipment, net of depreciation			95			63				95			46
Other non-current assets			35			35				35			823
Right-of-use, operating lease, net of amortization			411			386				411			371
Deferred offering cost			122			—				122			—
Investment in South Korean Joint Venture			—			99				—			85
Total assets		$	3,621		$	3,556			$	3,621		$	4,896

Liabilities and stockholders’ deficit	Liabilities and stockholders’ deficit							Liabilities and stockholders’ deficit
Current liabilities:
Accounts payable and accrued expenses		$	602		$	812			$	602		$	804
Clyra Medical note payable (Note 8)			1,007			1,007				1,007			1,007
Note payable			50			50				50			50
Line of credit			50			50				50			50
Convertible notes payable			3,957			3,523				3,957			2,936
Discount on convertible notes payable, and line of credit, net of amortization			(1,472	)		(834	)			(1,472	)		(203	)
Lease liability			125			114				125			114
Deferred revenue			35			9
Deferred revenue and deposits										35			18
Total current liabilities			4,354			4,731				4,354			4,776

Long-term liabilities:
Convertible notes and note payable			700			700
Convertible notes payable										700			600
Liability to Clyra Medical shareholder (Note 8)			643			643				643			643
Discount on convertible notes payable, net of amortization			(182	)		(153	)			(182	)		(124	)
Payroll protection program loan										—			349
Lease liability			286			271				286			256
Total liabilities			5,801			6,192				5,801			6,500



Commitments and contingencies (Note 11)

Stockholders’ equity (deficit):
Preferred Series A, $.00067 Par Value, 50,000,000 shares authorized, -0- shares issued and outstanding, at December 31, 2019 and 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
Preferred Series A, $.00067 Par Value, 50,000,000 shares authorized, -0- shares issued and outstanding, at December 31, 2019 and June 30, 2020, respectively.										—			—
Common stock, $.00067 Par Value, 400,000,000 shares authorized, 166,256,024 and 190,703,381 shares issued, at December 31, 2019 and June 30, 2020, respectively.										111			128
Additional paid-in capital			121,327			123,121				121,327			130,875
Accumulated other comprehensive loss			(99	)		(99	)			(99	)		(77	)
Accumulated deficit			(123,492	)		(125,866	)			(123,492	)		(128,291	)
Total BioLargo, Inc. and subsidiaries stockholders’ deficit			(2,153	)		(2,725	)			(2,153	)		2,635
Non-controlling interest (Note 8)			(27	)		89				(27	)		(4,239	)
Total stockholders’ deficit			(2,180	)		(2,636	)			(2,180	)		(1,604	)
Total liabilities and stockholders’ equity (deficit)		$	3,621		$	3,556			$	3,621		$	4,896

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

FOR THE THREE AND SIXMONTHS ENDED ~~MARCH 31,~~JUNE 30, 2019 AND 2020

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

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

	Common stock				Additional paid-in		Accumulated			Accumulated other comprehensive			Non- controlling			Total stockholders’ equity			Common stock				Additional paid-in		Accumulated			Accumulated other comprehensive			Non- controlling			Total stockholders’
	Shares		Amount		capital		deficit			Loss			interest			(deficit)			Shares		Amount		capital		deficit			Loss			interest			equity (deficit)
Balance, December 31, 2018		141,466,071	$	95	$	110,222	$	(111,723	)	$	(90	)	$	373		$	(1,123	)		141,466,071	$	95	$	110,222	$	(111,723	)	$	(90	)	$	373		$	(1,123	)
Conversion of notes		1,638,479		1		218		—			—			—			219			1,638,479		1		218		—			—			—			219
Issuance of common stock for service		1,229,541		1		205		—			—			—			206			1,229,541		1		205		—			—			—			206
Issuance of common stock for interest		139,362		—		25		—			—			—			25			139,362		—		25		—			—			—			25
Stock option compensation expense		—		—		352		—			—			—			352			—		—		352		—			—			—			352
Warrants and conversion feature issued as discount on convertible notes payable and line of credit		—		—		1,115		—			—			—			1,115			—		—		1,115		—			—			—			1,115
Fair value of warrants for extension of debt		—		—		56		—			—			—			56			—		—		56		—			—			—			56
Deemed dividend for the change in accounting for derivative liability		—		—		342		(342	)		—			—			—			—		—		342		(342	)		—			—			—
Clyra Medical securities offering		—		—		21		—			—			89			110			—		—		21		—			—			89			110
Net loss		—		—		—		(2,576	)		—			(173	)		(2,749	)		—		—		—		(2,576	)		—			(173	)		(2,749	)
Foreign currency translation		—		—		—		—			(4	)		—			(4	)		—		—		—		—			(4	)		—			(4	)
Balance, March 31, 2019		144,473,453	$	97	$	112,556	$	(114,641	)	$	(94	)	$	289		$	(1,793	)		144,473,453	$	97	$	112,556	$	(114,641	)	$	(94	)	$	289		$	(1,793	)
Conversion of notes																				2,767,833		2		294		—			—			—			296
Issuance of common stock for service																				981,684		—		213		—			—			—			213
Issuance of common stock for interest																				87,478		—		15		—			—			—			15
Warrant exercise																				3,744,456		3		101		—			—			—			104
Stock issuance to officer (see note 7)																				500,000		—		—		—			—			—			—
Stock option compensation expense																				—		—		296		—			—			—			296
Warrants and conversion feature issued as discount on convertible notes payable and line of credit																				—		—		756		—			—			—			756
Issuance of Clyra Medical common stock																				—		—		74		—			—			111			185
Deemed dividend for the change in accounting for derivative liability																				—		—		440		(440	)		—			—			—
Net loss																				—		—		—		(1,795	)		—			(192	)		(1,987	)
Foreign currency translation																				—		—		—		—			(4	)		—			(4	)
Balance, June 30, 2019																				152,554,904	$	102	$	114,745	$	(116,876	)	$	(98	)	$	208		$	(1,919	)

	Common stock				Additional paid-in			Accumulated			Accumulated other comprehensive			Non- controlling			Total stockholders’ equity			Common stock				Additional paid-in			Accumulated			Accumulated other comprehensive			Non- controlling			Total stockholders’
	Shares		Amount		capital			deficit			Loss			interest			(deficit)			Shares		Amount		capital			deficit			Loss			interest			equity (deficit)
Balance, December 31, 2019		166,256,024	$	111	$	121,327		$	(123,492	)	$	(99	)	$	(27	)	$	(2,180	)		166,256,024	$	111	$	121,327		$	(123,492	)	$	(99	)	$	(27	)	$	(2,180	)
Conversion of notes		3,387,649		2		432			—			—			—			434			3,387,649		2		432			—			—			—			434
Issuance of common stock for service		1,039,490		1		177			—			—			—			178			1,039,490		1		177			—			—			—			178
Issuance of common stock for interest		19,278		—		4			—			—			—			4			19,278		—		4			—			—			—			4
Sale of common stock for cash		4,848,305		3		898			—			—			—			901			4,848,305		3		898			—			—			—			901
Common stock issued as a financing fee; deferred offering costs		2,928,571		2		(124	)		—			—			—			(122	)		2,928,571		2		(124	)		—			—			—			(122	)
Stock option compensation expense		—		—		320			—			—			—			320			—		—		320			—			—			—			320
Deemed dividend for the change in accounting for derivative liability		—		��		100			(100	)		—			—			—			—		—		100			(100	)		—			—			—
Clyra Medical securities offering		—		—		15			—			—			10			25			—		—		15			—			—			10			25
Clyra Medical stock option expense		—		—		420			—			—			—			420			—		—		420			—			—			—			420
Allocation of noncontrolling interest from Clyra Stock option issuance		—		—		(448	)		—			—			448			—			—		—		(448	)		—		��	—			448			—
Net loss		—		—		—			(2,274	)		—			(342	)		(2,616	)		—		—		—			(2,274	)		—			(342	)		(2,616	)
Balance, March 31, 2020		178,479,317	$	119	$	123,121		$	(125,866	)	$	(99	)	$	89		$	(2,636	)		178,479,317	$	119	$	123,121		$	(125,866	)	$	(99	)	$	89		$	(2,636	)
Conversion of notes																					6,463,784		6		682			—			—			—			688
Issuance of common stock for service																					1,774,033		1		271			—			—			—			272
Issuance of common stock for interest																					297,001		—		30			—			—			—			30
Sale of common stock for cash																					3,689,246		2		558			—			—			—			560
Stock option compensation expense																					—		—		528			—			—			—			528
Clyra Medical securities offering																					—		—		476			—			—			348			824
Clyra Medical stock option expense																					—		—		20			—			—			—			20
Clyra Medical stock for other asset (See Note 2)																					—		—		788			—			—			—			788
Noncontrolling interest allocation																					—		—		4,401			—			—			(4,401	)		—
Net loss																					—		—		—			(2,425	)		—			(275	)		(2,700	)
Foreign currency translation																					—		—		—			—			22			—			22
Balance, June 30, 2020																					190,703,381	$	128	$	130,875		$	(128,291	)	$	(77	)	$	(4,239	)	$	(1,604	)

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

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

	MARCH 31, 2019			MARCH 31, 2020			JUNE 30, 2019			JUNE 30, 2020
Cash flows from operating activities
Net loss	$	(2,749	)	$	(2,616	)	$	(4,736	)	$	(5,316	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock option compensation expense		352			526			648			1,073
Common stock issued in lieu of salary to officers and fees for services from vendors		206			178			419			450
Common stock issued for interest		25			4			40			34
Interest expense related to amortization of the discount on convertible notes payable and line of credit		851			668			1,254			1,327
Interest expense related to the fair value of warrants issued as consent for variable debt		54			—			54			—
Loss on extinguishment of debt		184			214			229			214
Depreciation expense		16			16			31			33
Bad debt expense								—			11
Changes in assets and liabilities:
Accounts receivable		47			96			24			86
Inventories		—			(17	)		(12	)		(100	)
Prepaid expenses and other current assets								(8	)		(4	)
Accounts payable and accrued expenses								178			148
Deferred revenue		—			(26	)		—			(22	)
Accounts payable and accrued expenses		129			210
Prepaid expenses and other current assets		(17	)		(5	)
Customer deposits		32			(1	)		28	)		4
Net cash used in operating activities		(869	)		(753	)		(1,851	)		(2,062	)

