What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-08-16 compared with 2021-05-17 · 713 added, 446 removed, 619 unchanged (65% of the section changed)

3 unchanged sentences

CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2021 AND DECEMBER 31, 2020

AS OF JUNE 30, 2021 AND DECEMBER 31, 2020

(in thousands, except for per share data)

March 31, 2021

June 30, 2021

Current assets:

Cash and cash equivalents

$ 1,357  

Accounts receivable, net of allowance

10 unchanged sentences

Total non-current assets

Liabilities and stockholders ’ equity (deficit)

$ 5,445  

$ 4,942  

Liabilities and stockholders ’

equity (deficit)

Current liabilities:

4 unchanged sentences

Lease liability

Clyra Medical accounts payable and accrued expenses (See Note 9)

Clyra Medical debt obligations (See Note 9)

Clyra Medical accounts payable and accrued expenses (Note 9)

Clyra Medical debt obligations (Note 9)

Total current liabilities

1 unchanged sentence

Debt obligations, net of discount and amortization (Note 4)

Clyra Medical line of credit (Note 9)

Lease liability

3 unchanged sentences

COMMITMENTS AND CONTINGENCIES (Note 12)

STOCKHOLDERS’ EQUITY (DEFICIT):

Preferred Series A, $0.00067 Par Value, 50,000,000 Shares Authorized, -0- Shares Issued and Outstanding, at March 31, 2021 and December 31, 2020

Common stock, $0.00067 Par Value, 400,000,000 Shares Authorized, 239,963,788 and 225,885,682 Shares Issued, at March 31, 2021 and December 31, 2020

STOCKHOLDERS’

EQUITY (DEFICIT):

Preferred Series A, $ 0.00067 Par Value, 50,000,000 Shares Authorized, - 0 - Shares Issued and Outstanding, at June 30, 2021 and December 31, 2020

Common stock, $ 0.00067 Par Value, 400,000,000 Shares Authorized, 250,996,373 and 225,885,682 Shares Issued, at June 30, 2021 and December 31, 2020

Additional paid-in capital

140,292  

135,849  

Accumulated other comprehensive loss

1 unchanged sentence

Total BioLargo Inc.

and subsidiaries stockholders’ equity (deficit)

and subsidiaries stockholders’

equity (deficit)

Non-controlling interest (Notes 9 and 10)

Total stockholders’ equity (deficit)

Total liabilities and stockholders’ equity (deficit)

Total stockholders’

equity (deficit)

Total liabilities and stockholders’

equity (deficit)

$ 5,445  

$ 4,942  

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

2 unchanged sentences

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021 AND 2020

(in thousands, except for share and per share data)

5 unchanged sentences

Cost of service

Total cost of revenue

Operating expenses:

Selling, general and administrative expenses

Research and development

Total operating expenses

Operating loss:

Other income (expense):

PPP loan forgiveness

Other (expense) income:

Interest expense

Loss on extinguishment of debt

Total other income (expense)

Loss on debt extinguishment

PPP loan forgiveness

Total other expense:

Net loss attributable to noncontrolling interest

Net loss attributable to common shareholders

Net loss per share attributable to common stockholders:

Loss per share attributable to shareholders – basic and diluted

Net loss per share attributable to common shareholders:

Loss per share attributable to shareholders –

basic and diluted

Weighted average number of common shares outstanding:

Comprehensive loss attributable to common shareholders

Foreign translation adjustment

Comprehensive loss:

Foreign currency translation

Comprehensive loss

Comprehensive loss attributable to noncontrolling interest

Comprehensive loss attributable to shareholders

Comprehensive loss attributable to common stockholders

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

1 unchanged sentence

AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS ’ EQUITY (DEFICIT)

FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020

CONSOLIDATED STATEMENT OF STOCKHOLDERS ’

EQUITY (DEFICIT)

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021 AND 2020

(in thousands, except for share data)

comprehensive

Total stockholders ’

stockholders ’

equity (deficit)

9 unchanged sentences

Balance, March 31, 2021

Conversion of notes

Sale of common stock for cash

Issuance of common stock for service

Issuance of common stock for interest

Stock option compensation expense

Clyra Medical stock option expense

Noncontrolling interest allocation

Foreign currency translation

Balance, June 30, 2021

other comprehensive

Total stockholders ’

stockholders ’

equity (deficit)

12 unchanged sentences

Balance, March 31, 2020

Conversion of notes

Issuance of common stock for service

Issuance of common stock for interest

Sale of common stock for cash

Stock option compensation expense

Clyra Medical securities offering

Clyra Medical stock option expense

Clyra Medical stock for other asset (See Note 2)

Noncontrolling interest allocation

Foreign currency translation

Balance, June 30, 2020

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

2 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021 AND 2020

(in thousands, except for per share data)

12 unchanged sentences

Accounts receivable

Deferred revenue

Accounts payable and accrued expenses

Clyra Medical accounts payable and accrued expenses

Prepaid expenses and other current assets

Customer deposits

Accounts payable and accrued expenses

Deferred revenue

Clyra Medical accounts payable and accrued expenses

Net cash used in operating activities

6 unchanged sentences

Proceeds from the sale of stock in Clyra Medical

Proceeds from payroll protection program loan

Payment of debt obligations

3 unchanged sentences

Net change in cash

Cash at beginning of year

Cash at beginning of period

Cash at end of period

2 unchanged sentences

Non-cash investing and financing activities

Common stock issued for convertible debt

Fair value of warrants issued with convertible notes

Inventory included in accounts payable and accrued expense

Lincoln Park deferred offering costs, recorded as additional paid-in capital

Conversion of notes payable to common stock

Exchange of consulting services for Clyra common shares

Deemed dividend

7 unchanged sentences

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 a cleaner earth.

The company also owns a minority interest in a medical products subsidiary that has licensed BioLargo’s technologies.

Our business strategy is straightforward:

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 a cleaner earth. The company also owns a minority interest in a medical products subsidiary that has licensed BioLargo’s technologies.  Our business strategy is straightforward:

we invent or acquire technologies that we believe have the potential to be disruptive in large commercial markets;

3 unchanged sentences

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 months ended March 31, 2021, we had a net loss of $1,878,000, used $845,000 cash in operations, and at March 31, 2021, we had a working capital deficit of $1,051,000, and current assets of $1,922,000.

We do not believe gross profits in 2021 will be sufficient to fund our current level of operations or pay our debts as they become due during the next 12 months, and therefore we will have to obtain further investment capital to continue to fund operations and seek to refinance our existing debt, such as through our purchase agreement with Lincoln Park Capital.

(See Note 3.) We have been, and anticipate that we will continue to be, limited in terms of our capital resources.

During the three months ended March 31, 2021, we generated revenues of $571,000 through our operational subsidiaries.

(See Note 11.) Our subsidiaries did not individually or in the aggregate generate profits sufficient to fund their operations, or for our corporate operations or other business segments.

Thus, we continued to sell securities to raise cash (see Note 3), and received additional grant aid through our Canadian subsidiary.

As of March 31, 2021, our cash and cash equivalents totaled $1,341,000, and our total liabilities included $406,000 in current debt that is convertible at the option of the debtholders , $100,000 of debt that we converted to equity at the April 2021 maturity date (see Note 13), $50,000 of debt that is due March 2023, $200,000 due on a line of credit by our partially owned subsidiary Clyra Medical Technologies, Inc.

(“Clyra”) due in June 2021, and $1,007,000 owed by Clyra related to a 2018 acquisition with a maturity date that automatically extends each June (see Note 9, “ Note Payable (Scion) ”).

We have $314,000 of loans issued as part of the Small Business Administration’s (“SBA”) Paycheck Protection Program.

We have applied for forgiveness of the entire balance owed on these loans and are awaiting decisions.

We have a $150,000 loan accruing interest at 3.75% annually from the SBA’s Economic Injury Disaster Loan program that is payable over 30 years beginning August 2021.

During the three months ended March 31, 2021, we received $2,001,000 in proceeds from stock sales to Lincoln Park and $105,000 from stock sales from our 2020 Unit Offering (see Note 3), and made cash payments to retire debt obligations totaling $674,000 (see Note 4 and Note 9 (“ Line of Credit ”)).

We have two promissory notes due in August, 2021, (see Note 4, “ Notes payable, mature August 12 and 16, 2021 ”), each of which may be converted by the holder into equity at a fixed price of $0.14 per share.

If the holders do not voluntarily convert the notes to equity, we intend to pay the notes with cash, although there is no guarantee that we will be able to do so.

The cash we receive from stock sales to Lincoln Park is a function of stock price and volume – a lower stock price and less trading volume results in less money we can receive from Lincoln Park.

For the six months ended June 30, 2021, we had a net loss of $ 3,668,000 , used $ 2,054,000 cash in operations, and at June 30, 2021, we had a working capital deficit of $ 380,000 , and current assets of $ 2,052,000 .

We do not believe gross profits in 2021 will be sufficient to fund our current level of operations, and therefore we will have to obtain further investment capital to continue to fund operations, such as through our purchase agreement with Lincoln Park Capital.

) We have been, and anticipate that we will continue to be, limited in terms of our capital resources.

During the six months ended June 30, 2021, we generated revenues of $ 1,035,000 through our operational subsidiaries.

(See Note 11.

) Our subsidiaries did not individually or in the aggregate generate profits sufficient to fund their operations, or contribute to our corporate operations.

Thus, we continued to sell securities to raise cash (see Note 3 ), and received additional research grant aid through our Canadian subsidiary.

As of June 30, 2021, our cash and cash equivalents totaled $ 1,357,000 .

During the six months ended June 30, 2021 we made cash payments to retire debt obligations totaling $ 852,000 (see Note 4 and Note 9 (“

Inventory Line of Credit ”)).

Our total debt as of June 30, 2021 was $ 1,721,000 .

Of that amount, $ 1,207,000 is owed by our partially owned subsidiary Clyra Medical Technologies, Inc.

(“Clyra”) as follows:

(i) a note with a maturity date that automatically extends each June ( see Note 9, “

Note Payable (Scion) ”), and (ii) a line of credit totaling $ 200,000 , due in June 2023.

Our remaining $ 514,000 of debt includes (i) $ 314,000 of loans issued as part of the Small Business Administration’s (“SBA”) Paycheck Protection Program (for which we have applied for forgiveness, (ii) a $ 150,000 loan accruing interest at 3.75 % annually from the SBA’s Economic Injury Disaster Loan program that is payable over 30 years beginning August 2021, and (iii) a $ 50,000 convertible debt due in March 2023.

During the six months ended June 30, 2021, we received $ 3,015,000 in proceeds from sales of our common stock to Lincoln Park and $ 505,000 from stock sales from our 2020 Unit Offering (see Note 3 ).

The cash we receive from stock sales to Lincoln Park is a function of stock price and volume –

a lower stock price and less trading volume results in less money we can receive from Lincoln Park.

Our agreement with Lincoln Park precludes us from selling shares to Lincoln Park on a daily basis if our stock price falls below $ 0.10 per share.

If we are unable to make daily sales, it is not likely we will be able to sell enough shares to Lincoln Park to pay the debt due in August, 2021.

In such event, we intend to negotiate for a delay in repayment with the holders of the notes.

If we are unable to rely on our current arrangement with Lincoln Park to fund our working capital requirements, we would have to rely on other forms of financing, and there is no assurance that we will be able to do so, or if we do so, it will be on favorable terms.

To reduce our operational cash burdens, we regularly issue officers and vendors stock or options in lieu of cash compensation, and we anticipate that we will continue to be able to do so in the future.

In the three months ended March 31, 2021, our CEO and CSO accepted stock in lieu of $31,000 in unpaid salary.

Our CFO has also agreed to receive warrants in lieu of cash, (see note xx) as compensation for his services.

In the six months ended June 30, 2021, our CEO and CSO accepted stock in lieu of $ 31,000 in unpaid salary.

Our CFO has also agreed to receive options to purchase our common stock in lieu of cash, (see Note 5, “

Chief Financial Officer Extension ”) as compensation for his services.

Each has indicated a willingness to do so in the future.

BIOLARGO, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The foregoing factors raise substantial doubt about our ability to continue as a going concern.

1 unchanged sentence

The consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

BIOLARGO, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We are a Delaware corporation formed in 1991.

4 unchanged sentences

and BioLargo Development Corp., organized under the laws of the State of California in 2016.

Additionally, we own 94% of BioLargo Engineering Science and Technologies, LLC (“BLEST”), organized under the laws of the State of Tennessee in 2017 (see Note 10).

Additionally, we own 94 % of BioLargo Engineering Science and Technologies, LLC (“BLEST”), organized under the laws of the State of Tennessee in 2017 (see Note 10 ).

We also own 45 % of Clyra Medical Technologies, Inc.

(“Clyra” or “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 9).

(“Clyra”

or “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 9 ).

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 are still operating in the early stages of the sales and distribution process, and therefore our operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021, 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, 2021, filed with the Securities and Exchange Commission (the “SEC”) on March 30, 2021.

