What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2022-03-31 compared with 2021-03-30 · 788 added, 645 removed, 721 unchanged (67% of the section changed)

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Evaluation of Disclosure Controls and Procedures

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

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

Our procedures have been designed to ensure that the information relating to our company, including our consolidated subsidiaries, required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow for timely decisions regarding required disclosure.

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

Management ’ s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f).

Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and directors;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

Under the supervision and with the participation of our management, including our chief executive officer and the chief financial officer, we have established internal control procedures in accordance with the guidelines established in the 2013 Framework —Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

Management evaluated the effectiveness of our internal controls, and concluded that due to our limited financial and personal resources, and the fact that we operate our business in three distinct locations in the U.S.

Management ’

s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f).

Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and directors;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

Management evaluated the effectiveness of our internal controls, and concluded that due to our limited financial and personnel resources, and the fact that we operate our business in three distinct locations in the U.S.

and Canada, we continue to have a material weakness in our internal controls with respect to the closing our financial statements.

Until the company has the financial resources to implement more robust automated systems, or to hire additional dedicated accounting personal, we expect this material weakness to continue.

In reaching this conclusion, management considered that despite this weakness, and others identified in past years, the company has not identified material misstatements in prior financial statements, and believes that the material weakness identified is not likely to lead to a material misstatement in the financial statements contained within this report.

Recognizing the dynamic nature and growth of the Company’s business, including the addition of an engineering division in late 2017, growth of the core operations, and the increase in the number of employees, management has recognized the strain on the overall internal control environment.

As a result, management has concluded that its internal controls over financial reporting are not effective.

Until the Company has the financial resources to implement more robust automated systems, or to hire additional dedicated accounting personnel, we expect this material weakness to continue.

In reaching this conclusion, management considered that despite this weakness, and others identified in past years, the company has not identified material misstatements in prior financial statements, and believes that the material weakness identified herein is not likely to lead to a material misstatement in the financial statements contained within this report.

Management has concluded that its internal controls over financial reporting are not effective.

Management identified a material weakness with respect to deficiencies in its financial closing and reporting procedures.

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While management has recognized the material weakness, nothing additionally has changed in internal controls over financial reporting in the fourth quarter or the fiscal year ended December 31, 2021.

This Annual Report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting.

Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management’s report in this Annual Report.

This Annual Report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting.

Our management, including our chief executive officer and chief financial officer, does not expect that our disclosure controls or our internal control over financial reporting, or any system we design or implement in the future, will prevent or detect all errors and all fraud.

A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met.

The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the fourth quarter of 2021, which were identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

OTHER INFORMATION

Certain information required by Part III is incorporated by reference from our Proxy Statement to be filed with the SEC in connection with the solicitation of proxies for our 2021 Annual Meeting of Stockholders, currently scheduled to be held on June 15, 2021 (the “Proxy Statement”).

Certain information required by Part III is incorporated by reference from our Proxy Statement to be filed with the SEC in connection with the solicitation of proxies for our 2022 Annual Meeting of Stockholders, currently scheduled to be held on June 2, 2022 (the “Proxy Statement”).

DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

The information required by this section is incorporated by reference from the section entitled “Proposal One—Election of Directors” in the Proxy Statement.

Item 405 of Regulation S-K calls for disclosure of any known late filing or failure by an insider to file a report required by Section 16 of the Exchange Act.

This disclosure is incorporated by reference to the section entitled “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement.

The information required by this Item with respect to our executive officers is contained in Item 1 of Part I of this Annual Report under the heading “Business—Executive Officers”.

The information required by this section is incorporated by reference from the section entitled “Proposal One—Election of Directors”

in the Proxy Statement.

Item 405 of Regulation S-K calls for disclosure of any known late filing or failure by an insider to file a report required by Section 16 of the Exchange Act.

This disclosure is incorporated by reference to the section entitled “Section 16(a) Beneficial Ownership Reporting Compliance”

in the Proxy Statement.

The information required by this Item with respect to our executive officers is contained in Item 1 of Part I of this Annual Report under the heading “Business—Executive Officers”.

EXECUTIVE COMPENSATION

The information required by this section is incorporated by reference from the information in the section entitled “Executive Compensation” in the Proxy Statement.

The information required by this section is incorporated by reference from the information in the section entitled “Executive Compensation”

in the Proxy Statement.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this section is incorporated by reference from the information in the section entitled “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement.

The information required by this section is incorporated by reference from the information in the section entitled “Security Ownership of Certain Beneficial Owners and Management”

in the Proxy Statement.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this section is incorporated by reference from the information in the section entitled “Certain Relationships and Related Transactions” in the Proxy Statement.

The information required by this section is incorporated by reference from the information in the section entitled “Certain Relationships and Related Transactions”

in the Proxy Statement.

PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this section is incorporated by reference from the information in the section entitled “Ratification of Appointment of Independent Auditor” in the Proxy Statement.

The information required by this section is incorporated by reference from the information in the section entitled “Ratification of Appointment of Independent Auditor”

in the Proxy Statement.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

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Separate financial statement schedules have been omitted either because they are not applicable or because the required information is included in the consolidated financial statements or the notes thereto.

See the Exhibit Index for a list of the exhibits being filed or furnished with or incorporated by reference into this report.

 See the Exhibit Index for a list of the exhibits being filed or furnished with or incorporated by reference into this report.

Exhibit Index

Incorporated by Reference Herein

Incorporated by

Reference Herein

Exhibit Description

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Amended and Restated Certificate of Incorporation for BioLargo, Inc.

filed March 16, 2007

filed March  16, 2007

Certificate of Amendment to Certificate of Incorporation, filed May 25, 2018

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Form of Stock Options issued in exchange for reduction in accounts payable.

September 2018 Amendment to Promissory Note dated December 14, 2017 issued to Vista Capital Investments, LLC.

Stock Purchase Warrant issued to Vista Capital Investments dated September 12, 2018.

January 2019 Amendment to Promissory Note dated December 14, 2017, by and between BioLargo, Inc.

and Vista Capital Investments, LLC.

Convertible Promissory Note issued to Vista Capital Investments LLC dated January 7, 2019

Form of Note issued in Summer 2017 Offering

Two-year Note in face amount of $440,000 issued July 2017

Purchase Agreement, dated as of August 25, 2017 by and between BioLargo, Inc.

and Lincoln Park Capital Fund, LLC

Promissory note issued by Clyra Medical to Scion Solutions dated September 26, 2018

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Stock Purchase Agreement and Plan of Reorganziation dated September 26, 2018, with Scion Solutions, LLC

Stock Purchase Warrant Issued to Lincoln Park Capital on January 31, 2019

10% Convertible Promissory Note issued to Bellridge Capital, LP dated April 18, 2019

Convertible Promissory Note issued to Crossover Capital dated May 10, 2019

Securities Purchase Agreement by and between BioLargo, Inc., and EMA Financial, LP dated June 4, 2019

10% Convertible Promissory Note issued to EMA Financial, LP dated June 4, 2019

Amendment #1 to the Convertible Note issued on June 4, 2019 to EMA Capital, LP

OID twelve-month promissory note

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Warrant issued to $50,000 Convertible Noteholder on March 1, 2020

Second Amendment dated August 12, 2019, to Promissory Note issued to Chappy Bean, LLC dated September 19, 2018

Amended and restated note issued to Chappy Bean on August 12, 2019

Third Amendment dated August 10, 2020 to Promissory Note issued to Vernal Bay Investments, LLC on September 19, 2018

Third Amendment dated August 10, 2020, to Promissory Note issued to Chappy Bean, LLC dated September 19, 2018

Final Payoff Agreement dated May 17, 2021 to Promissory Note issued to Vernal Bay Investments, LLC on September 19, 2018

Final Payoff Agreement dated May 18, 2021 to Promissory Note issued to Chappy Bean, LLC dated September 19, 2018

License Agreement to Clyra Medical Technologies, Inc., dated December 17, 2012

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Commercial Office Lease Agreement for 14921 Chestnut St., Westminster, CA 92683

Employment Agreement with Dennis P.

Calvert dated May 2, 2017.

Lock-Up Agreement with Dennis P.

Calvert dated April 30, 2017

Lock-Up Agreement with Dennis P.

Calvert dated May 2, 2017.

Commercial Office Lease Agreement for Oak Ridge Tennessee

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Form of Option issued to founding employees of Engineering subsidiary (BLEST)

January 16, 2019 Engagement Extension Agreement by and between BioLargo, Inc.

and Charles K.

Securities Purchase Agreement by and between BioLargo, Inc., and Bellridge Capital, LP dated April 18, 2019

Securities Purchase Agreement by and between BioLargo, Inc., and Crossover Capital dated May 10, 2019

Provenzano Employment Agreement dated May 28, 2019

Lock-Up Agreement dated May 28, 2019

10.12†

2020 Engagement Extension Agreement with CFO

Purchase Agreement, dated as of March 30, 2020 by and between BioLargo, Inc.

and Lincoln Park Capital Fund, LLC.

10.14†

2021 Engagement Extension Agreement with CFO

Agreement dated March 1, 2022, by and between Scion Solutions, LLC, Clyra Medical Technologies, Inc., and BioLargo, Inc .

Agreement dated March 1, 2022, by and between Clyra Medical Technologies, Inc., and BioLargo, Inc.

10.17†

2022 Engagement Extension Agreement with CFO

Code of Ethics

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Section 1350.

XBRL Instance

XBRL Taxonomy Extension Schema

XBRL Taxonomy Extension Calculation

XBRL Taxonomy Extension Definition

XBRL Taxonomy Extension Labels

XBRL Taxonomy Extension Presentation

Inline XBRL Instance

Inline XBRL Taxonomy Extension Schema

Inline XBRL Taxonomy Extension Calculation

Inline XBRL Taxonomy Extension Definition

Inline XBRL Taxonomy Extension Labels

Inline XBRL Taxonomy Extension Presentation

Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101)

* Filed herewith

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Management contract or compensatory plan, contract or arrangement

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

BIOLARGO, INC.

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/s/ Dennis P.

Calvert       

President and Chief Executive Officer

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INDEX TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID 200 )

Consolidated Balance Sheets as of December 31, 2021 and December 31, 2020

Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2021 and 2020

Consolidated Statements of Stockholders ’ Equity (Deficit) for the years ended December 31, 2020 and 2019

Consolidated Statements of Stockholders ’

 Equity (Deficit) for the years ended December 31, 2021 and 2020

Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020

Notes to Consolidated Financial Statements

F-9 – F-31

Report of Independent Registered Public Accounting Firm

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We have audited the accompanying consolidated balance sheets of BioLargo, Inc.

and Subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”).

and Subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, stockholders’

equity (deficit), and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). 

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2021 and 2020, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 1 to the consolidated financial statements, the Company has experienced recurring losses, negative cash flows from operations, has limited capital resources, a net stockholders’ deficit, and significant debt obligations coming due in the near term.

These matters raise substantial doubt about the Company’s ability to continue as a going concern.

Management’s plans in regard to these matters are also described in Note 1.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. 

As discussed in Note 1 to the consolidated financial statements, the Company has experienced recurring losses, negative cash flows from operations, significant debt due in the near term, and has limited capital resources. 

These matters raise substantial doubt about the Company’s ability to continue as a going concern.

Management’s plans in regard to these matters are also described in Note 1.

The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

These consolidated financial statements are the responsibility of the Company’s management. 

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

We conducted our audits in accordance with the standards of the PCAOB. 

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Report of Independent Registered Public Accounting Firm (continued)

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

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The communication of the critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Fair Value of Stock Options — Refer to Notes 5 and 10 to the Consolidated Financial Statements

Fair Value of Stock Options —

Refer to Notes 2, 5 and 10 to the Consolidated Financial Statements

Critical Audit Matter Description

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In addition, management discounts the estimated fair value of the Clyra Medical stock options because the partially-owned subsidiary is a private company with no secondary market for its common stock.

Given the significant estimates involved in estimating the fair value of stock options, the related audit effort in evaluating management’s estimates in determining the fair value of stock options was extensive and required a high degree of auditor judgment.

How the Critical Audit Matter was Addressed in the Audit

We obtained an understanding over the Company’s process to estimate the fair value of stock options, including how the Company develops each of the estimates required to utilize the Black-Scholes option-pricing model.

We applied the following audit procedures related to testing the Company’s estimates utilized in the Black-Scholes option-pricing model:

We compared the Company’s risk-free interest rate used to the comparable United States Treasury yield for a term comparable to the stock options’ expected term.

We recalculated the Company’s historical share price volatility for a term comparable to the stock options’ expected term.

For Clyra Medical, we recalculated a comparable public company’s historical share price volatility for a term comparable to the stock options’ expected term.

We performed a look-back at the Company’s previously issued dividends, noting there were none.

We applied the following audit procedures related to testing the Company’s estimates utilized in the Black-Scholes option-pricing model:

We compared the Company’s risk-free interest rate used to the comparable United States Treasury yield for a term comparable to the stock options’

expected term.

