BIOLARGO, INC. 10-K

ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures We conducted an evaluation, under the supervision and with the participation of management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Annual Report. Our procedures have been designed to ensure that the information relating to our company, including our consolidated subsidiaries, required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow for timely decisions regarding required disclosure. However, our Company is continuing to grow and evolve. The volume of our product sales continues to grow, increasing strain on our accounting systems. And, our operations do not yet generate enough cash to fund operations, and thus we rely on financing activities to maintain our level of operations and fund our anticipated growth. In combination, these activities put stress on our overall controls and procedures. Based on this evaluation, our chief executive officer and chief financial officer concluded that as of the evaluation date our disclosure controls and procedures were not effective, due to the material weakness identified below. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. Management ’ s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements. Under the supervision and with the participation of our management, including our chief executive officer and the chief financial officer, we have established internal control procedures in accordance with the guidelines established in the 2013 Framework —Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Management evaluated the effectiveness of our internal controls, and concluded that due to our limited financial and 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 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. Management believes this is due to a lack of resources. Management intends to add accounting personnel and operating staff and more sophisticated systems in order to improve its reporting procedures and internal controls, subject to available capital. A material weakness is a significant deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected. While management has recognized the material weakness, nothing additionally has changed in internal controls over financial reporting in the fourth quarter or the fiscal year ended December 31, 2023. 30 Table of Contents This Annual Report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management’s report in this Annual Report. Our management, including our chief executive officer and chief financial officer, does not expect that our disclosure controls or our internal control over financial reporting, or any system we design or implement in the future, will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Changes in Internal Control over Financial Reporting There were no changes in the Company’s internal control over financial reporting during the fourth quarter of 2023, which were identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. ITEM 9B. OTHER INFORMATION None . 31 Table of Contents PART III Certain information required by Part III is incorporated by reference from our definitive Proxy Statement to be filed with the SEC within 120 days of the end of the fiscal year ended December 31, 2023, in connection with the solicitation of proxies for our 2023 Annual Meeting of Stockholders (the “Proxy Statement”). ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE The information required by this section is incorporated by reference from the section entitled “Proposal One—Election of Directors” in the Proxy Statement. Item 405 of Regulation S-K calls for disclosure of any known late filing or failure by an insider to file a report required by Section 16 of the Exchange Act. This disclosure is incorporated by reference to the section entitled “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement. The information required by this Item with respect to our executive officers is contained in Item 1 of Part I of this Annual Report under the heading “Business—Executive Officers”. ITEM 11. EXECUTIVE COMPENSATION The information required by this section is incorporated by reference from the information in the section entitled “Executive Compensation” in the Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required by this section is incorporated by reference from the information in the section entitled “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by this section is incorporated by reference from the information in the section entitled “Certain Relationships and Related Transactions” in the Proxy Statement. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information required by this section is incorporated by reference from the information in the section entitled “Ratification of Appointment of Independent Auditor” in the Proxy Statement. 32 Table of Contents PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. The following documents are filed as a part of this report: 1. Financial Statements . The consolidated financial statements required to be filed in this report are listed on the Index to Financial Statements immediately preceding the financial statements. 2. Financial Statement Schedules . Separate financial statement schedules have been omitted either because they are not applicable or because the required information is included in the consolidated financial statements or the notes thereto. 3. Exhibits. See the Exhibit Index for a list of the exhibits being filed or furnished with or incorporated by reference into this report. 33 Table of Contents Exhibit Index Incorporated by Reference Herein Exhibit Number Exhibit Description Form File Date 3.1 Bylaws of BioLargo, Inc., as amended and restated Form 10-KSB 5/23/2003 3.2 Amended and Restated Certificate of Incorporation for BioLargo, Inc. filed March 16, 2007 Form 10-KSB 5/4/2007 3.3 Certificate of Amendment to Certificate of Incorporation, filed May 25, 2018 Pos Am 6/22/2018 3.4 Certificate of Amendment to Certificate of Incorporation, filed August 30, 2022 Form 10-Q 11/14/2022 4.1 BioLargo, Inc. 2007 Equity Incentive Plan Form 10-QSB 11/19/2007 4.2 Amendment No. 1 to BioLargo 2007 Equity Incentive Plan Def 14C (Exhibit A) 5/2/2011 4.3 Form of Stock Options issued in exchange for reduction in accounts payable. Form 10-K 3/31/2015 4.4 2018 Equity Incentive Plan Form S-8 6/22/2018 4.5 Stock Option Award Agreement under 2018 Equity Incentive Plan Form S-8 6/22/2018 4.6 Notice of Stock Option Grant under 2018 Equity Incentive Plan Form S-8 6/22/2018 4.7 Restricted Stock Unit Award Agreement under 2018 Equity Incentive Plan Form S-8 6/22/2018 4.8 Notice of Restricted Stock Unit Award under 2018 Equity Incentive Plan Form S-8 6/22/2018 4.9 Revolving Line of Credit Agreement dated June 30, 2020, between Clyra Medical and Vernal Bay Form 8-K 7/7/2020 4.10 Security Agreement dated June 30, 2020, between Clyra Medical and Vernal Bay Form 8-K 7/7/2020 4.11 Revolving Line of Credit Note issued by Clyra Medical to Vernal Bay on June 30, 2020 Form 8-K 7/7/2020 34 Table of Contents 4.12 Warrant issued in BioLargo Unit Offerings Form 10-Q 8/14/2020 4.13 Amendment to March 2018 $50,000 Convertible Note, dated March 1, 2021 Form 10-K 3/30/2021 4.14 Warrant issued to $50,000 Convertible Noteholder on March 1, 2020 Form 10-K 3/30/2021 4.15 Satisfaction of March 2018 $50,000 Convertible Note, dated March 6, 2023 Form 10-K 3/31/2023 10.1 BioLargo license to Clyra Medical Technologies, Inc., dated March 1, 2024 filed herewith 10.2 Clyra Medical Technologies, Inc. license to BioLargo dated March 1, 2024 filed herewith 10.3 Consulting Agreement dated December 30, 2015 with Beach House Consulting LLC Form 8-K 1/6/2016 10.4 Commercial Office Lease Agreement for Westminster California Form 8-K 8/24/2016 10.5† Employment Agreement with Dennis P. Calvert dated May 2, 2017. Form 8-K 5/4/2017 10.6† Lock-Up Agreement with Dennis P. Calvert dated April 30, 2017 Form 8-K 5/4/2017 10.7† Lock-Up Agreement with Dennis P. Calvert dated May 2, 2017. Form 8-K 5/4/2017 10.8 Commercial Office Lease Agreement for Oak Ridge Tennessee Form 8-K 9/8/2017 10.9 Form of Employment Agreement for Engineering subsidiary employee (BLEST) Form 8-K 9/8/2017 10.10 Form of Option issued to founding employees of Engineering subsidiary (BLEST) Form 8-K 9/8/2017 10.11† Joseph L. Provenzano Employment Agreement dated May 28, 2019 Form 8-K 6/24/2019 10.12 Purchase Agreement, dated as of March 30, 2020 by and between BioLargo, Inc. and Lincoln Park Capital Fund, LLC. Form 8-K 3/31/2020 10.13 Amendment dated June 30, 2020 to Consulting Agreement dated December 30, 2015 between Clyra Medical and Beach House Consulting LLC Form 8-K 7/7/2020 10.14† 2022 Engagement Extension Agreement with CFO Form 8-K 3/24/2022 10.15 Registration Rights Agreement, dated as of December 13, 2022, by and between BioLargo, Inc. and Lincoln Park Capital Fund, LLC Form 8-K 12/19/2022 10.16 Purchase Agreement, dated as of December 13, 2022, by and between BioLargo, Inc. and Lincoln Park Capital Fund, LLC. Form 8-K 12/19/2022 35 Table of Contents 10.17 Form of indemnity agreement between the Company at its officers and directors Form 10-K 3/31/2022 10.18† 2023 Engagement Extension Agreement with CFO Form 8-K 3/27/2023 10.19 Form of Share Exchange Agreement between BioLargo, Inc., and purchasers of Clyra Medical Series A Preferred Stock Form 10-Q 5/17/2023 10.20 Form of Share Exchange Agreement between BioLargo, Inc., and purchasers of BioLargo Energy Technologies, Inc. common stock Form 10-Q 5/17/2023 14.1 Code of Ethics Form 10-KSB 11/16/2004 21.1* List of Subsidiaries of the Registrant filed herewith 23.1* Consent of Hacker Johnson & Smith PA filed herewith 23.2* Consent of Haskell & White LLP filed herewith 31.1* Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Rules 13(a)-14 and 15(d)-14 under the Securities Exchange Act of 1934 filed herewith 31.2* Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Rules 13(a)-14 and 15(d)-14 under the Securities Exchange Act of 1934 filed herewith 32* Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350. filed herewith 101.INS** Inline XBRL Instance 101.SCH** Inline XBRL Taxonomy Extension Schema 101.CAL** Inline XBRL Taxonomy Extension Calculation 101.DEF** Inline XBRL Taxonomy Extension Definition 101.LAB** Inline XBRL Taxonomy Extension Labels 101.PRE** Inline XBRL Taxonomy Extension Presentation 104 Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101) * Filed herewith ** Furnished herewith † Management contract or compensatory plan, contract or arrangement 36 Table of Contents SIGNATURES 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. Date: April 1, 2024 By: /s/ Dennis P. Calvert Dennis P. Calvert President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints, jointly and severally, Dennis P. Calvert and Joseph L. Provenzano, and each of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the date indicated: Name Title Date /s/ Dennis P. Calvert Chairman of the Board, Chief April 1, 2024 Dennis P. Calvert Executive Officer and President /s/ Charles K. Dargan II Chief Financial Officer April 1, 2024 Charles K. Dargan II (principal financial officer and principal accounting officer) /s/ Kenneth R. Code Chief Science Officer and Director April 1, 2024 Kenneth R. Code /s/ Joseph L. Provenzano Executive Vice President, Corporate April 1, 2024 Joseph L. Provenzano Secretary and Director /s/ Jack B. Strommen Director April 1, 2024 Jack B. Strommen /s/ Dennis E. Marshall Director April 1, 2024 Dennis E. Marshall /s/ Linda Park Director April 1, 2024 Linda Park /s/Christina Bray Director April 1, 2024 Christina Bray 37 Table of Contents INDEX TO FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm (PCAOB name: HACKER JOHNSON & SMITH PA and PCAOB ID: 400 ) F-2 Report of Independent Registered Public Accounting Firm (PCAOB name: HASKELL & WHITE LLP and PCAOB ID: 200) F-5 Consolidated Balance Sheets as of December 31, 2023 and 2022 F-9 Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2023 and 2022 F-10 Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2023 and 2022 F-11 Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022 F-12 Notes to Consolidated Financial Statements F-13 F-1 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors BioLargo, Inc. Westminster, California: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of BioLargo, Inc. and Subsidiaries (the "Company"), as of December 31, 2023 and the related consolidated statements of operations and comprehensive loss, stockholders' equity and cash flows for the year then ended and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2023, and the consolidated results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations, has negative cash flow from operations and has a significant accumulated deficit. These matters raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. F-2 Table of Contents To the Stockholders and the Board of Directors BioLargo, Inc. Page Two We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Fair Value of Stock Options - Critical Audit Matter Description As more fully described in Notes 2, 5 and 10 to the consolidated financial statements, the Company issues options from both BioLargo, Inc. as well as its partially-owned subsidiary, Clyra Medical. Management uses the Black-Scholes option-pricing model to estimate the fair value of its stock options. The Black-Scholes option-pricing model involves the use of significant estimates, including the following: - Risk-free interest rate; - Expected stock price volatility; - Expected dividend yield; and - Expected life of the award. 