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 are still operating in the early stages of the sales and distribution process, and therefore our operating results for the six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 

2021, 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, 2020, filed with the Securities and Exchange Commission (the “SEC”) on March 30, 2021.

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.

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, its wholly owned subsidiaries, BLEST, and 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 45% 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.

(See Note 9.)

Management believes Clyra Medical’s financial statements are appropriately consolidated with that of the Company after reviewing the Accounting Standards Codification (“ASC”), 810,  “Consolidation”

(“ASC 810 ), and concluding that BioLargo controls Clyra Medical.

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 in the financial statement presentation.

2 unchanged sentences

Therefore, translation gains and losses resulting from differences in exchange rates are recorded in accumulated other comprehensive income.

BIOLARGO, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Cash and Cash Equivalents

3 unchanged sentences

We do not anticipate non-performance by our financial institution.

As of March 31, 2021 and December 31, 2020, our cash balances were made up of the following (in thousands):

BIOLARGO, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of June 30, 2021 and December 31, 2020, our cash balances were made up of the following (in thousands):

BioLargo, Inc.

and subsidiaries

$ 1,338  

Clyra Medical Technologies, Inc.

$ 1,357  

Accounts Receivable

1 unchanged sentence

Estimates for allowances for doubtful accounts are determined based on payment history and individual customer circumstances.

The allowance for doubtful accounts as of March 31, 2021 and December 31, 2020, was $13,000.

The allowance for doubtful accounts as of 

June 30, 2021 was $ 12,000 and at December 31, 2020, was $ 13,000 .

Credit Concentration

We have a limited number of customers that account for significant portions of our revenue.

During the three months ended March 31, 2021 and 2020, we had the following customers that accounted for more than 10% of consolidated revenues, as follows:

We had three customers that each accounted for more than 10% of consolidated accounts receivable at March 31, 2021, and two customers at December 31, 2020, as follows:

March 31, 2021

During the six months ended June 30, 2021 and 2020, we had the following customers that accounted for more than 10% of consolidated revenues, as follows:

We had three customers that each accounted for more than 10% of consolidated accounts receivable at June 30, 2021, and two customers at December 

31, 2020, as follows:

June 30, 2021

December 31, 2020

Inventories are stated at the lower of cost or net realizable value using the average cost method.

The allowance for obsolete inventory as of March 31, 2021, and December 31, 2020, was $3,000.

Inventories consisted of (in thousands):

The allowance for obsolete inventory as of 

June 30, 2021, and December 31, 2020, was $ 3,000 .

 Inventories consisted of (in thousands):

Finished goods

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

BIOLARGO, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Equity Method of Accounting

On March 20, 2020, we invested $ 100,000 into a South Korean entity (Odin Co.

Ltd., “Odin”) pursuant to a Joint Venture agreement we had entered into with BKT Co.

subsidiary, Tomorrow Water.

3 unchanged sentences

Therefore, we record the asset on our consolidated balance sheet and record an increase or decrease the recorded balance by our percentage ownership of the profits or losses in the joint venture.

During the three months ended March 31, 2021, the joint venture incurred a loss and our 40% ownership share reduced our investment interest by $10,000.

The joint venture incurred a loss during the three and six months ended June 30, 2021, and our 40 % ownership share reduced our investment interest by $ 10,000 and $ 23,000 , respectively.

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.

2 unchanged sentences

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 months ended March 31, 2021 and 2020, management determined that there was no impairment of its long-lived assets, including its In-process Research and Development (see Note 8).

For the three and six months ended June 30, 2021 and 2020, management determined that there was no impairment of its long-lived assets, including its In-process Research and Development (see Note 8 ).

Earnings (Loss) Per Share

We report basic and diluted earnings (loss) per share (“EPS”) for common and common share equivalents.

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 months ended March 31, 2021 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.

For the three and six months ended June 30, 2021 and 2020, the denominator in the diluted EPS computation is the same as the denominator for basic EPS due to the anti-dilutive effect of the warrants and stock options on the Company’s net loss.

Use of Estimates

7 unchanged sentences

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.

BIOLARGO, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For stock and stock options issued to consultants and other non-employees for services, the Company measures and records an expense as of the earlier of the date at which either:

a commitment for performance by the non-employee has been reached or the non-employee’s performance is complete.

The equity instruments are measured at the current fair value, and for stock options, the instruments are measured at fair value using the Black Scholes option model.

The following methodology and assumptions were used to calculate share-based compensation for the three months ended March 31, 2021 and 2020:

The following methodology and assumptions were used to calculate share-based compensation for the six months ended June 30, 2021 and 2020:

Non Plan  

Risk free interest rate

0.93 –

1.73 %  

0.88 –

1.90 %  

Expected volatility

14 unchanged sentences

If the warrant is determined to be a derivative and not qualify for equity treatment, then it is measured at fair value using the Black Scholes option model, and recorded as a liability on the balance sheet.

The warrant is re-measured at its then current fair value at each subsequent reporting date (it is “marked-to-market”).

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

Convertible debt instruments are recorded at fair value, limited to a relative fair value based upon the percentage of its fair value to the total fair value including the fair value of the warrant.

Further, the convertible debt instrument is examined for any intrinsic beneficial conversion feature (“BCF”) of which the conversion price is less than the closing common stock price on date of issuance.

If the relative fair value method is used to value the convertible debt instrument and there is an intrinsic BCF, a further analysis is undertaken of the BCF using an effective conversion price which assumes the conversion price is the relative fair value divided by the number of shares the convertible debt is converted into by its terms.

2 unchanged sentences

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.

BIOLARGO, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Non-Cash Transactions

1 unchanged sentence

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

Revenue Recognition

We account for revenue in accordance with ASC 606, “revenue from Contacts with Customers”.

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.

5 unchanged sentences

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

We have revenue from four subsidiaries, ONM, BLEST, BioLargo Water, and Clyra.

ONM, BioLargo Water, 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.

Products sold a through a contract with the customer and written purchase order, in which the details of the contract are defined including the transaction price and method of shipment.

The only performance obligation is to create and ship the product and each product has separate pricing.

Revenue is recognized at a point in time when the order for its goods are shipped if its agreement with the customer is FOB manufacturer, and when goods are delivered to its customer if its agreement with the customer is FOB destination.

Revenue is recognized with a reduction for sales discounts, as appropriate and negotiated in the customer’s purchase order.

ONM also installs misting systems for which it bills on a time and materials basis.

It identifies its contract with the customer through a written purchase order in which the details of the time to be billed and materials purchased and an estimated completion date.

The performance obligation is the completion of the installation, and at that time revenue is recognized.

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.

Revenue is recognized at a point in time when the goods are shipped if the agreement is FOB manufacturer, and when goods are delivered if FOB destination.

Revenue is recognized with a reduction for sales discounts, as appropriate and negotiated in the customer’s purchase order.

Service contracts are performed through a written contract, which specifies the performance obligations and the rate at which the services will be billed, typically by time and materials.

Each service is separately negotiated and priced.

Revenue is recognized as services are performed and completed.

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.

Revenue is recognized as services are performed and completed, or, for services related to product installations, at the completion of the installation.

A few contracts have called for milestone or fixed cost payments, where we invoice an agreed-to amount per month for the life of the contract.

In these instances, completed work, billed hourly, is recognized as revenue.

7 unchanged sentences

Government Grants

We have been awarded multiple research grants from the Canadian National Research Institute – Industrial Research Assistance Program (NRC-IRAP) and the National Science and Engineering Research Council of Canada (NSERC).

We have been awarded multiple research grants from the Canadian National Research Institute –

Industrial Research Assistance Program (NRC-IRAP) and the National Science and Engineering Research Council of Canada (NSERC).

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 80 grants totaling over $3.7 million.

We received our first grant in 2015 and have been awarded over 80 grants totaling over $ 3.7 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.

1 unchanged sentence

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.

BIOLARGO, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

4 unchanged sentences

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.

BIOLARGO, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of asset and liabilities.

1 unchanged sentence

The effect on deferred tax asset and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

We account for uncertainties in income tax law under a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns as prescribed by generally accepted accounting principles (“GAAP”).

Under GAAP, the tax effects of a position are recognized only if it is “more-likely-than-not” to be sustained by the taxing authority as of the reporting date.

If the tax position is not considered “more-likely-than-not” to be sustained, then no benefits of the position are recognized.

Management believes there are no unrecognized tax benefits or uncertain tax positions as of March 31, 2021, and December 31, 2020.

The Company assessed its earnings history, trends and estimates of future earnings and determined that the deferred tax asset could not be realized as of March 31, 2021.

Under GAAP, the tax effects of a position are recognized only if it is “more-likely-than- not”

to be sustained by the taxing authority as of the reporting date. 

If the tax position is not considered “more-likely-than- not”

to be sustained, then no benefits of the position are recognized. 

Management believes there are no unrecognized tax benefits or uncertain tax positions as of June 30, 2021, and December 31, 2020.

The Company assessed its earnings history, trends and estimates of future earnings and determined that the deferred tax asset could not be realized as of June 30, 2021.

Accordingly, a valuation allowance was recorded against the net deferred tax asset.

1 unchanged sentence

Fair Value of Financial Instruments

Management believes the carrying amounts of the Company’s financial instruments (excluding debt and equity instruments) as of March 31, 2021 and December 31, 2020, approximate their respective fair values because of the short-term nature of these instruments.

Management believes the carrying amounts of the Company’s financial instruments (excluding debt and equity instruments) as of June 30, 2021 and December 31, 2020, approximate their respective fair values because of the short-term nature of these instruments.

Such instruments consist of cash, accounts receivable, prepaid assets, accounts payable, lines of credit, and other assets and liabilities.

Our research and development activities in Canada may entitle our Canadian subsidiary to claim benefits under the “Scientific Research and Experimental Development Program”, a Canadian federal tax incentive program designed to encourage Canadian businesses of all sizes and in all sectors to conduct research and development in Canada.

Benefits under the program include credits to taxable income.

1 unchanged sentence

Those refunds are classified in Other Income on our Consolidated Statement of Operations and Comprehensive Loss.

We adopted ASU 2016-12 using the effective date option.

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, 2021, the right of use assets on our balance sheet related to our operating leases totals $326,000.

BIOLARGO, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In accordance with ASC 842, the Company elects to use hindsight as a practical expedient with respect to determining the lease terms (as we considered our updated expectations of acceptance of the Westminster California facility lease renewal) and in assessing any impairment of right-of-use assets for existing leases.

No impairment is expected at this time. 

As of June 30, 2021, the right of use assets on our balance sheet related to our operating leases total $ 311,000 .

Recent Accounting Pronouncements

In May 2021, the FASB issued Accounting Standards Update No.

2021 - 04, regarding accounting for certain modifications of written call options.

In August 2020, the FASB issued Accounting Standards Update No.

2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”.

2020 - 06, “Debt—Debt with Conversion and Other Options (Subtopic 470 - 20 ) and Derivatives and Hedging—

Contracts in Entity’s Own Equity (Subtopic 815 - 40 ):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”.

For convertible instruments, the FASB decided to reduce the number of accounting models for convertible debt instruments and convertible preferred stock.

1 unchanged sentence

Convertible instruments that continue to be subject to separation models are ( 1 ) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and ( 2 ) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital.

The FASB decided to amend the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions.

The FASB observed that the application of the derivatives scope exception guidance results in accounting for some contracts as derivatives while accounting for economically similar contracts as equity.

2 unchanged sentences

For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years.

Management is currently evaluating the effect on the Company’s financials if and when future convertible securities are issued.

This Update does not affect the Company’s current financial statements.

In January 2020, the FASB issued Accounting Standards Update No 2020-01, “Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815):

Clarifying the Interactions between Topic 321, Topic 323, and Topic 815”.

This Update relates to the Company’s equity method of accounting and the potential interactions between the measurement alternative in Topic 321 and the equity method of accounting in Topic 323 and that diverse views have emerged about the application of the measurement alternative and the equity method of accounting since the adoption of Update 2016-01.

Management is currently evaluating the effect on the Company’s financials if and when future convertible securities are issued.

This Update does not affect the Company’s current financial statements.

BIOLARGO, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In January 2020, the FASB issued Accounting Standards Update No 2020 - 01, “Investments—Equity Securities (Topic 321 ), Investments—Equity Method and Joint Ventures (Topic 323 ), and Derivatives and Hedging (Topic 815 ):

Clarifying the Interactions between Topic 321, Topic 323, and Topic 815”.

The measurement alternative is the ability to measure certain equity securities without a readily determinable fair value at cost, minus impairment, if any.

4 unchanged sentences

Lincoln Park Financing

On March 30, 2020, we entered into a stock purchase agreement (the “Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“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.

On March 30, 

2020, we entered into a stock purchase agreement (the “Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“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 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.

as defined in the agreement.

This agreement replaced the August 2017 agreement with Lincoln Park.

2 unchanged sentences

The Purchase Agreement replaced a similar agreement with Lincoln Park dated August 2017.

During the three months ended March 31, 2021 and 2020, we sold 12,455,619 and 3,198,358 shares to Lincoln Park, and received $2,001,000 and $545,000 in gross and net proceeds.