Cash flows from investing activities
Investment in South Korean joint venture		—			(100	)		—			(85	)
Leasehold improvements								(14	)		—
Sale of equipment		—			16			—			16
Net cash used in investing activities		—			(84	)		(14	)		(69	)

Cash flows from financing activities
Proceeds from sales of common stock		—			901			—			1,462
Proceeds from convertible notes payable		750			—			1,825			—
Proceeds from the sale of stock in Clyra Medical		110			25			295			850
Repayment of note payable		(300	)		—			(300	)		—
Proceeds from notes payable		170			—
Proceeds from warrant exercise								104			—
Proceeds from payroll protection program loan								—			349
Net cash provided by financing activities		730			926			1,924			2,661
Net effect of foreign currency translation		(4	)		—			(8	)		22
Net change in cash		(143	)		89			51			552
Cash at beginning of year		655			655			655			655
Cash at end of period	$	512		$	744		$	706		$	1,207

Supplemental disclosures of cash flow information
Cash paid for:
Interest	$	32		$	25		$	40		$	50
Income taxes	$	3		$	2		$	3		$	2
Non-cash investing and financing activities
Fair value of warrants issued with convertible notes	$	1,061		$	—		$	1,817		$	—
Inventory included in accounts payable and accrued expense							$	—		$	55
Conversion of convertible notes payable into common stock	$	220			434		$	515		$	1,122
Convertible notes issued with original issue discount	$	217		$	—		$	373		$	—
Exchange of consulting services for Clyra common shares							$	—		$	788
Lincoln Park deferred offering costs, recorded as additional paid-in capital	$	—		$	(122	)	$	—		$	(122	)
Deemed dividend	$	342		$	100		$	782		$	100
Allocation of Clyra stock to noncontrolling interest							$	—		$	4,401
Allocation of stock option expense within noncontrolling interest	$	—		$	448		$	—		$	448

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

Note 1. Business and Organization

Description of Business

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

Liquidity / Going concern

~~On March 30, 2020,~~Although we ~~entered into a new three-year~~are able to rely on investment funds through our agreement with Lincoln Park, (see Note 3), which allows us to sell to Lincoln Park up to 100,000 shares of our common stock per day, up to a maximum of $10,250,000. We intend to continue to sell stock to Lincoln Park to provide working capital as needed. We also intend to raise money through private securities offerings. And, we continue to negotiate for more financing from private investors. Other than sales of stock to Lincoln Park, no assurance can be made of our success at raising money through private or public offerings.

~~The~~the foregoing factors raise substantial doubt about our ability to continue as a going concern. Ultimately, our ability to continue as a going concern is dependent upon our willingness to require Lincoln Park purchase our stock, and in the long term, our ability to ~~attract significant new sources of capital,~~ attain a reasonable threshold of operating efficiencies and achieve profitable operations by licensing or otherwise commercializing products incorporating our technologies. The consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

Organization

We are a Delaware corporation formed in 1991. We have four wholly-owned subsidiaries: BioLargo Life Technologies, Inc., organized under the laws of the State of California in 2006; ONM Environmental, Inc. (formerly, Odor-No-More, Inc.), organized under the laws of the State of California in 2009; BioLargo Water Investment Group Inc. organized under the laws of the State of California in 2019, which wholly owns BioLargo Water, Inc., organized under the laws of Canada in 2014; and BioLargo Development Corp., organized under the laws of the State of California in 2016. Additionally, we own 97.5% (see Note ~~10)~~9) of BioLargo Engineering Science and Technologies, LLC (“BLEST”), organized under the laws of the State of Tennessee in ~~2017 (“BLEST”).~~2017. We also own ~~36%~~48% of Clyra Medical Technologies, Inc. (“Clyra Medical”), organized under the laws of the State of California in 2012, and consolidate their financial statements (see Note 2, subheading “Principles of Consolidation,” and Note 8).

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

Table of Contents

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 2. Summary of Significant Accounting Policies

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

Principles of Consolidation

The consolidated financial statements include the accounts of the Company, and its ~~wholly owned~~wholly- and partially-owned subsidiaries, ~~and~~including Clyra Medical. Management believes Clyra Medical’s financial statements are appropriately consolidated with that of the Company after reviewing the guidance of ASC Topic 810,, “Consolidation”, and concluding that BioLargo controls Clyra Medical. While BioLargo does not have voting interest control through a majority stock ownership of Clyra Medical (it owns ~~36%~~48% of the outstanding voting stock), it does exercise control under the “Variable Interest Model”: there is substantial board overlap, BioLargo is the primary beneficiary since it has the power to direct Clyra Medical’s activities that most significantly impact Clyra Medical’s performance, and it has the obligation to absorb losses or receive benefits (through royalties and licensing) that could be potentially significant to Clyra Medical. BioLargo has consolidated Clyra Medical’s operations for all periods presented.

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

Foreign Currency

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

Cash and Cash Equivalents

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

Accounts Receivable

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

~~Table of Contents~~

~~BIOLARGO, INC. AND SUBSIDIARIES~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~(UNAUDITED)~~$35,000.

Credit Concentration

We have a limited number of customers that account for significant portions of our revenue. During the ~~three~~six months ended ~~March 31,~~June 30, 2019 we had two customers, and during the six months ended June 30, 2020, we had ~~three customers~~one customer, that ~~each~~ accounted for 10% or more ~~than 10%~~ of consolidated revenues in the respective periods, as follows:

	~~March~~ June 30~~31,~~, 2019			~~March 31,~~June 30, 2020
Customer A		~~<10~~18	%		14<10	%
Customer B		<10	%		11<10	%
Customer C		<10	%		10	%
~~Customer D~~		43	%		~~<10~~	%
~~Customer E~~		10	%		~~<10~~	%
~~Customer F~~		26	%		~~<10~~13	%

Table of Contents

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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

	December 31, 2019			~~March 31,~~June 30, 2020
Customer G		<10	%		1214	%
Customer H		<10	%		13	%
Customer I		25	%		<10	%
Customer IJ		11	%		<10	%

Inventory

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

	December 31, 2019		March 31, 2020		December 31, 2019		June 30, 2020
Raw material	$	11	$	30	$	11	$	78
Finished goods		5		3		5		92
Total	$	16	$	33	$	16	$	170

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

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,~~June 30, 2020, the ~~gross up~~right-of-use assets of our balance sheet related to our operating leases totals ~~$386,000.~~$371,000.

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

~~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. based subsidiary, Tomorrow Water. We received a 40% non-dilutive equity interest, and BKT and Tomorrow Water each received 30% equity interests for an aggregate $150,000 investment.

We account for our investment in the joint venture under the equity method of accounting. We have determined that while we have significant influence over the joint venture through our technology license and our position on the Board of Directors, we do not control the joint venture or are otherwise involved in managing the entity and we own less than a majority of the equity. Therefore, we record the asset on our consolidated balance sheet and record an increase or decrease the recorded balance by our percentage ownership of the profits or losses in the joint venture. During the ~~three~~six months ended ~~March 31,~~June 30, 2020, the joint venture incurred a loss and our 40% ownership share reduced our investment interest by ~~$1,000.~~$15,000.

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

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 over the applicable service period of the award, which is the vesting period. Fair value is determined on the grant date. Share-based compensation expense is based on the grant date fair value estimated using the Black-Scholes Option Pricing Model.

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

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.

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

The following methodology and assumptions were used to calculate share-based compensation for the three and six months ended ~~March 31,~~June 30, 2019 and 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~~and lines of credit, are accounted for under the fair value and relative fair value method.

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

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

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

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

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

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

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

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

We have revenue from ~~two~~three subsidiaries, ~~Odor-No-More~~ONM, BLEST and ~~BLEST. Odor-No-More identifies~~Clyra. ONM and Clyra identify its contract with the customer through a written purchase order, in which the details of the contract are defined including the transaction price and method of shipment. The only performance obligation is to create and ship the product and each product has separate pricing. ~~Odor-No-More recognizes revenue~~Revenue is recognized at a point in time when the order for its goods are shipped if its agreement with the customer is FOB ~~Odor-No-More’s warehouse facility,~~manufacturer, and when goods are delivered to its customer if its agreement with the customer is FOB destination. Revenue is recognized with a reduction for sales discounts, as appropriate and negotiated in the customer’s purchase order. ~~Odor-No-More~~ONM also installs misting systems for which it bills on a time and materials basis. It identifies its contract with the customer through a written purchase order in which the details of the time to be billed and materials purchased and an estimated completion date. The performance obligation is the completion of the installation. Revenue is recognized in arrears as the work is performed.

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

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

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

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

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

~~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. Management has concluded that new guidance does not impact the Company’s financial statements.

Note 3. Equity Financing

Lincoln Park ~~Financing~~

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

Table of Contents

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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

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

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

Table of Contents

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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

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

Note 4. Debt Obligations

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

	December 31, 2019		March 31, 2020		December 31, 2019		June 30, 2020
Current liabilities:
Current liabilities:
Note payable, matures on demand 60 days’ notice (or March 8, 2023)	$	50	$	50	$	50	$	50
Line of credit, matures September 1, 2019 or later (on 30-day demand)		50		50		50		50
Note payable issued by Clyra Medical to Scion, matures June 17, 2020 Clyra note payable (See Note 8)		1,007		1,007
Note payable issued by Clyra Medical to Scion, matures June 17, 2020 (see Note 8)						1,007		1,007
Total notes payable and line of credit	$	1,107	$	1,107	$	1,107	$	1,107
Convertible notes payable:
Convertible note, matures April 7, 2020		270		—		270		—
Convertible note, matures June 20, 2020⁽¹⁾		25		25		25		—
Convertible 12-month OID notes, mature beginning June 2020⁽¹⁾		3,112		2,948		3,112		2,286
Convertible notes, mature August 12 and 16, 2020		550		550
Convertible note payable, matures April 20, 2021⁽¹⁾						—		100
Convertible notes, mature August 12 and 16, 2020⁽²⁾						550		550
Total convertible notes payable		3,957		3,523		3,957		2,936
Total current liabilities	$	5,064	$	4,630	$	5,064	$	4,043

Long-term liabilities:
Long-term liabilities:
Convertible note payable, matures August 9, 2021		600		600	$	600	$	600
SBA Payroll Protection Program loans, mature April 2022						—		349
Convertible notes payable, mature April 20, 2021⁽¹⁾		100		100		100		—
Total long-term liabilities	$	700	$	700	$	700	$	949

Total	$	5,764	$	5,330	$	5,764	$	4,992

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

For the ~~three~~six months ended ~~March 31,~~June 30, 2019 and 2020 we recorded ~~$985,000~~$1,483,000 and ~~$757,000~~$1,504,000 of interest expense related to the amortization of discounts on convertible notes payable, coupon interest from our convertible notes and line of credit.