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. F-3 Table of Contents To the Stockholders and the Board of Directors BioLargo, Inc. Page Three How the Critical Audit Matter was Addressed in the Audit We obtained an understanding over the Company's process to estimate the fair value of stock options, including how the Company develops each of the estimates required to utilize the Black-Scholes option- pricing model. We applied the following audit procedures related to testing the Company's estimates utilized in the Black-Scholes option-pricing model: - 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 stock 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. - We agreed the expected term of stock options granted to employees and nonemployees to the original contractual term of the option as management deems it likely they will remain outstanding for the entire original term. We further noted that this was consistent with historical options granted. In addition, we reviewed management's analysis over the fair value of the common stock price and discount that was used on the estimated fair value of the Clyra Medical stock options. We noted that Clyra Medical is a private company and therefore its common stock is not actively traded. We reviewed both the common stock and preferred stock sales history of Clyra Medical, noting the last sales prices. Management concluded that both the illiquidity and lack of marketability warranted a discount to the estimated fair value calculated using the Black-Scholes option-pricing model. From our review of the common stock sales history of Clyra Medical, we noted that the infrequent common stock sales support management's assertions of both illiquidity and lack of marketability. We further researched published articles on valuation discounts and noted that the liquidity and lack of marketability discount used by management was within a reasonable range. HACKER, JOHNSON & SMITH PA Tampa, Florida We have served as the Company's auditor since 2023. April 1, 2024 F-4 Table of Contents Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders BioLargo, Inc. and Subsidiaries Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of BioLargo, Inc. and Subsidiaries (the “Company”) as of December 31, 2022, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2022, and the consolidated results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has experienced recurring losses, negative cash flows from operations, 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. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. F-5 Table of Contents Report of Independent Registered Public Accounting Firm (continued) Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion Critical Audit Matters The critical audit matters communicated below are matters arising from the 2022 audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Fair Value of Stock Options — Refer to Notes 2, 5 and 10 to the Consolidated Financial Statements Critical Audit Matter Description The Company issues options from both BioLargo, Inc. as well as its partially-owned subsidiary, Clyra Medical. Management uses the Black-Scholes option-pricing model to estimate the fair value of its stock options. The Black-Scholes option-pricing model involves the use of significant estimates, including the following: ■ Risk-free interest rate; ■ Expected share price volatility; ■ Expected dividend yield; and ■ Expected life of the award. 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. F-6 Table of Contents Report of Independent Registered Public Accounting Firm (continued) How the Critical Audit Matter was Addressed in the Audit We obtained an understanding over the Company’s process to estimate the fair value of stock options, including how the Company develops each of the estimates required to utilize the Black-Scholes option-pricing model. We applied the following audit procedures related to testing the Company’s estimates utilized in the Black-Scholes option-pricing model: ■ 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. ■ We agreed the expected term of stock options granted to employees and non-employees to the original contractual term of the option as management deems it likely they will remain outstanding for the entire original term. We further noted that this was consistent with historical options granted. In addition, we reviewed management’s analysis over the fair value of the common stock price and discount that was used on the estimated fair value of the Clyra Medical stock options. We noted that Clyra Medical is a private company and therefore its common stock is not actively traded. We reviewed both the common stock and preferred stock sales history of Clyra Medical, noting the last sales prices. Management concluded that both the illiquidity and lack of marketability warranted a discount to the estimated fair value calculated using the Black-Scholes option-pricing model. From our review of the common stock sales history of Clyra Medical, we noted that the infrequent common stock sales support management’s assertions of both illiquidity and lack of marketability. We further researched published articles on valuation discounts and noted that the liquidity and lack of marketability discount used by management was within a reasonable range. Impairment of Long-lived Asset – Refer to Notes 2 and 9 to the Consolidated Financial Statements Critical Audit Matter Description As reflected in the Company’s consolidated financial statements at December 31, 2022, the Company’s net carrying amount of Clyra Medical prepaid marketing is $394,000. 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, 2022. F-7 Table of Contents Report of Independent Registered Public Accounting Firm (continued) 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 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. HASKELL & WHITE LLP We have served as the Company’s auditor from 2011 to 2023. Irvine, California March 31, 2023 F-8 Table of Contents BIOLARGO, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except for per share data) DECEMBER 31, 2023 2022 Assets Current assets: Cash and cash equivalents $ 3,539 $ 1,851 Accounts receivable, net of allowance 2,612 1,064 Inventories, net of allowance 153 120 Prepaid expenses and other current assets 58 118 Total current assets 6,362 3,153 Equipment and leasehold improvements, net of depreciation 662 287 Other non-current assets 70 124 Investment in South Korean joint venture 19 33 Right of use, operating lease, net of amortization 1,092 867 Clyra Medical prepaid marketing (Note 10) — 394 Total assets $ 8,205 $ 4,858 Liabilities and stockholders’ equity Current liabilities: Accounts payable and accrued expenses $ 1,488 $ 940 Clyra Medical accounts payable and accrued expenses 397 238 Clyra Medical debt obligations (Note 10) 234 — Debt obligations, net of discount (Note 4) 66 100 Contract liabilities 303 17 Lease liabilities 105 97 Deposits 117 184 Total current liabilities 2,710 1,576 Long-term liabilities: Debt obligations, net of current (Note 4) 289 237 Lease liability, net of current 1,004 773 Clyra Medical debt obligations (Note 10) — 261 Total long-term liabilities 1,293 1,271 Total liabilities 4,003 2,847 CONTINGENCIES (Note 1) STOCKHOLDERS’ EQUITY: Preferred Series A, $ 0.00067 par value, 50,000,000 shares authorized, no shares issued and outstanding, at December 31, 2023 and December 31, 2022 — — Common stock, $ 0.00067 par value, 400,000,000 shares authorized, 292,945,747 and 278,462,706 shares issued and outstanding, at December 31, 2023 and December 31, 2022 196 186 Additional paid-in capital 154,023 148,435 Accumulated deficit ( 147,098 ) ( 143,594 ) Accumulated other comprehensive loss ( 277 ) ( 149 ) Total BioLargo Inc. and subsidiaries stockholders’ equity 6,844 4,878 Non-controlling interest (Note 9, 10 and 11) ( 2,642 ) ( 2,867 ) Total stockholders’ equity 4,202 2,011 Total liabilities and stockholders’ equity $ 8,205 $ 4,858 See accompanying notes to consolidated financial statements and report of Independent Registered Public Accounting Firm. F-9 Table of Contents BIOLARGO, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (in thousands, except for per share data) Year ended December 31, 2023 2022 Revenue Product revenue $ 11,460 $ 4,434 Service revenue 770 1,450 Total revenue 12,230 5,884 Cost of revenue Cost of goods sold ( 5,681 ) ( 2,177 ) Cost of service ( 395 ) ( 850 ) Total cost of revenue ( 6,076 ) ( 3,027 ) Gross profit 6,154 2,857 Operating expenses: Selling, general and administrative expenses 8,058 6,731 Research and development 2,282 1,319 Impairment expense 394 197 Total operating expenses 10,734 8,247 Operating loss ( 4,580 ) ( 5,390 ) Other income (expense): PPP forgiveness — 174 Grant income 36 74 Tax credit (expense) income ( 13 ) 63 Interest expense ( 91 ) ( 53 ) Total other income ( 68 ) 258 Net loss ( 4,648 ) ( 5,132 ) Net loss attributable to noncontrolling interest ( 1,144 ) ( 659 ) Net loss attributable to common stockholders $ ( 3,504 ) $ ( 4,473 ) Net loss per share attributable to common stockholders: Loss per share attributable to stockholders – basic and diluted $ ( 0.02 ) $ ( 0.02 ) Weighted average number of shares of common stock outstanding: 285,956,852 268,302,234 Comprehensive loss attributable to common stockholders: Net loss $ ( 4,648 ) $ ( 5,132 ) Foreign currency translation adjustment ( 128 ) ( 34 ) Comprehensive loss ( 4,776 ) ( 5,166 ) Comprehensive loss attributable to noncontrolling interest ( 1,144 ) ( 659 ) Comprehensive loss attributable to common stockholders $ ( 3,632 ) $ ( 4,507 ) See accompanying notes to consolidated financial statements and report of Independent Registered Public Accounting Firm. F-10 Table of Contents BIOLARGO, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS ’ EQUITY YEARS ENDED DECEMBER 31, 2023 AND 2022 (in thousands, except for share data) Accumulated Additional other Non- Total Common stock paid-in Accumulated comprehensive controlling stockholders' Shares Amount capital deficit Loss interest equity Balance, December 31, 2021 255,893,726 $ 171 $ 143,718 $ ( 139,121 ) $ ( 115 ) $ ( 3,720 ) $ 933 Sale of stock for cash 19,580,225 13 3,604 — — — 3,617 Stock issued as commitment fee 1,250,000 1 ( 1 ) — — — — Issuance of common stock for services 1,448,512 1 290 — — — 291 Stock option exercise 290,243 — 40 — — — 40 Stock option expense — — 1,663 — — — 1,663 Noncontrolling interest allocation — — ( 1,287 ) — — 1,287 — Clyra stock option expense — — 408 — — — 408 Clyra preferred stock offering — — — — — 225 225 Net loss — — — ( 4,473 ) — ( 659 ) ( 5,132 ) Foreign currency translation — — — — ( 34 ) — ( 34 ) Balance, December 31, 2022 278,462,706 $ 186 $ 148,435 $ ( 143,594 ) $ ( 149 ) $ ( 2,867 ) $ 2,011 Stock for cash 12,003,517 8 2,145 — — — 2,153 Stock for service 1,951,541 2 382 — — — 384 Stock share exchange - VB 527,983 — — — — — — Warrant Interest — — 30 — — — 30 Stock option expense — — 1,864 — — — 1,864 Clyra stock option expense — — 260 — — — 260 Clyra stock option exercise — — 3 — — — 3 Clyra preferred stock offering — — — — — 1,575 1,575 Clyra common unit offering — — — — — 35 35 Clyra Preferred Series A dividend — — — — — ( 242 ) ( 242 ) BETI common stock offering — — — — — 905 905 Noncontrolling interest allocation — — 904 — — ( 904 ) — Net loss — — — ( 3,504 ) — ( 1,144 ) ( 4,648 ) Foreign currency translation — — — — ( 128 ) — ( 128 ) Balance, December 31, 2023 292,945,747 $ 196 $ 154,023 $ ( 147,098 ) $ ( 277 ) $ ( 2,642 ) $ 4,202 See accompanying notes to consolidated financial statements and report of Independent Registered Public Accounting Firm. F-11 Table of Contents BIOLARGO, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands, except for per share data) YEAR