Subsequent to March 31, 2021, we continue to draw on the Purchase Agreement for working capital from time to time (see Note 13).

During the six months ended June 30, 2021 and 2020, we sold 18,526,309 and 3,198,358 shares, respectively, to Lincoln Park, and received $ 3,015,000 and $ 1,461,000 , respectively, in gross and net proceeds.

Subsequent to June 30, 2021, we continue to draw on the Purchase Agreement for working capital from time to time (see Note 13 ).

2020 Unit Offering

During the six months ended June 30, 2021 and 2020, pursuant to an offering commenced in March 2020, we sold 3,431,547 and 1,571,667 shares, respectively, of our common stock and received $ 505,000 and $ 242,000 , respectively, in gross and net proceeds, from a total of six accredited investors.

In addition to the shares, we issued each investor a six -month and a five -year warrant to purchase additional shares (see Note 6, “

Warrants Issued in 2020 Unit Offering ”).

BIOLARGO, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2020 Unit Offering

During the three months ended March 31, 2021, pursuant to an offering commenced in May 2020, we sold 875,000 shares of our common stock and received $105,000 in gross and net proceeds from three accredited investors.

In addition to the shares, we issued each investor a six-month and a five-year warrant to purchase additional shares (see Note 6, “ Warrants Issued in 2020 Unit Offering ”).

Debt Obligations

The following table summarizes our debt obligations outstanding as of March 31, 2021, and December 31, 2020 (in thousands).

The table does not include debt obligations of our partially owned subsidiary Clyra Medical (see Note 9, “ Debt Obligations of Clyra Medical ”).

March 31, 2021

The following table summarizes our debt obligations outstanding as of June 30, 2021, and December 31, 2020 ( in thousands).

The table does not include debt obligations of our partially owned subsidiary Clyra Medical (see Note 9, “

Debt Obligations of Clyra Medical ”).

June 30, 2021

December 31, 2020

Current portion of debt:

Note payable, matures on demand 60 days’ notice (or March 8, 2023)

Note payable, matures on demand 60 days’

notice (or March 8, 2023)

Line of credit, matures on 30-day demand

9 unchanged sentences

Convertible note payable, matures March 1, 2023

SBA Paycheck Protection Program loans, mature April 2022

SBA EIDL Loan, matures July 2050

Debt discount, net of amortization

SBA Paycheck Protection Program loans

SBA EIDL Loan

Total long-term liabilities

(1) This note was converted at maturity (see Note 13).

For the three months ended March 31, 2021 and 2020, we recorded $93,000 and $757,000, respectively, 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 Form 10-K filed March 30, 2021.

$ 1,609  

For the six months ended June 30, 2021 and 2020, we recorded $ 182,000 and $ 1,504,000 , respectively, of interest expense related to the amortization of discounts on convertible notes payable, and coupon interest from our note payable, 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 during the six months ended June 30, 2021 and 2020.

Each of the debt instruments contained in the above table are disclosed more fully in the financial statements contained in the Company’s Form 10 -K filed March 30, 2021.

Cash payment of debt obligations

On March 1, 2021, we paid in cash the outstanding principal of $600,000, and $7,000 in accrued interest, on the promissory note issued August 9, 2019, and scheduled to mature on August 9, 2021.

On March 1, 2021, we paid in cash the outstanding principal of $50,000, and $1,000 in accrued interest, on the remaining amount due on a line of credit in which was due on demand at any time after September 1, 2019.

On May 17, 2021, we paid $ 178,000 in cash to Vernal Bay Investments, LLC, as payment of one -half the outstanding principal on the convertible note scheduled to mature on August 12, 2021.

In addition, we issued 1,272,321 shares of our common stock to pay the remaining principal and interest due on the note.

On March 1, 2021, we paid in cash the outstanding principal of $ 600,000 on the promissory note issued August 9, 2019, and scheduled to mature on August 9, 2021.

On March 1, 2021, we paid in cash the outstanding principal of $ 50,000 on the remaining amount due on a line of credit in which was due on demand at any time after September 1, 2019.

There is no remaining balance on this line of credit, and we no longer have the ability to draw on the line of credit.

Amendment to Note payable matures on 60 days ’ notice (or March 8, 2023)

On March 1, 2021, we and the holder of a $50,000 note payable modified the note to set a specific maturity date of March 1, 2023, and allow the investor to convert the note to our common stock at a price of $0.16 per share.

In lieu of interest during the extended period of the note, we issued the investor a warrant to purchase 225,000 shares of our common stock at $0.16 per share for a period of five years.

(See Note 6).

Conversion of Debt into shares of common stock

On May 18, 2021, we converted to equity a promissory note, that was scheduled to mature on August 18, 2021, in the principal balance of $ 50,000 into 294,118 shares of our common stock.

On its maturity date of April 20, 2021, we converted to equity a promissory note in the principal balance of $ 100,000 into 400,000 shares of our common stock.

BIOLARGO, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Amendment to Note payable matures on 60 days ’

notice (or March 8, 2023)

On March 1, 2021, we and the holder of a $ 50,000 note payable modified the note to set a specific maturity date of March 1, 2023, and allow the investor to convert the note to our common stock at a price of $ 0.16 per share.

In lieu of interest during the extended period of the note, we issued the investor a stock purchase warrant (see Note 6 ).

Share-Based Compensation

2 unchanged sentences

On March 31, 2021, we issued 137,364 shares of our common stock at $ 0.23 per share in lieu of $ 31,000 of accrued and unpaid salary to our officers.

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.

Payment of Consultant Fees

On June 30, 2021, we issued 357,132 shares of our common stock at $ 0.17 per share in lieu of $ 60,000 of accrued and unpaid obligations to consultants.

On March 31, 2021, we issued 610,123 shares of our common stock at $ 0.23 per share in lieu of $ 81,000 of accrued and unpaid obligations 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.

On June 30, 2020, we issued 1,406,630 shares of our common stock at $ 0.16 per share in lieu of $ 213,000 of accrued and unpaid salary to consultants.

On March 31, 2020, we issued 390,735 shares of our common stock at $ 0.17 per share in lieu of $ 67,000 of accrued and unpaid obligations to consultants.

Payment of Accrued Interest

During the three months ended June 30, 2021, we issued 81,777 shares of our common stock at $ 0.17 per share in lieu of $ 16,000 of accrued and unpaid 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.

Stock Option Expense

During the three months ended March 31, 2021 and 2020, we recorded an aggregate $424,000 and $320,000, in selling general and administrative expense related to the issuance of stock options.

During the six months ended June 30, 2021 and 2020, we recorded an aggregate $ 754,000 and $ 848,000 , in selling general and administrative expense related to the issuance of stock options.

We issued options through our 2018 Equity Incentive Plan, our now expired 2007 Equity Incentive Plan, and outside of these plans.

See Note 9 for information on stock option expense for options issued by subsidiary Clyra Medical.

See Note 9 for information on stock option expense for options issued by subsidiary Clyra.

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.

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.

3 unchanged sentences

The number of shares available to be issued under the 2018 Plan increases automatically each January 1st by the lesser of (a) 2 million shares, or (b) such number of shares determined by our Board.

Activity for our stock options under the 2018 Plan for the three months ended March 31, 2021 and March 31, 2020, is as follows:

Price per share

Balance, December 31, 2020

Balance, March 31, 2021

Vested, March 31, 2021

Balance, December 31, 2019

Balance, March 31, 2020

(1) Aggregate intrinsic value based on closing common stock price of $0.23 at March 31, 2021.

BIOLARGO, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The options granted to purchase 1,217,670 shares during the three months ended March 31, 2021 were issued to an officer, board of directors, employees and consultants:

Activity for our stock options under the 2018 Plan for the six months ended June 30, 2021 and June 30, 2020, is as follows:

Price per share

Balance, December 31, 2020

18,865,525  

$ 0.16 –

$ 0.19  

2,483,691  

0.13 –

Balance, June 30, 2021

21,349,216  

$ 0.12 –

$ 0.19  

( 4,218,833 )

0.12 –

Vested, June 30, 2021

17,130,383  

$ 0.12 –

$ 0.18  

$ 250,000  

Balance, December 31, 2019

9,214,356  

$ 0.16 –

$ 0.25  

8,610,689  

0.17 –

( 200,000 )  

0.18 –

Balance, June 30, 2020

17,625,045  

$ 0.16 –

$ 0.20  

( 1 ) Aggregate intrinsic value based on closing common stock price of $ 0.17 at June 30, 2021.

The options granted to purchase 2,483,691 shares during the six months ended June 30, 2021 were issued to an officer, board of directors, employees and consultants:

(i) we issued options to purchase 300,000 shares of our common stock at an exercise price on the respective grant date of $ 0.17 per share to our CFO as described below;

(ii) we issued options to purchase 296,704 shares of our common stock at an exercise price on the respective grant date of $0.23 per share to members of our board of directors for services performed, in lieu of cash;

(ii) we issued options to purchase 693,762 shares of our common stock at an exercise price on the respective grant date of $ 0.17 and $ 0.23 per share to members of our board of directors for services performed, in lieu of cash;

the fair value of these options totaled $130,000, and is recorded as selling, general and administrative expenses;

(iii) we issued options to purchase 407,713 shares of our common stock to employees as part of an employee retention plan at an exercise price on the respective date of $0.23 per share;

(iii) we issued options to purchase 1,298,411 shares of our common stock to employees as part of an employee retention and expiring options plan at exercises price on the respective date ranging between $ 0.17 and $ 0.23 per share;

the fair value of employee retention plan options totaled $ 234,000 and will vest quarterly over four years as long as they are retained as employees;

1 unchanged sentence

All stock option expense is recorded on our consolidated statement of operations as selling, general and administrative expense.

The options granted under the 2018 Plan to purchase 8,610,689 shares during the six months ended June 30, 2020 were issued to officers, board of directors, employees and consultants:

(i) we issued options to purchase 4,880,945 shares of our common stock at an exercise price of $ 0.14 per share to employees and consultants as a bonus during the pandemic.

These options vest quarterly over one year and the fair value totaled $ 656,000 (ii) we issued options to purchase 457,500 shares of our common stock at an exercise price range of $ 0.14 –

$ 0.21 per share to our CFO , with 177,500 shares having vested during the six months ended June 30, 2020, and the remaining shares to vest 25,000 monthly through January 31, 2021;

( ii) we issued options to purchase 821,434 shares of our common stock at an exercise price on the respective grant date of $ 0.17 and $ 0.16 per share to members of our board of directors for services performed, all options vested at issuance and the fair value of these options totaled $130,000;

(iii) we issued options to purchase 939,332 shares of our common stock to employees as part of an employee retention plan at an exercise price on the respective date of $ 0.17 and $ 0.16 per share;

the fair value of employee retention plan options totaled $ 151,000 and vest quarterly over four years as long as they are retained as employees;

(iv) we issued options to purchase 449,286 shares of our common stock to consultants in lieu of cash for unpaid obligations totaling $65,000;

and (v) we issued options to purchase 1,062,192 shares of common stock at an exercise price ranging between $ 0.14 –

$ 0.17 per share to employees to convert accrued and unpaid obligations and for previously issued options that expire.

All of these options vested at issuance and the fair value totaled $ 145,000 , All stock option expense is recorded on our consolidated statement of operations as selling, general and administrative expense.

Chief Financial Officer Contract Extension

On March 17, 2021, 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”).

As compensation for the Extended Term, Mr.

Dargan was issued an option (“Option”) to purchase 300,000 shares of our common stock.

The Option vests over the period of the Extended Term, with 50,000 shares having vested as of March 31, 2021, and the remaining 250,000 shares to vest monthly through January 31, 2022, so long as the agreement is in full force and effect.

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

As compensation for the Extended Term, Mr. Dargan was issued an option (“Option”) to purchase 300,000 shares of our common stock.

The Option vests over the period of the Extended Term, with 125,000 shares having vested as of June 30, 2021, and the remaining 175,000 shares to vest monthly through January 31, 2022, so long as the agreement is in full force and effect.

The Option is exercisable at $ 0.23 per share, the closing price of our common stock on March 17, 2021, expires ten years from the grant date, and was issued pursuant to the 2018 Equity Incentive Plan.

1 unchanged sentence

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.

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.

2007 Equity Incentive Plan

On September 7, 2007, and as amended April 29, 2011, the BioLargo, Inc.

2007 Equity Incentive Plan (“2007 Plan”) was adopted as a means of providing our directors, key employees and consultants additional incentive to provide services.

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.

BIOLARGO, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Activity for our stock options under the 2007 Plan for the three months ended March 31, 2021 and 2020 is as follows:

Activity for our stock options under the 2007 Plan for the six months ended June 30, 2021 and 2020 is as follows:

price per share

Balance, December 31, 2020

Balance, March 31, 2021

5,689,363  

$ 0.23 - 0.94  

$ 0.44  

( 1,453,855 )

0.39 - 0.51  

Balance, June 30, 2021

4,235,508  

$ 0.23 - 1.65  

$ 0.45  

Balance, December 31, 2019

Balance, March 31, 2020

(1) – Aggregate intrinsic value based on closing common stock price of $0.23 at March 31, 2021.