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

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

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

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

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

~~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~~in Twelve-Month OID ~~Note)~~Notes , with a 25% original issue discount. The original issue discount totaled $76,000 and is recorded as a discount on convertible notes payable on our balance sheet. The intrinsic value of the beneficial conversion features resulted in an aggregate fair value of $381,000 and is recorded as debt extinguishment expense on our statement of operations. The discount will be amortized and recorded to interest expense over the term of the notes. These notes mature twelve months from the date of issuance.

Each Twelve-month OID Note is convertible by the investor at any time at $0.17 per share. 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. The Company is obligated to prepay the notes in the event it receives at least $3.5 million gross proceeds in a financing transaction. At maturity, the Company may redeem the notes through the issuance of common stock at a conversion price equal to the lower of the “conversion price” (initially $0.17, as may be adjusted), and 70% of the lowest daily volume weighted average price of the Company’s common stock during the 25 trading days preceding the conversion date.

During the ~~three~~six months ended ~~March 31,~~June 30, 2020, ~~noteholders elected to convert $165,000~~$826,000 of the outstanding principal of 12-Month OID Notes was converted, and we issued ~~970,590~~7,624,000 shares of our common stock. As of ~~March 31,~~June 30, 2020, the aggregate principal amount outstanding ~~balance~~ on the ~~12-Month~~Twelve-Month OID Notes was ~~$2,948,000.~~$2,286,000. See Note 12, Subsequent Events.

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

Note 5. Share-Based Compensation

Issuance of Common Stock in exchange for payment of payables

Payment of Officer Salaries

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

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

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

Payment of Consultant Fees

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

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

Payment of Accrued Interest

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

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

Stock Option Expense

During the ~~three~~six months ended ~~March 31,~~June 30, 2019 and 2020, we recorded an aggregate ~~$352,000~~$648,000 and ~~$320,000,~~$1,073,000, in selling general and administrative expense related to the issuance and vesting of stock options issued through our 2018 Equity Incentive Plan, our (now expired) 2007 Equity Incentive Plan, and outside of these plans (see Note 8 related to stock options issued by Clyra Medical).

~~Table of Contents~~

~~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 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 for the ~~three~~six months ended ~~March 31,~~June 30, 2019 and ~~March 31,~~June 30, 2020, is as follows:

Weighted

Average

Aggregate

Options

Exercise

Price per

intrinsic

Outstanding

Price per share

share

Value⁽¹⁾

Balance, December 31, 2018
1,318,517 $0.22 – 0.43 $ 0.30
Granted
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
										outstanding			price per share			share		value⁽¹⁾
Balance, December 31, 2018											1,318,517		$0.22	–	0.43	$	0.30
Granted											3,728,366		0.16	–	0.22		0.18
Expired											—			—			—
Balance, June 30, 2019											5,046,833		$0.16	–	0.43	$	0.21


Balance, December 31, 2019	9,214,356		$0.22	–	0.43	$	0.25				9,214,356		$0.22	–	0.43	$	0.25
Granted	1,343,344		0.17	–	0.22		0.18				8,610,689		0.17	–	0.22		0.15
Expired	—			—			—				(200,000	)	0.18	–	0.34		0.26
Balance, March 31, 2020	10,557,700		$0.16	–	0.43	$	0.25
Balance, June 30, 2020											17,625,045		$0.16	–	0.43	$	0.20
Non-vested	(4,677,385	)	0.17	–	0.45		0.27				(9,762,819	)	0.17	–	0.45		0.12
Vested, March 31, 2020	5,880,315		$0.16	–	0.45	$	0.22	$	4,000
Vested, June 30, 2020											7,862,226		$0.16	–	0.45	$	0.31	$	22,000

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

The options granted under the 2018 Plan to purchase ~~1,343,344~~8,610,689 shares during the ~~three~~six months ended ~~March 31,~~June 30, 2020 were issued to ~~an officer,~~officers, board of directors, employees and consultants: (i) we issued options to purchase ~~300,000~~4,880,945 shares of our common stock at an exercise price ~~on the respective grant date~~ of ~~$0.22~~$0.14 per share to ~~our CFO~~employees and consultants as ~~described below;~~a bonus during the pandemic. These options vest quarterly over one year and the fair value totaled $656,000 (ii) we issued options to purchase ~~397,058~~457,500 shares of our common stock at an exercise price range of $0.14 – $0.21 per share to our CFO , with 177,500 shares having vested during the six months ended June 30, 2020, and the remaining shares to vest 25,000 monthly through January 31, 2021; (ii) we issued options to purchase 821,434 shares of our common stock at an exercise price on the respective grant date of $0.17 and $0.16 per share to members of our board of directors for services performed, ~~in lieu of cash. The~~all options vested at issuance and the fair value of these options totaled ~~$65,000 and is recorded as selling, general and administrative expenses. Additionally,~~$130,000; (iii) we issued options to purchase ~~454,080~~939,332 shares of our common stock to employees as part of an employee retention plan at an exercise price on the respective date of $0.17 and $0.16 per ~~share. The~~share; the fair value of employee retention plan options totaled ~~$76,000~~$151,000 and vest quarterly over four years as long as they are retained as ~~employees. We also~~employees; (iv) we issued options to purchase ~~64,706~~449,286 shares of our common stock to consultants in lieu of cash for unpaid obligations totaling ~~$11,000.~~$65,000; and (v) we issued options to purchase 1,062,192 shares of common stock at an exercise price ranging between $0.14 – $0.17 per share to employees to convert accrued and unpaid obligations and for previously issued options that expire. All of these options vested at issuance and the fair value totaled $145,000, All stock option expense is recorded on our consolidated statement of operations as selling, general and administrative expense.

On 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), pursuant to which Mr. Dargan has been and continues to serve as the Company’s Chief Financial Officer. The Engagement Extension Agreement dated as of February 25, 2020 (the “Engagement Extension Agreement”) provides for an additional term to begin retroactively on October 1, 2019, and to expire January 31, 2021 (the “Extended Term”).

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

As compensation for the Extended Term, Mr. Dargan was issued an option (“Option”) to purchase 427,500 shares of our common stock. The Option vests over the period of the Extended Term, with 177,500 shares having vested as of March 31, 2020, and the remaining 250,000 shares to vest monthly through January 31, 2021, so long as the 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 2018 Equity Incentive Plan.

The Option is Mr. Dargan’s sole 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 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.

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 ~~three~~six months ended ~~March 31,~~June 30, 2019 and 2020 is as follows:

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

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

During the ~~three~~six months ended ~~March 31,~~June 30, 2019, we issued options to purchase ~~731,250~~970,380 shares of our common stock at exercise prices ranging between $0.16 – $0.25 per share to ~~members of our board of directors and~~ vendors for fees for ~~services~~service resulting in a fair value totaling ~~$139,000.~~$194,000. The fair value of the options issued and vested during the six months ended June 30, 2019 totaled $367,000, is recorded in our selling, general and administrative expense.

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

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

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

Note 6. Warrants

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

Weighted
average

Aggregate

Warrants

Exercise

price per
intrinsic
As of 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:
																Weighted
																average			Aggregate
										Warrants			Exercise			price per			intrinsic
As of June 30, 2019:										outstanding			price per share			share			value⁽¹⁾
Balance, December 31, 2018											26,872,430		$0.25	–	1.00	$	0.42
Issued											9,031,871		0.10	–	0.25		0.15
Expired											(5,205,746	)	0.10	–	0.12		0.11
Balance, June 30, 2019											30,698,555		$0.10	–	1.00	$	0.39

As of June 30, 2020:
Balance, December 31, 2019	43,231,161		$0.16	–	1.00	$	0.35				43,231,161		$0.16	–	1.00	$	0.35
Issued	791,260				0.13		0.13				3,934,592		0.13	–	0.24		0.19
Expired	(266,000	)			0.30		0.30				(14,272,820	)	0.40	–	0.49		0.46
Balance, March 31, 2020	43,756,421		$0.16	–	1.00	$	0.35	$	131,000
Balance, June 30, 2020											32,892,933		$0.16	–	1.00	$	0.29	$	131,000

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

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

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

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

~~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.

Note 8. Noncontrolling Interest – Clyra Medical

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

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BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Acquisition of In-process Research and Development

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

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

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

Scion Solutions – Note Payable and Clyra Liability

The promissory note in the principal amount of $1,250,000 issued by Clyra Medical to Scion on September 26, 2018 (“Clyra-Scion Note”) accrues interest at the rate of 5%. Principal and interest due under the note are to be paid periodically at a rate of 25% of investment proceeds received by Clyra Medical. IfAt the initial maturity of June 26, 2020, the maturity date of the note ~~is not paid off within 18~~automatically extended for 12 months ~~after the date of issuance, it is~~and will continue to automatically ~~extended~~extend for additional 12-month periods until the note is repaid in full. Payments after the initial 18-month maturity date are required to be made in annual installments in an amount equal to the greater of (i) 25% of investment proceeds received during the 12-month period, and (ii) 5% of Clyra Medical’s gross revenues.

Non-Controlling Interest

During the ~~three~~six months ended ~~March 31,~~June 30, 2020, Clyra ~~raised $25,000~~sold 2,742 shares of its common stock at $310 per Clyra share.

~~Table~~

During the three months ended June 30, 2020, BioLargo increased its investment in Clyra by 23,004 shares. Of this amount, 22,513 shares were issued to BioLargo pursuant to an amendment to the BioLargo/Clyra license agreement whereby BioLargo has granted Clyra rights to commercialize its technology in certain medical fields. The amendment provided, among other things, for the payment of ~~Contents~~

~~BIOLARGO, INC. AND SUBSIDIARIES~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~(UNAUDITED)~~the “initial license fee” through the issuance of 22,513 shares of Clyra common stock. (See Note 2.)