ENDED DECEMBER 31, 2023 2022 Cash flows from operating activities: Net loss $ ( 4,648 ) $ ( 5,132 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock option compensation expense 2,124 2,071 Common stock issued for services 384 291 Impairment expense 394 197 Inventory reserve 54 158 Amortization of right-of-use operating lease assets 169 — Interest expense related to amortization of the discount on convertible notes payable 3 17 Fair value of warrants issued for interest 30 — Loss on investment in South Korean joint venture 14 15 PPP forgiveness — ( 174 ) Amortization and depreciation expense 103 45 Bad debt expense 85 — Changes in assets and liabilities: Accounts receivable ( 1,633 ) ( 551 ) Inventories ( 89 ) ( 35 ) Accounts payable and accrued expenses 548 382 Clyra accounts payable and accrued expenses ( 83 ) 8 Contract liabilities 286 ( 72 ) Prepaid expenses and other assets 116 ( 90 ) Lease liability, net ( 155 ) 3 Deposits ( 67 ) 105 Net cash used in operating activities ( 2,365 ) ( 2,762 ) Cash flows from investing activities: Equipment purchases ( 478 ) ( 271 ) Net cash used in investing activities ( 478 ) ( 271 ) Cash flows from financing activities: Proceeds from sale of common stock 2,153 3,617 Proceeds from Clyra Medical stock option exercise 3 — Proceeds from BioLargo stock option exercise — 40 Proceeds from debt obligation, net 65 — Repayment by Clyra Medical on debt obligation ( 27 ) ( 26 ) Proceeds from sale of preferred stock in Clyra Medical 1,575 225 Proceeds from sale of common stock in Clyra Medical 35 — Proceeds from Clyra Medical note payable — 100 Proceeds from sale of BETI common stock 855 — Net cash provided by financing activities 4,659 3,956 Net effect of foreign currency translation ( 128 ) ( 34 ) Net change in cash 1,688 889 Cash and cash equivalent at beginning of year 1,851 962 Cash and cash equivalent at end of year $ 3,539 $ 1,851 Supplemental disclosures of cash flow information Cash paid during the year for: Interest $ 58 $ 36 Income taxes $ — $ 3 Short-term lease payments not included in lease liability $ 52 $ 99 Non-cash investing and financing activities: Clyra preferred series A dividend $ 242 $ — BioLargo debt obligations exchanged for BETI noncontrolling interest $ 50 $ — Fair value of common stock issued to Lincoln Park as finance fee $ — $ 240 Present value of new operating right of use and lease liability $ 394 $ 443 Allocation of stock option expense within noncontrolling interest $ 904 $ 1,287 See accompanying notes to consolidated financial statements and report of Independent Registered Public Accounting Firm F-12 Table of Contents BIOLARGO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 . Business and Organization Description of Business BioLargo, Inc. (“BioLargo”, or the “Company”) invents, develops, and commercializes innovative platform technologies to solve challenging environmental problems like PFAS contamination (per- and polyfluoroalkyl substances), advanced water and wastewater treatment, industrial odor control, air quality control, infection control, and myriad environmental remediation challenges. Our business strategy is straightforward: we invent or acquire technologies that we believe have the potential to be disruptive in large commercial markets; we develop and validate these technologies to advance and promote their commercial success as we leverage our considerable scientific, engineering, and entrepreneurial talent; we then monetize these technical assets through a variety of business structures that may include licensure, joint venture, sale, spin off, or by deploying direct to market strategies. Liquidity / Going concern 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. During the year ended December 31, 2023 , we generated revenues of $ 12,230,000 through our business segments (see Note 12 ), had a net loss of $ 4,648,000 , used $ 2,365,000 cash in operations, and at December 31, 2023 , we had working capital of $ 3,652,000 , and current assets of $ 6,362,000 . We did not generate enough revenues or gross profits to fund our operations during the year, and thus to meet our cash obligations we (i) sold $ 995,000 of our common stock to Lincoln Park Capital Fund, LLC (“Lincoln Park”) (see Note 3 ), (ii) sold $ 1,158,000 of our common stock and warrants to accredited investors (see Notes 3 and 6 ), (iii) sold $ 1,575,000 of Clyra Medical Series A Preferred Stock and $ 35,000 of Clyra common stock (see Note 10 ), and (iv) sold $raised $ 1,005,000 from the sale of its common stock (of that amount, $ 100,000 was invested by BioLargo, and $ 50,000 was from the conversion of BioLargo debt). (See Note 4 ). We have been, and anticipate that we will continue to be, limited in terms of our capital resources, and expect to continue to need further investment capital to fund operations. We intend to reinvest available cash into business operations and intend to continue to seek further investment capital for the remainder of this year. We have been, and anticipate that we will continue to be, limited in terms of our capital resources. If we are unable to rely on our current arrangement with Lincoln Park to fund our working capital requirements, we will have to rely on other forms of financing, and there is no assurance that we will be able to do so, or if we do so, it will be on favorable terms. The foregoing factors raise substantial doubt about our ability to continue as a going concern, unless we are able to continue to raise funds through stock sales to Lincoln Park or other private financings, and in the long term, our ability to attain a reasonable threshold of operating efficiencies and achieve profitable operations by licensing or otherwise commercializing products incorporating our technologies. The consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern. F- 13 Table of Contents BIOLARGO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Organization We are a Delaware corporation formed in 1991. We have five wholly-owned subsidiaries: BioLargo Life Technologies, Inc., organized under the laws of the State of California in 2006; ONM Environmental, Inc., organized under the laws of the State of California in 2009; BioLargo Equipment Solutions & Technologies, Inc., organized under the laws of the State of California in 2022; BioLargo Canada, Inc., organized under the laws of Canada in 2014; and BioLargo Development Corp., organized under the laws of the State of California in 2016. Additionally, we own 96 % (see Note 9 ) of BioLargo Energy Solutions Technologies, Inc. ("BETI") organized under the laws of the State of California in 2019, 53 % (see Note 10 ) of Clyra Medical Technologies, Inc. (“Clyra” or “Clyra Medical”), organized under the laws of the State of California in 2012 and redomiciled to Delaware in 2023, and 82 % (see Note 11 ) of BioLargo Engineering Science and Technologies, LLC (“BLEST”), organized under the laws of the State of Tennessee in 2017. We consolidate the financial statements of our partially owned subsidiaries (see Note 2, subheading “Principles of Consolidation”). Note 2 . Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, and partially-owned subsidiaries. All intercompany accounts and transactions have been eliminated. Foreign Currency The Company has designated the functional currency of BioLargo Canada to be the Canadian dollar. Therefore, translation gains and losses resulting from differences in exchange rates are recorded in accumulated other comprehensive loss. Cash and Cash Equivalents The Company considers all highly liquid investments with maturities of three months or less when acquired to be cash equivalents. Substantially all cash equivalents are held in short-term money market accounts at one of the largest financial institutions in the United States. From time to time, our cash account balances are greater than the Federal Deposit Insurance Corporation insurance limit of $250,000 per owner per bank, and during such times, we are exposed to credit loss for amounts in excess of insured limits in the event of non-performance by the financial institution. We do not anticipate non-performance by our financial institution. As of December 31, 2023 and 2022 , our cash balances were made up of the following (in thousands): December 31, 2023 December 31, 2022 BioLargo, Inc. and subsidiaries $ 3,142 $ 1,685 Clyra Medical Technologies, Inc. 397 166 Total $ 3,539 $ 1,851 Accounts Receivable In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016 - 13, which sets out the principles for the recognition of measurement of credit losses on financial instruments, including trade receivables. The standard eliminates the probable initial recognition threshold and requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. The new standard was effective for the Company beginning January 1, 2023 and primarily impacted accounts receivable. Accounts receivable are customer obligations that are unconditional. Accounts receivable are presented net of an allowance for doubtful accounts for expected credit losses, which represents an estimate of amounts that may not be collectible. The Company performs ongoing credit evaluations of its customers and, if necessary, provides an allowance for expected credit losses. A credit less expenses for expected credit losses is recorded based on factors including the length of time the receivables are past due, the current business environment, and the Company’s historical experience. Expected credit losses are recorded to general and administrative expenses. The Company writes off accounts receivable against the allowance when it determines a balance is uncollectible and no longer actively pursues collection of the receivable. The Company does not have any off-balance-sheet credit exposure related to customers. As of December 31, 2023, and December 31, 2022, the allowance for expected credit losses was $ 84,000 and $ 12,000 , respectively. During the year ended December 31, 2023, the Company wrote off as bad debt expense $ 85,000 . F- 14 Table of Contents BIOLARGO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Credit Concentration We have a limited number of customers that account for significant portions of our revenue. During the year ended December 31, 2023 , there was one customer that accounted for more than 10 % of consolidated revenues, and during the year ended December 31, 2022 , there were two customers that each accounted for more than 10 % of consolidated revenues, as follows: December 31, 2023 December 31, 2022 Customer A 82 % 47 % Customer B <10 % 10 % We had one customer that accounted for more than 10 % of consolidated accounts receivable at December 31, 2023 and 2022 , as follows: December 31, 2023 December 31, 2022 Customer A 68 % 24 % Inventory Inventories are stated at the lower of cost or net realizable value using the average cost method. The allowance for obsolete inventory as of December 31, 2023 and 2022 was $ 212,000 and $ 158,000 , respectively. Inventories consisted of (in thousands): December 31, 2023 December 31, 2022 Raw material $ 79 $ 46 Finished goods 74 74 Total $ 153 $ 120 Other Non-Current Assets Other non-current assets consisted of (i) security deposits related to our business offices, (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. The tax credit receivable in 2022 is from the Canadian government related to a research and development credit from our Canadian subsidiary for which we’ve applied for and received in prior periods. This tax credit in 2022 was reversed in 2023, as it was determined during 2023, that our Canadian subsidiary would not be eligible for the credit as it did not generate taxable income. December 31, 2023 December 31, 2022 Patents $ 34 $ 34 Security deposits 36 36 Tax credit receivable — 54 Total $ 70 $ 124 F- 15 Table of Contents BIOLARGO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Equity Method of Accounting On March 20, 2020 , we invested $ 100,000 into a South Korean entity (Odin Co. Ltd., “Odin”) pursuant to a Joint Venture agreement we had entered into with BKT Co. Ltd. and its U.S. based subsidiary, Tomorrow Water. We received a 40 % non-dilutive equity interest, and BKT and Tomorrow Water each received 30 % equity interests for an aggregate $ 150,000 investment. We account for our investment in the joint venture under the equity method of accounting. We have determined that while we have significant influence over the joint venture through our technology license and our position on the Board of Directors, we do not control the joint venture or are otherwise involved in managing the entity and we own less than a majority of the equity. Therefore, we record the asset on our consolidated