We recalculated the Company’s historical share price volatility for a term comparable to the stock options’

expected term.

For Clyra Medical, we recalculated a comparable public company’s historical share price volatility for a term comparable to the stock options’

expected term.

We performed a look-back at the Company’s previously issued dividends, noting there were none.

We inquired with management of the Company who informed us that no future dividends were currently anticipated.

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We further noted that this was consistent with historical options granted.

In addition, we reviewed management’s analysis over the discount used on the estimated fair value of the Clyra Medical stock options.

Management concluded that both the illiquidity and lack of marketability warranted a discount to the estimated fair value calculated using the Black-Scholes option-pricing model.

We noted that Clyra Medical is a private company and therefore its stock is not actively traded.

We also reviewed the stock sales history of Clyra Medical noting the infrequent stock sales supports management’s assertions of both illiquidity and lack of marketability.

We further researched published articles on valuation discounts and noted that the liquidity and lack of marketability discount used by management was within a reasonable range.

Accounting for Complex Debt Transactions — Refer to Notes 4 and 6 to the Consolidated Financial Statements

Impairment of Long-lived Asset –

Refer to Notes 2 and 9 to the Consolidated Financial Statements

Critical Audit Matter Description

During the year ended December 31, 2020, the Company refinanced a convertible note to extend the maturity date by one year.

The terms of the refinance included:

(1) 25% of the principal and accrued interest converted to common stock, (2) a reduction to the conversion price to both the converted and remaining principal, and (3) extension of maturity dates of the warrants outstanding related to the convertible note.

Management had to determine whether to account for the refinance as a debt modification or a debt extinguishment.

Management determines if the modified terms of the refinance are considered substantially different, defined as the present value of the remaining cash flows after modification differ by at least 10% of those prior to the modification.

Management used the Black-Scholes option-pricing model to estimate the increase in fair value of the warrants modified with the refinanced convertible note, limited to a relative fair value based upon the percentage of its fair value to the total fair value including the fair value of the convertible note.

The Black-Scholes option-pricing model involves the use of significant estimates, including the following:

Risk-free interest rate;

Expected share price volatility;

Expected dividend yield;

Contractual life of the award.

Management also evaluated the refinanced convertible note for any intrinsic beneficial conversion feature, in which the revised convertible price of the note is less that the closing common stock price on the date of refinance.

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

Given the significant estimates involved in estimating the total debt discount resulting from the relative fair value of the warrants and intrinsic beneficial conversion feature, as well as determining whether the debt refinance was a debt modification or debt extinguishment, the related audit effort in evaluating both management’s estimates in determining the total debt discount and determination of whether the refinance was a debt modification or debt extinguishment was extensive and required a high degree of auditor judgment.

As reflected in the Company’s consolidated financial statements at December 31, 2021, the Company’s net carrying amount of Clyra Medical prepaid marketing is $591,000.

As disclosed in Note 2 to the consolidated financial statements, long-lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

As a result of these assessments, management concluded that there was an impairment to the Company’s prepaid marketing asset during the year ended December 31, 2021.

Auditing management’s impairment test of its prepaid marketing asset was complex and highly judgmental due to the significant measurement uncertainty in determining the fair value of the prepaid marketing asset.

In particular, the fair value estimate of the prepaid marketing asset was sensitive to changes in significant assumptions such as discount rates and revenue growth rates.

These assumptions are affected by expected future market or economic conditions.

How the Critical Audit Matter was Addressed in the Audit

We obtained an understanding over the Company’s process to determine whether a debt refinance is a debt modification or debt extinguishment.

We reviewed the relevant guidance and management’s calculation of the present value of the cash flows prior to and after the debt modification.

We also obtained an understanding over the Company’s process to estimate the debt discount resulting from the increase in the relative fair value of the modified warrants and the increase in the relative fair value of the intrinsic conversion feature from the reduction in conversion price, including how the Company develops each of the estimates required to utilize the Black-Scholes option-pricing model.

We applied the following audit procedures related to testing the Company’s estimates utilized in the Black-Scholes option-pricing model:

We compared the Company’s risk-free interest rate used to the comparable United States Treasury yield for a term comparable to the warrants’ remaining contractual term.

We recalculated the Company’s historical share price volatility for a term comparable to warrants’ remaining contractual term.

We performed a look-back at the Company’s previously issued dividends, noting there were none.

We inquired with management of the Company who informed us that no future dividends were currently anticipated.

We agreed the remaining contractual term of the warrants to the revised contractual term of the refinanced convertible note.

We also reviewed management’s relative fair value calculation used to determine the total debt discount and agreed all inputs as follows:

We agreed the fair value of the note to the refinanced convertible note agreement.

We agreed the fair value of the warrants to the fair value calculated using the Black-Scholes option-pricing model.

We agreed to stock price at the refinance date to the trading price.

We agreed the exercise price to the revised conversion price to the refinanced convertible note agreement.

Finally, we recalculated the change in the present value of the remaining cash flows after debt modification to determine if the correct accounting treatment was used by management.

We obtained an understanding of the Company’s process to evaluate long-lived assets for impairment and related controls.

We then obtained the projected revenues of Clyra Medical as well as the Company’s calculation of the expected present value of the prepaid marketing asset that were used by management to determine the fair value of the prepaid marketing asset, in accordance with ASC 350 ( Intangibles –

Goodwill and Other ).

We applied the following audit procedures related to testing the fair value of the prepaid marketing asset:

We assessed the valuation methodologies and tested the reasonableness of significant assumptions and underlying data used by management, including forecasted revenue and discount rates.

We agreed the triggering start date and term used in the present value calculation to the forecasted revenue and the original contractual term.

We compared management’s summary of the fair value of the prepaid marketing asset to its carrying value, noting that the carrying value exceeded the fair value of the prepaid marketing asset.

As such, we concurred with management that there was an impairment of its prepaid marketing asset.

/s/ HASKELL & WHITE LLP

We have served as the Company’s auditor since 2011.

Irvine, California

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Right of use, operating lease, net of amortization

Deferred offering cost

Clyra Medical prepaid marketing (Note 10)

Liabilities and stockholders ’ equity (deficit)

$ 3,023  

$ 4,942  

Liabilities and stockholders ’

equity (deficit)

Current liabilities:

Accounts payable and accrued expenses

Clyra Medical accounts payable and accrued expenses

Debt obligations (Note 4)

Discount on debt, net of amortization

Clyra Medical debt obligations (Note 10)

Deferred revenue

Lease liability, current

Clyra Medical accounts payable and accrued expenses

Clyra Medical debt obligations (See Note 10)

Total current liabilities

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Debt obligations (Note 4)

Discount on convertible notes payable, net of amortization

Lease liability

Clyra Medical debt obligations (Note 10)

Common stock held for redemption (Note 9)

Total long-term liabilities

Total liabilities

COMMITMENTS AND CONTINGENCIES (Note 13)

STOCKHOLDERS’ EQUITY (DEFICIT):

STOCKHOLDERS’

EQUITY (DEFICIT):

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

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Additional paid-in capital

Accumulated other comprehensive loss

143,718  

135,849  

Accumulated deficit

( 139,121 )  

Accumulated other comprehensive loss

( 115 )  

Total BioLargo Inc.

and subsidiaries stockholders’ equity (deficit)

and subsidiaries stockholders’

Non-controlling interest (Note 10)

Total stockholders’ equity (deficit)

Total liabilities and stockholders’ equity (deficit)

( 3,720 )  

Total stockholders’

equity (deficit)

Total liabilities and stockholders’

$ 3,023  

$ 4,942  

See accompanying notes to consolidated financial statements and report of Independent Registered Public Accounting Firm.

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Product revenue

$ 1,572  

$ 1,825  

Service revenue

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Cost of goods sold

( 781 )  

Cost of service

( 647 )  

Total cost of revenue

( 1,428 )  

Operating expenses:

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Operating loss

( 6,436 )  

Other income (expense):

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Interest expense

( 234 )  

Impairment expense

( 342 )  

Loss on extinguishment of debt

Total other (expense) income

Net loss attributable to noncontrolling interest

( 458 )  

( 6,894 )  

Net income (loss) attributable to noncontrolling interest

Net loss attributable to common stockholders

$ ( 7,080 )  

Net loss per share attributable to common stockholders:

Loss per share attributable to stockholders – basic and diluted

Loss per share attributable to stockholders –

basic and diluted

$ ( 0.03 )  

Weighted average number of common shares outstanding:

247,203,625  

195,993,575  

Comprehensive loss attributable to common stockholders

$ ( 6,894 )  

Foreign currency translation adjustment

( 14 )  

Comprehensive loss

Comprehensive loss attributable to noncontrolling interest

( 6,908 )  

Comprehensive income (loss) attributable to noncontrolling interest

Comprehensive loss attributable to stockholders

$ ( 7,094 )  

See accompanying notes to consolidated financial statements and report of Independent Registered Public Accounting Firm.

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AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS ’ EQUITY (DEFICIT)

CONSOLIDATED STATEMENT OF STOCKHOLDERS ’

EQUITY (DEFICIT)

(in thousands, except for share data)

comprehensive

Total stockholders ’

other comprehensive

Total stockholders ’

equity (deficit)

Balance, December 31, 2019

166,256,024  

$ 121,327  

$ ( 123,492 )  

$ ( 99 )  

$ ( 27 )  

Conversion of notes

Warrant exercise

33,157,961  

Issuance of common stock for service

4,458,731  

Issuance of common stock for interest

Financing fee in common stock cancelled

Stock issuance to officer

1,728,331  

Sale of stock for cash

17,356,064  

Stock issued as a commitment fee

2,928,571  

( 124 )  

Stock option compensation expense

Warrants and conversion feature issued as discount on convertible notes payable and line of credit

Loss on extinguishment

Noncontrolling interest allocation

( 3,157 )  

Clyra stock options issued for service

Clyra stock issued for consulting agreement

Clyra stock issued as line of credit commitment fee

Issuance of Clyra common stock for cash

Debt extinguishment expense

Warrant reprice

Exchange Clyra ownership for BioLargo debt

Preferred Series A Clyra dividend, converted to Clyra common shares

Deemed dividend

( 117 )  

( 8,432 )  

( 1,268 )  

Foreign currency translation

Balance, December 31, 2020

225,885,682  

$ 135,849  

$ ( 132,041 )  

$ ( 101 )  

$ ( 4,093 )  

Conversion of notes

1,966,439  

Issuance of common stock for service

2,127,467  

Issuance of common stock for interest

81,777  

Sale of stock for cash

Stock issued as a commitment fee

29,691,886  

Warrant exercise

1,283,333  

Return of shares held by Clyra Medical (re Scion)  

( 5,142,858 )  

( 921 )  

Stock option compensation expense

Loss on extinguishment

Fair value of warrant recorded as debt discount

Noncontrolling interest allocation

( 1,149 )  

Clyra stock options issued for service

Clyra stock issued for consulting agreement

Clyra stock issued as line of credit commitment fee

Issuance of Clyra common stock for cash

Deemed dividend

Net (loss) gain

( 7,080 )  

Foreign currency translation

( 14 )  

Balance, December 31, 2021

255,893,726  

$ 143,718  

$ ( 139,121 )  

$ ( 115 )  

$ ( 3,720 )  

See accompanying notes to consolidated financial statements and report of Independent Registered Public Accounting Firm.

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Cash flows from operating activities

$ ( 6,894 )  

Adjustments to reconcile net loss to net cash used in operating activities:

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Common stock issued in lieu of salary to officers and fees for services from vendors

Impairment expense

Common stock issued for interest

Interest expense related to amortization of the discount on convertible notes payable and line of credit and deferred financing costs

Interest expense related to amortization of the discount on convertible notes payable, line of credit and deferred financing costs

Loss on extinguishment of debt

Loss on investment in South Korean joint venture

Deferred offering expense

Financing fee paid in stock (cancellation)

Warrant reprice

PPP forgiveness

( 43 )  

Amortization and depreciation expense

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Accounts receivable

( 29 )  

Accounts payable and accrued expenses

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Prepaid expenses and other assets

( 57 )  

Net cash used in operating activities

( 3,937 )  

Cash flows from investing activities

Equipment purchases

( 21 )  

Patent purchase

( 13 )  

Investment in South Korean joint venture

Net cash used in investing activities

( 34 )  

Cash flows from financing activities

Proceeds from sale of common stock

Proceeds from convertible notes payable

Proceeds from OID offering

Proceeds from notes payable

Proceeds from SBA loans

Proceeds from warrant exercise

Repayment of note payable

Repayment of note payable and line of credit

( 828 )  

Proceeds received by Clyra from inventory line of credit

Repayment by Clyra on inventory line of credit

( 37 )  

Proceeds from sale of stock in Clyra Medical

1 unchanged sentence

Net effect of foreign currency translation

( 14 )  

Net change in cash

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Cash paid during the year for:

Short-term lease payments not included in lease liability  

Non-cash investing and financing activities

Return of in-process research and development (Scion)  

$ 1,804  

Cancellation of Clyra debt obligations and accounts payable (Scion)  

$ ( 1,465 )  

Liability to Scion shareholders  

$ (540 )  

Fair value of warrants issued with convertible notes and letter of credit

Conversion of convertible notes payable into common stock

Convertible notes issued with original Issue Discount

$ 3,526  

Present value of Right of use and lease liability

Deemed dividend

Fair value of right of use and operating lease

Deferred offering costs recorded as additional paid in capital

Fair value of shares issued for In Process research and development

Exchange of note payable for Clyra Shares

Exchange of consulting services for Clyra common shares

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Allocation of stock option expense within noncontrolling interest

Clyra preferred shares dividend exchange for Clyra common stock

$ 1,149  

$ 3,157  

See accompanying notes to consolidated financial statements and report of Independent Registered Public Accounting Firm

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BioLargo, Inc.

is an innovative technology developer and environmental engineering company driven by a mission to “make life better” by delivering robust, sustainable solutions for a broad range of industries and applications, with a focus on clean water, clean air.