At ~~March 31,~~June 30, 2020, the balance due on the Clyra-Scion Note equaled $1,007,000. The shares of BioLargo common stock held by Clyra for the benefit of Scion (the redemption shares) totals $643,000 and is recorded on our balance sheet as a liability to “Clyra Medical Shareholder”.

As of ~~March 31,~~June 30, 2020, Clyra Medical had the following common ~~and preferred~~(and no preferred) shares outstanding:

Shareholder	Shares			Percent		Shares	Percent
BioLargo, Inc.		26,203			36%	49,207	48%
Sanatio Capital		15,064			21%	18,704	19%
Scion Solutions⁽¹⁾		15,500			21%	15,500	15%
Other		15,979			22%	18,639	18%
Total		72,746	⁽²⁾			102,050⁽²⁾

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

(2) Does not include options to purchase ~~9,569~~9,664 of shares of Clyra stock.

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

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

Note 9. BioLargo Engineering, Science and Technologies, LLC

In September 2017, we commenced a full-service environmental engineering firm and formed a Tennessee entity named BioLargo Engineering, Science & Technologies, LLC (“BLEST”). In conjunction with the start of this subsidiary, we entered into a three-year office lease in the Knoxville, Tennessee area, and entered into employment agreements with six scientists and engineers. (See Note 1210 “Business Segment Information”.) The company was capitalized with two classes of membership units: Class A, 100% owned by Biolargo, and Class B, held by management of BLEST, and which initially have no “profit interest,” as that term is defined in Tennessee law. However, over the succeeding five years, the Class B members can earn up to a 30% profit interest. They also have been granted options to purchase up to an aggregate 1,750,000 shares of BioLargo, Inc. common stock. The profit interest and option shares are subject to a five year vesting schedule tied to the performance of the subsidiary, including gross revenue targets that increase over time, obtaining positive cash flow by March 31, 2018 (which was not met), collecting 90% of its account receivables, obtaining a profit of 10% in its first year (and increasing in subsequent years), making progress in the scale-up and commercialization of our AOS system, and using BioLargo research scientists (such as our Canadian team) for billable work on client projects. These criteria are to be evaluated annually by BLEST’s compensation committee (which includes BioLargo’s president, CFO, and BLEST’s president), beginning September 2018. Given the significant performance criteria, the Class B units and the stock options will only be recognized in compensation expense if or when the criteria are satisfied.

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

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

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

Note 10. Business Segment Information

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

~~Odor-No-More~~ONM Environmental (formerly Odor-No-More) (“ONM”) -- which ~~is selling~~sells odor and volatile organic control products and services (located in Westminster, California);

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BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Clyra Medical Technologies (“Clyra”) -- which ~~is engaged in developing~~develops and sells medical products ~~and preparing launch into commercial activity featuring its new product Clyraguard;~~based on our technologies, including Clyraguard Personal Protective Spray;

BLEST -- which provides professional engineering services on a time and materials basis for outside clients and supports our internal operations as needed (located in Oak Ridge, Tennessee); and

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~~.

Historically, none of our operating business units have operated at a profit and therefore each required additional cash to meet its monthly expenses. The additional sources of the cash to fund the shortfall from operations of ~~Odor-No-More,~~ONM, BLEST and BioLargo Water have been provided by BioLargo’s sales of debt or equity, research grants, and tax credits. Clyra Medical has been funded by third party investors who invest directly in Clyra Medical in exchange for equity ownership in that entity.

The segment information for the three and six months ended ~~March 31,~~June 30, 2019 and 2020, is as follows (in thousands):

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 )

	Three months ended June 30,						Six months ended June 30,
	2019			2020			2019			2020
Revenue
ONM	$	315		$	299		$	616		$	596
BLEST		241			160			424			444
Clyra Medical		—			21			—			21
Intercompany revenue		(130	)		(62	)		(250	)		(205	)
Total	$	426		$	418		$	790		$	856

Operating loss
BioLargo corporate	$	(956	)	$	(1,129	)	$	(1,904	)	$	(1,936	)
ONM		(51	)		(134	)		(141	)		(287	)
Clyra Medical		(319	)		(422	)		(606	)		(728	)
BLEST		(27	)		(124	)		(137	)		(331	)
Water		(134	)		(196	)		(361	)		(424	)
Total	$	(1,487	)	$	(2,005	)	$	(3,149	)	$	(3,706	)

Interest expense
BioLargo Corporate	$	(485	)	$	(735	)	$	(1,458	)	$	(1,479	)
Clyra Medical		(13	)		(12	)		(25	)		(25	)
Total	$	(498	)	$	(747	)	$	(1,483	)	$	(1,504	)

Research and development expense
BioLargo Corporate	$	(210	)	$	(119	)	$	(382	)	$	(321	)
Clyra Medical		(106	)		(47	)		(155	)		(61	)
BLEST		(73	)		(85	)		(195	)		(166	)
Water		(108	)		(137	)		(317	)		(317	)
Intersegment BioLargo corporate		130			38			256			181
Total	$	(367	)	$	(350	)	$	(793	)	$	(684	)

March 31, 2019

BioLargo

ONM

Clyra

BLEST

Water

Elimination⁽¹⁾

Total

Revenue
$ — $ 301 $ — $ 183 $ — $ (120 ) $ 364
Intersegment revenue
— — — (120 ) — 120 —
Operating loss
(948 ) (90 ) (287 ) (110 ) (227 ) — (1,662 )
Grant income
— — — — 82 — 82
Interest expense
(632 ) — (12 ) — — — (985 )
Depreciation
— (4 ) — (12 ) — — (16 )
Research and development
(172 ) — (49 ) (122 ) (209 ) 126 (426 )
Loss on extinguishment
(184 ) — — — — — (184 )
Net loss
(2,105 ) (90 ) (299 ) (110 ) (145 ) — (2,749 )

As of June 30, 2020	BioLargo		ONM		Clyra		BLEST		Water		Elimination⁽¹⁾			Total
Tangible assets	$	751	$	478	$	562	$	273	$	70	$	(40	)	$	2,094
Investment in South Korean joint venture		85		—		—		—		—		—			85
Other assets		35		—		788		—		—		—			823
Intangible assets		1,893		—		—		—		—		—			1,893

As of March 31, 2020

BioLargo

ONM

Clyra

BLEST

Water

Elimination⁽¹⁾

Total

Tangible assets
$ 844 $ 423 $ 8 $ 275 $ 57 $ (42 ) $ 1,565
Investment in South Korean joint venture
99 — — — — — 99
Intangible assets
1,893 — — — — — 1,893

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BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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

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

~~Table of Contents~~

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

Note 11. Commitments and Contingencies

Office Leases

We have long-term operating leases for office, industrial and laboratory space in Westminster, California, Oak Ridge, Tennessee, and Alberta, Canada. Payments made under operating leases are charged to the Consolidated Statement of Operations and Comprehensive Loss on a straight-line basis over the term of the operating lease agreement. For the ~~three~~six months ended ~~March 31,~~June 30, 2019 and 2020, rental expense was $51,000 and $55,000, respectively. On January 1, 2019, we adopted ASC 842 which resulted in a right-of-use asset and lease liability. Short-term leases are not included in our analysis. The adoption resulted in an immaterial cumulative effect of an accounting change that was not recorded. The lease of our Westminster facility qualifies for the new treatment; it originated in August 2016, expires August 2020, contains a yearly escalation of 3%, and includes a four-year renewal option whereby the base rent is adjusted to then market value. We ~~intend to exercise the~~exercised our option to extend the lease for four years. That has been included in the analysis. The lease of our Oak Ridge, Tennessee facility also qualifies, and it had one executed extension to September 2022, and has one renewal option for another five years where the rental rate would adjust to greater of the current price and fair market value. No determination has been made whether to exercise the renewal option for the Oak Ridge facility. The lease of our Canadian facility is less than one year. None of our leases have additional terms related to the payments or mechanics of the lease: there are not any common area maintenance charges or tax sharing arrangements, easement provisions or any free rent. Since there is no explicit interest rate in leases, management used its incremental borrowing rate, which is estimated to be 18%. As of ~~March 31,~~June 30, 2020, our weighted average remaining lease term is four years and the total remaining operating lease payments is ~~$667,000.~~

~~Clyra Medical Consulting Agreement~~

Clyra Medical (see Note 8) entered into a consulting agreement with Beach House Consulting, LLC, through which Jack B. Strommen will be providing consulting services to Clyra related to its sales and marketing activities and in exchange receive $23,000 per month for a period of four years. The agreement originally provided that Clyra’s obligation to pay fees under the agreement begin the month following Clyra reception of FDA pre-market clearance on its first product, which occurred in September 2019. In December 2019, the parties modified the agreement such that fees are incurred once Clyra generates $250,000 in monthly revenue on average for three consecutive months. The total cash obligation related to the agreement would be approximately $1.1 million.$622,000.

Note 12. Subsequent Events.

Management has evaluated subsequent events through the date of the filing of this ~~Annual~~Quarterly Report and management noted the following for disclosure.

~~Paycheck Protection Program SBA Loans~~Economic Injury Disaster Loan (EIDL)

Our ~~subsidiaries BLEST and Clyra Medical~~subsidiary ONM Environmental, Inc. received ~~advances of $93,000 and $43,000, respectively~~an Economic Injury Disaster loan from the U.S. Small Business Administration ~~Paycheck Protection Program.~~of $150,000. The ~~loans mature in two~~term of the loan is 30 years and ~~incur~~has a 3.75% interest ~~at 1%. All or a portion~~rate. Monthly payments of ~~the loans may be forgiven if the companies comply with the terms of forgiveness as set forth by the Small Business Administration.~~$800 begin July 2021.