balance sheet and record an increase or decrease the recorded balance by our percentage ownership of the profits or losses in the joint venture. During the years ended December 31, 2023 and 2022 , the joint venture incurred a loss and our 40 % ownership share reduced our investment interest by $ 14,000 and $ 15,000 , respectively. Impairment Long-lived and definite lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the expected future undiscounted cash flows from the use of the asset and its eventual disposition is less than the carrying amount of the asset, then an impairment loss is recognized. The impairment loss is measured based on the fair value of the asset. Any resulting impairment is recorded as a reduction in the carrying value of the related asset in excess of fair value and a charge to operating results. For the year ended December 31, 2023 , management determined that there was complete impairment of Clyra’s prepaid marketing asset (see Note 10 ). Impairment expense related to Clyra's prepaid marketing asset for the years ended December 31, 2023 and 2022 is $ 394,000 and $ 197,000 , respectively. Loss Per Share We report basic and diluted loss per share (“LPS”) for common and common share equivalents. Basic LPS is computed by dividing reported earnings by the weighted average shares outstanding. Diluted LPS 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, 2023 and 2022 , the denominator in the diluted LPS computation is the same as the denominator for basic LPS 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 The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and revenues and expenses during the year reported. Actual results could differ from those estimates. Estimates are used when accounting for stock-based transactions, debt transactions, derivative liabilities, allowance for bad debt, asset depreciation and amortization, 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 consolidated financial statements. F- 16 Table of Contents BIOLARGO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Share-Based Compensation Expense We recognize compensation expense for stock option awards on a straight-line basis over the applicable service period of the award, which is the vesting period. Fair value is determined on the grant date. Share-based compensation expense is based on the grant date fair value estimated using the Black-Scholes Option Pricing Model. For stock and stock options issued to consultants and other non-employees for services, the Company measures and records an expense as of the earlier of the date at which either: a commitment for performance by the non-employee has been reached or the non-employee’s performance is complete. The equity instruments are measured at the current fair value, and for stock options, the instruments are measured at fair value using the Black Scholes option model. The following methodology and assumptions were used to calculate share-based compensation for the years ended December 31, 2023 and 2022 : 2023 2022 Non Plan 2018 Plan Non Plan 2018 Plan Risk free interest rate 3.48 - 3.58 % 3.48 - 4.45 % 2.32 - 3.83 % 2.32 - 3.83 % Expected volatility 114 % 102 - 114 % 114 - 117 % 114 - 117 % Expected dividend yield — — — — Forfeiture rate — — — — Life in years 10 10 10 10 Expected price volatility is the measure by which our stock price is expected to fluctuate during the expected term of an option. Expected volatility is derived from the historical daily change in the market price of our common stock, as we believe that historical volatility is the best indicator of future volatility. The risk-free interest rate used in the Black-Scholes calculation is based on the prevailing U.S. Treasury yield as determined by the U.S. Federal Reserve. We have never paid any cash dividends on our common stock and do not anticipate paying cash dividends on our common stock in the foreseeable future. Warrants Warrants issued with our convertible and non-convertible debt instruments are accounted for under the fair value and relative fair value method. The warrant is first analyzed per its terms as to whether it has derivative features or not . If the warrant is determined to be a derivative and not qualify for equity treatment, then it is measured at fair value using the Black Scholes option model, and recorded as a liability on the consolidated balance sheets. 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. The warrant relative fair values are also recorded as a discount to the convertible promissory notes. As present, these equity features of the convertible promissory notes have recorded a discount to the convertible notes that is substantially equal to the proceeds received. F- 17 Table of Contents BIOLARGO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Non-Cash Transactions We have established a policy relative to the methodology to determine the value assigned to each intangible we acquire, and/or services or products received for non-cash consideration of our common stock. The value is based on the market price of our common stock issued as consideration, at the date of the agreement of each transaction or when the service is rendered or product is received. Revenue Recognition We account for revenue in accordance with ASC 606 , “Revenue from Contacts with Customers”. The guidance focuses on the core principle for revenue recognition, which is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, the guidance provides that an entity should apply the following steps: Step 1: Identify the contract(s) with a customer. Step 2: Identify the performance obligations in the contract. Step 3: Determine the transaction price. Step 4: Allocate the transaction price to the performance obligations in the contract. Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation. The Company’s products are sold 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 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, 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. If the billing amount is greater or lesser than the completed work, a receivable or payable is created. These accounts are adjusted upon additional billings as the work is completed. To date, there have been no discounts or other financing terms for the contracts. The Company has outstanding contract liability obligations of $ 303,000 and $ 17,000 as of December 31, 2023, and 2022, respectively. The outstanding balance will be recognized per the terms of the contracts. Our Canadian subsidiary had a customer deposit outstanding at December 31, 2023, and 2022, totaling $113,000 , that was awarded as part of a grant for a particular project that has been delayed. ONM Environmental had a customer deposit outstanding at December 31, 2023, and 2022, totaling $ 4,000 and $71,000, related to customer purchase orders not yet fulfilled. As we generate revenues from royalties or license fees from our intellectual property, a licensee will 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. We have entered into a licensing agreement for the CupriDyne Clean product, and we recognize royalty and license fees on a quarterly basis as the product is sold through to third parties and reported to us. Government Grants 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 2 015 . Some of the funds from these grants are given directly to third parties (such as the University of Alberta or a third -party research scientist) to support research on our technology. The grants have terms generally ranging between six and eighteen months and support a majority, but not all, of the related research budget costs. This cooperative research allows us to utilize (i) a depth of resources and talent to accomplish highly skilled work, (ii) financial aid to support research and development costs, (iii) independent and credible validation of our technical claims. F- 18 Table of Contents 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. All awarded grants have specific requirements on how the money is spent, typically to employ researchers. None of the funds may be used for general administrative expenses or overhead in the United States. These grants have substantially increased our level of research and development activities in Canada. We continue to apply for Canadian government and agency grants to fund research and development activities. Not all of our grant applications have been awarded, and no assurance can be made that any pending grant application, or any future grant applications, will be awarded. Income Taxes The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of asset and liabilities. Deferred tax assets and liabilities are determined based on the differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The effect on deferred tax asset and liabilities of a change in tax rates is recognized in operations in the year 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 GAAP. Under GAAP, the tax effects of a position are recognized only if it is “more-likely-than- not” to be sustained by the taxing authority as of the reporting date. If the tax position is not considered “more-likely-than- not” to be sustained, then no benefits of the position are recognized. Management believes there are no unrecognized tax benefits or uncertain tax positions as of December 31, 2023 and 2022 . The Company assessed its earnings history, trends and estimates of future earnings and determined that the deferred tax asset could not be realized as of December 31, 2023 . Accordingly, a valuation allowance was recorded against the net deferred tax asset. The Company recognizes interest and penalties on income taxes as a component of income tax expense, should such an expense be realized. Fair Value of Financial Instruments Management believes the carrying amounts of the Company’s financial instruments as of December 31, 2023 and 2022 approximate their respective fair values because of the short-term nature of these instruments. Such instruments consist of cash, accounts receivable, accounts payable, line of credit, and other assets and liabilities. The carrying amount of debt instruments are believed to approximate fair value as the stated interest rates are reflective of the prevailing market rates. Tax Credits Our research and development activities in Canada may entitle our Canadian subsidiary to claim benefits under the “Scientific Research and Experimental Development Program”, a Canadian federal tax incentive program designed to encourage Canadian businesses of all sizes and in all sectors to conduct research and development in Canada. Benefits under the program include credits to taxable income. If our Canadian subsidiary does not have taxable income in a reporting period, we will not receive tax refund from the Canadian Revenue Authority. F- 19 Table of Contents BIOLARGO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Leases At inception of a lease contract, we assess whether the contract is, or contains, a lease. Our assessment is based on: ( 1 ) whether the contract involves the use of a distinct identified asset, ( 2 ) whether we obtain the right to substantially all the economic benefit from the use of the asset throughout the period of the contract, and ( 3 ) whether we have the right to direct the use of the asset during such time period. At inception of a lease, we allocate the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments. Leases are classified as either finance leases or operating leases. A lease must be classified as a finance lease if any of the following criteria are met: the lease transfers ownership of the asset by the end of the lease term, the lease contains an option to purchase the asset that is reasonably certain to be exercised, the lease term is for a major part of the remaining useful life of the asset or the present value of the lease payments equals or exceeds substantially all of the fair value of the asset. A lease is classified as an operating lease if it does not meet any of these criteria. We have no leases classified as finance leases. For all leases at the lease commencement date, a right-of-use asset and a lease liability are recognized. The right-of-use asset represents the right to use the leased asset for the lease term. The lease liability represents the present value of the lease payments under the lease. The right-of-use asset is initially measured at cost, which primarily comprises the initial amount of the lease liability, plus any initial direct costs incurred, consisting mainly of brokerage commissions, less any lease incentives received. All right-of-use assets are reviewed for impairment. The lease liability is initially measured at the present value of the lease