The company also owns a minority interest in an advanced wound care subsidiary that has licensed BioLargo’s technologies.

Our business strategy is straightforward:

(“BioLargo”, or the “Company”) is an innovative technology developer and environmental engineering company driven by a mission to “make life better”

by delivering robust, sustainable solutions for a broad range of industries and applications, with a focus on clean water, clean air. The Company also owns a minority interest in an advanced wound care subsidiary that has licensed BioLargo’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;

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The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of our business.

For the year ended December 31, 2020, we had a net loss of $9,700,000, used $4,154,000 cash in operations, and at December 31, 2020, we had a working capital deficit of $2,039,000, and current assets of $1,505,000.

For the year ended December 31, 2021, we had a net loss of $ 6,894,000 , used $ 3,937,000 cash in operations, and at December 31, 2021, we had working capital of $ 427,000 , and current assets of $ 1,801,000 .

We do not believe gross profits in 2022 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.

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During the year ended December 31, 2021, we generated revenues of $ 2,531,000 through our subsidiaries.

(See Note 12.) Our segments did not individually or in the aggregate generate enough revenues or gross profits to fund their operations, or fund our corporate operations or other business segments.

Thus, to operate throughout 2020, we continued to sell securities to raise cash (see Notes 3 and 10), and were able to borrow money through programs administered by the Small Business Administration.

As of December 31, 2020, our cash and cash equivalents totaled $716,000, and our total liabilities included $1,006,000 in debt that is convertible at the option of the debtholders, $100,000 of debt that we may convert to equity at the April 2021 maturity date, $100,000 notes due on demand, $224,000 owed by our partially owned subsidiary Clyra Medical Technologies, Inc.

(“Clyra”) due in June 2021, and $1,007,000 owed by Clyra that must be paid out of operational cash (see Note 4 and 10), with a maturity date that automatically extends each June.

Since December 30, 2020, we have received over $2 million in proceeds from stock sales to Lincoln Park (see Note 3), and paid off $650,000 in debt (see also Note 14).

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

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

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

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

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

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

(See Note 12.

)  Our subsidiaries did not individually or in the aggregate generate enough revenues or gross profits to fund their operations, or fund our corporate operations or other business segments.

To meet our cash obligations during the year ended December 31, 2021, we (i) sold 24,255,920 shares of our common stock to Lincoln Park Capital (“Lincoln Park”) for $ 4,018,000 (see Note 3 ), and (ii) sold 5,435,966  shares of common stock, and issued warrants to purchase 10,876,932 shares of common stock, to private investors for $ 864,000 (see Notes 3 and 6 ).

As of December 31, 2021, our cash and cash equivalents totaled $ 962,000 , and our total liabilities included $ 50,000 in debt that is due at the March 2023 maturity date;

$ 187,000 owed by our partially owned subsidiary Clyra Medical Technologies, Inc.

(“Clyra”) due in June 2023;

$ 314,000 due in SBA loans issued pursuant to the Paycheck Protection Program (see note 14 );

and $ 150,000 due to the SBA issued pursuant to the Economic Injury Disaster program (EIDL) over 30 years, with $ 800 monthly payments scheduled to in begin January 2023.

Subsequent to December 31, 2021, we continue to sell common stock to Lincoln Park for working capital (see Note 14 ).

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.

BIOLARGO, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

In the year ended December 31, 2020, our CEO and CSO accepted stock in lieu of $300,000 in unpaid salary and business expenses.

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

The foregoing factors raise substantial doubt about our ability to continue as a going concern, unless we are able to continue to raise funds through stock sales to Lincoln Park or other private financings, and in the long term, our ability to attain a reasonable threshold of operating efficiencies and achieve profitable operations by licensing or otherwise commercializing products incorporating our technologies.

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

Additionally, we own 94% (see Note 9) of BioLargo Engineering Science and Technologies, LLC (“BLEST”), organized under the laws of the State of Tennessee in 2017.

Additionally, we own 89 % (see Note 11 ) of BioLargo Engineering Science and Technologies, LLC (“BLEST”), organized under the laws of the State of Tennessee in 2017.

We also own 56 % 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 10).

(“Clyra”

or “Clyra Medical”), organized under the laws of the State of California in 2012, and consolidate its financial statements (see Note 2, subheading “Principles of Consolidation,”

and Note 10 ).

BIOLARGO, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Summary of Significant Accounting Policies

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 10.)

The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, and partially-owned subsidiaries BLEST and Clyra Medical.

All intercompany accounts and transactions have been eliminated.

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

BIOLARGO, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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Clyra Medical Technologies, Inc.

BIOLARGO, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accounts Receivable

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

The allowance for doubtful accounts as of December 31, 2020 and 2019 was $13,000 and $24,000.

The allowance for doubtful accounts as of 

December 31, 2021 

and 2020 was $ 12,000 and $13,000, respectively.

Credit Concentration

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

During the year ended December 31, 2020, there were two customers that accounted for more than 10% of consolidated revenues and during the year ended December 31, 2019, there were no customers that accounted for more than 10% of consolidated revenues, as follows:

We had two customers that each accounted for more than 10% of consolidated accounts receivable at December 31, 2020 and three customers at December 31, 2019 as follows:

During the year ended December 31, 2021, there were three customers that each accounted for more than 10 % of consolidated revenues, and during the year ended December 31, 2020, there were two customers that each accounted for more than 10% of consolidated revenues, as follows:

We had two customers that each accounted for more than 10% of consolidated accounts receivable at December 

31, 2021, and at December 31, 2020, as follows:

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

The allowance for obsolete inventory as of December 31, 2020 and 2019 was $3,000.

As of December 31, 2020, and 2019, inventories consisted of (in thousands):

The allowance for obsolete inventory as of 

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

 As of December 31, 2021, and 2020, inventories consisted of (in thousands):

Finished goods

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

Other Non-Current Assets

Other non-current assets consisted of (i) security deposits of $ 35,000 related to our business offices, and (ii) three patents acquired on October 22, 2021, for $ 34,000 , of which $ 13,000 was paid in cash and the remaining $ 21,000 was paid through the issuance of 125,000 shares of common stock at $ 0.17 per share.

BIOLARGO, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Equity Method of Accounting

Equity  

Method of  

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.

based subsidiary, Tomorrow Water.

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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 nine months ended December 31, 2020, the joint venture incurred a loss and our 40% ownership share reduced our investment interest by $37,000.

Long-lived and definite lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

If the sum of the expected future undiscounted cash flows from the use of the asset and its eventual disposition is less than the carrying amount of the asset, then an impairment loss is recognized.

The impairment loss is measured based on the fair value of the asset.

Any resulting impairment is recorded as a reduction in the carrying value of the related asset in excess of fair value and a charge to operating results.

For the years ended December 31, 2020 and 2019, management determined that there was no impairment of its long-lived assets, including its In-process Research and Development (see Note 9).

During the years ended December 31, 2021 and 2020, the joint venture incurred a loss and our 40 % ownership share reduced our investment interest by $ 15,000 and $ 37,000 , 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. 

If the sum of the expected future undiscounted cash flows from the use of the asset and its eventual disposition is less than the carrying amount of the asset, then an impairment loss is recognized. 

The impairment loss is measured based on the fair value of the asset. 

Any resulting impairment is recorded as a reduction in the carrying value of the related asset in excess of fair value and a charge to operating results. 

For the year ended December 31, 2021, management determined that there was an impairment expense related to the sale back to Scion Solutions, LLC (“Scion’) of certain intellectual property, recorded on our balance sheet as “In-Process Research and Development”

(see Note 9 ), and an impairment of Clyra’s prepaid marketing asset (see Note 9 ). 

Total impairment expense for 2021 is $342,000;

there was no impairment during the year ended December 31, 2020.

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 convertible notes payable, stock options and warrants were exercised into common stock.

For the years ended December 31, 2020 and 2019, the denominator in the diluted EPS computation is the same as the denominator for basic EPS due to the Company’s net loss which creates an anti-dilutive effect of the convertible notes payable, warrants and stock options.

For the years ended December 31, 2021 and 2020, the denominator in the diluted EPS computation is the same as the denominator for basic EPS due to the Company’s net loss which creates an anti-dilutive effect of the convertible notes payable, warrants and stock options.

Use of Estimates

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Actual results could differ from those estimates.

Estimates are used when accounting for stock-based transactions, debt transactions, derivative liabilities, allowance for bad debt, asset depreciation and amortization, among others.

Estimates are used when accounting for stock-based transactions, debt transactions, derivative liabilities, allowance for bad debt, asset depreciation and amortization, impairment expense, among others.

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

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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.

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Risk free interest rate

1.49 –

0.93 –

0.66 –

0.64 –

Expected volatility

8 unchanged sentences

We have never paid any cash dividends on our common stock and do not anticipate paying cash dividends on our common stock in the foreseeable future.

Historically, we have not had significant forfeitures of unvested stock options granted to employees and Directors.

A significant number of our stock option grants are fully vested at issuance or have short vesting provisions.

Therefore, we have estimated the forfeiture rate of our outstanding stock options as zero.

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

1 unchanged sentence

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.

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Revenue Recognition

We adopted ASU 2014-09, “Revenue from Contracts with Customers”, Topic 606, on January 1, 2018.

The guidance focuses on the core principle for revenue recognition.

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

To achieve that core principle, an entity should apply the following steps:

We account for revenue in accordance with ASC 

606,  “Revenue from Contacts with Customers”.

The guidance focuses on the core principle for revenue recognition, which is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

To achieve that core principle, the guidance provides that an entity should apply the following steps:

Identify the contract(s) with a customer.

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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.

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

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

Revenue is recognized at a point in time when the 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.

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These accounts are adjusted upon additional billings as the work is completed.

To date, there have been no discounts or other financing terms for the contracts.

In the event that we generate revenues from royalties or license fees from our intellectual property, we anticipate a licensee would pay a license fee in one or more installments and ongoing royalties based on their sales of products incorporating or using our licensed intellectual property.

To date, there have been 

no  discounts or other financing terms for the contracts.

In the event that we generate revenues from royalties or license fees from our intellectual property, we anticipate a licensee would pay a license fee in 

one  or more installments and ongoing royalties based on their sales of products incorporating or using our licensed intellectual property.

Upon entering into a licensing agreement, we will determine the appropriate method of recognizing the royalty and license fees.

BIOLARGO, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Clyra also has certain distribution agreements that call for consigned inventory.

Although the product is shipped to a 

third  party, it is 

not  revenue until that consigned inventory is sold to end user customer.

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).

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 have been awarded multiple research grants from the private and public Canadian research programs.

Income we receive directly from grants is recorded as other income.

We have been awarded over 80 grants since our first in 2015.

Some of the funds from these grants are given directly to third parties (such as the University of Alberta or a third -party research scientist) to support research on our technology.

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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.

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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.

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 December 31, 2021 and 2020.

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Fair Value of Financial Instruments

Management believes the carrying amounts of the Company’s financial instruments (excluding debt and equity instruments) as of December 31, 2020 and 2019 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 December 31, 2021 and 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.

In February 2016, the FASB issued ASU Update No.

2016-02, “Leases,” which requires lessees to recognize most leases on their balance sheets as a right-of-use asset with a corresponding lease liability, and lessors to recognize a net lease investment.

Additional qualitative and quantitative disclosures are also required (see Note 13).

We adopted this standard effective January 1, 2019 using the effective date option, as approved by the FASB in July 2018, which resulted in a $399,000 gross up of assets and liabilities;

this balance may fluctuate over time as we enter into new leases, extend or terminate current leases.

Upon the transition to 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.

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. The Company has also elected the short-term leases recognition exemption for all leases that qualify.

This means that the Company will not recognize right-of-use assets or lease liabilities, and this includes not recognizing right-of-use assets and lease liabilities, for existing short-term leases of those assets in transition.

As of December 31, 2021, the right-of-use assets and the lease liability on our balance sheet related to our operating leases totals $ 453,000 .