8,769,451  

$ 0.23 –

$ 0.42  

0.39 –

Balance, June 30, 2020

7,839,451  

$ 0.23 –

$ 0.41  

( 1 ) –

Aggregate intrinsic value based on closing common stock price of $ 0.17 at June 30, 2021.

Non-Plan Options issued

During the three months ended March 31, 2021, we issued an option to purchase 43,956 shares of our common stock at $0.23 per share to a vendor for services.

The fair value of these options total $10,000 and is recorded in our selling, general and administrative expense.

During the three months ended March 31, 2020, we issued options to purchase 292,437 shares of our common stock at exercise prices ranging between $0.17 – $0.21 per share to vendors for fees for service.

The fair value of the options issued totaled $50,000, is recorded in our selling, general and administrative expense.

Activity of our non-plan stock options issued for the three months ended March 31, 2021 and 2020 is as follows:

Activity of our non-plan stock options issued for the six months ended June 30, 2021 and 2020 is as follows:

price per share

Balance, December 31, 2020

Balance, March 31, 2021

Vested, March 31, 2021

20,749,583  

$ 0.17 –

$ 0.41  

43,956  

Balance, June 30, 2021

20,793,539  

$ 0.17 –

$ 0.41  

( 1,996,576 )

0.17 –

Vested, June 30, 2021

18,796,963  

$ 0.17 –

$ 0.41  

$ 28,000  

Balance, December 31, 2019

Balance, March 31, 2020

(1) – Aggregate intrinsic value based on closing common stock price of $0.23 at March 31, 2021.

19,604,107  

$ 0.23 –

$ 0.41  

292,437  

0.17 –

Balance, June 30, 2020

19,896,544  

$ 0.17 –

$ 0.41  

– Aggregate intrinsic value based on closing common stock price of $ 0.17 at June 30, 2021.

BIOLARGO, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We issued warrants to purchase our common stock, at various prices for the three months ended March 31, 2021 and 2020, is as follows:

During the six months ended June 30, 2021, we issued an option to purchase 43,956 shares of our common stock at $ 0.23 per share to a vendor for services.

The fair value of these options total $ 10,000 and is recorded in our selling, general and administrative expense.

During the six months ended June 30, 2020, we issued options to purchase 292,437 shares of our common stock at exercise prices ranging between $ 0.17 –

$ 0.21 per share to vendors for fees for service.

The fair value of the options issued totaled $ 50,000 , is recorded in our selling, general and administrative expense.

We issued warrants to purchase our common stock, at various prices for the six months ended June 30, 2021 and 2020, is as follows:

price per share

Balance, December 31, 2020

Balance, March 31, 2021

32,980,989  

$ 0.16 –

$ 0.29  

7,088,094  

0.14 –

( 1,046,528 )

0.19 –

Balance, June 30, 2021

39,022,555  

$ 0.14 –

$ 0.27  

$ 140,000  

Balance, December 31, 2019

Balance, March 31, 2020

– Aggregate intrinsic value based on closing common stock price of $0.23 at March 31, 2021.

43,231,161  

$ 0.16 –

$ 0.42  

3,934,592  

0.13 - 0.24  

( 14,272,820 )

0.40 - 0.49  

Balance, June 30, 2020

32,892,933  

$ 0.16 –

$ 0.35  

Aggregate intrinsic value based on closing common stock price of $ 0.17 at June 30, 2021

Warrants issued in 2020 Unit Offering

During the three months ended March 31, 2021, pursuant to our 2020 Unit Offering (see Note 3), we issued six-month stock purchase warrants to purchase an aggregate 875,000 shares of our common stock at $0.14 per share, and five-year stock purchase warrants to purchase an aggregate 875,000 shares of our common stock at $0.18 per share.

Amendment to Note payable matures on 60 days ’ notice (or March 8, 2023)

In lieu of interest during the extended period of the note, we issued the investor a warrant to purchase 225,000 shares of our common stock at $0.16 per share for a period of five years.

During the six months ended June 30, 2021, pursuant to our 2020 Unit Offering (see Note 3 ), we issued six -month stock purchase warrants to purchase an aggregate 3,431,547 shares of our common stock at exercise prices between $ 0.14 –

0.21 per share, and five -year stock purchase warrants to purchase an aggregate 3,431,547 shares of our common stock at exercise prices between $ 0.18 –

0.24 per share.

Warrant issued in conjunction with amendment to note payable

On March 1, 2021, we and the holder of a $ 50,000 note payable modified the note (see Note 4 ).

In lieu of interest during the extended period of the note, we issued the investor a warrant to purchase 225,000 shares of our common stock at $ 0.16 per share for a period of five years. 

The fair value of these warrants totaled $ 35,000 and is recorded as a debt discount on our consolidated balance sheets, of which amount will be amortized to interest expense over the two -year term of the debt.

Fair Value – Interest Expense

BIOLARGO, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair Value –

Interest Expense

To determine interest expense related to our outstanding warrants issued in conjunction with debt offerings, the fair value of each award grant is estimated on the date of grant using the Black-Scholes option pricing model and the relative fair values are amortized over the life of the warrant.

2 unchanged sentences

Risk free interest rate

0.71 %  

0.23 %  

Expected volatility

2 unchanged sentences

Expected life in years

.5  –

0.33  –

The risk-free interest rate is based on U.S.

3 unchanged sentences

Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses included the following (in thousands):

Accounts payable and accrued expenses for our operations other than our partially-owned subsidiary Clyra Medical included the following (in thousands):

Accounts payable and accrued expense

2 unchanged sentences

Total accounts payable and accrued expenses

BIOLARGO, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

See Note 9, “ Accounts Payable and Accrued Expenses ”, for the accounts payable and accrued expenses of Clyra Medical.

See Note 9, “

Accounts Payable and Accrued Expenses ”, for the accounts payable and accrued expenses of Clyra Medical.

In-process Research and Development

On September 26, 2018, BioLargo and Clyra Medical entered into a transaction (the “Scion Transaction”) whereby BioLargo would acquire, and then license back to Clyra, the intangible assets of Scion Solutions, LLC (“Scion”), and in particular its in-process research and development of the “SkinDisc,” a method for treating advanced hard-to-treat wounds including diabetic ulcers.

a method for treating advanced hard-to-treat wounds including diabetic ulcers.

In addition to a pending patent application, the assets included the technical know-how and data developed by the Scion team.

Noncontrolling Interest – Clyra Medical

As discussed in Note 2, we consolidate the operations of our partially owned subsidiary Clyra Medical, of which we owned 45% of its outstanding shares as of March 31, 2021.

Noncontrolling Interest –

Clyra Medical

As discussed in Note 2, we consolidate the operations of our partially owned subsidiary Clyra Medical, of which we owned 45 % of its outstanding shares as of June 30, 2021.

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;

1 unchanged sentence

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”;

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:

The remaining Clyra Medical common shares remain subject to the Escrow Agreement’s performance metrics, each vesting one - fifth of the remaining shares of common stock:

(a) notification of FDA premarket clearance of certain orthopedics products, or recognition by Clyra Medical of $ 100,000 gross revenue;

3 unchanged sentences

and (e) recognition by Clyra Medical of $ 2 million in gross revenue.

As of June 30, 2021, a total of 9,300 shares remain in escrow, the difference having been vested in accordance with the performance metrics.

BIOLARGO, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Debt Obligations of Clyra Medical

Note Payable (Scion)

In conjunction with the transaction in which certain intellectual property was purchased from Scion, Clyra issued a promissory note to Scion in the principal amount of $1,250,000 on September 26, 2018 (“Clyra-Scion Note”), accruing interest at an annual rate of 5%.

In conjunction with the transaction in which certain intellectual property was purchased from Scion, Clyra issued a promissory note to Scion in the principal amount of $ 1,250,000 on September 26, 2018 ( “Clyra-Scion Note”), accruing interest at an annual rate of 5 %.

Clyra is obligated to make principal and interest payments periodically, based on a percent ( 25 %) of investment proceeds, and 5 % of revenues.

Payments are due annually each June 26th until paid.

At March 31, 2021 and December 31, 2020, the balance due on the Clyra Medical Note Payable totaled $1,007,000.

Payments are due annually each June 26th  until paid.

At June 30, 2021 and December 31, 2020, the balance due on the Clyra Medical Note Payable totaled $ 1,007,000 .

On June 26, 2021, the maturity date of the note automatically extended by one year, to June 26, 2022.

Inventory Line of Credit

On June 30, 2020, Clyra entered into a one-year Revolving Line of Credit Agreement whereby Vernal Bay Capital Group, LLC committed to provide a $1,000,000 inventory line of credit to Clyra.

On June 30, 2020, Clyra entered into a one -year revolving Line of Credit Agreement whereby Vernal Bay Capital Group, LLC committed to provide a $ 1,000,000 inventory line of credit to Clyra. 

Clyra has received $ 260,000 in draws since the inception of the line of credit.

Clyra is required to use funds from the line of credit to produce inventory.

Additional draws are conditional upon Clyra presenting invoices or purchase orders to the lender equal to the greater of one-half of principal outstanding on the line of credit, and $200,000.

Additional draws are conditional upon Clyra presenting invoices or purchase orders to the lender equal to the greater of one -half of principal outstanding on the line of credit, and $ 200,000 . 

The line of credit note earns interest at 15 %, matures in one year, and requires Clyra pay interest and principal from gross product sales.

1 unchanged sentence

Clyra issued Vernal Bay 323 shares of its common stock as a commitment fee for the line of credit, valued at $ 70,000 .

A security agreement of the same date grants Vernal Bay a security interest in Clyra’s inventory, as that term is defined in the Uniform Commercial Code.

Clyra may prepay the note at any time.

BIOLARGO, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During the three months ended March 31, 2021, we made payments on the line of credit totaling $24,000.

As of March 31, 2021, the balance outstanding on this line of credit totals $200,000.

(See Note 13.)

During the six months ended June 30, 2021, we made payments on the line of credit totaling $ 24,000 .

In April, 2021, Vernal agreed to extend the maturity date by one year, to June 30, 2022.

Clyra agreed to make interest-only payments through August 31, 2021, and then, in addition to interest payments, principal payments equal to the greater of (i) $ 7,500 and (ii) 40 % of product sales beginning September 2021, for six months, and thereafter the greater of (i) $ 7,500 and (ii) 60 % of product sales.

As of June 30, 2021, the balance outstanding on this line of credit totals $ 200,000 .

Prepaid Marketing - Consulting Agreement

On December 30, 2015, 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 shares of Clyra common stock, in lieu of cash, as full prepayment of the consulting fee.

The obligation to provide the consulting services is dependent on Clyra generating an average of $ 250,000 in monthly sales over three consecutive months, which has not been met.

The value of the shares issued to Beach House totaled $ 788,000 and is recorded as a non-current asset (prepaid marketing) on our balance sheet.

Clyra Medical Equity transactions

As of March 31, 2021, Clyra Medical had the following common and preferred shares outstanding:

As of June 30, 2021, Clyra Medical had the following common shares outstanding:

Percent  

BioLargo, Inc.

49,207  

Sanatio Capital

18,704  

Scion Solutions(1)

Does not include an additional 9,300 shares held in escrow subject to performance metrics that have not been met.

21,700  

19,280  

108,891  

The above amounts do not include an additional 9,300 shares held in escrow subject to performance metrics that have not been met.

BIOLARGO, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Sales of Common Shares

During the three months ended March 31, 2021, Clyra raised $50,000 at $310 per Clyra share.

During the six months ended June 30, 2021 and 2020, Clyra raised $ 50,000 and $ 849,000 at $ 310 per Clyra share.

Stock Options

1 unchanged sentence

As of December 31, 2020, the Company had issued options to purchase 11,411 shares of Clyra stock.

During the three months ended March 31, 2021 and 2020, Clyra issued options to purchase 777 and 1,945 shares of its common stock.

During the six months ended June 30, 2021 and 2020, Clyra issued options to purchase 1,248 and 1,945 shares of its common stock, respectively.

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 in the three months ended March 31, 2021 and 2020 totaled $161,000 and $420,000.

The fair value of the options issued in in the six months ended June 30, 2021 and 2020 totaled $ 263,000 and $ 441,000 , respectively.

We used the Black-Scholes model to calculate the initial fair value, assuming a stock price on date of grant of $ 310 per share.

7 unchanged sentences

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 11, “ 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.

(See Note 11, “

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.

2 unchanged sentences

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.

The BLEST Compensation Committee has met regularly since the subsidiary commenced operations.

In 2018, it reviewed the operating performance and determined that the performance metrics were not met and as a result, did not award any Class B units or stock options.

In November 2019, it determined that a portion of the performance metrics were met, and that one -half of the eligible profits interests would be vested ( 2.5 % in the aggregate), and therefore one -half of the option interests ( 10 %) would be vested ( 175,000 options shares in the aggregate).

The vesting of option shares resulted in a fair value totaling $ 44,000 , recorded on our consolidated statement of operations as selling, general and administrative expense.

The fair value of the profit interest was nominal and not booked.