payments, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, management estimates the incremental borrowing rate, which currently is estimated to be 18 %. Lease payments included in the measurement of the lease liability comprise the following: the fixed noncancelable lease payments, payments for optional renewal periods where it is reasonably certain the renewal period will be exercised, and payments for early termination options unless it is reasonably certain the lease will not be terminated early. Lease components are included in the measurement of the initial lease liability. Additional payments based on a change in our portion of the operating expenses, including real estate taxes and insurance, are recorded as a period expense when incurred. Lease modifications result in remeasurement of the lease liability. Lease expense for operating leases consists of the lease payments plus any initial direct costs, primarily brokerage commissions, and is recognized on a straight-line basis over the lease term. We have elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a term of 12 months or less. The effect of short-term leases on our right-of-use asset and lease liability was not material. As of December 31, 2023 and 2022, the right-of-use assets totaled $ 1,092,000 , and $ 867,000 , respectively. As of December 31, 2023 and 2022, the lease liability totaled $ 1,109,000 and $ 870,000 , respectively, on our consolidated balance sheets related to our operating leases. Equipment Equipment and leasehold improvements is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range from 3 - 10 years. Additions, renewals, and betterments that significantly extend the life of the asset are capitalized. Expenditures for repairs and maintenance are charged to expense as incurred. For assets sold or otherwise disposed of, the cost and related accumulated depreciation and amortization are removed from the accounts, and any related gain or loss is reflected in income for the period. Noncontrolling Interest A noncontrolling interest is defined as the portion of the equity in an entity not attributable, directly or indirectly, to the primary beneficiary. Noncontrolling interests are required to be presented as a separate component of equity on a consolidated balance sheets. Accordingly, the presentation of net income (loss) is modified to present the income (loss) attributed to controlling and non-controlling interests. The noncontrolling interest on the Company’s consolidated balance sheets represents equity not held by the Company. In accordance with ASC 810 - 10 - 20, “Noncontrolling Interests” BioLargo consolidates three non-wholly owned subsidiaries - Clyra, BLEST and BETI. Noncontrolling interest of Clyra represents 47 % as of December 31, 2023 and 2022. Noncontrolling interest of BLEST represents 23 % and 18 % as of December 31, 2023, and 2022, respectively. Noncontrolling interest of BETI represents 4 % as of December 31, 2023. BETI started operations in 2023. Recent Accounting Pronouncements In November 2023, the FASB issued ASU 2023 - 07, Segment Reporting (Topic 280 ), Improvements to Reportable Segment Disclosures. The main provisions are: 1. Require that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker (CODM) and included within each reported measure of segment profit or loss (collectively referred to as the “significant expense principle”). 2. Require that a public entity disclose, on an annual and interim basis, an amount for other segment items by reportable segment and a description of its composition. The other segment items category is the difference between segment revenue less the segment expenses disclosed under the significant expense principle and each reported measure of segment profit or loss. 3. Require that a public entity provide all annual disclosures about a reportable segment’s profit or loss and assets currently required by Topic 280 in interim periods. 4. Clarify that if the CODM uses more than one measure of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources, a public entity may report one or more of those additional measures of segment profit 5. Require that a public entity disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. 6. Require that a public entity that has a single reportable segment provide all the disclosures required by the amendments in this Update and all existing segment disclosures in Topic 280. This Update is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Management has evaluated the update and has adopted it for the year ended December 31, 2023 and future reporting periods. This adoption had no significant impact on our consolidated financial statements. Management has made the additional disclosures in our segment note (see Note 12 ), required by this ASU. Note 3 . Sale of Stock for Cash Lincoln Park Financing On December 13, 2022, we entered into a stock purchase agreement (the “2022 LPC Purchase Agreement”) with Lincoln Park, pursuant to which Lincoln Park agreed to purchase from us at our request up to an aggregate of $ 10,000,000 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. Concurrently with the 2022 LPC Purchase Agreement, we entered into a Registration Rights Agreement, pursuant to which we filed a registration statement on Form S- 1 with the SEC on December 23, 2022. This registration statement was declared effective on January 19, 2023. Pursuant to the 2022 LPC Purchase Agreement, we issued 1,250,000 shares to Lincoln Park as a commitment fee, valued at $ 240,000 and recorded as additional-paid-in-capital on our consolidated statement of stockholders' equity. During the years ended December 31, 2023 and 2022, we sold 3,833,230 and 6,011,701 shares of our common stock to Lincoln Park, and received $ 995,000 and $1,253,000, respectively, in gross and net proceeds. Unit Offerings During the year ended December 31, 2023, and 2022 we sold 8,170,287 and 13,568,524 shares of our common stock and received $ 1,158,000 and $2,364,000, respectively, in gross and net proceeds from accredited investors. In addition to the shares, we issued each investor a six -month and a five -year warrant to purchase additional shares. (See Note 6, “Warrants Issued in Unit Offering”.) F- 20 Table of Contents BIOLARGO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 4 . Debt Obligations The following table summarizes our debt obligations outstanding as of December 31, 2023 and 2022 (in thousands). The table does not include debt obligations of our partially owned subsidiary Clyra Medical (see Note 10 , “Debt Obligations of Clyra Medical”). December 31, 2023 2022 Current portion of debt: SBA Paycheck Protection Program loan $ 43 $ 43 Vehicle loan, current portion 13 — Convertible note payable, matures March 1, 2023 — 50 SBA EIDL Loan, matures July 2053, current portion 10 10 Debt discount, net of amortization — ( 3 ) Total current portion of debt $ 66 $ 100 Long-term debt: SBA Paycheck Protection Program loans, matures May 2025 $ 97 $ 97 Vehicle loan, matures March 2029 55 — SBA EIDL Loan, matures July 2053 137 140 Total long-term debt, net of current $ 289 $ 237 Total $ 355 $ 337 For the years ended December 31, 2023 and 2022 , we recorded $ 91,000 and $ 53,000 of interest expense related to the amortization of discounts on convertible notes payable and coupon interest from our convertible notes and lines of credit. F- 21 Table of Contents BIOLARGO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Convertible note payable, matures March 1, 2023 On March 6, 2023, we entered into an agreement with the holder of a $ 50,000 note to convert that note into common stock of BETI. As payment for interest, a warrant to purchase 200,000 shares of BioLargo common stock at $ 0.21 was issued to the investor, expiring five years from the grant date. (See Note 6 ). SBA Program Loans On February 7, 2022, we received notice that the SBA had forgiven $ 174,000 of the ONM Environmental $ 217,000 Paycheck Protection Program (PPP) loan. As of December 31, 2023, the outstanding balance on this loan totals $ 43,000 . The partial forgiveness decision has been appealed, and during such time, loan payments are deferred. On May 12, 2022, we received notice that the SBA had denied the forgiveness application of BLEST’s $ 97,000 PPP loan. We successfully appealed that decision, and are awaiting formal notification from the SBA of its reversal and full forgiveness of the loan. The maturity date of this loan was officially extended on our request to May 2025. In July 2020, ONM Environmental received an Economic Injury Disaster Loan from the SBA in the amount of $ 150,000 . The note has a 3.75 % annual interest rate, requires monthly payments of $ 700 , and matures July 2053. Note 5 . Share-Based Compensation Issuance of Common Stock in exchange for Services During the years ended December 31, 2023, and 2022, we issued 1,951,541 and 1,448,512 shares, respectively, to officers, consultants, and other third parties as payment of amounts owed for services provided to our company, and recorded an aggregate $ 384,000 and $ 291,000 , respectively, in selling general and administrative expense related to these issuances. Payment of Officer Salaries During the year ended December 31, 2023, certain of our officers agreed to convert an aggregate $ 48,000 of accrued and unpaid salary into 292,029 shares of our common stock. The unpaid salary is converted on the last day of each quarter as follows: on December 31, 2023, we issued 123,178 shares of our common stock at $ 0.17 per share; on September 30, 2023, we issued 69,563 shares of our common stock at $ 0.17 per share; on June 30, 2023, we issued 68,541 shares of our common stock at $ 0.18 per share; on March 31, 2023, we issued 30,747 shares of our common stock at $ 0.20 per share. During the year ended December 31, 2022, certain of our officers agreed to convert an aggregate $ 120,000 of accrued and unpaid salary into 532,225 shares of our common stock. The unpaid salary is converted on the last day of each quarter as follows: on September 30, 2022, we issued 268,330 shares of our common stock at $0.27; on June 30, 2022, we issued 263,895 shares of our common stock at $ 0.18 per share. F- 22 Table of Contents BIOLARGO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Payment of Consultant Fees During 2023, certain of our consultants agreed to convert an aggregate $ 336,000 accrued and unpaid obligations into 1,659,512 shares of our common stock. The unpaid obligations were converted on the last day of each quarter as follows: on December 31, 2023, we issued 261,276 shares of our common stock at $ 0.17 per share; on September 30, 2023, we issued 146,123 shares of our common stock at $ 0.17 per share; on June 30, 2023, we issued 352,370 shares of our common stock at $ 0.18 per share; on March 31, 2023, we issued 899,743 shares of our common stock at $ 0.20 per share. During 2022 , certain of our consultants agreed to convert an aggregate $ 171,000 accrued and unpaid obligations into 916,287 shares of our common stock. The unpaid obligations were converted on the last day of each quarter as follows: December 30, 2022 , we issued 642,041 shares of our common stock at $ 0.20 per share; on September 30, 2022 , we issued 110,498 shares of our common stock at $0.27; on June 30, 2022 , we issued 76,996 shares of our common stock at $0.18; on March 31, 2022 , we issued 86,752 shares of our common stock at $ 0.23 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. Stock Option Expense During the years ended December 31, 2023 and 2022 , we recorded an aggregate $ 2,124,000 and $ 2,071,000 , respectively, in selling general and administrative expense related to the granting of stock options. We issued options through our 2018 Equity Incentive Plan, and outside of this plan. Of the aggregate amount issued during the years ended December 31, 2023, and 2022, $ 260,000 and $ 408,000 , respectively, were issued by our subsidiary Clyra Medical (see Note 10 ). 