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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.

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

Paragraph 321- 10-35-2, as amended, states that if an entity identifies observable price changes in orderly transactions for the identical or a similar investment of the same issuer, it should measure the equity security at fair value as of the date that the observable transaction occurred (hereinafter referred to as the measurement alternative).

The amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method.

For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.

For all other entities, the amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years.

At this time management does not believe that adoption of this Update will have an effect on the Company’s financial statements.

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.

Sale of Stock for Cash

Lincoln Park Financing

On August 25, 2017, we entered into a stock purchase agreement (“2017 LPC Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant to which Lincoln Park had agreed to purchase from us at our request up to an aggregate of $10 million of our common stock (subject to certain limitations) from time to time over a period of three years.

BIOLARGO, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On March 30, 2020, we entered into a stock purchase agreement (the “2020 LPC Purchase Agreement”) with Lincoln Park, pursuant to which Lincoln Park agreed to purchase from us at our request up to an aggregate of $10,250,000 of our common stock (subject to certain limitations) from time to time over a period of three years.

On March 30, 

2020, we entered into a stock purchase agreement (the “2020 LPC Purchase Agreement”) with Lincoln Park, pursuant to which Lincoln Park agreed to purchase from us at our request up to an aggregate of $ 10,250,000 of our common stock (subject to certain limitations) from time to time over a period of three years.

The agreement allows us, at our sole discretion, to direct Lincoln Park to purchase shares of our common stock, subject to limitations in both volume and dollar amount.

The purchase price of the shares that may be sold to Lincoln Park under the 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.

1 unchanged sentence

This registration statement was declared effective on April 21, 2020, and as of April 29, 2020, we commenced regular purchases under the agreement.

BIOLARGO, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Pursuant to the 2020 LPC Purchase Agreement, we issued 2,928,571 shares to Lincoln Park as a commitment fee, valued at $ 527,000 and recorded as additional paid in capital on our consolidated balance sheet.

2 unchanged sentences

2020 Unit Offering

Pursuant to an offering commenced in May 2020, we sold 2,374,335 of our common stock and received $367,000 in gross and net proceeds from six accredited investors.

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

During the years ended December 31, 2021 and 

2020,  pursuant to an offering commenced in 

March 2020,  we sold 

5,435,966  and 

2,374,335  shares, respectively, of our common stock and received $ 864,000  and $ 367,000 , respectively, in gross and net proceeds, from a total of 

nine  accredited investors.

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

BKT 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 received a $ 350,000 investment from BKT and issued 1,593,087 shares of our common stock, and invested $ 100,000 into the joint venture for a 40 % ownership share.

BIOLARGO, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Debt Obligations

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

The table does not include debt obligations of our partially owned subsidiary Clyra Medical (see Note 10, “ Debt Obligations of Clyra Medical ”).

The table does not include debt obligations of our partially owned subsidiary Clyra Medical (see Note 10, “

Debt Obligations of Clyra Medical ”).

Current portion of debt:

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

Note payable, matures on demand 60 days’

SBA Paycheck Protection Program loans, mature April 2022

Line of credit, matures on 30-day demand

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Convertible notes payable:

Convertible note, matured April 7, 2020

Convertible note, matured June 20, 2020 (1)

Convertible twelve-month OID notes, mature beginning June 2020 (1)

Convertible note payable, matures April 20, 2021

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Total current liabilities

$ 1,206  

Long-term debt:

Convertible note payable, matures August 9, 2021

SBA Paycheck Protection Program loans, mature April 2022

Convertible note payable, matures March 1 , 2023

Debt discount, net of amortization

( 20 )  

SBA Paycheck Protection Program loans, mature April 2022  

SBA EIDL Loan, matures July 2053

Convertible notes payable, mature April 20, 2021 (1)

Total long-term liabilities

These notes are convertible at our option at maturity.

These notes are convertible by the noteholders, and not convertible by the Company.

For the years ended December 31, 2020 and 2019, we recorded $1,923,000 and $3,996,000 of interest expense related to the amortization of discounts on convertible notes payable and coupon interest from our convertible notes and lines of credit.

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

On March 8, 2018, we received $50,000 and entered into a note payable.

The note is due on upon demand from the noteholder, with sixty days’ notice.

In the absence of the demand, the maturity date is March 8, 2023.

(See Note 14, Subsequent Events.)** if this is the Kelber note- the demand was waived in Q1 for additional consideration- check that

Lines of credit, due on demand

On March 1, 2018, we received $390,000, and on September 1, 2018, we received $40,000, pursuant to a line of credit accruing interest at a rate of 18% per annum, for which we have pledged our inventory and accounts receivable as collateral.

Interest is paid quarterly;

the holder may choose to receive interest payments in (i) cash, (ii) our common stock, calculated based on the 20-day average closing price, or (iii) options to purchase our common stock, priced at the 20-day average closing price, the number of shares doubled, and expiring 10 years from the date of grant.

The holders of the line of credit has the right to call due the outstanding principal amount on 30-days’ notice at any time after September 1, 2019.

During July and August 2019, line of credit holders in the principal amount of $205,000, agreed to satisfy the line of credit through the issuance of an amended and restated convertible promissory note totaling $256,000 due in 12 months, August 2020, including a 25% original issue discount.

They also received a warrant to purchase 1,130,515 shares of our common stock (see Note 6).

The amended and restated note is convertible by the holder at $0.17 per share.

The interest rate was reduced from 18% to 5% per annum.

BIOLARGO, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The total of the fair value of the warrant and the fair value of the new note and its beneficial conversion feature exceeded the carrying value of the old note by $315,000, resulting in a loss on debt extinguishment recorded on our statement of operations.

During the three months ended December 31, 2019, $175,000 was paid to line of credit holder.

As of December 31, 2020, and 2019, the line of credit outstanding balance totaled $50,000.

The line of credit was paid subsequent to year end (see Note 14.)

Convertible Note, matured April 7, 2020 (Vista Capital)

On January 7, 2019, Vista Capital Investments, LLC (“Vista Capital”) invested $300,000 and we issued a convertible promissory note (the “Vista 2019 Note”) in the principal amount of $330,000, maturing nine months from the date of issuance (October 7, 2019).

The Vista 2019 Note earned a one-time interest charge of 12%, recorded as a discount on convertible notes and will be amortized over the term of the note.

The Vista 2019 Note allowed Vista Capital to convert the note to our common stock at any time at a price equal to 65% of the lowest closing bid price of the Company’s common stock during the 25 consecutive trading days immediately preceding the conversion date.

The Vista 2019 Note includes a term that allows Vista Capital to adopt any term of a future financing more favorable than what is provided in the note.

For example, these provisions could include a more favorable interest rate, conversion price, or original issue discount.

The intrinsic value of the beneficial conversion feature resulted in a fair value totaling $300,000, and is recorded as a discount on convertible notes on our balance sheet.

This discount was amortized over the term of the note as interest expense.

On August 13, 2019, we and Vista Capital amended the note extending the maturity date to April 7, 2020.

On November 22, 2019 and December 17, 2019, Vista Capital elected to convert $50,000, totaling $100,000, into 690,530 shares of common stock.

As of December 31, 2019, the outstanding balance on this note totaled $270,000.

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

Convertible Notes, mature June 20, 2020 (Summer 2017 Unit Offering)

We received a total of $604,000 of investments in our Summer 2017 Unit Offering and issued convertible promissory notes at $0.42 a share.

As of December 31, 2019, one note in the principal amount of $25,000 remained outstanding on this offering.

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

Convertible Twelve-month OID notes

From June 7, 2019 through September 30, 2019, we received $2,235,000 and issued convertible promissory notes (each, a “Twelve-Month OID Note”) in the aggregate principal amount of $2,794,000, with a 25% original issue discount, to 34 accredited investors.

The original issuance discount totaled $559,000 and is recorded as a discount on convertible notes payable on our balance sheet.

The intrinsic value of the beneficial conversion features resulted in an aggregate fair value of $2,235,000, and is recorded as a discount on convertible notes on our balance sheet.

The discounts were amortized and recorded to interest expense over the term of the notes.

These notes each mature twelve months from the date of issuance.

$ 1,713  

BIOLARGO, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During the three months ended September 30, 2019, in exchange for $305,000 of convertible note payables that were coming due, we issued an additional $381,000 in Twelve-Month OID Notes, with a 25% original issue discount.

The original issue discount totaled $76,000 and is recorded as a discount on convertible notes payable on our balance sheet.

The intrinsic value of the beneficial conversion features resulted in an aggregate fair value of $381,000 and is recorded as debt extinguishment expense on our statement of operations.

The discount will be amortized and recorded to interest expense over the term of the notes.

These notes mature twelve months from the date of issuance.

Each Twelve-month OID Note was convertible by the investor at any time at $0.17 per share.

The notes earned interest at a rate of five percent (5%) per annum, due at maturity.

At the maturity of each note, the Company exercised its right to redeem the notes through the issuance of common stock at a conversion price equal to the lower of the “conversion price” (initially $0.17, as may be adjusted), and 70% of the lowest daily volume weighted average price of the Company’s common stock during the 25 trading days preceding the conversion date.

During 2020, $3,112,000 of the remaining outstanding principal of Twelve-Month OID Notes was converted, and we issued 30,208,453 shares of our common stock.

Of that amount, 1,415,221 shares were issued as payment for interest due on the notes.

Convertible Note, matures April 20, 2021 (Spring 2018 Unit Offering)

In March 2018 we received one investment of $100,000 for a promissory note convertible at $0.30 per share.

This investment was received from an entity owned/controlled by a member of our board of directors.

In light of the decreasing price of our common stock, in September 2018, we issued a pricing supplement reducing the unit price to $0.25 per share, reducing the unit price of the prior investor to $0.25 per share.

As of December 31, 2020 and 2019, $100,000 was outstanding.

We intend to convert this note to equity at its April 20, 2021 maturity.

Convertible note, matures August 9, 2021

On August 9, 2019, we received $600,000 from one accredited investor and issued a promissory note in the principal amount of $600,000, maturing in two years, accruing interest at 15% to be paid in cash monthly, and which converts to common stock at the holder’s option at $0.30 per share.

This investor also received a warrant to purchase 1,200,000 shares of our common stock at $0.30 per share, expiring five years from the grant date (see Note 6).

Subsequent to December 31, 2020, we paid the outstanding principal of this note in full (see Note 14).

Convertible notes, mature August 12 and 16, 2021

On September 19, 2018, we received $400,000 and issued promissory notes originally due January 5, 2019 and incurring interest at an annual rate of 12% to two investors (Vernal Bay Investments, LLC (“Vernal”) and Chappy Bean, LLC (“Chappy Bean”)).

We and the noteholders agreed to extend the maturity dates of the notes multiple times in 2019.

In August, 2019, we made a partial payment to one of the noteholders, and agreed to refinance the remaining $440,000 principal and interest through the issuance of amended and restated convertible promissory notes due in 12 months, which included a 25% original issue discount, and is convertible by the holders at $0.17 per share.

The interest rate was reduced from 18% to 5% per annum.

The terms of the investment are similar to that offered to the Twelve-month OID note investors (see section above titled “Convertible Twelve-month OID Notes”), and thus we issued warrants in conjunction with the amended and restated notes (see Note 6).

Including the OID, the principal amount due on the notes is $550,000.

The total of the fair value of the warrants and the fair value of the new notes and their beneficial conversion features exceeded the carrying value of the old notes by $422,000, resulting in a loss on debt extinguishment recorded on our statement of operations.

For the years ended December 31, 2021 and 2020, we recorded $ 234,000 and $ 1,923,000 of interest expense related to the amortization of discounts on convertible notes payable and coupon interest from our convertible notes and lines of credit.

Cash payment of Debt Obligations

August 13, 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 $ 228,000 principal and interest due on the note.

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.

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.

Conversion of Debt Obligations

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, and $ 9,994 of accrued interest into 48,706 shares of our common stock.

Note payable, matures on demand 60 day ’

s notice (or March 8, 2023)

On March 8, 2018, we received $ 50,000 and entered into a note payable.

The note is due on upon demand from the noteholder, with sixty days’

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 

Program  

In April 2020, our subsidiaries ONM, BLEST and Clyra Medical received $ 218,000 , $ 96,000 and $ 43,000 , respectively, in loans pursuant to the SBA Paycheck Protection Program.

The loans mature in two years and incur interest at 1%.

Management believes that it has fully complied with the terms of forgiveness as set forth by the SBA, and has filed forgiveness applications.

The Clyra Medical PPP loan was forgiven on March 19, 2021.

Our subsidiary ONM Environmental received an Economic Injury Disaster loan from the U.S.

Small Business Administration in the amount of $ 150,000 .

The term of the loan is 30 years and has a 3.75 % interest rate.

Monthly payments of $ 800 begin January 2023.

BIOLARGO, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On August 10, 2020, we entered into an agreement to extend the maturity date of the Vernal note to August 12, 2021.