In January 2021, the committee again reviewed the operating performance and determined that a portion of the performance metrics were met.

It was agreed that one -half and one -quarter of the eligible profits interests would be vested ( 3.75 % in the aggregate), and therefore one -half of the option interests ( 15 %) would be vested ( 262,500 options shares in the aggregate).

The vesting of option shares resulted in a fair value totaling $ 65,000 , recorded on our consolidated statement of operations as selling, general and administrative expense for the year ended December 31, 2020.

No additional meetings or evaluations have taken place as of June 30, 2021.

BIOLARGO, INC.

4 unchanged sentences

The four operational business segments are:

ONM Environmental, Inc.

(“ONM”) -- which sells odor and volatile organic control products and services(located in Westminster, California);

Clyra Medical Technologies (“Clyra”) -- which develops and sells medical products based on our technologies;

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

Clyra Medical Technologies (“Clyra”) -- which develops and sells medical products 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);

BioLargo Water (“Water”) -- which historically focused entirely on R&D, and has now shifted its focus to commercializing the AOS technology (located in Edmonton, Alberta Canada).

BioLargo Water (“Water”) -- which historically focused entirely on R&D, and has now shifted its focus to commercializing the AOS technology, developing manufacturing operations for hand sanitizers and supporting the development of iodine based disinfecting products for the company (located in Edmonton, Alberta Canada).

Historically, none of our operating business units have operated at a profit and therefore each required additional cash to meet its monthly expenses.

The additional sources of the cash to fund the shortfall from operations of ONM, BLEST and BioLargo Water have been provided by BioLargo’s sales of debt or equity, research grants, and tax credits.

Clyra Medical has been funded by third party investors who invest directly in Clyra Medical in exchange for equity ownership in that entity.

The segment information for the three months ended March 31, 2021 and 2020, is as follows (in thousands):

March 31, 2021

Intersegment revenue

Research and development

Operating loss

Interest expense

March 31, 2020

Intersegment revenue

Research and development

Operating loss

Interest expense

BIOLARGO, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of March 31, 2021

The segment information for the three and six months ended June 30, 2021 

and 2020, is as follows (in thousands):

Three months ended June 30,

Six months ended June 30,

BioLargo corporate

Clyra Medical

Intersegment revenue

( 120 )  

( 62 )  

( 387 )  

$ 1,035  

Operating loss

BioLargo corporate

$ ( 937 )  

$ ( 1,860 )  

( 107 )  

( 283 )  

Clyra Medical

( 300 )  

( 739 )  

( 190 )  

( 373 )  

( 168 )  

( 305 )  

$ ( 1,702 )  

$ ( 3,560 )  

Interest expense

BioLargo corporate

$ ( 51 )  

$ ( 106 )  

Clyra Medical

( 38 )  

( 76 )  

$ ( 89 )  

$ ( 182 )  

Research and development expense

BioLargo corporate

$ ( 209 )  

$ ( 545 )  

Clyra Medical

( 33 )  

( 123 )  

( 228 )  

( 138 )  

( 257 )  

Intersegment R&D

$ ( 356 )  

$ ( 683 )  

The segment asset information for June 30, 2021 

and December 31, 2020, is as follows (in thousands):

As June 30, 2021

Tangible assets

$ 1,072  

$ 1,016  

$ ( 47 )  

$ 2,944  

Investment in South Korean joint venture

2 unchanged sentences

Tangible assets

$ 1,125  

$ ( 42 )  

$ 2,388  

Investment in South Korean joint venture

Intangible assets

BIOLARGO, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Commitments and Contingencies

2 unchanged sentences

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 months ended March 31, 2021 and 2020, rental expense was $56,000 and $55,000, respectively.

As of March 31, 2021, our weighted average remaining lease term is three years and the total remaining operating lease payments is $479,000.

For the six months ended June 30, 2021 and 2020, rental expense was $ 113,000 and $ 114,000 , respectively.

 As of June 30, 2021, our weighted average remaining lease term is three years and the total remaining operating lease payments is $ 434,000 .

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;

11 unchanged sentences

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

Unit Offering Investment

From April 1, 2021, through May 12, 2021, we received one investment in our 2020 Unit Offering (see Note 3) of $50,000 and issued 285,714 shares of common stock, a six-month warrant to purchase 285,714 shares of common stock, and a five-year warrant to purchase 285,714 shares of common stock.

Sales to Lincoln Park

From April 1, 2021, through May 12, 2021, we sold 2,658,955 shares of our common stock to Lincoln Park and received $454,000 in gross proceeds.

(See Note 3.)

Conversion of Debt due April 2021

On its maturity date of April 20, 2021, we converted to equity a promissory note in the principal balance of $100,000, plus $9,995 of accrued interest, into 448,706 shares of our common stock.

Extension of Clyra Line of Credit

Subsequent to March 31, 2021, Clyra and the holder of its inventory line of credit (See Note 9) extended the maturity date to June 30, 2022.

Management ’ s Discussion and Analysis of Financial Condition and Results of Operations

From July 1, 2021, through August 9, 2021, we sold 884,391shares of our common stock to Lincoln Park (see Note 3 ), and received $ 164,000 in gross and net proceeds.

Unit Offering Investment

From July 1, 2021, through August 12, 2021, we received one investment in our 2020 Unit Offering (see Note 3 ) of $ 70,000 and issued 388,889 shares of common stock, a six -month warrant to purchase 388,889 shares of common stock at $ 0.216 per share, and a five -year warrant to purchase 388,889 shares of common stock at $ 0.27 per share.

Management ’

s Discussion and Analysis of Financial Condition and Results of Operations

This quarterly report on Form 10-Q contains forward-looking statements.

These forward-looking statements involve risks and uncertainties, including statements regarding BioLargo’s capital needs, business plans and expectations.

Such forward-looking statements involve risks and uncertainties regarding BioLargo’s ability to carry out its planned development and production of products.

Forward-looking statements are made, without limitation, in relation to BioLargo’s operating plans, BioLargo’s liquidity and financial condition, availability of funds, operating and exploration costs and the market in which BioLargo competes.

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.

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.

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.

1 unchanged sentence

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, 2021, unless expressly stated otherwise, and we undertake no duty to update this information.

As used in this report, “we” and “Company” refers to (i) BioLargo, Inc., a Delaware corporation;

(ii) its wholly-owned subsidiaries BioLargo Life Technologies, Inc., a California corporation, ONM Environmental, Inc., a California corporation, 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.

Unless otherwise expressly stated herein, all statements, including forward-looking statements, set forth in this Form 10-Q are as of June 30, 2021, unless expressly stated otherwise, and we undertake no duty to update this information.

As used in this report, “we”

and “Company”

refers to (i) BioLargo, Inc., a Delaware corporation;

(ii) its wholly-owned subsidiaries BioLargo Life Technologies, Inc., a California corporation, ONM Environmental, Inc., a California corporation, BioLargo Water Investment Group, Inc., a California corporation (which wholly owns BioLargo Water, Inc., a Canadian corporation), and 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.

2 unchanged sentences

invents, develops, and commercializes innovative platform technologies to solve challenging environmental problems like PFAS contamination, advanced water and wastewater treatment, industrial odor and VOC control, air quality control, and infection control.

With over thirteen years of extensive R&D, BioLargo holds a wide array of issued patents, maintains a robust pipeline of products, and provides full-service environmental engineering.

Our peer-reviewed scientific approach allows us to invent or acquire novel technologies and develop them to maturity through our operating subsidiaries.

With a keen emphasis on collaborations with academic, municipal, and commercial organizations and associations, BioLargo has proven itself with over 80 awarded grants and numerous pilot projects.

We monetize through direct sales, recurring service contracts, licensing agreements, strategic joint venture formation and/or the sale of the IP.

In the last year, we developed and refined new technologies that are now ready for commercial trials (see Development of AEC to Combat PFAS Crisis , and New Technology – Mineral Extraction) , formalized strategic relationships to expand sales and revenues (see South Korean Joint Venture , and Full Service Environmental Engineering ), arranged for demonstration pilot projects for our AOS water treatment system (see Sunworks Farm Pilot and Municipal Wastewater Treatment Pilot – Montreal ), increased revenues, including those of our flagship product, CupriDyne Clean (see Results of Operations), and began the process to register our CupriDyne technology with the EPA to make advanced sanitization and disinfection claims, all the while we and the world struggled through the challenges presented by the COVID-19 pandemic.

Several of our technologies are commercially available and are advancing as disrupters in their respective markets.

With over thirteen years of extensive research and development, BioLargo holds a wide array of issued patents, maintains a robust pipeline of products, and provides full-service environmental engineering.

We invent or acquire novel technologies and develop them to maturity through our operating subsidiaries using cutting-edge scientific and engineering methodologies.

With a keen emphasis on partnerships with academic, government, and commercial organizations and associations, BioLargo has proven itself with over 80 awarded grants and numerous pilot projects.

We monetize through direct sales, recurring service contracts, licensing agreements, strategic joint venture formation and/or the sale of the intellectual property.

In the last year, we developed and refined new technologies that are now ready for commercial trials (see 

Development of AEC to Combat PFAS Crisis , and 

New Technology  – 

Mineral Extraction) , formalized strategic relationships to expand sales and revenues (see 

South Korean Joint Venture , and 

Full Service Environmental Engineering ), arranged for demonstration pilot projects for our AOS water treatment system (see Sunworks Farm Pilot and 

Municipal Wastewater Treatment Pilot  – 

Montreal ), increased revenues, including those of our flagship product, CupriDyne Clean (see Results of Operations), and began the process to register our CupriDyne technology with the EPA to make advanced sanitization and disinfection claims, all the while we and the world struggled through the challenges presented by the COVID-19 pandemic.

Formula for Success:

1 unchanged sentence

The Company has continually advanced its robust portfolio of technologies since the first acquisition of early iterations of the BioLargo technology in the spring of 2007.

Our innovations have primarily been developed through the company’s internal resources, and some through acquisition.

These include patents, patents pending and trade secrets that include solutions for:

SARS-CoV-2 solutions

Air quality controls and systems including odor and VOC control

Water decontamination

Water decontamination, including:

Removal of per- and poly-fluoroalkyl substances (PFAS) from drinking and ground water

Micro-pollutant destruction and removal

Legionella detection and water treatment solutions

Air quality controls and systems including odor and VOC control

Mineral processing

3 unchanged sentences

We have steadily grown our team to 27 team members and numerous other part-time consultants, including highly qualified PhDs, engineers, MDs and medical professionals, construction professionals, field service technicians, innovators, sales marketing specialists, entrepreneurial and executive leadership.

Our mission to make life better centers our company on serving others with integrity, knowledge, technology, and solutions that protect the environment, improve quality of life, and protect lives.

We are unique in our ability to tailor our offerings to serve our customers with proven expertise, proven technology and, if needed, we often have the ability to develop new technical solutions to meet our customer’s needs.

Our mission to 

make life better  drives us to serve others with integrity, knowledge, technology, and solutions that protect the environment, improve quality of life, and protect lives.

All our technologies were developed from the ground-up to be sustainable, practical solutions to significant global challenges.

Development of AEC to Combat PFAS Crisis

Our engineers at BLEST have developed a novel water treatment system, called the AEC (Aqueous Electrostatic Concentrator), that removes per- and poly-fluoroalkyl substances (PFAS) from water at a fraction of the cost of existing solutions.

PFAS chemicals can cause cancer, infertility, asthma, and other health problems in human beings, are present in a vast range of manufactured goods, common household products (e.g., cleaning products, cookware), and electronics, and contaminate drinking water in unsafe levels all over the globe.

Governments and industry are actively seeking less expensive technologies and processes to eliminate PFAS from groundwater and drinking water.

Environmental Protection Agency (“EPA”) has made finding an economical solution a priority, announcing in February 2021 final regulatory determinations on the safe maximum levels of PFAS in drinking water, paving the way for regulating the chemicals through the Safe Drinking Water Act and creating a regulatory environment where municipalities will be required to install technologies that help remove PFAS from their drinking water supplies prior to distribution.

PFAS water contamination is a significant problem worldwide.

In the United States, PFAS chemicals have been estimated to be present in the blood of 98% of the population and have been linked to a plethora of health problems including high cholesterol, liver dysfunction, immune disorders and various cancers.

Over 1,400 communities so far in the U.S.

Thousands of communities so far in the U.S.

have been proven to be affected by PFAS water contamination.

In Orange County, California, where our corporate offices are located, more than 40 drinking water wells have been taken out of service due to PFAS contamination, and county officials estimate that treating the wells using existing technologies will cost more than $200 million in capital costs and more than $400 million in maintenance and operating costs, with a total cost over 30 years of nearly $1 billion.

Operational costs include the cost to dispose of PFAS laden filters.

Our technology significantly reduces these costs, as it concentrates the PFAS chemicals into smaller areas resulting in lower disposal costs.

Governments and industry are actively seeking less expensive technologies and processes to eliminate PFAS from groundwater and drinking water.

In March 2021, a bipartisan group in the House of Representatives introduced a bill to regulate PFAS titled the PFAS Action Act of 2021;

on July 21, 2021, the House passed the bill and sent it to the Senate for consideration.