2018 Equity Incentive Plan On June 22, 2018 , our stockholders adopted the BioLargo 2018 Equity Incentive Plan ( “2018 Plan”) as a means of providing our directors, key employees and consultants additional incentive to provide services. Both stock options and stock grants may be issued 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. As plan administrator, the Compensation Committee has sole discretion to set the price of the options. The plan authorizes the following types of awards: (i) incentive and non-qualified stock options, (ii) restricted stock awards, (iii) stock bonus awards, (iv) stock appreciation rights, (v) restricted stock units, and (vi) performance awards. The total number of shares reserved and available for awards pursuant to this Plan as of the date of adoption of this 2018 Plan by the Board is 40 million shares. The number of shares available to be issued under the 2018 Plan increases automatically each January 1 st by the lesser of (a) 2 million shares, or (b) such number of shares determined by our Board. As of December 31, 2023 , 50,000,000 shares are authorized under the plan. F- 23 Table of Contents BIOLARGO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Activity for our stock options under the 2018 Plan during the year ended December 31, 2023 , and the year ended December 31, 2022 , is as follows: Weighted Weighted average average Aggregate Options exercise price per remaining intrinsic outstanding share Term value(1) Balance, December 31, 2021 23,186,142 $ 0.19 Granted 6,322,233 $ 0.22 Exercised ( 290,243 ) $ 0.16 Expired ( 733,583 ) $ 0.33 Balance, December 31, 2022 28,484,549 $ 0.19 Granted 12,623,899 $ 0.17 Balance, December 31, 2023 41,108,448 $ 0.19 7.7 Non-vested ( 5,067,958 ) $ 0.18 Vested, December 31, 2023 36,040,490 $ 0.19 7.7 $ 287,000 ( 1 ) – Aggregate intrinsic value based on closing common stock price of $ 0.17 at December 31, 2023 . The options granted to purchase 12,623,899 shares during the year ended December 31, 2023 with an aggregate fair value of $ 2,058,000 were issued to officers, board of directors, employees and consultants: (i) we issued options to purchase 560,435 shares of our common stock at an exercise price on the respective grant date ranging between $ 0.17 - $ 0.20 per share to our officers to replace options that had expired and resulted in a fair value of $151,000; (ii) we issued options to purchase 2,213,180 shares of our common stock at an exercise price on the respective grant date ranging between $ 0.17 – $ 0.20 per share to members of our board of directors for services performed, in lieu of cash; the fair value of these options totaled $365,000; (iii) we issued options to purchase 4,080,138 shares of our common stock to employees as part of an employee retention plan at an exercise price on the respective date ranging between $ 0.17 – $ 0.20 per share; the fair value of employee retention plan options totaled $ 658,000 and will vest quarterly over four years as long as they are retained as employees; (iv) we issued options to purchase 5,470,146 shares of our common stock to consultants in lieu of cash for expiring options and per agreement totaling $ 884,000 , and (v) we issued 300,000 options to our Chief Financial Officer with a fair value of $ 56,000 (see “Chief Financial Officer Contract Extension” see below). All stock option expense is recorded on our consolidated statements of operations as selling, general and administrative expense. As of December 31, 2023, there remains $ 918,000 of stock option expense to be expensed over the next 4 years. The options granted to purchase 6,322,233 shares during the year ended December 31, 2022, with an aggregate fair value of $ 1,329,000 were issued to officers, board of directors, employees and consultants: (i) we issued options to purchase 495,135 shares of our common stock at an exercise price on the respective grant date of $ 0.17 and $ 0.23 per share to our CFO and President to replace options that had expired and resulted in a fair value of $97,000; (ii) we issued options to purchase 1,861,456 shares of our common stock at an exercise price on the respective grant date ranging between $ 0.18 – $ 0.27 per share to members of our board of directors for services performed, in lieu of cash; the fair value of these options totaled $401,000; (iii) we issued options to purchase 2,933,901 shares of our common stock to employees as part of an employee retention plan at an exercise price on the respective date ranging between $ 0.18 – $ 0.27 per share; the fair value of employee retention plan options totaled $ 608,000 and will vest quarterly over four years as long as they are retained as employees; (iv) we issued options to purchase 731,741 shares of our common stock to consultants in lieu of cash for expiring options and per agreement totaling $ 155,000 , and (v) we issued 300,000 options to our Chief Financial Officer with a fair value of $ 68,000 (see “Chief Financial Officer Contract Extension” see below). All stock option expense is recorded on our consolidated statements of operations as selling, general and administrative expense. Chief Financial Officer Contract Extension On March 21, 2023, we and our Chief Financial Officer Charles K. Dargan, II formally agreed to extend the engagement agreement dated February 1, 2008 ( the “Engagement Agreement”, which had been previously extended multiple times), pursuant to which Mr. Dargan has been and continues to serve as the Company’s Chief Financial Officer. The Engagement Extension Agreement dated as of March 21, 2023 ( the “Engagement Extension Agreement”) provides for an additional one -year term to expire January 31, 2024 ( the “Extended Term”), after which Mr. Dargan will continue to serve as CFO, unless and until either party terminates the agreement. As the sole compensation for the Extended Term, Mr. Dargan was issued an option (“Option”) to purchase 25,000 shares of the Company’s common stock for each month during the Extended Term (thus, an option to purchase 300,000 shares reflecting an extended term of 12 months). The Option vests over the period of the Extended Term, with 25,000 shares having vested as of March 21, 2023, and the remaining shares to vest 25,000 shares monthly beginning March 31, 2023, and each month thereafter, so long as the agreement is in full force and effect. The Option is exercisable at $ 0.20 per share, the closing price of BioLargo’s common stock on the March 21, 2023, grant date, expires ten years from the grant date, and was issued pursuant to the Company’s 2018 Equity Incentive Plan. On March 22, 2022 , we and our Chief Financial Officer Charles K. Dargan, II formally agreed to extend the engagement agreement dated February 1, 2008 ( the “Engagement Agreement”, which had been previously extended multiple times), pursuant to which Mr. Dargan has been and continues to serve as the Company’s Chief Financial Officer. The Engagement Extension Agreement dated as of March 22, 2022 ( the “Engagement Extension Agreement”) provides for an additional one -year term through January 31, 2023 ( the “Extended Term”). As the sole compensation for the Extended Term, Mr. Dargan was issued an option (“Option”) to purchase 25,000 shares of the Company’s common stock for each month during the Extended Term (thus, an option to purchase 300,000 shares reflecting an extended term of 12 months). The Option vests over the period of the Extended Term, with 25,000 shares having vested as of March 22, 2022 , and the remaining shares to vest 25,000 shares monthly beginning March 22, 2022 , and each month thereafter, so long as the agreement is in full force and effect. The Option is exercisable at $ 0.24 per share, the closing price of BioLargo’s common stock on March 22, 2022 , the grant date, expires ten years from the grant date, and was issued pursuant to the Company’s 2018 Equity Incentive Plan. F- 24 Table of Contents BIOLARGO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2007 Equity Incentive Plan On September 7, 2007 , and as amended April 29, 2011 , the BioLargo, Inc. 2007 Equity Incentive Plan ( “2007 Plan”) was adopted as a means of providing our directors, key employees and consultants additional incentive to provide services. Both stock options and stock grants may be made under this plan for a period of 10 years, which expired on September 7, 2017 . The Board’s Compensation Committee administers this plan. As plan administrator, the Compensation Committee has sole discretion to set the price of the options. As of September 2017 , the Plan was closed to further stock option grants. Activity for our stock options under the 2007 Plan for the years ended December 31, 2023 and 2022 is as follows: Weighted Weighted average average Aggregate Options exercise price remaining intrinsic outstanding per share term value(1) Balance, December 31, 2021 2,879,246 $ 0.49 Expired ( 975,161 ) 0.36 Balance, December 31, 2022 1,904,085 $ 0.56 Expired ( 340,000 ) 0.30 Balance, December 31, 2023 1,564,085 $ 0.61 1.1 $ — ( 1 ) – Aggregate intrinsic value based on closing common stock price of $ 0.17 at December 31, 2023 . Non-Plan Options issued Activity of our non-plan stock options issued for the years ended December 31, 2023 and 2022 is as follows: Weighted Weighted Non-plan average average Aggregate options exercise price remaining intrinsic outstanding per share term value(1) Balance, December 31, 2021 20,119,207 $ 0.39 Granted 571,358 $ 0.19 Expired ( 1,666,736 ) $ 0.31 Balance, December 31, 2022 19,023,829 $ 0.39 Granted 60,040 $ 0.20 Expired ( 1,708,825 ) $ 0.30 Balance, December 31, 2023 17,375,044 $ 0.39 3.2 Unvested ( 437,500 ) $ 0.45 Vested and outstanding, December 31, 2023 16,937,544 $ 0.39 3.2 $ 28,000 ( 1 ) – Aggregate intrinsic value based on closing common stock price of $ 0.17 at December 31, 2023 . During the year ended December 31, 2023 , we issued options to purchase an aggregate 60,040 shares of our common stock at exercise prices ranging between $ 0.18 – $ 0.20 per share to vendors for fees for services. The fair value of the options issued totaled an aggregate $ 11,000 and is recorded in our selling, general and administrative expense. As of December 31, 2023, there is a total of $ 109,000 unvested fair value that will expense in the next 3 years. During the year ended December 31, 2022 , we issued options to purchase an aggregate 571,358 shares of our common stock at exercise prices ranging between $ 0.17 – $ 0.27 per share to vendors for fees for services. The fair value of the options issued totaled an aggregate $ 109,000 and is recorded in our selling, general and administrative expense. F- 25 Table of Contents BIOLARGO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 6 . Warrants We have certain warrants outstanding to purchase our common stock, at various prices, as described in the following table: Weighted Weighted average average Aggregate Warrants price per remaining intrinsic outstanding share term value (1) Balance, December 31, 2021 36,765,562 $ 0.27 Granted 27,137,048 $ 0.23 Expired ( 14,879,152 ) $ 0.24 Balance, December 31, 2022 49,023,458 $ 0.26 Granted 16,459,374 $ 0.26 Expired ( 13,892,532 ) $ 0.23 Balance, December 31, 2023 51,590,300 $ 0.27 2.16 $ 18,000 ( 1 ) – Aggregate intrinsic value based on closing common stock price of $ 0.17 at December 31, 2023 . Warrants issued in Unit Offerings During the year ended December 31, 2023 , pursuant to our Unit Offerings (see Note 3 ), we issued six -month stock purchase warrants to purchase an aggregate 8,129,687 shares of our common stock at prices at $ 0.23 per share, and five -year stock purchase warrants to purchase an aggregate 8,129,687 shares of our common stock at $ 0.29 per share. During the year ended December 31, 2022 , pursuant to our Unit Offering (see Note 3 ), we issued six -month stock purchase warrants to purchase an aggregate 13,568,524 shares of our common stock at prices from $ 0.19 - $ 0.26 per share, and five -year stock purchase warrants to purchase an aggregate 13,568,524 shares of our common stock at prices from $ 0.24 - $ 0.33 per share. Warrant issued in conjunction with amendment to note payable On March 6, 2023, we entered into an agreement with the holder of a $ 50,000 note (see Note 4, “Convertible note payable, matures March 1, 2023”) to convert that note into common stock of BETI. As payment for interest, a warrant to purchase 200,000 shares of BioLargo common stock at $ 0.21 was issued to the investor, expiring five years from the grant date. The fair value of this warrant totaled $ 30,000 and was recorded as interest expense on our consolidated statements of operations. F- 26 Table of Contents BIOLARGO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fair Value – Interest Expense To determine interest expense related to our outstanding warrants issued in conjunction with debt offerings, the fair value of each award grant is estimated on the date of grant using the Black-Scholes option pricing model and the relative fair values are amortized over the life of the warrant. For the determination of expense of warrants issued for services, extinguishment of debt and settlement management also uses the option-pricing model. The principal assumptions we used in applying this model were as follows: 2023 2022 Risk free interest rate 3.38 – 4.45 % 3.69 – 3.88 % Expected volatility 49 % 40 % Expected dividend yield — — Forfeiture rate — — Expected life in years .5 – 5 3 The risk-free interest rate is based on U.S. Treasury yields in effect at the time of grant. Expected volatilities are based on historical volatility of our common stock. The expected life in years is based on the contract term of the warrant. Note 7 . Accounts Payable and Accrued Expenses As of December 31, 2023 , accounts payable and accrued expenses included the following (in thousands): Intercompany Category BioLargo ONM BLEST Canada BETI amounts Totals Accounts payable $ 163 $ 964 $ 34 $ 93 $ 40 $ ( 82 ) $ 1,212 Accrued payroll 49 86 116 — — 251 Accrued interest 25 — — — — 25 Total $ 1,488 As of December 31, 2022 , accounts payable and accrued expenses included the following (in thousands): Intercompany Category BioLargo ONM BLEST Canada amounts Totals Accounts payable $ 187 $ 486 $ 7 $ 119 $ ( 82 ) $ 717 Accrued payroll 20 58 120 — — 198 Accrued interest 25 — — — — 25 Total $ 940 See Note 10 , “Accounts Payable and Accrued Expenses”, for the accounts payable and accrued expenses of Clyra Medical. Note 8 . Provision for Income Taxes 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 with our subsidiary Clyra Medical, as our ownership interest was less than 80% . Our subsidiary BLEST is a Tennessee limited liability company and as a pass-through entity does not pay federal taxes. 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. The Company’s losses before income taxes consist primarily of losses from domestic operations, but also included relatively nominal losses from foreign operations. F- 27 Table of Contents BIOLARGO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A reconciliation of income tax expense (benefit) computed at the statutory federal tax rates to income taxes as reflected in the financial statements is as follows: 2023 2022 Rate Rate Statutory U.S. federal tax rate ( 21.0 %) ( 21.0 %) Permanent differences: State and local income taxes, net of federal benefit 0.0 % 0.0 % Stock compensation 10.0 % 11.0 % Other 1.4 % 1.0 % Valuation Allowance 9.6 % 9.0 % Total 0.0 % 0.0 % Deferred taxes are recognized for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes. The significant components of the Company’s deferred tax assets and liabilities as of December 31, 2023 and 2022 are comprised of the following: 2023 2022 Net operating loss carryforwards $ 22,255,079 $ 21,314,069 Valuation allowance ( 22,255,079 ) ( 21,314,069 ) Total net deferred tax assets $ — $ — The Company has evaluated the positive and negative evidence bearing upon its ability to realize its deferred tax assets, which are comprised primarily of net operating loss carryforwards. Management has considered the Company’s history of cumulative net losses in the United States, estimated future taxable income and prudent and feasible tax planning strategies and has concluded that it is more likely than not that the Company will not realize the benefits of its U.S. federal and state deferred tax assets. Accordingly, a full valuation allowance has been established against these net deferred tax assets as of December 31, 2023 and 2022, respectively. The Company reevaluates the positive and negative evidence at each reporting period. At December 31, 2023, the Company had utilizable federal net operating loss carry forwards of approximately $ 95 million. The federal operating losses prior to 2003 have expired. Utilization of the U.S. federal and state net operating loss may be subject to a substantial annual limitation under Section 382 and Section 383 of the Internal Revenue Code of 1986, as amended, and corresponding provisions of state law, due to ownership changes that have occurred previously or that could occur in the future. These ownership changes may limit the amount of net operating loss that can be utilized annually to offset future taxable income and tax liabilities, respectively. The Company has not completed a study to assess whether a change of ownership has occurred, or whether there have been multiple ownership changes since its formation. Any limitation may result in expiration of a portion of the net operating loss carryforwards or research and development tax credit carryforwards before utilization. The Company is subject to tax in the United States (“U.S.”) and files income tax returns in the U.S. Federal jurisdiction and several states and local jurisdictions where the Company has determined it has tax nexus. The Company is subject to U.S. Federal, state and local income tax examinations by tax authorities for periods after 2019. The Company currently is not under examination by any tax authority. Note 9. Noncontrolling Interest – BioLargo Energy Technologies, Inc. (BETI) BioLargo Energy Technologies, Inc. (“BETI”) was formed for the purpose of commercializing a liquid sodium battery technology. BioLargo purchased 9,000,000 shares of BETI common stock upon its formation, and was initially its sole stockholder. During the year ended December 31, 2023, BETI sold 467,000 shares of its common stock and received $ 1,005,000 . Of that amount, $ 100,000 in shares were purchased by BioLargo and $ 50,000 related to a conversion of BioLargo debt. (See Note 4 ). Each investor also entered into an agreement with BioLargo whereby the investor may exchange some or all of its shares of BETI common stock into shares of BioLargo common stock, at a price equal to a 20 % discount of the volume weighted average price over the 20 trading days prior to the election to exchange. Elections must be made during calendar year 2024. As of December 31, 2023, BETI had 9,467,000 issued and outstanding shares, of which BioLargo holds 9,050,000 . F- 28 Table of Contents BIOLARGO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 10 . 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 53 % of its outstanding shares as of December 31, 2023 . On December 15, 2023, Clyra filed a Certificate of Conversion with the Delaware Secretary of State, formally changing its corporate domicile from California to Delaware. In association with the change, for each one share of common stock of the California corporation, 100 shares of the Delaware corporation were issued. All share numbers stated herein, regardless of date, reflect the foregoing 1 -for- 100 stock split. Impairment of Other Asset, Prepaid Marketing On December 30, 2015 , Clyra entered into a consulting agreement with Beach House Consulting, LLC, through which Jack B. Strommen is obligated to provide consulting services to Clyra Medical related to its sales and marketing activities, in exchange for $ 23,000 per month for a period of four years. On June 30, 2020 , at Clyra’s request, Beach House Consulting agreed to accept 3,639 shares of Clyra common stock valued at $ 788,000 , in lieu of cash, as full prepayment of the consulting fee. The obligation to provide the consulting services is dependent on Clyra generating an average of $ 250,000 in monthly sales over three consecutive months, which has not been met. The value of the shares issued to Beach House totaled $ 788,000 , and the obligation is recorded as a non-current asset on our consolidated balance sheet. During 2023, Clyra Medical's revenue did not improve, and it continues to pursue surgical wash product opportunities, Management determined as of December 31, 2023 , to impair the remaining asset balance totaling $ 394,000 . During 2022, in light of Clyra's small revenue and its shift of focus to a surgical wash product, Management determined to impair a portion of the prepaid marketing asset by $ 197,000 . The impairment amount was charged to impairment expense on our consolidated statements of operations. Debt Obligations of Clyra Medical Promissory Note On April 8, 2022 , Clyra Medical issued a promissory note in the principal amount of $ 100,000 to an individual investor, payable April 8, 2024 , and bearing 8 % annual interest. The note may be converted by its holder at any time prior to the maturity date, and automatically converts to stock upon (i) Clyra’s sale of $ 5,000,000 or more of its common or preferred stock, or (ii) the maturity date, at a conversion price equal to 70 % of the lowest price-per-share of shares sold to a future investor prior to the maturity date. Line of Credit On June 30, 2020 , Clyra Medical entered into a Revolving Line of Credit Agreement whereby Vernal Bay Capital Group, LLC ("Vernal") committed to provide a $ 1,000,000 inventory line of credit. Clyra Medical received $ 260,000 in draws and made repayments totaling $ 99,000 . 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 bears interest at 15%, matures in one year, and requires Clyra pay interest and principal from gross product sales. For the first 180 days, on a monthly basis, Clyra was required to pay 30 % of gross product sales to reduce amounts owed, and thereafter 60 % of gross sales. Clyra issued Vernal Bay 32,200 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. On December 13, 2022 , Clyra and Vernal entered into an amendment of the Revolving Line of Credit Agreement whereby the maturity date of the line of credit was extended to September 30, 2024 , and the payment terms were modified such that amounts of principal due in each month are capped at a maximum of 15 % of the principal amount then due under the note. Additionally, BioLargo agreed to allow Vernal Bay to elect to convert, any time prior to the note’s maturity date, the 32,200 shares of Clyra common stock it received as consideration for the line of credit into shares of BioLargo common stock based on the volume weighted average price of BioLargo common stock for the 30 business days preceding the election. Vernal Bay elected to convert these shares into 527,983 shares of BioLargo common stock in January 2023. As of December 31, 2023 , the balance outstanding on this line of credit totals $ 134,000 . As of December 31, 2022 , the balance outstanding on this line of credit totaled $161,000. Equity Transactions As of December 31, 2023 , Clyra had an aggregate 10,000,749 shares outstanding, of which 746,418 were Series A Preferred shares. Of that amount, BioLargo owned 5,322,775 shares, of which 165,765 were Series A Preferred shares. Sales of Common Stock During the year ended December 31, 2023 , Clyra sold 7,000 shares of its common stock, and issued a warrant to purchase 3,500 shares of its common stock at $ 7.50 per share, expiring February 28, 2027, from one accredited investor. In exchange, it received $ 35,000 in gross and net proceeds. The fair value of this warrant issued total $ 4,000 and is limited to a relative fair value based upon the percentage of its fair value to the total fair value including the fair value of the Clyra stock. On March 2, 2022 , BioLargo converted $ 633,000 owed to it by Clyra into 204,223 shares of Clyra common stock. F- 29 Table of Contents BIOLARGO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Sales of Series A Preferred Stock During the year ended December 31, 2023, Clyra sold 508,072 shares of its Series A Preferred Stock, and in exchange received $ 1,575,000 in gross and net proceeds from 35 accredited investors. Purchasers of the Series A Preferred Stock also received a 3 -year warrant to purchase the same number of additional shares of common stock for $ 3.72 per share. The fair value of the warrants issued totaled $ 410,000 and is limited to a relative fair value based upon the percentage of its fair value to the total fair value including the fair value of the Series A Preferred Stock. Shares of Series A Preferred Stock earn a dividend of 15 % each year, compounding annually; the company is under no obligation to pay such dividends in cash, and such dividends automatically convert to common stock upon conversion of the Series A Preferred Stock to common stock. Each share of Series A Preferred stock can be converted by the holder at any time for one share of common stock, and automatically convert upon the completion of a public offering of shares in which at least $ 5,000,000 of gross proceeds is received by the company. Accrued dividends may be converted to common stock at a conversion rate of $ 3.10 per share. Each investor also entered into an agreement with BioLargo whereby the investor may exchange some or all of its Series A Preferred stock, plus accrued dividends, into shares of BioLargo common stock, at a price equal to a 20% discount of the volume weighted average price over the 30 prior trading days. Elections may be made during the period beginning January 1, 2025, and ending on June 30, 2026. On December 20, 2022 , Clyra sold 72,581 shares of its Series A Preferred Stock, and in exchange received $ 225,000 in gross and net proceeds, from two accredited investors. Each investor also received a 3 -year warrant to purchase the same number of additional shares of common stock for $ 3.72 per share. The fair value of these warrants totaled $ 55,000 . Shares of Series A Preferred Stock earn a dividend of 15 % each year. Each share of Series A Preferred stock can be converted by the holder at any time for one share of common stock. Accrued dividends may be converted to common stock at a conversion rate of $ 3.10 per share. Each investor also entered into an agreement with BioLargo whereby the investor may exchange some or all of its Series A Preferred stock, plus accrued dividends, into shares of BioLargo common stock, at a price equal to a 20% discount of the volume weighted average price over the 30 prior trading days. Elections may made during the period beginning January 1, 2025, and ending on June 30, 2026. On July 20, 2023, BioLargo converted $ 96,000 owed to it by Clyra into 30,833 shares of Clyra Series A preferred common stock. On December 31, 2022, BioLargo converted $ 418,000 owed to it by Clyra into 134,932 shares of Clyra Series A preferred stock. Stock Options Weighted Weighted Clyra average average options exercise price remaining outstanding per share term Balance, December 31, 2021 1,400,421 $ 0.01 Granted 182,908 $ 0.40 Balance, December 31, 2022 1,583,329 $ 0.06 Granted 191,981 $ 0.01 Exercised ( 296,389 ) $ 1.97 Balance, December 31, 2023 1,478,921 $ 0.31 7.0 Unvested ( 21,525 ) $ 2.71 Balance, December 31, 2023 1,457,396 $ 0.28 7.0 Clyra issues options to its employees and consultants in lieu of compensation owed on a regular basis. During the years ended December 31, 2023 and 2022 , Clyra issued options to purchase 191,981 and 182,908 shares of its common stock, respectively. Each option vests upon issuance and has an expiration date 10 years from the date of grant. Of the 191,981 options granted during the year ended December 31, 2023 , the exercise price of 52,700 are $0.01 per share, and the remainder are $ 2.71 per share. Of the 182,908 options granted in the year ended December 31, 2022, the exercise price of 159,700 are $0.01 per share, and the remainder are $ 3.10 per share. The fair value of the options issued in the year ended December 31, 2023, and 2022 totaled $ 260,000 and $ 408,000 , respectively; we used the Black-Scholes model to calculate the initial fair value, assuming a stock price on date of grant of $ 2.70 and $ 3.10 per share, respectively. Because Clyra is a private company with no secondary market for its common stock, the resulting fair value was discounted by 30 %. During the year ended December 31, 2023, we used a risk-free rate ranging between 3.48 % - 4.45 % compared to the year-ended December 31, 2022, risk free rate ranging between 2.32 % - 3.83 % , a volatility of 49 % and an expected life of 10 years. Accounts Payable and Accrued Expenses At December 31, 2023 and 2022 , Clyra had the following accounts payable and accrued expenses (in thousands): Category December 31, 2023 December 31, 2022 Accounts payable $ 135 $ 186 Accrued payroll 7 45 Accrued dividend 242 — Accrued interest 13 7 Total $ 397 $ 238 F- 30 Table of Contents BIOLARGO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 11 . 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”.) 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. They also have been granted options to purchase up to an aggregate 1,750,000 shares of BioLargo, Inc. common stock. The profit interest and option shares are subject to a five year vesting schedule tied to the performance of the subsidiary, including gross revenue targets that increase over time, obtaining positive cash flow by March 31, 2018 ( which was not met), collecting 90 % of its account receivables, obtaining a profit of 10 % in its first year (and increasing in subsequent years), making progress in the scale-up and commercialization of our AOS system, and using BioLargo research scientists (such as our Canadian team) for billable work on client projects. These criteria are to be evaluated annually by BLEST’s compensation committee (which includes BioLargo’s president, CFO, and BLEST’s president), beginning September 2018 . Given the significant performance criteria, the Class B units and the stock options will only be recognized in compensation expense if or when the criteria are satisfied. The BLEST Compensation Committee has met regularly since the subsidiary commenced operations. In 2018 , it reviewed the operating performance and determined that the performance metrics were not met and as a result, did not award any Class B units or stock options. In December 2022 , the committee again reviewed the operating performance and determined that a portion of the performance metrics were met. In December 2023 , 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 ( 22.5 % in the aggregate), and therefore an additional half of the option interests would be vested ( 1,750,500 options shares in the aggregate). The vesting of option shares during the year ended December 31, 2023, and 2022, resulted in a fair value totaling $ 17,000 and $135,000 and is recorded on our consolidated statement of operations as selling, general and administrative expense . Note 12 . Business Segment Information For the years ended December 31, 2023 and 2022, BioLargo had five operating business segments, plus its corporate entity which is responsible for general corporate operations, including administrative functions, finance, human resources, marketing, legal, etc. The four operational business segments are: 1. ONM Environmental -- which sells odor and volatile organic control products and services, located in Westminster, California; 2. 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; 3. Clyra Medical Technologies (“Clyra Medical”) -- which develops and sells medical products based on our technologies; 4. BioLargo Energy Technologies, Inc. ("BETI") - which is developing our proprietary battery technology; and 5. BioLargo Canada (formerly named BioLargo Water) -- the main hub of our scientists researching and developing our technologies, located in Edmonton, Alberta Canada. Other than ONM Environmental, none of our operating business units have operated at a profit, and therefore each required additional cash to meet its monthly expenses, funded through BioLargo’s sales of debt or equity, research grants, and tax credits. Clyra Medical and BETI have been funded by third party investors who invest directly in in these entities in exchange for equity ownership in that entity. The Chief Operating Decision Makers for the segments are: Joseph Provenzano, President of ONM, Randall Moore, President of BLEST, Steven Harrison, President of Clyra Medical, Dennis Calvert, President of BETI, and Richard Smith, President of BioLargo Canada. F- 31 Table of Contents BIOLARGO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The segment information for the years December 31, 2023 and 2022 , is as follows (in thousands): 2023 2022 Revenues BioLargo corporate $ — $ 5 ONM Environmental 11,440 4,374 BLEST 2,397 1,943 Clyra Medical 20 56 BioLargo Canada 30 1 Intersegment revenue ( 1,657 ) ( 495 ) Total $ 12,230 $ 5,884 Research and development BioLargo corporate $ ( 764 ) $ ( 674 ) ONM Environmental ( 15 ) — BLEST ( 1,256 ) ( 469 ) Clyra Medical ( 335 ) ( 110 ) BETI ( 1,043 ) — BioLargo Canada ( 526 ) ( 565 ) Intersegment research and development 1,657 499 Total $ ( 2,282 ) $ ( 1,319 ) Depreciation expense BioLargo corporate $ 34 $ 3 ONM Environmental 21 3 BLEST 9 9 Clyra Medical 39 30 Total $ 103 $ 45 Stock option expense $ 1,864 $ 1,663 BioLargo corporate 260 408 Clyra Medical $ 2,124 $ 2,071 Total Operating income (loss) BioLargo corporate $ ( 3,320 ) $ ( 3,971 ) ONM Environmental 4,335 1,130 BLEST ( 1,619 ) ( 452 ) Clyra Medical ( 2,102 ) ( 1,383 ) BETI ( 1,179 ) — BioLargo Canada ( 695 ) ( 714 ) Total $ ( 4,580 ) $ ( 5,390 ) Interest expense BioLargo corporate $ ( 49 ) $ ( 24 ) ONM Environmental $ ( 6 ) — Clyra Medical ( 36 ) ( 29 ) Total $ ( 91 ) $ ( 53 ) Net income (loss) BioLargo corporate $ ( 3,369 ) $ ( 3,995 ) ONM Environmental 4,329 1,304 BLEST ( 1,619 ) ( 425 ) Clyra Medical ( 2,097 ) ( 1,412 ) BETI ( 1,179 ) — BioLargo Canada ( 713 ) ( 604 ) Consolidated net loss $ ( 4,648 ) $ ( 5,132 ) As of December 31, 2023 BioLargo ONM Clyra BLEST BETI Canada Elimination Total Tangible assets $ 942 $ 4,624 $ 432 $ 1,083 4 $ 50 $ ( 41 ) $ 7,094 Right of use 394 — — 698 — — — 1,092 Investment in South Korean joint venture 19 — — — — — — 19 Total $ 1,355 $ 4,624 $ 432 $ 1,781 $ 4 $ 50 $ ( 41 ) $ 8,205 As of December 31, 2022 BioLargo ONM Clyra BLEST BETI Canada Elimination Total Tangible assets $ 669 $ 2,064 $ 631 $ 441 — $ 194 $ ( 41 ) $ 3,958 Right of use 136 — — 731 — — — 867 Investment in South Korean joint venture 33 — — — — — — 33 Total $ 838 $ 2,064 $ 631 $ 1,172 $ — $ 194 $ ( 41 ) $ 4,858 F- 32 Table of Contents BIOLARGO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 13 . Leases We have long-term operating leases for office, industrial and laboratory space in Westminster, California, Oak Ridge, Tennessee, and Alberta, Canada. Payments made under operating leases are charged to the Consolidated Statement of Operations and Comprehensive Loss on a straight-line basis over the term of the operating lease agreement. Short-term leases less than one -year are not included in our analysis. For the years ended December 31, 2023 and 2022 , rental expense was $ 335,000 and $ 316,000 , respectively. The lease of our Westminster facility expires August 2024 . Management intends to extend this lease for four years. The four -year lease extension added $ 394,000 to our right of use and lease liability as of December 31, 2023. In September 2022 , the lease of our Oak Ridge, Tennessee facility was extended for ten years. The ten -year lease added $ 443,000 to our right of use and lease liability as of December 31, 2022. The lease of our Canadian facility is less than one year. None of our leases have additional terms related to the payments or mechanics of the lease. The leases have no additional payment terms such as common area maintenance payments, tax sharing payments or other allocable expenses. Likewise, the leases do not contain other terms and conditions of use, such as variable lease payments, residual value guaranties or other restrictive financial terms. 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. As of December 31, 2023, the weighted average remaining lease term for our operating leases was seven years. As of December 31, 2023 , our weighted average remaining lease term is seven years and the total remaining operating lease payments is $ 2,042,000 . Our minimum lease payments over the next five years are as follows: BioLargo Year ending Corp / ONM BLEST Total December 31, 2024 122,000 154,000 276,000 December 31, 2025 125,000 157,000 282,000 December 31, 2026 129,000 160,000 289,000 December 31, 2027 133,000 163,000 296,000 December 31, 2028 79,000 166,000 245,000 Thereafter — 654,000 654,000 Total minimum lease payments $ 588,000 $ 1,454,000 $ 2,042,000 Less imputed interest (933,000 ) Total operating lease liability $ 1,109,000 Note 14 . Subsequent Events. Management has evaluated subsequent events through the date of the filing of this Annual Report and management noted the following for disclosure. Sales of Common Stock From January 1, 2024, through March 29, 2024, we sold 806,175 shares of our common stock to Lincoln Park pursuant to the 2022 LPC Purchase Agreement (see Note 3 ), and received $ 260,000 in gross and net proceeds. These sales were registered with the SEC on Form S- 1 (file number 333 - 268973 ). (See Note 3. ) From January 1, 2024, through March 29, 2024, we sold 1,394,737 shares of our common stock and received $ 265,000 and $ 239,000 , respectively, in gross and net proceeds, from five accredited investors. In addition to the shares, we issued each investor a six -month and a five -year warrant to purchase additional shares. (See Note 3 and Note 6 “Warrants Issued in Unit Offering”.) Commissions paid to a licensed broker included a 10% cash fee and a warrant to purchase 10% of the shares purchased. Warrants From January 1, 2024, through March 29, 2024, we issued 406,278 shares of our common stock pursuant to the exercise of stock purchase warrants and received $ 75,000 in gross and net proceeds. Clyra Medical From January 1, 2024, through March 29, 2024, Clyra Medical sold 95,000 shares of its common stock, and issued warrants to purchase an aggregate 47,500 shares of its common stock at $ 7.50 per share, expiring February 28, 2027, from four accredited investors. In exchange, it received $ 475,000 in gross and net proceeds. F-33