As consideration for the extension of the maturity date, we agreed to lower the conversion price from $0.17 to $0.14, extend the expiration date from September 18, 2023 to September 18, 2025, of a warrant issued to Vernal to purchase 1,734,375 shares of common stock, and extend the expiration date from August 12, 2024 to August 12, 2025 of a warrant issued to Vernal to purchase 2,095,588 shares of common stock.

The fair value of the reduced conversion price and extended warrant expirations dates resulted in a fair value totaling $228,000, recorded as a loss on extinguishment on our statement of operations.

Vernal subsequently converted $119,000 of principal into 848,214 shares of common stock and $24,000 of accrued interest into 169,643 shares of common stock.

The outstanding balance of this note as of December 31, 2020 was $356,000.

On August 10, 2020, we and Chappy Bean entered into an agreement in which we agreed to pay $25,000 in cash, and the holder agreed to extend the maturity date of the note to August 16, 2021.

The outstanding balance of this note as of December 31, 2020 was $50,000.

SBA Program Loans

In April 2020, our subsidiaries ONM, BLEST and Clyra received $218,000, $96,000 and $43,000, respectively, received loans pursuant to the U.S.

Small Business Administration Paycheck Protection Program.

The loans mature in two years and incur interest at 1%.

Management believes that it has fully complied with the terms of forgiveness as set forth by the Small Business Administration, and subsequent to December 31, 2020, filed forgiveness applications.

Our subsidiary ONM received an Economic Injury Disaster loan from the U.S.

Small Business Administration of $150,000.

The term of the loan is 30 years and has a 3.75% interest rate.

Monthly payments of $800 begin July 2021.

Share-Based Compensation

Restricted Stock Units

On May 28, 2019, our Compensation Committee, in conjunction with the approval of a new employment agreement for our Vice President of Operations and President of our subsidiary ONM, granted Joseph L.

Provenzano a restricted stock unit of 500,000 shares of common stock, subject to the execution of a “lock-up agreement” whereby the shares remain unvested unless and until the earlier of (i) a sale of the Company, (ii) the successful commercialization of the Company’s products or technologies as demonstrated by its receipt of at least $3,000,000 in cash, or the recognition of $3,000,000 in revenue, over a 12-month period from the sale of products and/or the license of technology, and (iii) the Company’s breach of the employment agreement resulting in his termination.

Issuance of Common Stock in exchange for payment of payables

Payment of Officer Salaries

During the year ended December 31, 2020, we were unable to pay our officer salaries in full, as such, our officers agreed to convert $299,000 of accrued and unpaid salary into 2,017,928 shares of our common stock.

During the year ended December 31, 2021, certain of our officers agreed to convert an aggregate $ 46,000 of accrued and unpaid salary into 214,206 shares of our common stock.

The unpaid salary is converted on the last day of each quarter as follows:

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on September 30, 2021, we issued 61,842 shares of our common stock at $0.19;

on June 30, 2020, we issued 367,403 shares of our common stock at $0.16;

on March 31, 2021, we issued 137,364 shares of our common stock at $ 0.23 per share.

During the year ended December 31, 2019, we were unable to pay our officer salaries in full, as such, our officers agreed to convert $210,000 of accrued and unpaid salary into 1,080,951 shares of our common stock.

During the year ended December 31, 2020, certain of our officers agreed to convert an aggregate $ 299,000 of accrued and unpaid salary into 2,017,928 shares of our common stock.

The unpaid salary is converted on the last day of each quarter as follows:

September 30, 2019, we issued 35,080 shares of our common stock at $0.31 per share;

June 28, 2019, we issued 465,875 shares of our common stock at $0.23 per share;

March 29, 2019, we issued 579,996 shares of our common stock at $0.16 per share.

BIOLARGO, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020, we issued 652,100 shares of our common stock at $ 0.12 per share;

on September 30, 2020, we issued 349,670 shares of our common stock at $0.15;

on June 30, 2020, we issued 367,403 shares of our common stock at $0.16;

on March 31, 2020, we issued 648,755 shares of our common stock at $ 0.17 per share.

Shares issued to Officers are unvested at the date of grant and subject to a lock-up agreement restricting vesting and sale until the earlier of (i) the consummation of a sale (in a single transaction or in a series of related transactions) of BioLargo by means of a sale of (a) a majority of the then outstanding common stock of BioLargo (whether by merger, consolidation, sale or transfer of common stock, reorganization, recapitalization or otherwise) or (b) all or substantially all of the assets of BioLargo;

and (ii) the successful commercialization of BioLargo’s products or technologies as demonstrated by its receipt of at least $3,000,000 in cash, or the recognition of $3,000,000 in revenue, over a 12-month period from the sale of products and/or the license of technology;

and (iii) the Company’s breach of the employment agreement between the Company and Officer and resulting in Officer’s termination.

and (ii) the successful commercialization of BioLargo’s products or technologies as demonstrated by its receipt of at least $ 3,000,000 in cash, or the recognition of $ 3,000,000 in revenue, over a 12 -month period from the sale of products and/or the license of technology;

and (iii) the Company’s breach of the employment agreement between the Company and Officer and resulting in Officer’s termination.

Payment of Consultant Fees

During 2020, we were unable to pay our consultant fees in full, as such, agreed to convert $366,000 accrued and unpaid obligations into 2,440,803 shares of our common stock.

The unpaid obligation is converted on the last day of each quarter as follows:

During 2021, certain of our consultants agreed to convert an aggregate $ 282,000 accrued and unpaid obligations into 1,913,261 shares of our common stock.

The unpaid obligations were converted on the last day of each quarter as follows:

December 31, 2021, we issued 348,772 shares of our common stock at $ 0.21 per share;

2 unchanged sentences

March 31, 2021, we issued 610,123 shares of our common stock at $ 0.23 per share.

During 2019, we were unable to pay our consultant fees in full, as such, agreed to convert $500,000 of accrued and unpaid obligations into 2,237,539 shares of our common stock.

The unpaid obligation is converted on the last day of each quarter as follows:

During 2020, certain of our consultants agreed to convert an aggregate $ 366,000 accrued and unpaid obligations into 2,440,803 shares of our common stock.

The unpaid obligations are converted on the last day of each quarter as follows:

December 31, 2020, we issued 373,438 shares of our common stock at $ 0.12 per share;

September 30, 2020, we issued 270,000 shares of our common stock at $ 0.15 per share;

June 30, 2019, we issued 515,809 shares of our common stock at an average of $0.21 per share;

June 30, 2020, we issued 1,406,630 shares of our common stock at $ 0.16 per share;

March 31, 2020, we issued 390,735 shares of our common stock at $ 0.17 per share.

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

All of these offerings and sales were made in reliance on the exemption from registration contained in Section 

4 ( 2 ) of the Securities Exchange Act and/or Regulation D promulgated thereunder as not involving a public offering of securities.

Payment of Interest

During 2020, pursuant to terms included in our debt agreements, we converted $184,000 accrued interest into 1,728,331 shares of our common stock as follows:

During June 2021, pursuant to terms included in our debt agreements, we converted an aggregate $ 16,000 accrued interest into 81,777 shares of our common stock at $ 0.19 per share.

During 2020, pursuant to terms included in our debt agreements, we converted an aggregate $ 184,000 accrued interest into 1,728,331 shares of our common stock as follows:

September 30, 2020, we issued 1,412,052 shares of our common stock at $ 0.11 per share;

1 unchanged sentence

March 31, 2020, we issued 19,278 shares of our common stock at $ 0.17 per share.

During 2019, pursuant to terms included in our debt agreements, we converted $200,000 accrued interest into 927,318 shares of our common stock as follows:

December 31, 2019 we issued 292,380 shares of our common stock at $0.18 per share, we issued 395,944 shares of our common stock at $0.27 per share;

during the three months ended June 30, 2019, we issued 87,478 shares of our common stock, at an average of $0.17 per share;

during the three months ended March 31, 2019, we issued 139,362 shares of our common stock at an average of $0.18 per share.

Stock Option Expense

During the years ended December 31, 2020 and 2019, we recorded an aggregate $1,821,000 and $1,552,000, 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 8 for information on stock option expense for options issued by subsidiary Clyra Medical.

BIOLARGO, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

All of these offerings and sales were made in reliance on the exemption from registration contained in Section 

4 ( 2 ) of the Securities Exchange Act and/or Regulation D promulgated thereunder as not involving a public offering of securities.

Stock Option Expense

During the years ended December 31, 2021 and 2020, we recorded an aggregate $ 1,308,000 and $ 1,821,000 , in selling general and administrative expense related to the issuance of stock options.

We issued options through our 2018 Equity Incentive Plan, and outside of this plan. 

See Note 10 for information on stock option expense for options issued by subsidiary Clyra Medical.

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.

It is set to expire on its terms on June 22, 2028.

Our Board of Director’s Compensation Committee administers this plan.

It is set to expire on its terms on June  

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.

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

As of December 31, 2021, 46,000,000 shares are authorized under the plan.

Activity for our stock options under the 2018 Plan during the year ended December 31, 2021, and the year ended December 31, 2020, is as follows:

Price per  

Price per share

Value (1)  

Balance, December 31, 2019

9,214,356  

$ 0.16 –

$ 0.25  

11,197,687  

$ 0.12  

$ 0.15  

( 1,546,518 )

Balance, December 31, 2020

18,865,525  

$ 0.12 –

$ 0.19  

4,320,617  

$ 0.13 –

$ 0.19  

Balance, December 31, 2021

23,186,142  

$ 0.12 –

$ 0.19  

( 4,541,241 )

$ 0.12 –

$ 0.19  

Vested, December 31, 2021

18,644,901  

$ 0.12 –

$ 0.19  

$ 725,000  

( 1 ) –

Aggregate intrinsic value based on closing common stock price of $ 0.21 at December 31, 2021.

The options granted under the 2018 Plan to purchase 4,320,617 shares during 2021 were issued to officers, 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 

1,370,454  shares of our common stock at an exercise price on the respective grant dates between $ 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 

 (iii) we issued options to purchase 

2,214,594  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 $ 410,000  and will vest quarterly over 

four  years as long as they are retained as employees;

and (iv) we issued options to purchase 

435,569  shares of our common stock to consultants and employees in lieu of cash for unpaid obligations totaling $ 77,000 .

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

BIOLARGO, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The options granted under the 2018 Plan to purchase 11,197,687 shares during 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 COVID- 19 pandemic.

These options vest quarterly over one year and the fair value totaled $616,000;

(ii) we issued options to purchase 517,500 shares of our common stock at an exercise price range of $0.14 – $0.21 per share to our CFO, with 492,500 shares having vested during 2020, and the remaining shares to vest 25,000 in January 31, 2021, the fair value of the options issued to our CFO totals $100,000;

(ii) we issued options to purchase 517,500 shares of our common stock at an exercise price range of $ 0.14 –

$ 0.21 per share to our CFO, with 492,500 shares having vested during 2020, and the remaining shares to vest 25,000 in January 31, 2021, the fair value of the options issued to our CFO totals $100,000;

(iii) we issued options to purchase 1,746,434 shares of our common stock at an exercise price on the respective grant date of $ 0.17 ,$ 0.16 , $ 0.15 and $ 0.12 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 $250,000;

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(v) we issued options to purchase 531,298 shares of our common stock to consultants in lieu of cash for unpaid obligations totaling $74,000;

and (vi) we issued options to purchase 1,501,954 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.

and (vi) we issued options to purchase 1,501,954 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 $ 198,000 .

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

The options to purchase 7,895,839 shares granted during the year ended December 31, 2019 are comprised of options issued to employees, consultants, officers, and directors.

We issued options to purchase 6,614,381 shares of our common stock employees as part of their employment agreement and as part of an employee retention program on their respective grant dates ranging between $0.16 – $0.40 per share.

The vesting terms for employment agreements generally called for a portion of option to vest immediately and the remaining portion to vest over four years.

Certain option issuances to our officers and employees have vesting terms that are based on metrics over a period of time, these are described in more detail below.

We issued options to purchase 1,281,458 shares of our common stock to members of our board of directors for services performed, in lieu of cash, at an exercise price on the respective grant dates ranging between $0.16 – $0.32 per share.

BIOLARGO, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Chief Financial Officer Contract Extension

On January 16, 2019, we agreed to extend the engagement agreement dated February 1, 2008 (the “Engagement Agreement”, which had been previously extended multiple times) with our Chief Financial Officer, Charles K.

The Engagement Extension Agreement dated as of January 16, 2019 (the “Engagement Extension Agreement”) provides for an additional term to expire September 30, 2019 (the “Extended Term”), and is retroactively effective to the termination of the prior extension on September 30, 2018.

Dargan has been serving as the Company’s Chief Financial Officer since such termination pursuant to the terms of the December 31, 2018 extension.

For the Extended Term, Mr.