As passed by the House, the proposed legislation would establish a national drinking water standard for select PFAS chemicals under the Safe Drinking Water Act, designate them as hazardous chemicals (allowing the EPA to clean up contaminated sites and creating stricter rules for handling them under CERCLA), limit industrial discharges under the Clean Water Act, and provide $200 million annually to assist water utilities and treatment facilities to remove PFAS chemicals from their water. The bill would also restrict incineration of PFAS-containing wastes under the Clean Air Act, which could significantly limit the use of the most common treatment strategy:

carbon filtration followed by carbon incineration.

When PFAS-laden carbon is incinerated, not only does it produce vast volumes of greenhouse gases such as carbon dioxide, but new evidence suggests volatile fluorochemicals like carbon tetrafluoride, hexafluoroethane, and hydrogen fluoride are released into the air which may have serious human health impacts on adjacent communities.

Our technology does not require incineration.

Our AEC treatment system has been proven in lab-scale studies to meet or exceed the performance of current incumbent solutions (such as carbon-filtration and reverse osmosis) while consuming as little as $0.30 in electrical costs per 1,000 gallons treated.

And most significantly, the AEC produces substantially less waste than carbon-filtration and reverse osmosis systems, creating far less of a disposal liability.

We believe testing will show that total operating costs of the AEC represent a significant potential cost savings compared to reverse osmosis and carbon sequestration technologies.

In the first quarter of 2021, BioLargo Engineering achieved a critical technical milestone in the development and refinement of the AEC that may have far-reaching effects on the technology’s commercial rollout and long-term profitability as cornerstone technology for BioLargo.

The development involved modifying the electrical configuration of the AEC to extend the useful lifespan of its specialized membranes, which are a crucial component of the technology.

This advancement has improved the operating and maintenance metrics for the technology, potentially reducing the frequency of membrane replacement by a factor of six.

The company has filed at least one patent application to expand the existing intellectual property coverage for the AEC with the new modification.

We are in the final stages of refining the AEC technology prior to commercial sales.

We have received interest in the system from multiple municipal water agencies, the federal government, multiple service providers that want to partner to serve airports and military bases, and large engineering firms that want to discuss potential business alliances.

We have completed third-party testing to validate the efficacy of the system.

We have designed a modular system that can theoretically handle large projects.

We are constructing a pilot unit for testing at an ongoing project at a municipal water treatment plant in Canada (see Wastewater Treatment Pilot – Montreal, below).

We are hopeful to start multiple pre-commercial trials in the U.S.

by the end of summer.

We have also initiated discussions with potential partners to explore business alliances to serve the European markets.

As our technology significantly reduces the amount of material that has to be disposed, it can be disposed of economically in ways other than incineration, and when it is incinerated, it is incinerated in a fraction of the volume of carbon filtration equivalents.

In July 2021, two potential clients (a major municipality in Southern California and a federal government agency) sent us PFAS-contaminated water samples to be treated by our AEC water treatment system.

This is the first step of BioLargo’s multi-phased commercial approach:

(1) off-site treatment of client supplied water, (2) on-site pilot treatment at client location, and (3) full-scale operation.

In this first step, our engineers receive contaminated water from the client, evaluate it for operational optimization, treat the water removing the PFAS chemicals, and then have an independent laboratory analyze the treated water to confirm the PFAS has been removed to client specifications.

In essence, it is a “proof of concept”

phase to give the client confidence before moving to on-site treatment.

Assuming a successful first phase, these agencies have asked for proposals for on-site piloting to confirm treatment success at a larger scale at the client location.

Once piloting is complete, BioLargo would offer customized commercial-scale systems to each client.

There are three main markets for PFAS water treatment in the U.S., each of which we intend to address in the coming years.

The first is municipal water treatment – that is water which needs treatment for PFAS before it can be distributed to the public or water that must be treated from a wastewater treatment plant.

The first is municipal water treatment –

that is water which needs treatment for PFAS before it can be distributed to the public or water that must be treated from a wastewater treatment plant.

Southern California, Michigan and Wisconsin may be hotbeds for this market, as the states have adopted stringent regulations on PFAS limits in drinking water and wastewater, and significant initiatives have begun to implement systems to address the problem.

6 unchanged sentences

While the AEC is designed to efficiently remove and collect PFAS to allow for efficient disposal, our engineers have also conceived of a number of techniques to provide efficient destruction of concentrated PFAS and the membrane collection systems involved in the AEC system.

Estimates for the size of the overall PFAS water treatment market vary wildly, due largely to the fact that it is an emerging market, but some estimates place its size over the next ten years between $3 billion per year and $80 billion per year.

ONM Environmental - Industrial Odor and VOC Solutions

In 2020, we changed the name of our odor control subsidiary Odor-No-More, Inc., to ONM Environmental, Inc., to reflect the expansion of its work from odor control sales to more robust environmental services.

Its flagship product, CupriDyne® Clean, reduces and eliminates tough odors and volatile organic compounds (“VOCs”) in various industrial settings.

In 2020, we changed the name of our odor control subsidiary Odor-No-More, Inc., to ONM Environmental, Inc., to reflect the expansion of its work from odor control product sales to more robust environmental services.

Its flagship product, CupriDyne®

Clean, reduces and eliminates tough odors and volatile organic compounds (“VOCs”) in various industrial settings.

CupriDyne Clean is delivered through misting systems, sprayers, water trucks and similar water delivery systems designed, manufactured and installed by ONM.

2 unchanged sentences

These services include engineering design, construction, installation, ongoing maintenance and on-site support services to assist our clients in the implementation and continued use of the various systems that deliver our liquid products in the field (such as misting systems).

Our customer base for our odor and VOC business was expanding prior to the COVID-19 crisis and we expect it to continue doing so as the United States recovers from the pandemic.

We have been and expect to continue selling product to the largest solid waste handling companies in the country.

Very recently, some of the capital projects that ONM previously had on hold due to logistical limitations imposed by the pandemic have begun to come back online, with decision-makers from these clients requesting that ONM resume work on these projects.

We also have a number of potential partners actively 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.

Last year, ONM Environmental acquired a deodorizing and sanitizing technology, called EcoMist®, that helps raise the customer care bar for solid waste collectors to treat all types of waste receptacles in real time during pick up.

EcoMist® is a device installed directly onto any waste collection vehicle that automatically sprays odor control products and/or sanitizer into refuse bins or dumpsters during the waste collection process.

ONM plans to test market the product directly with its major solid waste handling customers by packaging it with CupriDyne Clean.

A video showing EcoMist® in operation can be viewed here:

ONM Environmental offers a deodorizing and sanitizing technology, called EcoMist®, that is installed directly onto waste collection vehicles and automatically sprays odor control products and/or sanitizer into refuse bins or dumpsters during the waste collection process.

Since acquiring this product in late 2020, ONM has been upgrading the product prepositioning it, and creating marketing collateral readying for launch.

A video showing EcoMist®

in operation can be viewed here: 

https://www.biolargo.com/ecomist-video .

EcoMist® is easy to install and use – it works “out-of-the-box”, allowing customers to install the system themselves, and will thus not require a significant investment in logistics and servicing to support sales.

ONM’s acquisition of EcoMist® is part of its strategy to grow revenues of its air quality control division through chemistry deployment systems that lead to more scalable sales of CupriDyne Clean.

It also helps ensure ONM can provide the largest waste handling companies in the country with a broad range of tools to solve their odor and VOC control challenges in all facets of their business.

ONM’s only obligation under the acquisition agreement is a 10% royalty on EcoMist® system sales.

EcoMist®

is an “out-of-the-box”

product, allowing customers to install the system themselves, and will thus not require a significant investment in logistics and servicing to support sales.

Cannabis Industry

1 unchanged sentence

Testing shows that CupriDyne Clean eliminates the odors emitted by Cannabis grow and production facilities.

Sales to the industry we severely impacted by the pandemic, and we expect and hope that sales will increase this fiscal year.

Sales to the industry were severely impacted by the pandemic, and we expect and hope that sales will increase this fiscal year.

South Korean Joint Venture

On February 12, 2020, we executed a “Joint Venture Framework Agreement” with a leading wastewater treatment solution provider based in South Korea (BKT Co.

Ltd., “BKT”), to create a South Korean entity that would manufacture odor and VOC control products based on our CupriDyne Clean products.

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 own 40% of the joint venture.

1 unchanged sentence

In late 2020, the joint venture (under the name Odin) established corporate offices at the Korea Water Cluster, which is a new world-renowned water innovation campus located in Daegu, South Korea, a center for industrial innovation in Asia.

The move positions Odin well to interface with other innovators in the water treatment sector as well as with industry leaders who may need Odin’s products for air quality control.

Full Service Environmental Engineering

Our subsidiary BioLargo Engineering, Science & Technologies, LLC (“BLEST”) offers full service environmental engineering to third parties and provides engineering support services to our internal teams to accelerate the commercialization of our technologies.

Its website is found at www.BioLargoEngineering.com.

1 unchanged sentence

providing engineering services to third-party clients

supporting internal product development and business units’ services to customers (e.g., the AOS);

advancing their own technical innovations such as the AEC.

The subsidiary is located in Oak Ridge (a suburb of Knoxville, Tennessee), and employs seven scientists and engineers who collectively worked together for almost 30 years and experience in diverse engineering fields.

supporting internal product development and business units’ services to customers (e.g., the AOS);

advancing their own technical innovations such as the AEC PFAS treatment technology 

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.

project management, storm water design & permitting, computer assisted design (CAD), bench chemistry, continuous emission monitoring system operator, data handling and evaluation and decommissioning and decontamination of radiological and chemical contaminated facilities.

The engineering team also has developed an extended network of trusted engineering subcontractors that assist in serving specific client projects as needed, from time to time.

BLEST established a partnership with Garratt-Callahan, a national industrial water treatment company, to develop and then sell custom wastewater treatment equipment to recycle water from commercial facilities.

They plan to launch the commercial sales of the new systems in late 2021 or early 2022.

BLEST has partnered with Garratt-Callahan, a national industrial water treatment company, to develop and then sell custom wastewater treatment equipment to recycle water from commercial facilities.

Garratt-Callahan plans to launch commercial sales of the new systems in late 2021 or early 2022.

BLEST will serve as the manufacturing partner and Garratt Callahan will serve as the selling distributor to leverage their national sales force and over one hundred years of providing services and products to customers.

1 unchanged sentence

While early, the parties are working closely together and have successfully sold other BioLargo products to customers within the Garratt Callahan network of customers.

BLEST has recently hired a regional vice president to lead and open an office for BLEST at our corporate offices in Westminster, California.

New Technology – Mineral Extraction

In the second quarter of 2021, BLEST was notified of several important contract awards of significance that have the potential to increase the company’s operating cash flow and support the subsidiary’s role of commercializing BioLargo’s patented technologies.

The new contract wins are for work with 1) a resin manufacturing facility, 2) a dairy farm, 3) a new project at Picatinny Arsenal, one of the company’s long-time customers, 4) a potato processing plant, and 5) a US Air Force base, adding to the other seven bases already served by the company.

Together, the new contracts are worth more than $1.2 million in revenue, most of which will be earned over the next six months.

New Technology –

Mineral Extraction

At the request of a client, BLEST developed a proprietary and patent-pending process to extract valuable minerals from certain types of industrial waste.

As a result of this invention, the client is planning a substantial long-term project expected to generate over $1B in revenues, while avoiding expensive soil remediation costs.

We are in negotiations to take the lead as project owner/operator.

As a result of this invention, the client is planning a substantial long-term project expected to generate for the client over $1B in revenues, while avoiding expensive soil remediation costs.

We are in negotiations to take the lead as project engineer/operator.

We believe there are multiple similarly situated industrial waste sites across the country and around the world that would benefit from our newly developed process, and, as resources permit, we intend to explore these opportunities.

BioLargo Water and the Advanced Oxidation System – AOS

BioLargo Water is our wholly owned subsidiary located on campus at the University of Alberta, Edmonton, Canada, that developed and is commercializing our Advanced Oxidation System (AOS).

BioLargo Water and the Advanced Oxidation System  – 

BioLargo Water is our wholly owned subsidiary located on campus at the University of Alberta, Edmonton, Canada, that developed and is commercializing our Advanced Oxidation System (AOS). 

The AOS is our patented water treatment device that generates a series of highly oxidative species of iodine and other molecules that, because of its proprietary configuration and inner constituents, allow it to eliminate pathogenic organisms and organic contaminants as water passes through the device.

The key value 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.

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 may enable advanced water treatment in applications where it otherwise would have been prohibitively costly.

This value proposition may enable advanced water treatment in applications where it otherwise would have been prohibitively costly, especially where energy efficiency is a key driver for buying decisions.

Secondly, the AOS has been proven effective against certain soluble organic molecules, pharmaceuticals and a host of other micropollutants which are difficult to treat with other conventional tertiary water treatment technologies like UV.

This characteristic of the AOS may offer a significant incentive for prospective customers to choose this technology over established incumbents because of the need in certain contexts to address these hard-to-treat contaminants, in addition to traditional targets of tertiary treatment like microorganisms.