~~Investments Received~~2020 Unit Offering

~~On May 1,~~Pursuant to the 2020 ~~Biolargo commenced a private offering of units, each unit consisting of (i) common stock, (ii) a four-month stock purchase warrant, and (iii) a five-year stock purchase warrant.~~ Unit ~~prices are set~~Offering (see Note 3), we received $125,000 from ~~time-to-time based on market conditions. The number of~~three investors, issued 746,528 shares of common stock issued, and the number of shares available for purchase under each warrant, are based on the quotient of the unit price and investment amount (e.g., a $100,000 investment and unit price of $0.25 is equal to 400,000 shares). The four-month warrant exercise price is equal to 120% of the unit price, and the five-year warrant is equal to 150% of the unit price. As of the date of this report, we have received an aggregate $142,000 of investments from two investors at unit prices equal to $0.15, issued 946,667shares of our common stock, and issued six-month and five-year stock purchase warrants to purchase ~~an aggregate 1,893,334 shares.~~

~~Table~~746,528 shares of ~~Contents~~

~~BIOLARGO, INC. AND SUBSIDIARIES~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~(UNAUDITED)~~common stock at $0.184 and $0.23 per share.

Sales to Lincoln Park

From ~~April~~July 1, 2020, through ~~May 12,~~August 11, 2020, we sold ~~500,000~~2,531,549 shares of our common stock to Lincoln Park and received ~~$73,000~~$436,000 in gross ~~proceeds.~~

~~Capital Secured by Clyra Medical~~

~~From April 1, 2020, through May 12, 2020, Clyra Medical has sold 2,545 shares of its common stock~~ and ~~received $775,000 in gross proceeds from seven investors pursuant to its private securities offering.~~net proceeds. These sales were registered with the SEC on Form S-1, Registration Number 333-237651.

Table of Contents

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note Maturity Extensions

On August 10, 2020, we and the holder of a convertible promissory note in the principal amount of $475,000 due August 12, 2020, entered into an agreement to extend the maturity date of the note to August 12, 2021. The holder agreed to convert one-fourth of the outstanding principal, plus $23,750 of interest, into 838,235 shares of common stock at the $0.17 conversion price set forth in the note. As consideration for the extension of the maturity date, we agreed to issue an additional 179,622 shares of common stock, extend the expiration date from September 18, 2023 to September 18, 2025, of a warrant to purchase 1,734,375 shares of common stock, and extend the expiration date from August 12, 2024 to August 12, 2025 of a warrant to purchase 2,095,588 shares of common stock.

On August 10, 2020, we and the holder of a convertible promissory note in the principal amount of $75,000 due August 20, 2020, entered into an agreement in which we agreed to pay $25,000, and the holder agreed to extend the maturity date of the note to August 20, 2021.

Debt Conversions

From July 1, 2020, through August 10, 2020, we have elected to convert at maturity $1,891,000 principal amount of twelve-month OID notes (see Note 4), and $99,000 interest, into 20,087,918 shares of our common stock. As of August 10, 2020, $395,000 principal amount of twelve-month OID notes remain outstanding.

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 ~~March 31,~~June 30, 2020, unless expressly stated otherwise, and we undertake no duty to update this information.

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

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

The COVID-19 pandemic is currently impacting countries, communities, supply chains and markets as well as the global financial markets. Governments have imposed laws requiring social distancing, travel bans and quarantine, and these laws may limit access to our facilities, customers, management, support staff and professional advisors. These factors, in turn, may not only impact our operations, financial condition and demand for our goods and services, but our overall ability to react timely to mitigate the impact of this event. Also, it may hamper our efforts to comply with our filing obligations with the Securities and Exchange Commission. Depending on the severity and longevity of the COVID-19 pandemic, our business, customers, and stockholders may experience a significant negative impact.

Our ~~Business-~~Business - A Sustainable Products, Technology and Solutions Provider

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

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

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

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

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

The UTMB-Galveston National Laboratory also tested Clyra’s new Clyraguard product, and confirmed that it inactivates the SARS-CoV-2 (COVID-19) virus. The associated study results were recently published in an academic paper, which can be accessed here: https://f1000research.com/articles/9-674. This paper appears in F1000 Research, a well-respected open publishing platform that promotes free and transparent access to novel research, and is currently in the peer-review process whereby it is being reviewed by qualified academics in the fields of microbiology, healthcare, and epidemiology for its scientific and academic ~~paper~~merits, as is ~~expected to publish soon.~~ the case with all papers published in peer-reviewed journals.

While we are actively engaged in responding the COVID-19 crisis, we have not ceased operations of our previous and long-term operating activities or plans. However, our normal operations and rate of growth been negatively impacted during the crisis, namely with delays by our customers until such time as our customers operations resume some sense of normalcy. For example, our growth in the waste handling industry ~~has~~ reversed course in March as operators, in light of the COVID-19 crisis, are less concerned about managing odor than during normal times. As ~~such, we believe~~the pandemic has progressed, and shelter-in-place orders have been lifted, these ~~commercial operations will resume its growth track after the crisis subsides.~~operating activities are increasing.

~~Our second commercial operation, BioLargo Engineering, Science & Technologies, LLC (“BLEST”), provides professional engineering~~bacteria, and ~~consulting services~~has been proven effective against SARS-CoV-2, the virus that causes COVID-19 disease. Given the product’s unique value proposition as an FDA-registered safe-on-skin and gentle disinfectant, we expect Clyraguard to third party clients on a fee-for-service basis, and also serves as our in-house engineering team to advance our proprietary technologies and complement service offerings of our other business segments. This operating unit has a number of near- and long-term prospects for substantial growth, all of which have been delayed due to the COVID-19 crisis.experience rapid revenue growth.

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

In addition to our ~~two~~three commercial operating subsidiaries, we have technologies and products in the development pipeline progressing towards commercialization, including our water treatment system for decontamination and disinfection (our “Advanced Oxidation System”, or “AOS” – see Pilot Projects discussion below), ~~and~~ our ~~medical~~Clyra antimicrobial wound care products, ~~focused on Clyraguard (Disinfecting Personal Protection Spray for Personal Protection Equipment, healing chronic wounds, including~~and our stem cell therapy called the ~~SkinDisc~~^TMSkinDisc™, 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.

ONM Environmental (previously known as Odor-No-More) generates most of its revenues through the sales of odor and VOC control products under the flagship brand CupriDyne Clean. While sales of this product have increased over time, the company also began to expand its service offering due principally to the demands and needs of its major waste handling and industrial clients (which ultimately prompted the company to re-brand to “ONM Environmental” to reflect the widened scope of services it offers). ONM Environmental now offers a menu of services to landfills, transfer stations, and wastewater treatment facilities. These services include ongoing maintenance and on-site support services to assist our clients in the design and continued use of the various systems that deliver our liquid products in the field (such as misting systems). It has recently expanded these serves to engineering design, construction and installation. Our engineering team at BLEST has been instrumental in supporting these operations.

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

Our customer base for our odor and VOC business was expanding prior to the COVID-19 crisis and we expect it to continue doing so once the world returns back to work. We have been and expect to continue selling product to three of the largest solid waste handling companies in the country, and also have secured multiple flagship clients in the wastewater treatment industry, which we expect to become a priority market. We are also expanding with early adopters into new industrial markets, including steel manufacturing, paper production, construction, building and facilities management, livestock production, the cannabis industry. Opportunities for our products are available internationally. Very recently, some of the capital projects that ONM Environmental previously had on hold due to logistical limitations imposed by the COVID-19 pandemic have begun to come back online, with decision-makers from these clients requesting that ONM Environmental resume work on these projects. Further, several cannabis growing operations have recently signed on for capital equipment and service contracts with ONM Environmental, whereby ONM Environmental provides design, build, and install services and equipment for their odor and VOC control needs, with the company’s partner Cannabusters providing odor and VOC control products to the client (and with product royalties going to ONM Environmental).

We have in the past and plan to continue marketing these products through industry associations like the “Technology Approval Group” program offered by Isle Utilities that serves the wastewater treatment industry. We also have a number of potential partners actively engaged in commercial trials around the globe and we are actively in discussion with a number of groups to leverage our commercial focus through distribution partnerships.

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

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.

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. During late 2019 we were awarded and completed more than 15 projects.

On February 12, 2020, we executed a “Joint Venture Framework Agreement” with a leading wastewater treatment solution provider based in South Korea (BKT Co. Ltd., “BKT”), to create a South Korean entity that would manufacture odor and VOC control products based on our CupriDyne Clean products. We received a $350,000 investment from BKT and issued 1,593,087 shares of our common stock, and invested $100,000 into the joint venture for a 40% ownership share. BKT and its U.S. based subsidiary invested $150,000 into the joint venture for the remaining 60% ownership share. ~~The~~Although the joint venture established manufacturing, the COVID-19 pandemic has ~~established their manufacturing,~~slowed the expected growth of the company.

Our subsidiary BioLargo Engineering, Science & Technologies, LLC (“BLEST”) offers full service environmental engineering to third parties, and ~~we expect will be proceeding with operations~~provides engineering support services to our internal teams to accelerate the commercialization of our technologies. Its website is found at www.BioLargoEngineering.com.

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.

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.

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

In 2019, BLEST was awarded an SBIR Phase I Competitive Grant by the Environmental Protection Agency in the amount of $100,000 to investigate solutions for the removal of per- and polyfluoroalkyl substances (PFAS) from water. PFAS have been linked to cancer, fertility problems, asthma, and more, and are present in a vast range of manufactured goods including food, common household products (e.g., cleaning products, cookware), and electronics. PFAS also pose widespread and serious water safety problems around the world, with governments and industry actively seeking new technologies and processes to eliminate PFAS from groundwater and drinking water. BLEST had applied for ~~Phase II~~but did not receive “Phase II” funding from the EPA to sponsor a go-to-market strategy for its ~~AEC and was notified on May 18, 2020, that its request for funding was not granted.~~AEC. 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 be ready for commercial ~~trails~~trials in the near future.

Recently, BioLargo Engineering completed design and manufacturing of a medium-scale demonstration pilot prototype of the BioLargo AEC. This prototype is being tested and will be installed on-site for its first field pilot in the coming months, where the technology will be vetted in tough field conditions for its ability to effectively and affordably eliminate per- and poly-fluoroalkyl substances (“PFAS”) contaminants from water. The technology has already been proven in lab-scale studies to eliminate +99% of PFAS from water in continuous flow while consuming as low as $0.30 in electrical costs per 1,000 gallons treated, representing a significant potential cost savings compared to incumbent PFAS solutions like reverse osmosis and carbon sequestration technologies. Once the first field pilot projects for the AEC have been successfully completed, we intend to commence the first commercial trials for the AEC.