Dargan was issued an option (“Option”) to purchase 300,000 shares of the Company’s common stock, at a strike price equal to the closing price of the Company’s common stock on January 16, 2019 of $0.22, to expire January 16, 2029, and to vest over the term of the engagement with 75,000 shares having vested as of December 31, 2018, and the remaining shares to vest 25,000 shares monthly beginning January 31, 2019, and each month thereafter, so long as the Engagement Agreement is in full force and effect.

The Option was issued pursuant to the Company’s 2018 Equity Incentive Plan.

The issuance of the Option is Mr.

Dargan’s sole source of compensation for the Extended Term.

As was the case in all prior terms of his engagement, there is no cash component of his compensation for this term.

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.

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 extension agreement provides for an additional one -year term to expire 

January 31, 2022 ( the “Extended Term”).

As the sole 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 

275,000  shares having vested as of 

March 15 , 2021,  and the remaining shares to vest 25,000 shares monthly beginning March 31, 2021, and each month thereafter, so long as the agreement is in full force and effect.

The Option is exercisable at $ 0.174 per share, the closing price of BioLargo’s common stock on the March 18 , 2021 grant date, expires ten years from the grant date, and was issued pursuant to the Company’s 2018 Equity Incentive Plan.

The fair value of these options totaled $ 49,000 , which expense is recorded ratably over the 

twelve -month agreement term.

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.

See also Note 14, Subsequent Events.

Vice President of Operations Contract Extension

On May 28, 2019, the Compensation Committee of the Board of Directors approved the terms of an employment agreement for Joseph L.

Provenzano to continue his work as Vice President of Operations and President of our subsidiary ONM, and granted to Mr.

Provenzano an incentive stock option to purchase 1,000,000 shares of the Company’s common stock pursuant to the terms of our 2018 Plan.

The exercise price and fair value of the option is equal to the closing price of our common stock on the May 28, 2019 grant date, at $0.17 per share.

The option will vest annually in 200,000 increments over five years.

The option may be exercised for up to ten years following the grant date.

Notwithstanding the foregoing, any portion of the option which has not yet vested shall be immediately vested in the event of, and prior to, a change of control, as defined in Mr.

Provenzano’s employment agreement.

Vice President of Sales

On May 28, 2019, the Compensation Committee of the Board of Directors approved the terms of an employment agreement for our Vice President of Sales and issued him options to purchase an aggregate 1,200,000 shares of the Company’s common stock pursuant to the terms of our 2018 Plan.

The exercise price of the first option to purchase 200,000 shares is equal to the closing price of our common stock on the May 28 grant date, at $0.17 per share.

One-third of the option vests upon grant, the next third at the first anniversary of the grant, and the final third upon the second anniversary of the grant.

The remaining options to purchase an aggregate 1,000,000 shares are unvested at grant date, and contingent upon certain performance metrics based on sales of our ONM subsidiary, none of which have been met.

As such, no additional fair value was recorded and we are unable to estimate at this time if these metrics will be met.

Upon execution of his employment agreement on July 5, 2019, an additional option to purchase 300,000 shares was granted, with an exercise price as of July 5 ($0.25), vesting 100,000 shares on the first, second and third anniversary of the agreement.

BIOLARGO, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Director of Business Development for ONM

On July 23, 2019, the Compensation Committee of the Board of Directors approved the terms of an employment agreement for ONM’s Director of Business Development, who also serves as BioLargo’s Director of Corporate Development, and issued him options to purchase an aggregate 1,000,000 shares of the Company’s common stock at $0.35 per share pursuant to the terms of our 2018 Plan.

The first option allows the purchase of 400,000 shares and vests 100,000, 90 days after issuance, 100,000 shares on the first anniversary, and 200,000 shares on the second anniversary of the employment agreement.

The remaining options to purchase an aggregate 600,000 shares are unvested at grant date, and contingent upon certain performance metrics based on sales of our ONM subsidiary, none of which have been met.

As such, no additional fair value was recorded and we are unable to estimate at this time if these metrics will be met.

This individual resigned in August, 2020, and unvested options ceased vesting after that date.

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 years ended December 31, 2021 and 2020 is as follows:

Options  

Outstanding  

price per share

Balance, December 31, 2019

8,769,451  

$ 0.22 –

$ 0.43  

( 3,080,088 )

0.22 –

Balance, December 31, 2020

5,689,363  

$ 0.23 –

$ 0.44  

( 2,810,117 )

0.34 –

Balance, December 31, 2021

2,879,246  

$ 0.23 –

$ 0.49  

( 1 ) –

Aggregate intrinsic value based on closing common stock price of $ 0.21 at December 31, 2021.

Non-Plan Options issued

During the year ended December 31, 2020, we issued options to purchase 1,145,476 shares of our common stock at exercise prices ranging between $0.12 – $0.21 per share to vendors for fees for services.

The fair value of the options issued totaled $167,000 and is recorded in our selling, general and administrative expense.

During the year ended December 31, 2019, we issued options to purchase 1,226,586 shares of our common stock at exercise prices ranging between $0.16 – $0.32 per share to vendors for fees for services.

The fair value of the options issued totaled $260,000 and is recorded in our selling, general and administrative expense.

BIOLARGO, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

price per share

Balance, December 31, 2019

19,604,107  

$ 0.16 –

$ 0.43  

1,145,476  

0.12 –

Balance, December 31, 2020

20,749,583  

$ 0.12 –

$ 0.41  

169,624  

0.17 –

Balance, December 31, 2021

20,119,207  

$ 0.12 –

$ 0.39  

( 1,360,944 )

Vested and outstanding, December 31, 2021

18,758,263  

$ 0.12 –

$ 0.38  

$ 93,000  

( 1 ) –

Aggregate intrinsic value based on closing common stock price of $ 0.21 at December 31, 2021.

During the year ended December 31, 2021, we issued options to purchase an aggregate 169,624 shares of our common stock at exercise prices ranging between $ 0.17 –

$ 0.23 per share to vendors for fees for services.

The fair value of the options issued totaled an aggregate $ 34,000 and is recorded in our selling, general and administrative expense.

During the year ended December 31, 2020, we issued options to purchase an aggregate 1,145,476 shares of our common stock at exercise prices ranging between $ 0.12 –

$ 0.21 per share to vendors for fees for services.

The fair value of the options issued totaled an aggregate $ 167,000 and is recorded in our selling, general and administrative expense.

BIOLARGO, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

price per share

Warrants  

price per  

outstanding  

price per share  

Balance, December 31, 2019

43,231,161  

$ 0.25 –

$ 0.35  

5,594,314  

0.13 –

( 15,844,486 )

0.18 –

Balance, December 31, 2020

32,980,989  

$ 0.13 –

$ 0.29  

11,096,992  

0.12 –

( 1,283,333 )

0.12 –

( 6,029,086 )

0.12 –

Balance, December 31, 2021

36,765,562  

$ 0.13 –

$ 0.27  

$ 280,000  

( 1 ) –

Aggregate intrinsic value based on closing common stock price of $ 0.21 at December 31, 2021.

Warrants issued in 2020 Unit Offering

During the year ended December 31, 2020, pursuant to our 2020 Unit Offering (see Note 3), we issued six-month stock purchase warrants to purchase an aggregate 2,318,194 shares of our common stock at prices from $0.18 - $0.22 per share, and five-year stock purchase warrants to purchase an aggregate 2,318,194 shares of our common stock at prices from $0.23 - $0.27 per share.

Warrants Issued to One-Year Noteholders

In conjunction with two investments of one-year convertible notes (see Note 4, “ Convertible notes, mature August 12 and 16, 2021 ”) we issued warrants in July 2017 to purchase an aggregate 400,000 shares to two investors at an exercise price of $0.65 per share.

Each of these warrants contained provisions that required a reduction to the exercise price and increase to the number of warrant shares in the event that we sold our common stock at a lower price than the exercise price (subject to some exceptions).

During the year ended December 31, 2020, in conjunction with extensions of the maturity dates of these notes, we adjusted downward the warrant exercise price to $0.13, resulting in an increase of 957,926 warrants available for exercise.

The increase in warrants resulted in a fair value totaling $117,000, recorded as a deemed dividend in our consolidated statement of stockholders’ equity.

BIOLARGO, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Warrants issued as part of debt extension and extinguishment

On March 5, 2019, we executed amendments extending the maturity dates of notes issued to Vernal Bay and Chappy Bean (see Note 4, subsection titled “ Notes payable, mature August 12 and 16, 2020 (previously due September 6, 2019) ” ).

As consideration for this extension, we agreed to reduce the exercise price from $0.25 to $0.20 per share, and increase the number of shares purchasable by the warrants from 1,987,500 to 2,484,375.

In doing so, the maximum investment amount under each warrant remained the same.

In conjunction with the refinance of the Vernal and Chappy Bean notes in August 2019, Vernal received a warrant to purchase 2,095,588 shares of our common stock, expiring in five years, and which may be exercised at $0.25 per share, and Chappy Bean received a warrant to purchase 330,882 shares of our common stock under the same terms.

Warrants issued as part of line of credit extinguishment

In July and August 2019, we issued warrants to purchase an aggregate 1,130,515 shares of our common stock to three line of credit holders who had agreed to convert their line of credit into an amended and restated note plus a warrant (see Note 4, “Line of credit, due on demand”).

The warrant expires in five years and may be exercised at $0.25 per share.

Warrants issued as part of 2018 OID extinguishment

On September 12 and September 16, 2019, the holders of a convertible note in the aggregate principal amount of $100,000, agreed to satisfy the note through the issuance of an amended and restated convertible promissory note due in 12 months, September 12 and September 16, 2020, including a 25% original issue discount (see Note 4) and a warrant to purchase 551,471 shares of our common stock.

The warrant expires in five years and may be exercised at $0.25 per share.

Warrants issued as consent for variable rate debt waiver

On January 7 and January 31, 2019, Lincoln Park Capital Fund, LLC agreed to waive the provisions of the Purchase Agreement dated August 25, 2017, prohibiting variable rate transactions.

As consideration for the waivers, we issued to Lincoln Park a warrant to purchase 300,000 shares of our common stock at $0.25 per share, expiring five years from the date of grant.

The fair value of these warrants totaled $54,000 and was recorded as a discount on note payable on our consolidated balance sheet and will amortize to interest expense in 2019 over the term of the notes.

(See Note 4.)

Warrants issued concurrently with the Nine-month OID notes

In conjunction with the issuance of nine-month OID notes, we issued each investor a warrant to purchase common stock for $0.25 per share, expiring 5 years from the date of issuance.

During the three months ended March 31, 2019, we issued warrants to purchase 637,500 shares of our common stock to the three investors.

The fair value of these warrants totaled $89,000 and was recorded as a discount on note payable on our consolidated balance sheet and will amortize to interest expense over the term of the notes.

On June 7, 2019, we reduced the conversion prices of the notes from $0.25 to $0.17, and this resulted in an increase in the number of warrants purchasable by the investors by 300,000 to 937,500, which resulted our recording the fair value of $84,000, which is recorded as a deemed dividend.

Warrants Issued concurrently with Twelve-month OID notes

During the year ended December 31, 2019, we issued warrants to purchase 12,325,370 shares of our common stock to purchasers of our Twelve-month OID Notes (see Note 4).

The warrants allow the holder to purchase common stock for $0.25 per share, expiring 5 years from the date of issuance.

The number of shares purchasable under each warrant was equal to the 75% of the principal balance of the investor’s note, divided by $0.17 (thus, for example, a $300,000 investment would yield a note with principal balance of $375,000, and a warrant allowing for the purchase of up to 1,654,412 shares).

The fair value and BCF of these warrants totaled $2,240,000 and was recorded as a discount on note payable on our consolidated balance sheet and will amortize to interest expense over the term of the notes.

BIOLARGO, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Warrants Issued concurrently with the Convertible Note due August 9, 2021

In conjunction with an August 2019 investment and the issuance of a convertible note due August 9, 2021 (see Note 4), we issued an investor a warrant to purchase 1,200,000 shares of our common stock for $0.30 per share, expiring 5 years from the date of issuance.

The fair value and BCF of these warrants totaled $198,000 and was recorded as a discount on note payable on our consolidated balance sheet and will amortize to interest expense over the term of the note.

During the years ended December 31, 2021 and 2020, pursuant to our 2020 Unit Offering (see Note 3 ), we issued six -month stock purchase warrants to purchase an aggregate 5,435,996 shares of our common stock at prices from $ 0.14 - $ 0.23 per share, and five -year stock purchase warrants to purchase an aggregate 5,435,996 shares of our common stock at prices from $ 0.16 - $ 0.29 per share.

Warrant issued in conjunction with amendment to note payable

March 1, 2021, 

we and the holder of a $ 50,000  note payable modified the note (see Note 

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.

Exercise of Warrants

During the year ended December 31, 2019, we issued 7,544,456 shares of our common stock from the exercise of outstanding stock purchase warrants and in exchange we received proceeds totaling $560,000.

On June 24, 2019, Vista Capital exercised its stock purchase warrant issued September 12, 2018, electing to utilize the cashless exercise feature in the warrant.

The cashless exercise formula required the issuance of 2,877,790 shares of common stock.

The increase of 2,520,780 available shares under the warrant was the result of the downward adjustment of the exercise price (pursuant to price protection features in the warrant), resulting in a fair value totaling $355,000, which is recorded as a deemed dividend in our statement of stockholders’ equity.

Fair Value – Interest Expense

During the year ended December 31, 2021, we issued an aggregate 1,283,333 shares of our common stock from the exercise of outstanding stock purchase warrants and in exchange we received proceeds totaling an aggregate $ 164,000 .

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.

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Risk free interest rate

0.10 –

Expected volatility

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The expected life in years is based on the contract term of the warrant.

BIOLARGO, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accounts Payable and Accrued Expenses

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

As of December 31, 2020 (in thousands):

As of December 31, 2021, accounts payable and accrued expenses included the following (in thousands):

Accounts payable

$ ( 47 )  

Accrued payroll

Accrued interest

BIOLARGO, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2019 (in thousands):

As of December 31, 2020, accounts payable and accrued expenses included the following (in thousands):

Accounts payable

$ ( 42 )  

Accrued payroll

Accrued interest

See Note 10, “ Accounts Payable and Accrued Expenses ”, for the accounts payable and accrued expenses of Clyra Medical.

See Note 10, “

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

Provision for Income Taxes

Given our historical losses from operations, income taxes have been limited to the minimum franchise tax assessed by the State of California.

Since 2016, we have not consolidated for tax purposes, our subsidiary, Cyyra Medical, as our ownership interest was less than 80%.

Given our historical losses from operations, income tax obligations have been limited to the minimum franchise tax assessed by the State of California.

Since 2016, we have not consolidated for tax purposes, our subsidiary, Clyra Medical, as our ownership interest was less than 80%.

Our subsidiary BLEST is a Tennessee limited liability company and as such, is not consolidated in our corporate tax return.

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However, the state of Tennessee charges franchise and excise taxes for limited liability companies, and thus BLEST will incur a nominal franchise tax and will not pay an excise tax unless and until it is profitable.

At December 31, 2020, we had federal and California tax net operating loss carry-forwards (“NOLs”) of approximately $104,000,000 and $47,000,000 respectively.

At December 31, 2021, we had federal and California tax net operating loss carry-forwards (“NOLs”) of approximately $109,000,000 and $52,000,000 respectively.

Due to changes in our ownership through common stock issuances throughout the year, the utilization of NOLs may be subject to annual limitations and discounts under provisions of the Internal Revenue Code.

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Such limitations could result in the permanent loss of a significant portion of the NOLs.

Under the Tax Cuts and Jobs Act (“TCJA”) signed into law on December 22, 2018, post‑2018 NOLs may be carried forward indefinitely, and pre‑2018 NOLs have a 20-year limitation on carryforwards;

however, the NOLs are limited to the lesser of ( 1 ) the aggregate of the NOL carryovers to such year, plus the NOL carry-backs to such year, or ( 2 ) 80% of taxable income (determined without regard to the deduction) (Internal Revenue Code Sec.

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As such, ours will begin to expire in for the tax period ending December 31, 2021.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law, under which federal NOLs could be carried back for five years against taxable income.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law, under which federal NOLs could be carried back for five years against taxable income.

Since BioLargo does not have any taxable income, this provision of the CARES Act will not affect any tax position.

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The timing and amount of future earnings are uncertain and therefore we have established a 100 % valuation allowance.

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.

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

BIOLARGO, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The consideration provided to Scion is subject to an escrow agreement dated September 26, 2018 (“Escrow Agreement”) and earn out provisions and includes:

 In-Process Research and Development;

Impairment expense

Scion Solutions Transaction dated March 1, 2022

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.

The consideration provided to Scion, which was subject to an escrow agreement dated September 26, 2018 ( “Escrow Agreement”) and earn out provisions, included:

(i) 21,000 shares of the Clyra Medical common stock;

(ii) 10,000 shares of Clyra Medical common stock redeemable for 7,142,858 BioLargo common shares (detailed below);

and (iii) a promissory note in the principal amount of $1,250,000 owed by Clyra Medical to be paid through new capital investments and revenue, as detailed below.

This consideration was initially held in escrow pending Clyra Medical raising $1 million “base capital” to fund its business operations.

On December 17, 2018, the parties entered into a closing agreement (“Closing Agreement”) reflecting the satisfaction of the obligation to raise $1 million “base capital”;

at that time, one-half of the shares of Clyra Medical common stock exchanged for the Scion assets were released to Scion.

The remaining Clyra Medical common shares (a total of 15,500 shares) remained 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;

(b) the recognition by Clyra Medical of $100,000 in aggregate gross revenue;

(c) the granting of all or any part of the patent application for the SkinDisc product, or recognition by Clyra Medical of $500,000 in gross revenue;

(d) recognition by Clyra Medical of $1 million in aggregate gross revenue;

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

Immediately following Clyra Medical’s purchase of Scion’s intangible assets, Clyra Medical sold to BioLargo the assets, along with 12,755 Clyra Medical common shares.

and (iii) a promissory note in the principal amount of $ 1,250,000 owed by Clyra Medical (“Clyra-Scion Note”).

The Clyra-Scion note accrued interest at an annual rate of 5 %.

As of December 31, 2021, $243,000 had be paid in reduction of principal owed on the Clyra-Scion note.

Immediately following Clyra Medical’s purchase of Scion’s intangible assets, Clyra Medical sold to BioLargo the assets, along with 12,755 Clyra Medical common shares.

In exchange, BioLargo issued Clyra Medical 7,142,858 shares of BioLargo common stock.

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Scion may exchange its 10,000 Clyra Medical common shares for the 7,142,858 shares of BioLargo common stock issued to Clyra Medical, subject to the escrow and earn-out provisions described above.

The fair value of the 7,142,858 BioLargo shares as of the date of December 31, 2019, was $1,893,000.

During the year ended December 31, 2020, Clyra’s gross revenue exceeded $200,000, and thus the first and second performance metrics in the Escrow Agreement were met.

As a result, Scion vested 6,200 Clyra common shares, of which 2,200 are redeemable for 1,428,571 BioLargo shares.

The fair value of the newly vested shares totals $257,000.

The fair value of the 7,142,858 BioLargo shares at December 31, 2020, was $ 2,150,000 .

During the year ended December 31, 2020, Clyra Medical’s gross revenue exceeded $ 200,000 , and thus the first and second performance metrics in the Escrow Agreement were met.

As a result, Scion vested 6,200 Clyra Medical common shares, of which 2,200 are redeemable for 1,428,571 BioLargo shares.

The fair value of the newly vested shares total was $ 257,000 at December 31, 2020.

On our balance sheet, the In-Process Research and Development asset, and Common Stock Held for Redemption liability, each increased by that amount as of December 31, 2020.

Noncontrolling Interest – Clyra Medical

By written agreement dated March 1, 2022, fully executed on March 3, 2022, Clyra Medical and BioLargo agreed to sell back to Scion the Scion IP purchased in the 2018 Scion Transaction.

In exchange, Scion agreed to (i) accept 2,000,000 (of the 5,000,000 ) BioLargo common shares it had earned, (ii) forgive the outstanding principal (of $ 1,007,000 ) and interest (of $ 133,000 ) due on the Scion Promissory Note, and (iii) return all shares of Clyra common stock owned by Scion.

Additionally, Scion members Spencer Brown, Tanya Rhodes, and Dr.

Brock Liden each forgave all amounts due to them pursuant to their consulting agreements with Clyra Medical, which, in the aggregate, represented $ 305,000 on Clyra Medical’s accounts payable, and Spencer Brown resigned from Clyra Medical’s board of directors.

The agreement further provided that Clyra Medical and BioLargo indemnify Scion and related parties from any claims related to the SkinDisc, and for mutual releases of any claims between the parties.

BIOLARGO, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Spencer Brown and Tanya Rhodes each entered into non-disclosure agreements whereby they agreed not to disclose Clyra Medical or BioLargo’s proprietary information, and five -year non-compete provisions whereby they agreed not to engage in competition with copper-iodine complex technologies that are the same or substantially similar to Clyra Medical’s intellectual property.

In exchange, Clyra Medical, BioLargo, and certain agents of Clyra Medical and BioLargo agreed not to engage in competition with Scion’s SkinDisc technology.

Separately, BioLargo and Clyra Medical entered into an agreement dated March 3, 2022, whereby (i) BioLargo agreed to transfer to Scion the Scion IP in accordance with the March 1, 2022 agreement listed on its balance sheet as In-process Research and Development, which was valued at $ 2,150,000 , and (ii) Clyra Medical transferred to BioLargo for its return to treasury 5,142,858 shares of BioLargo common stock.

Although these agreements were not fully executed until March 3, 2022, the essential terms of the agreement between Scion and Clyra Medical/BioLargo that would have a material impact on BioLargo’s financial statements remained unchanged since the first draft of the transaction document prepared and agreed to by both parties in December 2021, subject to document finalization and execution, and therefore, management considered the guidance in Accounting Standard Codification 855, whereby since the condition existed as of the balance sheet date, with further evidence arising subsequent to the balance sheet date, the Company recognizes the financial statement effects of this transaction as of December 31, 2021.

Impairment of Other Asset, Prepaid Marketing

On December 30, 2015, Clyra entered into a consulting agreement with Beach House Consulting, LLC, through which Jack B.

Strommen is obligated to provide consulting services to Clyra Medical related to its sales and marketing activities, in exchange for $ 23,000 per month for a period of four years.

On June 30, 2020, at Clyra’s request, Beach House Consulting agreed to accept 3,639 shares of Clyra common stock valued at $ 788,000 , in lieu of cash, as full prepayment of the consulting fee.

The obligation to provide the consulting services is dependent on Clyra generating an average of $ 250,000 in monthly sales over three consecutive months, which has not been met. The value of the shares issued to Beach House totaled $788,000, and the obligation is recorded as a non-current asset on our balance sheet. In light of Clyra Medical’s revenues for the year ended December 31, 2021, and its shift of focus to a surgical wash product which it began selling in the three months ending March 31, 2022, Management determined as of December 31, 2021, to impair the asset by 25 % ($ 197,000 ).

The impairment amount was charged to our selling, general and administrative expenses.

The following table summarizes the expenses related to the foregoing transactions as of December 31, 2021.

In-Process Research and Development

$ ( 2,150,000 )  

Clyra debt obligations (Clyra-Scion note)

1,007,000  

Accounts payable and accrued interest

458,000  

Liability to Scion shareholders

540,000  

Other asset, prepaid marketing

( 197,000 )  

$ ( 2,150,000 )  

$ 1,808,000  

$ ( 342,000 )

Noncontrolling Interest –

Clyra Medical

As discussed in Note 2, above, we consolidate the operations of our partially owned subsidiary Clyra Medical, of which we owned 56 % of its outstanding shares as of December 31, 2021.

The increase in BioLargo’s ownership is due to the reduction in the shares outstanding through the Scion transaction (see Note 9, “

In-process Research and Development”).

Debt Obligations of Clyra Medical

Note Payable (Scion)

In conjunction with the Scion Transaction (see Note 9), 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 scheduled to be made annually beginning on June 26, 2021 and each June 26 th thereafter until paid.

At December 31, 2020 and 2019, the balance due on the Clyra Medical Note Payable totaled $1,007,000.

Line of Credit

On June 30, 2020, Clyra entered into a 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 received $260,000 in draws and made repayments totaling $36,000.

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

Clyra Medical received $ 260,000 in draws and made repayments totaling $ 73,000 .

As of December 31, 2021, the balance outstanding on this line of credit totals $ 187,000 .

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.

Funds from the line of credit must be used to produce inventory.

Additional draws are conditional upon the presentation of 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.

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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.

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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 $ 591,000 and is recorded as a non-current asset on our balance sheet.

(See Note 9, “Other Asset, Prepaid Marketing”.)

Equity Transactions

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BioLargo, Inc.

49,207  

Sanatio Capital

Scion Solutions (1)

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

Common Shares

18,704  

19,280  

87,191  

Sales of Common Shares

During the year ended December 31, 2021, Clyra sold 161 shares of its common stock for $ 50,000 to private investors at $ 310 per Clyra share.

1 unchanged sentence

Of this amount, 22,513 shares were issued to BioLargo pursuant to an amendment to the BioLargo/Clyra license agreement whereby BioLargo has granted Clyra rights to commercialize its technology in certain medical fields.

The amendment provided, among other things, for the payment of the “initial license fee” through the issuance of 22,513 shares of Clyra common stock.

Additionally, BioLargo acquired 490 shares of Clyra common stock by making vendor payments on Clyra’s behalf in exchange for the equity, at a price of $310 per share.

During the year ended December 31, 2019, Clyra sold 2,680 shares of its common stock for $536,000 at $200 per Clyra share.

Series A Preferred shares

Sanatio Capital purchased Clyra Series A Preferred shares in 2015.

Sanatio Capital is owned by Jack B.

Strommen, who subsequently joined BioLargo’s board of directors.

Clyra’s Preferred Shares accrue an annual dividend of 8% for a period of five years.

On December 31, 2019, Sanatio Capital agreed to convert the accrued dividend of $270,000, and its preferred shares, into 3,544 shares of Clyra common stock.

The dividend is recorded on our December 31, 2019 statement of stockholders’ deficit.

The amendment provided, among other things, for the payment of the “initial license fee”

through the issuance of 22,513 shares of Clyra common stock.

Additionally, BioLargo acquired 490 shares of Clyra common stock by making vendor payments on Clyra’s behalf in exchange for the equity, at a price of $ 310 per share.

During the year ended December 31, 2020, Clyra sold 2,742 shares of its common stock for $ 851,000 at $ 200 per share.

Stock Options

Clyra issues options to its employees and consultants in lieu of compensation owed on a regular basis.

December 31, 2021, 

the Company had issued options to purchase 

11,411  shares of Clyra stock. 

During the years ended December 31, 2021 

2020,  Clyra issued options to purchase 

2,594  and 

3,943  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 

nine  months ended 

September 30, 2021 

2020  totaled $ 564,000  and $ 788,000 , 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.

Because Clyra is a private company with 

no  secondary market for its common stock, the resulting fair value was discounted by 

BIOLARGO, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock Options

During 2019, Clyra began issuing options to its employees and consultants in lieu of compensation owed.

As of December 31, 2019, the Company had issued options to purchase 7,624 shares of Clyra stock.

During 2020, Clyra issued options to purchase 3,943 shares of its common stock.

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 2020, totaled $853,000, which exceeded the amount of compensation owed, and the additional fair value totaling $214,000 was recorded as a loss on extinguishment of debt in our consolidated statement of operations.

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

Because Clyra is a private company with no secondary market for its common stock, the resulting fair value was discounted by 30%.

Accounts Payable and Accrued Expenses

At December 31, 2020, Clyra had the following accounts payable and accrued expenses:

(in thousands)

At December 31, 2021 and 2020, Clyra had the following accounts payable and accrued expenses:

Amount (in thousands)

December 31, 2021

December 31, 2020

Accounts payable

2 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 12 “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 12 “Business Segment Information”.) BLEST 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.

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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.

1 unchanged sentence

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).

 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.

1 unchanged sentence

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).

It was agreed that one -half and one -quarter of the eligible profit 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.

BIOLARGO, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In January 2022, the committee again reviewed the operating performance and determined that a portion of the performance metrics were met.

It was agreed that an additional one -half and one -quarter of the eligible profits interests would be vested ( 6.50 % in the aggregate), and therefore an additional half of the option interests would be vested ( 525,000 options shares in the aggregate).

The vesting of option shares resulted in a fair value totaling $130,000;

$ 65,000 is recorded on our consolidated statement of operations as selling, general and administrative expense for each of the years ended December 31, 2021 and December 31, 2020.

Business Segment Information

1 unchanged sentence

The four operational business segments are:

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

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

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

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

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).

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.

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, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 years December 31, 2021 and 2020, is as follows (in thousands):

4 unchanged sentences

Intersegment revenue

( 681 )  

$ 2,531  

$ 2,432  

Operating loss

BioLargo corporate

$ ( 3,538 )  

ONM Environmental

( 511 )  

( 629 )  

Clyra Medical

( 1,142 )  

BioLargo Water

( 616 )  

$ ( 6,436 )  

Research and development

BioLargo corporate

$ ( 1,001 )  

( 488 )  

Clyra Medical

( 66 )  

BioLargo Water

( 486 )  

BioLargo corporate - intersegment

$ ( 1,367 )  

Interest expense

BioLargo corporate

$ ( 118 )  

ONM Environmental

Clyra Medical

Research and development

BioLargo corporate

( 116 )  

$ ( 234 )  

ONM Environmental

$ ( 511 )  

( 629 )  

Clyra Medical

BioLargo Water

BioLargo corporate - intercompany

( 566 )  

BioLargo corporate

( 5,781 )  

Consolidated net loss

$ ( 6,894 )  

As of December 31, 2021

Tangible assets

$ ( 47 )  

$ 2,522  

Investment in South Korean joint venture

Intangible assets

$ ( 47 )  

$ 3,023  

As of December 31, 2020

Tangible assets

$ 1,125  

$ ( 42 )  

$ 2,388  

Investment in South Korean joint venture

Intangible assets

Commitments and Contingencies

Provenzano Employment Agreement

On June 18, 2019, we and the head of our ONM subsidiary, Joseph L.

Provenzano, entered into an employment agreement (the “Provenzano Employment Agreement”), replacing in its entirety the previous employment agreement with Mr.

Provenzano dated January 1, 2008.

$ 2,816  

$ 1,125  

$ ( 42 )  

$ 4,942  

BIOLARGO, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Provenzano Employment Agreement provides that Mr.

Provenzano will serve as our Executive Vice President of Operations, as well as the President and Chief Executive Officer of our wholly owned subsidiary ONM.

Provenzano’s base compensation will remain at his current rate of $170,000 annually.

In addition to this base compensation, the agreement provides that he is eligible to participate in incentive plans, stock option plans, and similar arrangements as determined by the our Board of Directors, health insurance premium payments for himself and his immediate family, a car allowance covering the expenses of his personal commercial grade truck which the company uses in company operations on a continual basis, paid vacation of four weeks per year, and bonuses in such amount as the Compensation Committee may determine from time to time.

In conjunction with this agreement, our Compensation Committee awarded Mr.

Provenzano an option to purchase common stock and restricted stock units under our 2018 Equity Incentive Plan (see Note 5).

The Provenzano Employment Agreement has a term of five years, unless earlier terminated in accordance with its terms.

The Provenzano Employment Agreement provides that Mr.

Provenzano’s employment may be terminated by the Company due to his death or disability, for cause, or upon a merger, acquisition, bankruptcy or dissolution of the Company.

“Disability” as used in the Provenzano Employment Agreement means physical or mental incapacity or illness rendering Mr.

Provenzano unable to perform his duties on a long-term basis (i) as evidenced by his failure or inability to perform his duties for a total of 120 days in any 360-day period, or (ii) as determined by an independent and licensed physician whom Company selects, or (iii) as determined without recourse by the Company’s disability insurance carrier.

“Cause” means that Mr.

Provenzano has (i) engaged in willful misconduct in connection with the Company’s business;

or (ii) been convicted of, or plead guilty or nolo contendre in connection with, fraud or any crime that constitutes a felony or that involves moral turpitude or theft.

Provenzano’s employment is terminated due to merger or acquisition, then he will be eligible to receive the greater of (i) one year’s compensation plus an additional one-half year for each year of service since the effective date of the employment agreement or (ii) one year’s compensation plus an additional one-half year for each year remaining in the term of the agreement.

Otherwise, he is only entitled to receive compensation due through the date of termination.

The Provenzano Employment Agreement requires Mr.

Provenzano to keep certain information confidential, not to solicit customers or employees of the Company or interfere with any business relationship of the Company, and to assign all inventions made or created during the term of the Provenzano Employment Agreement as “work made for hire”.

Commitments and Contingencies

Office Leases

2 unchanged sentences

For the years ended December 31, 2021 and 2020, rental expense was $ 228,000 and $ 228,000 , respectively.

On January 1, 2019, we adopted ASC 842 which resulted in a right-of-use asset and lease liability.

Short-term leases are not included in our analysis.

The adoption resulted in an immaterial cumulative effect of an accounting change that was not recorded.

The lease of our Westminster facility qualifies for the new treatment;

3 unchanged sentences

The lease of our Oak Ridge, Tennessee facility also qualifies, and it had one three -year extension to September 2022, and has one renewal option for another five years where the rental rate would adjust to greater of the current price and fair market value.

No determination has been made whether to exercise the five-year renewal option for the Oak Ridge facility.

During 2021 management determined that it will exercise the five -year renewal option for the Oak Ridge facility.

The lease of our Canadian facility is less than one year.

3 unchanged sentences

Since there is no explicit interest rate in our leases, management used its incremental borrowing rate, which is estimated to be 18 % to determine lease liability.

BIOLARGO, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2020, our weighted average remaining lease term is three years and the total remaining operating lease payments is $522,000.

As of December 31, 2021, our weighted average remaining lease term is four years and the total remaining operating lease payments is $ 670,000 .

Our minimum lease payments over the next five years are as follows:

December 31, 2022

$ 115,000  

$ 65,000  

$ 180,000  

December 31, 2023

118,000  

65,000  

183,000  

December 31, 2024

70,000  

65,000  

135,000  

December 31, 2025

65,000  

December 31, 2026

107,000  

Total minimum lease payments

$ 303,000  

$ 367,000  

$ 670,000  

Subsequent Events.

1 unchanged sentence

Lincoln Park Capital Purchase of Shares

From January 1, 2021, through March 24, 2021, we have sold 12,511,674 shares of common stock to Lincoln Park pursuant to our the 2020 LPC Purchase Agreement (see Note 3), and received $2,020,000 in gross and net proceeds.

From January 1, 2022, through March 30, 2022, we sold 1,506,821 shares of common stock to Lincoln Park pursuant to our the 2020 LPC Purchase Agreement (see Note 3 ), and received $ 345,000 in gross and net proceeds.

These sales were registered with the SEC on Form S- 1 (file number 333 - 237651 ).

Satisfaction of Notes

On March 1, 2021, we paid in cash the outstanding principal of $600,000, and $7,371 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 $1,455 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.

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 day ’ s 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.

Chief Financial Officer Contract Extension

On March 18, 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 March 18, 2021 (the “Engagement Extension Agreement”) provides for an additional one-year term to expire January 31, 2022 (the “Extended Term”).

BIOLARGO, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As the sole compensation for the Extended Term, Mr.

Dargan was issued an option (“Option”) to purchase 25,000 shares of the Company’s common stock for each month during the Extended Term (thus, an option to purchase 300,000 shares reflecting an extended term of 12 months).

Chief Financial Officer Contract Extension

On March 22, 2022, we and our Chief Financial Officer Charles K.

Dargan, II formally agreed to extend the engagement agreement dated February 1, 2008 ( the “Engagement Agreement”, which had been previously extended multiple times), pursuant to which Mr.

Dargan has been and continues to serve as the Company’s Chief Financial Officer.

The Engagement Extension Agreement dated as of March 22, 2022 ( the “Engagement Extension Agreement”) provides for an additional one -year term to expire January 31, 2023 ( the “Extended Term”).

As the sole compensation for the Extended Term, Mr. Dargan was issued an option (“Option”) to purchase 25,000 shares of the Company’s common stock for each month during the Extended Term (thus, an option to purchase 300,000 shares reflecting an extended term of 12 months).

The Option vests over the period of the Extended Term, with 25,000 shares having vested as of March 22, 2022, and the remaining shares to vest 25,000 shares monthly beginning March 22, 2022, and each month thereafter, so long as the agreement is in full force and effect.

The Option is exercisable at $0.174 per share, the closing price of BioLargo’s common stock on the March 18, 2021 grant date, expires ten years from the grant date, and was issued pursuant to the Company’s 2018 Equity Incentive Plan.

The Option is exercisable at $ 0.24 per share, the closing price of BioLargo’s common stock on the March 22, 2022, grant date, expires ten years from the grant date, and was issued pursuant to the Company’s 2018 Equity Incentive Plan.

The Option is Mr.

Dargan’s sole compensation for the Extended Term.

As was the case in all prior terms of his engagement, there is no cash component of his compensation for the Extended Term.

PPP loan forgiveness

We received a notice dated March 19, 2021, that the Small Business Administration had approved our application for forgiveness of Paycheck Protection Act loan to Clyra Medical in the amount of $43,000.

SBA Loan Forgiveness

We received a notice dated February 7, 2022, that the Small Business Administration had partially approved our application for forgiveness of Paycheck Protection Act loan to ONM Environmental in the amount of $ 174,000 .

This leaves a balance on the loan of $ 35,000 .

Clyra Medical –

Scion Transaction

BioLargo and its partially owned subsidiary Clyra Medical entered into an agreement dated March 3, 2022, whereby BioLargo agreed to convert $ 633,091 in working capital advances, made to or on behalf of Clyra Medical, into 2,042.23 shares of Clyra Medical common stock at a rate of $ 310 per share.

See also Note 9 “Impairment Expense”. 

Unit Offering

During the 

three months ended March 31, 2022 ,  pursuant to an offering commenced in 

March 2020,  we sold 

4,196,968 shares of our common stock and received $ 692,000 in gross and net proceeds from ten accredited investors.

In addition to the shares, we issued the investors six -month warrants that allow the investors to purchase an aggregate 4,196,968 shares at 120 % of the share purchase price, and five -year warrants that allow the investors to purchase an aggregate 4,196,968 shares at 150 % of the share purchase price.

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-K

Item 9A. Controls and Procedures