BioLargo’s AOS water treatment technology has completed several pre-commercial demonstration pilots, including one at a poultry farm in Alberta, one at a microbrewery in Southern California, and another in Southern California where stormwater was treated by the AOS.

It has an ongoing pilot near Montreal to treat municipal wastewater.

1 unchanged sentence

The company plans to secure additional agreements for commercial trials with suitable early-adopter industrial and agricultural wastewater treatment customers in 2021 as part of its plan to directly market the technology for its first revenue-generating projects.

To help achieve this goal, in the last quarter BioLargo participated in an invite-only Isle Utilities Industrial Technology Approval Group (iTAG) event to develop leads among potential multinational wastewater treatment customers.

At Isle Utilities’ iTAG (Industrial Technology Approval Group) events, which are held three times per year, water specialists, sustainability/innovation managers and other experts from global industries vote on promising water technologies they would like to learn about.

Some iTAG member companies include Coca-Cola, Shell, and Proctor & Gamble.

Capabilities and characteristics of the BioLargo AOS have been published in peer-reviewed academic papers.

In early 2021, the laboratory of Dr.

Greg Goss, one of the company’s academic partners, published a paper about the technology’s ability to effectively remove micropollutants from wastewater and abrogate the negative biological effects of those micropollutants on aquatic life.

The paper concluded that he AOS is “a promising and environmentally friendly technology for wastewater treatment, remediation, and management”.

In June of 2021, the laboratory of Dr.

Kimura-Hara published a paper about the safety of water treated by the AOS, specifically with regards to the low levels of disinfection by-products (DBPs) generated by the technology.

The paper concluded that the levels of DBPs generated by the AOS were comparable to those found in ordinary tap water.

The company is actively working to publish additional peer-reviewed scientific papers, as these are crucial tools in marketing emerging water treatment technologies and aid decision-makers at customer and partner organizations in recognizing the technical and scientific merits of the technology relative to incumbents in the field.

Sunworks Farm Pilot

Our efforts to establish our first commercial pilot for the AOS system, at a poultry and livestock farm in Alberta, Canada, is progressing.

We plan to have installed a fully functional treatment train featuring our AOS water system at the client’s farm in the third quarter of 2021, although ongoing Canadian pandemic lockdowns may delay the project.

When complete, the system will be the first of its kind to allow for the complete reuse of this industrial wastewater, allowing the client to significantly save on water costs and expand production.

The project budget of approximately $600,000 will be funded in part by government grants and in part by the client.

We expect the project to be successful, and to set a precedent for the AOS and BioLargo’s total water treatment solutions for future customers seeking water reuse, or even “zero liquid discharge” systems, and we believe will lead to follow-up projects with customers who follow Sunworks’ example.

We are continuing our efforts to establish our first commercial pilot for the AOS system at a poultry and livestock farm in Alberta, Canada.

Our plans to have installed a fully functional treatment train featuring our AOS water system at the client’s farm in the third quarter of 2021 have been delayed by the ongoing Canadian pandemic lockdowns and negotiations to finalize the project scope and confirm financing from the government agencies.

When complete, the system will be the first of its kind to allow for the complete reuse of this industrial wastewater, and, provided we obtain the appropriate government regulatory permissions, will allow the client to significantly save on water costs and expand production.

We expect the project to set a precedent for the AOS and BioLargo’s total water treatment solutions for future customers seeking water reuse, or even “zero liquid discharge”

systems, and we believe will lead to follow-up projects with customers who follow Sunworks’

Municipal Wastewater Treatment Pilot - Montreal

BioLargo Water has commenced a second commercial-scale AOS demonstration pilot, which was installed at a municipal wastewater treatment facility near Montreal, Quebec, to be run in partnership with acclaimed water experts at the Centre des Technologies de L’Eau (CTE).

BioLargo Water has commenced a second commercial-scale AOS demonstration pilot, which was installed at a municipal wastewater treatment facility near Montreal, Quebec, that is being run in partnership with acclaimed water experts at the Centre des Technologies de L’Eau (CTE).

The purpose of the project is to assess the AOS (and eventually, an AEC unit to be added on to the treatment train) as effective, cost-efficient, and complementary solutions for disinfecting and eliminating a broad range of recalcitrant contaminants from municipal wastewater in an operating wastewater treatment plant.

Our engineers have been working onsite to refine the treatment operations and have begun testing treated water.

It is our belief that once these pre-commercial pilots have concluded with the AOS, our ability to entice major water industry players to partner with BioLargo Water to accelerate market adoption of the AOS will be increased dramatically.

1 unchanged sentence

Clyra Medical Technologies, Inc.

is our partially owned subsidiary creating medical products based on our technology.

When the COVID-19 crisis began, we immediately responded by supporting the team at Clyra Medical to develop a product that could help frontline workers battle the pandemic.

In response, they developed Clyraguard Personal Protection Spray.

Testing and peer-reviewed published data confirmed that Clyraguard inactivates the SARS CoV-2 coronavirus.

The product was registered with the FDA as a Class I general purpose disinfectant, and initially sales were brisk.

After consultation with legal and regulatory advisors, we decided that the product’s claims required an EPA registration, and sales were stopped.

We are actively working on this now (see CupriDyne Plus , below).

Clyra is preparing to launch a prescription-only product to be used by orthopedic surgeons to reduce infections in knee and hip replacement surgeries.

is our partially owned subsidiary creating medical products based on our technology. 

Clyra is launching a prescription-only product to be used by orthopedic surgeons to reduce infections in knee and hip replacement surgeries.

Its other product designs are on hold until such time as it is able to secure the capital and resources to complete any final development and support additional inventory, technical support and sales for these products.

CupriDyne Plus

At the outset of the Covid-19 pandemic, we set out to revisit and modify the CupriDyne technology with the goal of creating a powerful yet comparatively safer, non-toxic, and environmentally friendly disinfectant and/or surface sanitizer.

The result of this redevelopment process, which involved over 500 hours by our engineers and scientists, was “CupriDyne Plus”, a product that delivers a potent concentration of the active ingredient iodine (I2) as compared to traditional CupriDyne based formulations, meaning it can achieve much faster and more complete results.

We were successful in achieving these technical objectives.

EPA Registration of CupriDyne Plus

4 unchanged sentences

We have met with and presented data to officials at the EPA for the purpose of refining our product and determining additional data requirements, and have retained a firm specializing in EPA registration work to help us through the process.

Our efforts with the EPA have been slower than expected as government agencies catch up on pandemic related work backlogs.

While we are not able to predict the results of any EPA application we submit, or the time it will take to complete the process, we believe the market opportunities are large, with the U.S.

3 unchanged sentences

We leverage our considerable scientific, engineering, and entrepreneurial talent to monetize our technologies and ensure high-quality customer service and increased revenue potential.

We seek to unlock the value of our portfolio of disruptive technologies to advance our mission to “make life better” and continue creating shareholder value.

As we plan to retire our last convertible debt this coming summer and continue to achieve new technical and business accomplishments, we are experiencing a swell in customer awareness and market acceptance of our special skills to serve customers.

We seek to unlock the value of our portfolio of disruptive technologies to advance our mission to “make life better”

and continue creating shareholder value.

With the retirement of the bulk of our convertible debt over the past year, and as we continue to achieve new technical and business accomplishments, we are experiencing a swell in customer awareness and market acceptance of our special skills to serve customers.

Our revenue and commercial opportunities are extensive, important and expanding.

11 unchanged sentences

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

Of these business segments, three generate revenue:

ONM Environmental, BLEST, and Clyra Medical.

Our revenue increased for the three months ended March 31, 2021 by 30% as compared to the prior year’s period.

Due to an almost 90% decrease in interest expense as a result of payment and conversion to equity of debt instruments in the past twelve months, our net loss for the three months ended March 31, 2021, decreased by 28% as compared to the prior year’s period.

Our revenue increased for the three and six months ended June 30, 2021 by 11% and 20% as compared to the prior year periods.

Due to an 88% decrease in interest expense as a result of payment and conversion to equity of debt instruments in the past twelve months, our net loss for the three and six months ended June 30, 2021, decreased by 34% and 31% as compared to the prior year periods.

ONM Environmental

During the three months ended March 31, 2021, our wholly owned subsidiary ONM Environmental generated revenues through sales of its flagship product CupriDyne Clean, and by providing design, installation, and maintenance services on the systems that deliver CupriDyne Clean at its clients’ facilities.

Of its gross sales in the three months ended March 31, 2021, approximately 90% were to the waste handling industry.

Our wholly owned subsidiary ONM Environmental generated revenues through sales of its flagship product CupriDyne Clean, and by providing design, installation, and maintenance services on the systems that deliver CupriDyne Clean at its clients’

Revenue (ONM Environmental)

ONM Environmental’s revenues for the three months ended March 31, 2021, increased $24,000 or 8% from the same period in 2020, and decreased $297,000 or 48% from the prior three months ended December 31, 2020.

Substantially all of its revenue is from sales of CupriDyne Clean products and related system installations, and the remaining from sales of our absorption products to the U.S.

The small increase in revenue in the first quarter of 2021 as compared with the first quarter of 2020 is due to a decrease last year related to the pandemic.

The decrease in revenue in the first quarter of 2021 as compared with the fourth quarter of 2020 is due seasonal increases and decreases related to the year-end, we completed multiple capital projects as our customers closed out their year of operations and budgets.

This is a pattern that the company has experienced in prior years, and historically which has rebounded as the season shifts.

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.

ONM Environmental’s revenue increased for the three and six months ended June 30, 2021 by 6% and 7% as compared to the prior year periods. 

Substantially all of its revenue is from sales of CupriDyne Clean products and related system installations.

The COVID-19 pandemic continues to impact sales, as it remains more difficult to meet face-to-face with potential clients, and, as the pandemic has disrupted operations of businesses in general, landfill and refuse transfer station operators are less concerned about odor emissions than they were pre-pandemic.

We do not know if these two trends will continue, and whether our sales into the waste management industry will reclaim their upward trend.

During 2021, ONM Environmental has invested considerable time and resources working with a number of distributors and resellers in preparation of the launch of consumer products. 

While these have not yet generated meaningful revenues, our third-party partners are working diligently to professionally launch consumer products over the next few months.

ONM has and continues to earn a reputation for quality and service for its construction, misting system design, installation and service capabilities resulting in an expanding opportunity to work by and through existing engineering services companies throughout the waste handling and public works industries.

Cost of Goods Sold (ONM Environmental)

ONM Environmental’s cost of goods sold includes costs of raw materials, contract manufacturing, and portions of salaries and expenses related to the manufacturing of our products.

As a percentage of revenue, ONM Environmental’s costs of goods was 41% in the three months ended March 31, 2021, versus 45% in the same period in 2020.

The increase in cost of goods was due to increased labor charges from prevailing-wage requirements for public works jobs in the recent quarter.

Selling, General and Administrative Expense (ONM Environmental)

ONM Environmental’s selling, general and administrative expenses remained consistent at approximately at $320,000 in the three months ended March 31, 2021 and 2020.

These expenses have remained consistent as we work to increase revenues with our current level of sales and administrative staff.

We do not expect these expenses to increase further unless and until our revenues increase.

ONM Environmental’s cost of goods sold includes costs of raw materials, contract manufacturing, and portions of salaries and expenses related to the manufacturing of our products.

As a percentage of revenue, ONM Environmental’s costs of goods was 47% and 51% in the three and six months ended June 30, 2021, versus 38% and 40% in the same periods in 2020.

The increase in cost of goods was due to new government-sector clients and jobs on which we are required to pay higher (so-called “prevailing”) wages to our employees resulting in increased labor charges.

Net Loss (ONM Environmental)

For the three months ended March 31, 2021, ONM Environmental generated $320,000 in revenue, a gross margin of $144,000, and had total costs and expenses of $320,000, resulting in a net loss of $176,000.

For the three and six months ended June 30, 2021, ONM Environmental generated $318,000 and $638,000 in revenue, a gross margin of $167,000 and $311,000, and had total costs and expenses of $275,000 and $596,000, resulting in a net loss of $108,000 and $285,000.

For the three and six months ended June 30, 2020, ONM Environmental generated $299,000 and $596,000 in revenue, a gross margin of $186,000 and $354,000, and had total costs and expenses of $321,000 and $641,000, resulting in a net loss of $135,000 and $279,000.

BLEST (engineering division)

Revenue (BLEST)

Our engineering segment (BLEST) generated $127,000 of revenues from third party clients in the three months ended March 31, 2021, versus $156,000 in revenue in comparable period in 2020.

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, development of the AEC to combat the PFAS crisis (see “ Development of AEC to Combat PFAS Crisis ” above), and other new innovations.

Its revenues decreased due to its focus on these internal projects.

Our engineering segment (BLEST) generated $146,000 and $274,000 of revenues from third party clients in the three and six months ended June 30, 2021, versus $119,000 and $260,000 in revenue in comparable periods in 2020. 

above), and other new innovations which are largely attributable to research and development expense.

The increase in third party revenues is due the addition of new contracts.