BioLargo Water is our wholly owned subsidiary located on campus at the University of Alberta, Canada, that has been primarily engaged in the research and development of our Advanced Oxidation System (AOS). The AOS is our patented water treatment device that generates a series of highly oxidative species of iodine and other molecules that, because of its proprietary configuration and inner constituents, allow it to eliminate pathogenic organisms and organic contaminants as water passes through the device and it performs with extreme efficacy while consuming very little electricity. Its key application is extremely efficient decontamination and the disinfection of various waste waters.

The AOS ~~recently began~~completed 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~~Alberta, and the client agreed to expand the scope of AOS in the operations and be involved in the first commercial AOS pilot project. Recently, we received conditional approval of government grant that will partly fund the project, and are working on the engineering schematics for the system. BioLargo water hopes to start the project in the fourth quarter of 2020. The total budget for the project is ~~discussed in more detail in the~~ ~~Pre-commercial Pilot Projects~~ ~~section below.~~$695,000, of which $600,000 will be funded by a combination of grants and client contributions. ]

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

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

Our AOS 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, 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 continue to apply for significant grant 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 our company and, therefore we will continue to focus on energies on other markets until such time as 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 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~~sales of the AOS. It is our belief that once pre-commercial pilots have concluded with the AOS, our ability to entice major water industry players to partner with BioLargo Water to accelerate market adoption of the AOS will be increased dramatically.

The most important advances in AOS development in recent months have been 1) recent validation of the AOS as an effective 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 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.

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 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.

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

When the COVID-19 crisis began, we immediately responded by supporting the team at Clyra Medical in any way possible to help them create a product called ~~Clyraguard (discussion above).~~Clyraguard. Testing has confirmed that Clyraguard inactivates the COVID-19 pandemic ~~Coronavirus.~~ coronavirus.

Clyraguard Personal Protection Spray is a disinfectant and germicide intended to clean and decontaminate noncritical medical devices such as face masks and personal protective equipment (PPE). Clyraguard Personal Protection Spray may also be used to preclean critical medical devices prior to sterilization.

The early development work at Clyra and its long regulatory approval process was pivotal to enable Clyra to respond to the COVID-19 crisis. The Clyraguard product is now being manufactured and sold primarily to its target market of frontline health care workers and supply companies as a Class I disinfectant intended to disinfect face masks and personal protective equipment.

Recently Clyra Medical Technologies has welcomed two key team members to its roster. The company recruited Shawn Dougherty, experienced C-level executive responsible for several successful high-profile product launches, to serve as Clyra’s Chief Revenue Officer. Prior to joining Clyra, Shawn co-founded mophie, the number one selling battery case manufacturer for mobile devices in North America. As COO and founder, she helped mophie create the first juice pack battery case for the iPhone in North America and built an exclusive partnership with Apple. Clyra also recruited John A. Sirpilla to serve as its Chief Business Development Officer, whereby he will work with Clyra’s senior executive team on brand expansion and retail channel development, and will work to develop strategic partnerships to help make Clyra products widely available to individuals, businesses, and the healthcare industry. Mr. Sirpilla is the former President of Camping World Accessory Stores, a 140-store nationwide retail chain serving the RV industry and was promoted in 2012 to Chief Business Development Officer for the parent company, Camping World and Good Sam with annual sales of nearly $4 billion.

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

Consolidated revenue for the three and six months ended ~~March 31,~~June 30, 2020 was ~~$439,000,~~$418,000 and $856,000, which is a ~~$75,000~~2% decrease and 8% increase over the same ~~period~~periods in ~~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~~Sales at our operating divisions ~~– Odor-No-More~~decreased upon the initial shutdown of California and ~~BLEST. Our business segments obtain cash to support operations~~most the U.S. in different ways. Odor-No-More and BLEST generate revenues from third parties, and receive funding as needed from 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, 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~~late March due to the COVID-19 pandemic, ~~each~~but have since rebounded.

Overall, we expect revenues to significantly increase in the third quarter, due primarily to sales 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.Clyraguard Personal Protection Spray.

~~During the three months ended March 31, 2020, our~~Our wholly owned subsidiary ~~Odor-No-More~~ONM Environmental generated revenues through sales of its flagship product CupriDyne Clean, by providing design, installation, and maintenance services on the systems that deliver CupriDyne Clean at its clients’ facilities, and through sales of odor absorption products to the U.S. Government. Of its gross sales in the three months ended ~~March 31,~~June 30, 2020, approximately ~~75%~~two-thirds were to the waste handling industry.

~~Odor-No-More’s~~ONM’s revenues for the three and six months ended ~~March 31,~~June 30, 2020, ~~decreased $18,000 or 6%~~were $299,000 and $596,000, a decrease of $16,000 and $20,000 from the same ~~period~~periods in ~~2019, and decreased $164,000 or 37% from the prior three months ended December 31,~~ 2019. Approximately 99% of revenue is from sales of CupriDyne Clean products, and the remaining from sales of our absorption products to the U.S. military. The decrease in revenue was directly attributable toSales on a quarter-to-quarter basis had been increasing until the COVID-19 pandemic shut down businesses across the country, and ~~state governments ordering non-essential businesses~~have since started to ~~close and residents~~rebound. For example, the company was recently awarded a contract to ~~“stay-at-home”. (See “Response~~install a large misting system at a local landfill that is expected to ~~Covid-19 Pandemic”, above.)~~be completed by year’s end.

Sales of our CupriDyne Clean products increased 20% in the three months ended March 31, 2020, as compared to same period in 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 three largest waste handling companies in the United States. Given the COVID-19 pandemic and ongoing status of the “stay-at-home” orders in California and elsewhere, we expect sales of CupriDyne Clean products to the waste handling industry to continue to decrease in the second quarter of 2020.

As a result of our decision to focus our efforts on higher-margin products, sales of our Specimen Transport Solidifier pouches decreased by 97% in the three months ended March 31, 2020 as compared with the same period in 2019.

~~Odor-No-More’s~~ONM’s cost of goods sold includes costs of raw materials, contract manufacturing, and portions of salaries and expenses related to the manufacturing of our products. As a percentage of revenue, ~~Odor-No-More’s~~ONM’s costs of goods ~~was 45%~~improved 5% in the three and six months ended ~~March 31,~~June 30, 2020 ~~versus 47% in the same period in 2019.~~to 38% and 40%.

~~Odor-No-More’s~~ONM’s selling, general and administrative expenses increased by ~~28%~~35% to ~~$316,000 in~~$641,000 during the ~~three~~six months ended ~~March 31, 2020, as compared with $247,000 in 2019.~~June 30, 2020. These expenses have increased alongside ~~Odor-No-More’s~~its efforts to increase revenues by hiring additional sales and support staff. We ~~do not~~ expect these expenses to increase ~~further~~when compared to 2019 but remain consistent in 2020 unless and until ~~our~~its revenues increase.

For the ~~three~~six months ended ~~March 31,~~June 30, 2020, ~~Odor-No-More~~ONM generated ~~$298,000~~$596,000 in revenue, a gross margin of ~~$154,000,~~$354,000, and had total costs and expenses of ~~$320,000,~~$641,000, resulting in a operating loss of $287,000, and a net loss of ~~$158,000.~~$279,000.

Our engineering segment (BLEST) generated ~~$141,000~~$120,000 and $280,000 of revenues from third party clients in the three and six months ended ~~March 31,~~June 30, 2020, ~~versus $63,000 in revenue in comparable period~~an increase of $11,000 and $108,000 from the same periods in 2019. Revenues decreased in the three months ended June 30, 2020, as compared with the prior three-month period, due to the COVID-19 pandemic. The ~~increase~~increases this year compared with 2019 is due to an increase in the number of client contracts being serviced. BLEST revenues reported on our consolidated statement of operations do not include work performed on internal BioLargo projects, such as its ~~further~~ engineering and development of the AOS water filtration system, or development of the AEC to combat the PFAS crisis (see Development of AEC to Combat PFAS ~~Crisis)~~Crisis, which if billed to third party clients exceeded $143,000 in the first quarter. Our engineers are performing a critical role in internal projects, some of which are supported by third-party research grantsabove), 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.~~other projects.

BLEST’s cost of services includes employee labor as well as subcontracted labor costs. In the three and six months ended ~~March 31,~~June 30, 2020, its cost of services were ~~46%~~77% and 80% of its revenues, versus ~~27%~~84% and 83% in the ~~three months ended March 31,~~comparable periods in 2019. ~~We expect the cost of services to remain closer to 50% in the reminder of the year ending December 31, 2020, based on our current client activity.~~

BLEST’S SG&A expenses include expense related to its operations, although because it primarily delivers services to its clients, most of its labor costs are included in its cost of services (for third party clients), and research and development for its work on BioLargo technologies. BLEST selling, general and administrative expenses during the ~~three~~six months ended ~~March 31,~~June 30, 2020 totaled ~~$101,000~~$221,000 compared to ~~$106,000~~$220,000 for the ~~three~~six months ended ~~March 31,~~June 30, 2019.

For the six months ended June 30, 2020, BLEST generated ~~$285,000~~$280,000 in revenue, a gross margin of ~~$153,000,~~$56,000, and had total costs and expenses of ~~$195,000,~~$387,000, resulting in a net loss of ~~$41,000.~~$331,000.

While we are unable to record revenues generated from intracompany services by the engineering group to other operating divisions, it is important to note that the net loss would be eliminated if BLEST were an outside contract for hire services company selling services to our water company or our industrial odor and VOC control operating unit.

Because the subsidiary had a net loss, we invested cash during the year to allow it to maintain operations. BLEST’s need for a cash subsidy to support its operations decreased considerably towards the end of calendar year 2019. We expect this trend to continue, and expect that in 2020 its sales will continue to increase.

Our wholly owned Canadian subsidiary has been awarded more than 7579 research grants over the years from various Canadian public and private agencies, including the Canadian National Research Institute – Industrial Research Assistance Program (NRC-IRAP), the National Science and Engineering Research Council of Canada (NSERC), and the Metropolitan Water District of Southern California’s Innovative Conservation Program “ICP”. The research grants received are considered reimbursement grants related to costs we incur and therefore are included as Other Income. We continued to win grants and it is important to note that amounts paid directly to third parties are not included as income in our financial statements.

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

Our SG&A expenses include both cash expenses (for example, salaries to employees) and non-cash expenses (for example, stock option compensation expense). Our SG&A expenses increased by ~~10% ($138,000)~~$554,000 (42%) and $690,000 (25%) in the three and six months ended ~~March 31,~~June 30, 2020, compared to the three and six months ended ~~March 31, 2019. Our~~June 30, 2019, due primarily to increases in salaries and payroll of $250,000 and $301,000 in the three and six months ended June 30, 2020 versus 2019 Much of the increase is due to non-cash expenses ~~totaled $922,000, through~~related to the issuance of stock options, and ~~stock options, increased $339,000 for~~ the ~~three months ended March 31, 2020 compared to the three months ended March 31, 2019.~~hiring of sales personnel. Our employees, vendors and consultants chose to receive a greater number of stock and stock options in lieu of cash owed and as part of an employee retention program. The largest components of our SG&A expenses included (in thousands):

The increase in salaries and payroll expenses is ~~primarily~~also related to the implementation of a stock option bonus compensation program for ~~employees~~employees. Professional fees have increased as the Company has done more financings and ~~other related stock option compensation~~registrations which have required more legal expense. Consulting expenses have increased, as well as sales and ~~also~~marketing and investor relations as the ~~hiring of additional personnel~~Company has increased efforts to ~~support increasing operations. Consulting expense decreased~~sell its products and services and increased efforts in the capital markets. as ~~we’ve engaged less consultants to identify business opportunities and are focusing on our current opportunities.~~

In the three and six months ended ~~March 31,~~June 30, 2020, we spent approximately ~~$335,000~~$350,000 and $684,000 in the research and development of our technologies and products. This was a decrease of ~~21% ($91,000)~~12% and 17% compared to the ~~three months ended March 31, 2019.~~same periods in 2019, due to an increased focus on commercial operations and a decreased focus on research and development.

Our interest expense for the three and six months ended ~~March 31,~~June 30, 2020 was ~~$757,000,~~$747,000 and $1,504,000, an ~~decrease~~increase of ~~$228,000~~50% and 1% compared ~~with~~to the same periods in 2019. The increase is due to non-cash expenses from warrants issued to investors in our OID convertible note offering that began in June, 2019, and concluded in September, 2019, which is amortized over the one-year period of the note. As the vast majority of the OID investments were after June 30, 2019, so the three months ended ~~March 31, 2019,~~June 30, 2019included only a small amount 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~~this 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 less resulting in less interest expense in the three months ended March 31, 2020, compared to the same period in 2019.

In the three months ended ~~March 31,~~June 30, 2020, we recorded a loss on extinguishment of debt related to transactions with current vendor and employees where Clyra Medical is unable to pay obligations in cash. In lieu of cash, the vendors and employees accepted options to purchase shares of Clyra stock. The fair value of those options exceeded the debt that was converted by $214,000.

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

Net loss for the three months ended ~~March 31,~~June 30, 2020 was ~~$2,616,000~~$2,701,000, a loss of $0.01 per share, compared with $1,987,000 and $0.02 per share in the prior year comparable period. Net loss for the six months ended June 30, 2020 was $5,316,000, a loss of $0.03 per share, compared to a net loss for the ~~three~~six months ended ~~March 31,~~June 30, 2019 of ~~$2,749,000~~$4,736,000, a loss of ~~$0.02~~$0.03 per share. The ~~reduction~~increase in ~~the~~ net loss for ~~the period ended March 31, 2020 versus 2019~~these periods is due to ~~a small improvement~~increase in ~~gross profit~~SG&A and ~~a reduction in~~ interest ~~expense.~~ expenses.

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 ~~three~~six months ended ~~March 31,~~June 30, 2020, we had a net loss of ~~$2,616,000,~~$5,316,000, used ~~$753,000~~$2,062,000 cash in operations, and at ~~March 31,~~June 30, 2020, we had a working capital deficit of ~~$3,651,000,~~$3,098,000, and current assets of ~~$1,080,000.~~$1,678,000. We do not believe ~~net revenues~~gross profits in the immediate future will be sufficient to fund our current level of ~~operations or pay our debt due prior to December 31, 2020, and will have to obtain further investment capital to continue to fund operations and seek to refinance our existing debt.~~operations. We have been, and anticipate that we will continue to be, limited in terms of our capital resources. During the ~~three months~~year ended ~~March~~December 31, ~~2020, we generated revenues~~2019, none of ~~$439,000 through two~~our business segments ~~(Odor-No-More and BLEST – see~~(see Note 10, “Business Segment Information”)~~. Neither~~ generated enough revenues to fund their operations, or ~~fund~~to contribute to our ~~corporation~~corporate operations or ~~other business segments, and thus~~overhead. Thus, in light of our cash position at year end, in order to continue operations, we continued to ~~operate, we conducted private securities offerings. We intend to refinance or renegotiate the $550,000~~sell our stock in debt obligations due in August 2020; the remainder of debt due in 2020 is convertible at maturity. Our cash position is insufficient to maintain our current level of operations and research and development, and thus we will be required to raise substantial additional 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~~to Lincoln Park (see Note 3),. Although we are able to rely on investment funds through our agreement with Lincoln Park, the foregoing factors raise substantial doubt about our ability to continue as a going concern. Ultimately, our ability to continue as a going concern is dependent upon our willingness to require Lincoln Park purchase our stock, and ~~continue~~in the long term, our ability to ~~negotiate for more financing from private~~attain a reasonable threshold of operating efficiencies and ~~institutional investors. No assurance can be made of~~achieve profitable operations by licensing or otherwise commercializing products incorporating our ~~success at raising money through private or public offerings.~~

~~Clyra Medical is unique in that it funds its operations through third party investments. We~~technologies. The consolidated financial statements do not ~~intend~~include any adjustments that might be necessary if we are unable to ~~subsidize its operations in the future.~~continue as a going concern.

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.

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

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

Step 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.

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

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

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

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

The warrant and BCF relative fair values are also recorded as a discount to the convertible promissory notes. At present, these equity features of the convertible promissory notes have recorded a discount to the convertible notes that is substantially equal to the proceeds received.

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.

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~~2019 and ~~March 31, 2019~~June 30, 2020, approximate their respective fair values because of the short-term nature of these instruments. Such instruments consist of cash, accounts receivable, prepaid assets, accounts payable, convertible notes, and other assets and liabilities.

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

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

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

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

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

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

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

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.

~~On January 15 and March 20, 2019,~~In the three months ended June 30, 2020, we issued ~~44,288 and 54,305~~6,567,133 shares ~~respectively,~~ of our common stock ~~for $20,000~~in conversion of principal and interest due ~~to our note and line~~on convertible promissory notes in the principal amount of ~~credit holders.~~$531,000.

~~On March 11 and March 29, 2019,~~In the three months ended June 30, 2020, we issued ~~100,000 and 138,252~~1,571,666 shares ~~respectively,~~ of our common stock pursuant to ~~consulting agreements totaling $47,000~~a Unit Offering whereby we accepted investments and issued units consisting of shares of common stock, a six-month stock purchase warrant, and a five-year stock purchase warrant. The number of shares issued to each investor, and purchasable by each warrant, is the quotient of the unit price and investment amount. The exercise price of each six-month warrant is 120% of the unit price, and for ~~services to our company.~~the six-month warrant, 150% of the unit price. So long as 18 months has passed and the warrant shares are not registered with the SEC, the warrants allow for cashless exercise.

~~On January 24, February 13, March 6 and March 26, 2019,~~In the three months ended June 30, 2020, we issued ~~a total of 1,679,248~~876,079 shares of our common stock to ~~Vista Capital upon its election to convert $215,000~~vendors in exchange for reduction of ~~the Vista 2017 Note. Of that amount, 1,638,479 shares were issued as payment~~$132,000 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 Item I, above) and in exchanged received $350,000 from BKT.

During the three months ended March 31, 2020, Vista Capital elected to convert the remaining balance of $269,600 of the outstanding principal and interest due on its promissory note dated October 7, 2019, and we issued 2,417,059 shares of our common stock.

~~During the three months ended 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.~~

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

~~During the three months ended March 31, 2019, certain investors converted promissory notes to our common stock (see Note 4 to our Consolidated Financial Statements titled “~~~~Debt Obligations~~~~”, and specifically the subsection titled “~~~~Conversion of Debt Obligations~~~~”).~~

~~During the three months ended March 31, 2019, we incurred new debt obligations (see Note 4 to our Consolidated Financial Statements titled “~~~~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 December 18, 2018 (Vista Capital)”.)~~amounts owed.

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

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 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 $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 up to 100,000 shares of Common Stock (each such purchase, 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 be based on the prevailing market price at the time of sale as set forth in the Purchase Agreement. There are no trading volume requirements or restrictions under the Purchase Agreement. Lincoln Park’s obligation under each Regular Purchase shall not exceed $500,000. There is no upper limit on the price per share that Lincoln Park must pay for Common Stock under the Purchase Agreement.

In addition to regular purchases, as described above, the Company may also direct Lincoln Park to purchase 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 registration requirements of United States federal and state securities laws.

The Purchase Agreement and the Registration Rights Agreement contain customary representations, warranties, agreements and conditions to completing future sale transactions, indemnification rights and obligations of the 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 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 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 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 working capital and general corporate purposes.None.

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

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.

PART I

Item 1	Financial Statements

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

Item 4	Controls and Procedures

PART II

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds

Item 5	Other Information

Item 6	Exhibits

	Signatures

	Exhibit Index

	MARCH 31, 2019			MARCH 31, 2020			THREE MONTHS						SIX MONTHS
Revenue
							JUNE 30, 2019			JUNE 30, 2020			JUNE 30, 2019			JUNE 30, 2020
Revenues
Product revenue	$	301		$	283		$	316		$	301		$	617		$	580
Service revenue		63			156			110			117			173			276
Total revenue		364			439			426			418			790			856

Cost of revenue
Cost of goods sold		(140	)		(128	)		(136	)		(109	)		(276	)		(237	)
Cost of service		(52	)		(132	)		(92	)		(92	)		(143	)		(224	)
Total cost of revenue		(192	)		(260	)
Gross profit		172			179			198			217			371			395

Operating expenses:
Selling, general and administrative expenses		1,408			1,546			1,318			1,872			2,727			3,417
Research and development		426			335			367			350			793			684
Total operating expenses		1,834			1,881
Operating loss		(1,662	)		(1,702	)
Operating loss:								(1,487	)		(2,005	)		(3,149	)		(3,706	)
Other (expense) income:
Interest expense								(498	)		(747	)		(1,483	)		(1,504	)
Loss on debt extinguishment								(44	)		—			(228	)		(214	)
Tax credit								—			44						44
Grant income								42			7			124			64
Total other expense:								(500	)		(696	)		(1,587	)		(1,610	)
Net loss								(1,987	)		(2,701	)		(4,736	)		(5,316	)

Other income (expense):
Grant income		82			57
Interest expense		(985	)		(757	)
Loss on extinguishment of debt		(184	)		(214	)
Total other (expense) income		(1,087	)		(914	)

Net loss		(2,749	)		(2,616	)
Net loss attributable to noncontrolling interest		(173	)		(342	)		(192	)		(275	)		(365	)		(617	)
Net loss attributable to common shareholders	$	(2,576	)	$	(2,274	)	$	(1,795	)	$	(2,426	)	$	(4,371	)	$	(4,699	)

Net loss per share attributable to common stockholders:
Net loss per share attributable to common shareholders:
Loss per share attributable to shareholders – basic and diluted	$	(0.02	)	$	(0.01	)	$	(0.01	)	$	(0.02	)	$	(0.03	)	$	(0.03	)
Weighted average number of common shares outstanding:		142,246,766			168,873,233			145,700,515			181,567,199			143,983,182			175,220,216

Comprehensive loss attributable to common shareholders
Comprehensive loss:
Net loss	$	(2,749	)	$	(2,616	)	$	(1,987	)	$	(2,701	)	$	(4,736	)	$	(5,316	)
Foreign translation adjustment		(4	)		—
Foreign currency translation								(4	)		23			(8	)		22
Comprehensive loss		(2,753	)		(2,616	)		(1,991	)		(2,678	)		(4,744	)		(5,294	)
Comprehensive loss attributable to noncontrolling interest		(173	)		(342	)		(192	)		(275	)		(365	)		(617	)
Comprehensive loss attributable to shareholders	$	(2,580	)	$	(2,274	)
Comprehensive loss attributable to common stockholders							$	(1,799	)	$	(2,403	)	$	(4,379	)	$	(4,677	)

				Incorporated by 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
3.4	Amended and Restated Articles of Incorporation of Clyra Medical Technologies, Inc.	Form 8-K	1/6/2016
4.1	2018 Equity Incentive Plan	Form S-8	6/22/2018
4.2	Stock Option Award Agreement under 2018 Equity Incentive Plan	Form S-8	6/22/2018
4.3	Notice of Stock Option Grant under 2018 Equity Incentive Plan	Form S-8	6/22/2018
4.4	Restricted Stock Unit Award Agreement under 2018 Equity Incentive Plan	Form S-8	6/22/2018
4.5	Notice of Restricted Stock Unit Award under 2018 Equity Incentive Plan	Form S-8	6/22/2018
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~~Note issued ~~to One Year Note holder dated December 30, 2016~~in Summer 2017 Offering	Form ~~S-1~~10-Q	~~1/25/~~8/14/2017
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~~
~~4.9~~		$50,000 convertible note, matures March 8, 2020	Form 10-Q	5/14/2018
~~4.10~~4.9	Promissory note issued by Clyra Medical ~~Technologies~~to Scion Solutions dated September 26, 2018	Form 8-K	10/2/2018
~~4.11~~	~~Convertible Promissory Note issued to Vista Capital Investments LLC dated January 7, 2019~~	~~Form 8-K~~	~~1/11/2019~~
~~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~~4.10		Amendment dated March 5, 2019 to Promissory Note issued to Vernal Bay Investments, LLC on September 19, 2018	Form 8-K	3/8/2019
~~4.15~~4.11	Amendment dated March 5, 2019 to Promissory Note issued to Chappy Bean, LLC on September 19, 2018	Form 8-K	3/8/2019
~~4.16~~4.12	OID twelve-month promissory note	Form 8-K	8/2/2019
~~4.17~~4.13	Stock purchase warrant issued to OID twelve-month investors	Form 8-K	8/2/2019

~~4.18~~4.14	$600,000 Promissory note dated August 9, 2019	Form 10-Q	8/14/2019
~~4.19~~4.15	Warrant to purchase 1.2 million shares issued August 9, 2019	Form 10-Q	8/14/2019
~~4.20~~	~~Amendment to $440,000 convertible notes that matures July 20, 2019~~	~~Form 10-Q~~	~~5/14/2018~~
~~4.21~~4.16		Amendment dated August 12, 2019 to Promissory Note issued to Vernal Bay Investments, LLC on September 19, 2018	Form 10-Q	8/14/2019
~~4.22~~4.17	Amended and restated note issued to Vernal August 12, 2019	Form 10-Q	8/14/2019
~~4.23~~4.18	Warrant issued to Vernal August 12, 2019	Form 10-Q	8/14/2019
~~4.24~~4.19	Warrant issued March 2018, expiring March 2023	S-1	8/29/2019
~~4.25~~4.20	Form of warrant issued January 2019 to Lincoln Park, expiring January 2024	S-1	8/29/2019

	2019						2020						2019						2020
	Non Plan			2018 Plan			Non Plan			2018 Plan			Non Plan			2018 Plan			Non Plan			2018 Plan
Risk free interest rate	1.68	-	2.65%	1.68	-	2.65%		0.88	%	0.88	-	1.90%	2.00	–	2.65%	2.0	–	2.65%	0.66	–	1.02%	0.64	–	1.90%
Expected volatility	133	-	152%	133	-	152%		131	%	131	-	133%	147	–	152%	147	–	152%	129	–	131%	129	–	133%
Expected dividend yield		—			—			—			—			—			—			—			—
Forfeiture rate		—			—			—			—			—			—			—			—
Life in years		10			10			10			10			10			10			10			10

						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	$	—

						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	$	—

	March 31, 2019			March 31, 2020			June 30, 2019			June 30, 2020
Risk free interest rate	2.18	–	2.62%		0.23	%	1.70	–	2.62%		0.23%
Expected volatility	86	–	110%		112	%	86	–	110%		112%
Expected dividend yield		—			—			—			—
Forfeiture rate		—			—			—			—
Expected life in years	2	—	5		2		2	—	5	0.33	–	5

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	)

March 31, 2019	BioLargo			ONM			Clyra			BLEST			Water			Elimination⁽¹⁾			Total
Revenue	$	—		$	301		$	—		$	183		$	—		$	(120	)	$	364
Intersegment revenue		—			—			—			(120	)		—			120			—
Operating loss		(948	)		(90	)		(287	)		(110	)		(227	)		—			(1,662	)
Grant income		—			—			—			—			82			—			82
Interest expense		(632	)		—			(12	)		—			—			—			(985	)
Depreciation		—			(4	)		—			(12	)		—			—			(16	)
Research and development		(172	)		—			(49	)		(122	)		(209	)		126			(426	)
Loss on extinguishment		(184	)		—			—			—			—			—			(184	)
Net loss		(2,105	)		(90	)		(299	)		(110	)		(145	)		—			(2,749	)

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

					Three months ended:				Six months ended:
	March 31, 2019		March 31, 2020		June 30, 2019		June 30, 2020		June 30, 2019		June 30, 2020
Salaries and payroll related	$	494	$	548	$	476	$	726	$	969	$	1,274
Professional fees		196		228		164		244		360		472
Consulting		291		289		299		396		590		684
Office expense		240		283	224		300		464		584
Sales and marketing						34		58		93		136
Investor relations						37		68		82		104
Board of director expense						68		63		135		130

							Three months ended						Six months ended
							June 30, 2019			June 30, 2020			June 30, 2019			June 30, 2020
BioLargo corporate								(1,142	)		(1,823	)		(3,366	)		(3,415	)
ONM								(52	)		(126	)		(141	)		(279	)
Clyra Medical								(332	)		(432	)		(631	)		(965	)
BLEST								(372	)		(165	)		(361	)		(331	)
BioLargo Water								(89	)		(155	)		(237	)		(326	)
Net loss	March 31, 2019			March 31, 2020				(1,987	)		(2,701	)		(4,736	)		(5,316	)
Odor-No-More	$	(90	)	$	(153	)
BLEST		(110	)		(43	)
Clyra Medical		(299	)		(535	)
BioLargo Water		(145	)		(171	)
Corporate		(2,105	)		(1,715	)
Consolidated net loss	$	(2,749	)	$	(2,616	)

4.21	Registration Rights Agreement, dated as of March 30, 2020, by and between BioLargo, Inc. and Lincoln Park Capital Fund, LLC	Form 8-K	3/31/2020
4.22*	Warrant issued in 2020 Unit Offering
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	Amendment dated June 30, 2020 to License Agreement with Clyra Medical Technologies, Inc.	Form 8-K	7/7/2020
10.4	Consulting Agreement dated December 30, 2015 with Beach House Consulting LLC	Form 8-K	1/6/2016
~~10.4~~10.5	Commercial Office Lease Agreement for 14921 Chestnut St., Westminster, CA 92683	Form 8-K	8/24/2016
~~10.5†~~10.6	~~January 16, 2019~~Escrow Agreement dated September 26, 2018 regarding Clyra/Scion transaction	Form 8-K	10/2/2018
10.7	2020 Engagement Extension Agreement with Charles K. Dargan II	Form 8-K	2/27/2020
10.8	Purchase Agreement, dated as of March 30, 2020 by and between BioLargo, Inc. and ~~Charles K. Dargan~~Lincoln Park Capital Fund, LLC.	Form 8-K	~~1/18/2019~~3/31/2020
10.9	Amendment dated June 30, 2020 to Consulting Agreement dated December 30, 2015 between Clyra Medical and Beach House Consulting LLC	Form 8-K	7/7/2020
10.10	Revolving Line of Credit Agreement dated June 30, 2020, between Clyra Medical and Vernal Bay	Form 8-K	7/7/2020
10.11	Security Agreement dated June 30, 2020, between Clyra Medical and Vernal Bay	Form 8-K	7/7/2020
10.12	Revolving Line of Credit Note issued by Clyra Medical to Vernal Bay on June 30, 2020	Form 8-K	7/7/2020
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

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


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