BLEST has recently secured $1,200,000 in new contracts for services.

To service these contracts, it will be required to hire more staff to meet the expanding demands.

We do not believe the segment will begin generating a profit until it discontinues performing research and development work on behalf of BioLargo or BioLargo's operating units, or until it begins commercial sales of its innovations like the AEC or other water treatment products. 

Cost of Goods (Services) Sold (BLEST)

BLEST’s cost of services includes employee labor as well as subcontracted labor costs.

In the three months ended March 31, 2021, its cost of services were 82% of its revenues, versus 83% in the three months ended March 31, 2020.

We expect the cost of services to remain closer to 80% in the reminder of the year ending December 31, 2021, based on our current client activity.

Selling, General and Administrative Expense (BLEST)

BLEST’S SG&A expenses include expense related to its operations, although because it primarily delivers services to its clients, most of its labor costs are included in its cost of services (for third party clients), and research and development for its work on BioLargo technologies.

BLEST selling, general and administrative expenses during the three months ended March 31, 2021 totaled $100,000 compared to $113,000 for the three months ended March 31, 2020.

BLEST’s cost of services includes employee labor as well as subcontracted labor costs.

In the three and six months ended June 30, 2021, its cost of services were 71% and 76% of its revenues, versus 77% and 80% cost of services in comparable periods in 2020.

These fluctuations are a result of increases in efficiencies related to flat-fee monthly contracts.

Net Loss (BLEST)

BLEST generated $127,000 in revenue to outside clients, with a gross margin of $23,000, and had total costs and expenses of $206,000, resulting in a net loss of $183,000.

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 BioLargo or its subsidiaries.

Our wholly owned Canadian subsidiary has been awarded more than 80 research grants over the years from various Canadian public and private agencies, including the Canadian National Research Institute – Industrial Research Assistance Program (NRC-IRAP), the National Science and Engineering Research Council of Canada (NSERC), and the Metropolitan Water District of Southern California’s Innovative Conservation Program “ICP”.

For the three and six months ended June 30, 2021, BLEST generated $146,000 and $274,000 in revenue from third party clients, with a gross margin of $42,000 and $65,000, and had total costs and expenses of $234,000 and $438,000, resulting in a net loss of $192,000 and $373,000.

For the three and six months ended June 30, 2020, BLEST generated $120,000 and $280,000 in revenue, a gross margin of $27,000 and $56,000, and had total costs and expenses of $193,000 and $387,000, resulting in a net loss of $166,000 and $331,000.

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.

1 unchanged sentence

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

Selling, General and Administrative Expense – consolidated

Our SG&A expenses include both cash expenses (for example, salaries to employees) and non-cash expenses (for example, stock option compensation expense or non-cash charges to interest).

Our SG&A expenses increased by 14% ($215,000) in the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

Our non-cash expenses totaled $730,000, through the issuance of stock, stock options, amortization of debt discounts and loss on extinguishment of debt in the three months ended March 31, 2021, compared to $1,590,000 in the three months ended March 31, 2020.

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.

Selling, General and Administrative Expense –

Our SG&A expenses include both cash expenses and non-cash expenses (including non-cash stock option compensation expenses).

Our SG&A expenses decreased by 17% ($325,000) and decreased by 3% ($107,000) in the three and six months ended June 30, 2021, compared to the same periods in 2020.

Our non-cash expenses totaled $1,314,000 in the six months ended June 30, 2021, compared to $3,090,000 in the six months ended June 30, 2020.

Our employees, vendors and consultants chose to receive a greater number of stock and stock options in lieu of cash owed, a pandemic bonus was issued in stock options and as part of an employee retention program in 2020.

The largest components of our SG&A expenses included (in thousands):

March 31, 2021

March 31, 2020

Three months ended:

Six months ended:

June 30, 2021

June 30, 2020

June 30, 2021

June 30, 2020

Salaries and payroll related

1 unchanged sentence

Office expense

Board of directors expense

Sales and marketing

Investor relations

The increase in salaries and payroll expenses is primarily related to the implementation of a stock option bonus compensation program for employees and other related stock option compensation expenses, and also the hiring of additional personnel to support increasing operations.

Consulting expense increased as we have engaged consultants to identify business opportunities and to help with the retail sales of the Clyraguard product.

Board of director expense

The increase in salaries and payroll expenses in the six months ended June 30, 2021 versus 2020 is primarily related to the implementation of a stock option bonus compensation program for employees and other related stock option compensation expenses, and also the hiring of additional personnel to support increasing operations.

The decline in the three months ended June 30, 2021 versus 2020 is consistent with reduced stock option grants to employees.

Consulting expense decreased as we have reduced the use of consultants to identify business opportunities.

The reduction in professional fees is largely due to the reduced use of outside legal counsel and other service providers.

Research and Development

In the three months ended March 31, 2021, we spent $327,000 in the research and development of our technologies and products.

This was a decrease of 2% ($7,000) compared to the three months ended March 31, 2020.

In the three months and six months ended June 30, 2021, we spent $356,000 and $683,000 in the research and development of our technologies and products.

This was consistent with the comparable periods in 2020.

Interest expense

Our interest expense for the three months ended March 31, 2021, was $93,000, a decrease of $664,000 compared with the three months ended March 31, 2020, of which $26,000 was paid in cash, and $43,000 is related to the amortization of discount on convertible notes, and the remaining to other non-cash expense.

Our interest expense related to the issuance of and modification of convertible promissory notes.

Since March 31, 2020, we converted or paid almost $4 million in debt.

As such, we expect our interest expense to be significantly lower in each quarterly period of the year ending December 31, 2021, as compared with the same periods in 2020.

Our interest expense for the three and six months ended June 30, 2021, was $89,000 and $182,000, a decrease of 88% compared with the same periods of 2020.

Our interest expense includes interest from outstanding debt and it is related to the issuance of and modification of convertible promissory notes.

Since March 31, 2020, we converted or paid almost $5,000,000 of debt.

As such, we continue to expect our interest expense to be significantly lower in each quarterly period of the year ending December 31, 2021, as compared with the same periods in 2020.

Loss on extinguishment of debt

2 unchanged sentences

The fair value of those options exceeded the debt that was converted by $214,000.

Net loss for the three months ended March 31, 2021, was $1,878,000, a loss of $0.01 per share, compared to a net loss for the three months ended March 31, 2020, of $2,616,000, a loss of $0.01 per share.

The 28% decrease in net loss is due primarily to a reduction in interest expense.

As noted in above (see “ Interest Expense ”), the reduction of interest expense is directly related to our reduction of the use of debt instruments to finance our working capital requirements.

Net loss for the three and six months ended June 30, 2021, was $1,790,000 and $3,668,000, a loss of $0.01 and $0.02 per share, compared to a net loss for the three and six months ended June 30, 2020, of $2,701,000 and $5,316,000, a loss of $0.01 and $0.03 per share.

The 34% and 31% decrease in net loss is due primarily to a reduction in interest expense.

As noted in above (see “

Interest Expense ”), the reduction of interest expense is directly related to our reduction of the use of debt instruments to finance our working capital requirements.

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

March 31, 2021

March 31, 2020

ONM Environmental

Three months ended

Six months ended

June 30, 2021

June 30, 2020

June 30, 2021

June 30, 2020

BioLargo corporate

Clyra Medical

BioLargo Water

Consolidated net loss

Liquidity and Capital Resources

We have been, and anticipate that we will continue to be, limited in terms of our capital resources.

During the three months ended March 31, 2021, we generated revenues of $571,000 through our subsidiaries.

Our subsidiaries did not individually or in the aggregate generate profits sufficient to fund their operations, or for our corporate operations or other business segments.

Thus, to fund our working capital requirements, we have continued to sell securities to raise cash.

As of March 31, 2021, our cash and cash equivalents totaled $1,341,000, and our total liabilities included $506,000 in debt that is convertible at the option of the debtholders, $100,000 of debt that we converted to equity at the April 2021 maturity date, $100,000 notes due on demand, $200,000 owed by our partially owned subsidiary Clyra due in June 2021, and $1,007,000 owed by Clyra with a maturity date that automatically extends each June.

During the three months ended March 31, 2021, we received $2,001,000 in proceeds from stock sales to Lincoln Park and $105,000 from investments in our 2020 Unit Offering (see Part II, Item 2 and Item 5), and made repayments of debt totaling $674,000.

We have two promissory notes due in August 2021, each of which may be converted by the holder into equity at $0.14 per share.

If the holders do not voluntarily convert the notes to equity, we intend to pay the notes with cash raised through sales of stock to Lincoln Park, although there is no guarantee that we will be able to do so.

The proceeds we receive from stock sales to Lincoln Park is a function of stock price and volume – a lower stock price and less trading volume results in less money we can receive from Lincoln Park.

For the six months ended June 30, 2021, we had a net loss of $3,668,000, used $2,054,000 cash in operations, and at June 30, 2021, we had a working capital deficit of $380,000, and current assets of $2,052,000.

(See Note 3.) We have been, and anticipate that we will continue to be, limited in terms of our capital resources.

During the six months ended June 30, 2021, we generated revenues of $1,035,000 through our operational subsidiaries.

(See Note 11.) Our subsidiaries did not individually or in the aggregate generate profits sufficient to fund their operations, or for our corporate operations or other business segments.

Thus, we continued to sell securities to raise cash (see Note 3), and received additional grant aid through our Canadian subsidiary.

As of June 30, 2021, our cash and cash equivalents totaled $1,357,000.

During the six months ended June 30, 2021 we made cash payments to retire debt obligations totaling $852,000 (see Note 4 and Note 9 (“

Inventory Line of Credit ”)).

Our total liabilities included $200,000 due on a line of credit by our partially owned subsidiary Clyra Medical Technologies, Inc.

(“Clyra”) due in June 2023, and $1,007,000 owed by Clyra related to a 2018 acquisition with a maturity date that automatically extends each June (see Note 9, “

Note Payable (Scion) ”).

We have $314,000 of loans issued as part of the Small Business Administration’s (“SBA”) Paycheck Protection Program.

We have applied for forgiveness of the entire balance owed on these loans and are awaiting decisions.

We have a $150,000 loan accruing interest at 3.75% annually from the SBA’s Economic Injury Disaster Loan program that is payable over 30 years beginning August 2021.

During the six months ended June 30, 2021, we received $3,015,000 in proceeds from stock sales to Lincoln Park and $505,000 from stock sales from our 2020 Unit Offering (see Note 3).

The cash we receive from stock sales to Lincoln Park is a function of stock price and volume –

a lower stock price and less trading volume results in less money we can receive from Lincoln Park.

Our agreement with Lincoln Park precludes us from selling shares to Lincoln Park on a daily basis if our stock price falls below $0.10 per share.

If we are unable to make daily sales, it is not likely we will be able to sell enough shares to Lincoln Park to pay the debt due in August 2021.

In such event, we intend to negotiate for a delay in repayment with the holders of the notes.

If we are unable to rely on our current arrangement with Lincoln Park to fund our working capital requirements, we will have to rely on other forms of financing, and there is no assurance that we will be able to do so, or if we do so, it will be on favorable terms.

To reduce our operational cash burdens, we regularly issue officers and vendors stock or options in lieu of cash, and anticipate that we will continue to be able to do so in the future.

In the three months ended March 31, 2021, they accepted shares in lieu of $31,000 of accrued and unpaid salary to our officers.

Each has indicated a willingness to do so in the future.

We operate our business in five distinct business segments.

2 unchanged sentences

Clyra Medical obtains cash from revenues, and third-party investments of sales of its common stock.

BioLargo Water generates cash through government research grants and tax credits as well Our corporate operations currently generate cash through private offerings of stock, debt instruments, and warrants and then provides supplemental capital to support to its various subsidiaries as they advance their technologies, products and commercial efforts.

BioLargo Water generates cash through government research grants and tax credits;

our corporate operations currently generate cash through private offerings of stock, debt instruments, and warrants, and then provides supplemental capital to support to our various business segments as they advance their technologies, products and commercial efforts.

Critical Accounting Policies

6 unchanged sentences

Actual results that differ from our estimates could have a significant adverse effect on our operating results and financial position.

Note 2, “Summary of Significant Accounting Policies” in Part I, Item 1 of this Form 10-Q and in the Notes to Consolidated Financial Statements in Part II, Item 8 of the 2020 Form 10-K, and “Critical Accounting Policies and Estimates” in Part II, Item 7 of the 2020 Form 10-K, describe the significant accounting policies and methods used in the preparation of the Company’s consolidated financial statements.

There have been no material changes to the Company’s critical accounting policies and estimates since the 2020 Form 10-K.

Note 2, “Summary of Significant Accounting Policies”

in Part I, Item 1 of this Form 10-Q and in the Notes to Consolidated Financial Statements in Part II, Item 8 of the 2020 Form 10-K, and “Critical Accounting Policies and Estimates”

in Part II, Item 7 of the 2020 Form 10-K, describe the significant accounting policies and methods used in the preparation of the Company’s consolidated financial statements.

There have been no material changes to the Company’s critical accounting policies and estimates since the 2020 Form 10-K.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements