BIOLARGO, INC. 10-K

ITEM 5. MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES Market Information Since January 23, 2008, our common stock has been quoted on the OTC Markets (formerly known as the “OTC Bulletin Board”) under the trading symbol “BLGO”. Since May 2024, it has listed on the OTCQX, the OTC Market's highest marketplace. The OTC Markets is a regulated quotation service that displays real-time quotes, last-sale prices and volume information in over-the-counter equity securities. OTCQX securities are traded by a community of market makers that enter quotes and trade reports. This market is limited in comparison to the national stock exchanges and any prices quoted may not be a reliable indication of the value of our common stock. Any over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. Holders As of March 28, 2025, there were approximately 530 registered holders of our common stock, and 5,300 beneficial owners. Dividends We have never declared or paid a cash dividend to stockholders. We intend to retain any earnings which may be generated in the future to finance operations. Securities Authorized for Issuance Pursuant to Equity Compensation Plans Equity Compensation Plan Information as of December 31, 2024 Number of securities to be Weighted average issued upon exercise of exercise price of Number of securities outstanding options, outstanding options, remaining available for warrants and rights warrants and rights future issuance Plan Category (a) (b) (c) Equity compensation plans approved by security holders 48,822,806 $ 0.20 34,506,080 Equity compensation plans not approved by security holders(2) 15,687,642 $ 0.40 n/a Warrants 31,615,616 $ 0.29 n/a Total 96,126,064 $ 0.26 34,506,080 (1) Includes 1,157,500 shares issuable under the 2007 Equity Plan, which expired September 6, 2017; includes 42,171,386 shares issuable under the 2018 Equity Incentive Plan which expired March 2024; includes 5,493,920 shares issuable under the 2024 Equity Plan, adopted by our stockholders June 13, 2024. (2) This includes various issuances of options to specific individuals either as a conversion of un-paid obligations pursuant to a plan adopted by our board of directors, or as part of their agreement for services. 21 Table of Contents Sales of Unregistered Securities The following is a report of the sales of unregistered securities in the past two years not previously reported in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K. During 2024, Clyra Medical sold shares of its common stock and warrants and received $2,005,000 gross proceeds from 29 accredited investors, and in exchange issued the investors 373,835 shares of its common stock and a warrant to purchase 205,670 shares of common stock at $7.50 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. ITEM 6. SELECTED FINANCIAL DATA Not applicable ITEM 7. MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with our audited consolidated financial statements and the related notes to the consolidated financial statements included elsewhere in this report. This discussion contains forward-looking statements that involve risks and uncertainties. Such statements, which include statements concerning future revenue sources and concentration, selling, general and administrative expenses, research and development expenses, capital resources, additional financings and additional losses, are subject to risks and uncertainties, including, but not limited to, those discussed above in Part I, Item 1 and elsewhere in this Annual Report, particularly in “Risk Factors,” that could cause actual results to differ materially from those projected. The forward-looking statements set forth in this Annual Report are as of December 31, 2024, unless expressly stated otherwise, and we undertake no duty to update this information. Results of Operations — Comparison of the years ended December 31, 2024 and 2023 We operate our business in distinct business segments: ● ONM Environmental, which manufactures and sells our odor and VOC control products and services, including our flagship product, CupriDyne Clean; ● BLEST, which provides professional engineering services supporting our internal business units, advancing innovations like the AEC to remove PFAS contaminants from water, and serving outside clients on a fee for service basis; ● Clyra Medical, which develops and sells medical products based on our technology; ● BETI, which develops our battery technology; ● BEST, which sells equipment based on our technology; and ● BioLargo Canada, located in Edmonton, Alberta Canada, our primary research and development activities; and ● Our corporate operations, which support the operating segments with legal, accounting, human resources, and other services. 22 Table of Contents Our consolidated revenue for the year ended December 31, 2024 was $17,779,000, which is a 45% increase over the same period in 2023. Services revenue increased 32% by $247,000, while revenue from product sales increased by 46%, $5,302,000. The increase in service revenues was related to additional engineering consulting service contracts. The increase in product revenues was almost entirely due to an increase in the volume of sales of private-label odor-control products, specifically the Pooph branded pet-odor product. ONM Environmental Our wholly-owned subsidiary ONM Environmental generates revenues through sales of our flagship product CupriDyne Clean, by providing design, installation, and maintenance services on the systems that deliver CupriDyne Clean at its clients’ facilities, and through sales of private-label products based on our CupriDyne Clean technology. Revenue (ONM Environmental) ONM Environmental’s revenues for the year ended December 31, 2024, were $15,597,000, an increase of $4,157,000 or 36% from the same period in 2023. The increase in revenues was almost entirely due to an increase in the volume of sales of private label odor-control products, specifically the Pooph branded pet-odor product (which increased by $3,976,000). Because Pooph is owned and marketed by a third party, ONM Environmental has no control over the marketing and sales activity or levels of the Pooph brand. Because the brand has only been on the market for three years, it is difficult to identify trends and uncertainties in sales volumes, especially so for longer periods of time. For the interim period ending March 31, 2025, as the first quarter of 2024 remains our highest recorded revenue period from Pooph, we expect a downturn in revenue in the comparative period. A reduction of revenue from sale of Pooph will adversely impact our company-wide revenue. (See the Risk Factor above titled “A significant portion of our revenue is concentrated with one customer.”) Cost of Goods Sold (ONM Environmental) ONM Environmental’s cost of goods sold includes costs of raw materials, contract manufacturing, and portions of depreciation, salaries and expenses related to the manufacturing and installation of its products. As a percentage of revenue, ONM Environmental’s costs of goods increased 4% in 2024 to 53%. The increase was related to normal price fluctuations for raw materials. Selling, General and Administrative Expense (ONM Environmental) ONM Environmental’s SG&A expenses were $1,357,000 in 2024, compared to $1,472,000 in 2023. We expect these expenses to remain approximately the same in 2025. Operating Income (ONM Environmental) ONM Environmental generated operating income of $5,920,000 in 2024, compared to an operating income of $4,335,000 in 2023. The increase in operating income is due almost entirely to an increase in the sales of its Pooph branded pet odor product. As the marketing and sales of that product is in the sole control of a third party, we have no way of determining whether these sales will decrease or increase in the current year and thus have no way to determining whether ONM Environmental will have an operating income in the current year. 23 Table of Contents BLEST (engineering division) Revenue (BLEST) BLEST generated $2,182,000 of revenue from third parties in 2024, compared to $770,000 in 2023, representing a 183% increase from the prior year. In addition to providing service to third party clients, BLEST provides services to BioLargo and its subsidiaries for internal BioLargo projects. These services are billed internally, are considered intersegment revenue, and are eliminated in the consolidation of our financial statements. The increase in third party revenue in 2024 as compared to 2023 is a result of $878,000 of revenue recognized in the second quarter of 2024 from the sale of AEC water treatment equipment. In the year ended December 31, 2024, intersegment revenues totaled $1,015,000 compared to $1,627,000 in 2023. Intersegment revenue is primarily used to further engineer and develop our AEC PFAS treatment system and battery technology. Cost of Goods Sold (BLEST) BLEST’s cost of goods includes employee labor, materials, as well as subcontracted labor costs. In 2024, its cost of goods were 74% of its revenues, versus 51% in 2023. The increase is related to increased costs on fixed fee contracts, and work attributed to the AEC water treatment equipment. We expect the cost of services to remain consistent in 2025 based on the contracts currently in progress. Selling, General and Administrative Expense (BLEST) BLEST's SG&A expenses were $872,000 in 2024, compared to $722,000 in 2023, due to increased head-count related expenses. We expect these expenses remain consistent in 2025 based on the contracts currently in progress. Operating Loss (BLEST) BLEST had an operating loss of $1,453,000 in 2024, compared to an operating loss of $1,619,000 in 2023. This operating loss is reflective of the focus at BLEST on internal BioLargo projects. While we are unable to record revenues generated from services by the engineering group to other BioLargo operating divisions for important projects such as the development of the AOS and AEC technologies, it is important to note that its net loss would be eliminated if it were selling these services to a third party at fair market value. Because the subsidiary had a net loss, we invested cash during the year to allow it to maintain operations. Clyra Medical Clyra Medical has not yet begun commercial sales of its Bioclynse surgical wound irrigation product and thus has not generated revenues in 2024; past revenues have been nominal. In 2024, Clyra had an operating loss totaling $3,324,000, which included $827,000 in research and development expenses. In the same period in 2023, operating loss totaled $2,102,000, which included $335,000 in research and development expenses. The increases in costs and expenses is related to our development of Bioclynse for commercialization. Management is not yet in a position to disclose when Clyra will begin generating revenue. BETI BioLargo Energy Technologies, Inc., (BETI) is focused on development of our Cellinity battery, and has not generated generate revenue. In 2024, BETI had an operating loss totaling $642,000, which included $379,000 in research and development expenses. In the same period in 2023, the operating loss totaled $1,179,000, which included $1,043,000 in research and development expenses. We do not expect BETI to generate revenue in the near future as it continues its research and development activities. BEST BioLargo Equipment, Sciences and Technologies, Inc. (BEST), was formed in 2024 to commercialize BioLargo's proprietary water treatment equipment, including its PFAS removal device the AEC. As the first AEC sale occurred prior to the Company's formation, and the sales cycle for advanced water treatment systems is long, BEST has not yet generated revenues. We intend future water treatment projects to be contracted through BEST. During 2024 BEST had an operating loss totaling $273,000. Selling, General and Administrative Expense – consolidated Our Selling, General and Administrative expense (“SG&A”) include both cash (for example, salaries to employees) and non-cash expenses (for example, stock option compensation expense). Our consolidated SG&A increased by 15% ($1,244,000) in the year ended December 31, 2024, to $9,302,000. Our non-cash expenses (through the issuance of stock and stock options) were $2,479,000 in 2024, compared with $2,508,000 in 2023. Our SG&A expenses included (in thousands): December 31, 2024 December 31, 2023 Salaries and payroll related $ 3,276 $ 2,746 Professional fees 944 703 Consulting 1,503 1,413 Office expense 2,186 1,853 Board of director expense 422 434 Sales and marketing 494 481 Investor relations 477 428 Total $ 9,302 $ 8,058 24 Table of Contents The increases in salaries and payroll related is primarily due to the fair value of the stock options issued. The increase in professional fees, consulting, office expense, sales and marketing and investor relations were due to increased company activities and revenues, including new company projects such as the liquid sodium battery. Office expense increased due to an increase in square footage of rented space and an increase in general office expenses related to expanded operations. Board of director expense was consistent with prior year activity. Impairment Expense During each of the years ended December 31, 2024 and 2023, management recognized $0 and $394,000, respectively, impairment of Clyra’s prepaid marketing asset (see Note 10). Research and Development In the year ended December 31, 2024, we spent $2,882,000 in the research and development of our technologies and products. This was an increase of 26% ($600,000) compared to 2023, due to increased activity related to development of Bioclynse, our AEC water filtration and Cellinity battery products. Other Income and Expense Primarily through our wholly owned Canadian subsidiary, we have been awarded more than 90 research grants over the years from various public and private agencies, including the Canadian National Research Institute – Industrial Research Assistance Program (NRC-IRAP), the National Science and Engineering Research Council of Canada (NSERC), and the Metropolitan Water District of Southern California’s Innovative Conservation Program “ICP”. The research grants received are considered reimbursement grants related to costs we incur and therefore are included as Other Income. The amount of grant income decreased $10,000 in the year ended December 31, 2024, to $26,000. Grant funds paid directly to third parties are not included as income in our financial statements. Interest expense Our interest expense for the year ended December 31, 2024, was $33,000, a decrease of 64% compared with 2023. The significant decrease in interest expense is related to reduced debt and our interest income, offsetting the interest expense. We expect our interest expense to increase in 2025 as compared with 2024 due to increased debt obligations at Clyra Medical. 25 Table of Contents Net Loss Net loss for the year ended December 31, 2024, was $4,347,000 a loss of $0.01 per share, compared to a net loss for the year ended December 31, 2023, of $4,648,000 a loss of $0.01 per share, a decrease in net loss of 6%. Our net loss this year declined because of the increase in gross margin related to the increase in our revenues, offset by an increase of selling, general and administrative expense. The net income (loss) per business segment is as follows (in thousands): Year ended Year ended Net income (loss) December 31, 2024 December 31, 2023 ONM Environmental $ 5,951 $ 4,329 BLEST (1,356 ) (1,619 ) Clyra Medical (3,490 ) (2,097 ) BioLargo Canada (504 ) (713 ) BETI (642 ) (1,179 ) BEST (273 ) — BioLargo corporate (4,033 ) (3,369 ) Consolidated net loss $ (4,347 ) $ (4,648 ) Liquidity and Capital Resources The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of our business. During the year ended December 31, 2024, we generated revenues of $17,779,000, had a net loss of $4,347,000, and used $3,206,000 cash in operations. At December 31, 2024, we had working capital of $4,489,000, and current assets of $7,137,000. We do not believe gross profits in the year ending December 31, 2025 will be sufficient to fund our current level of operations. We have been, and anticipate that we will continue to be, limited in terms of our capital resources. As of December 31, 2024, our cash and cash equivalents totaled $3,548,000, and our total liabilities included $1,079,000 in debt obligations, of which $838,000 were owed by Clyra Medical. Of this remaining amount, $ 552,000 is due within one year. Therefore, we intend to continue to raise investment capital through the sale of our securities and the securities of our subsidiaries. To meet our cash obligations during the year-ended December 31, 2024, we (i) sold $260,000 of our common stock to Lincoln Park Capital Fund, LLC (“Lincoln Park”) (see Note 3), (ii) sold $334,000 of our common stock and warrants to accredited investors (see Notes 3 and 6), (iii) sold $2,005,000, of Clyra Medical common stock (see Note 10), and (iv) sold $50,000 of BETI common stock (see Note 9). To reduce our operational cash burdens, we regularly issue officers and vendors stock or options in lieu of cash and anticipate that we will continue to be able to do so in the future. 26 Table of Contents The foregoing factors raise substantial doubt about our ability to continue as a going concern, unless we are able to continue to rely on our agreement with Lincoln Park or other private financings, and in the long term, 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. Critical Accounting Policies Our discussion and analysis of our results of operations and liquidity and capital resources are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, valuation of offerings of debt with equity or derivative features which include the valuation of the warrant component, any beneficial conversion feature and potential derivative treatment, and share-based payments. We base our estimates on anticipated results and trends and on various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results that differ from our estimates could have a significant adverse effect on our operating results and financial position. We believe that the following significant accounting policies and assumptions may involve a higher degree of judgment and complexity than others. The methods, estimates and judgments the Company uses in applying these most critical accounting policies have a significant impact on the results of the Company reports in its consolidated financial statements. Revenue Recognition We adopted ASU 2014-09, “Revenue from Contracts with Customers”, Topic 606, on January 1, 2018. The guidance focuses on the core principle for revenue recognition. 27 Table of Contents The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: Step 1: Identify the contract(s) with a customer. Step 2: Identify the performance obligations in the contract. Step 3: Determine the transaction price. Step 4: Allocate the transaction price to the performance obligations in the contract. Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation. We have revenue from two subsidiaries, ONM and BLEST. ONM identifies its contract with the customer through a written purchase order, in which the details of the contract are defined including the transaction price and method of shipment. The only performance obligation is to create and ship the product and each product has separate pricing. ONM recognizes revenue at a point in time when the order for its goods are shipped if its agreement with the customer is FOB ONM’s warehouse facility, and when goods are delivered to its customer if its agreement with the customer is FOB destination. Revenue is recognized with a reduction for sales discounts, as appropriate and negotiated in the customer’s purchase order. ONM also installs misting systems for which it bills on a time and materials basis. It identifies its contract with the customer through a written purchase order in which the details of the time to be billed and materials purchased and an estimated completion date. The performance obligation is the completion of the installation. Revenue is recognized in arrears as the work is performed. BLEST identifies services to be performed in a written contract, which specifies the performance obligations and the rate at which the services will be billed. Each service is separately negotiated and priced. Revenue is recognized as services are performed and completed. BLEST’s contracts typically call for invoicing for time and materials incurred for that contract. A few contracts have called for milestone or fixed cost payments where BLEST bills an agreed-to amount per month for the life of the contract. In these instances, completed work, billed hourly, is recognized as revenue. If the billing amount is greater or lesser than the completed work, a receivable or payable is created. These accounts are adjusted upon additional billings as the work is completed. To date, there have been no discounts or other financing terms for the contracts. 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 balance sheet. The warrant is re-measured at its then current fair value at each subsequent reporting date (it is “marked-to-market”). If the warrant is determined to not have derivative features, it is recorded into equity at its fair value using the Black Scholes option model, however, limited to a relative fair value based upon the percentage of its fair value to the total fair value including the fair value of the convertible note. 28 Table of Contents The warrant relative fair values are also recorded as a discount to the convertible promissory notes. At present, these equity features of the convertible promissory notes have recorded a discount to the convertible notes that is substantially equal to the proceeds received. Share-based Payments It is the Company’s policy to expense share-based payments as of the date of grant or over the term of the vesting period in accordance with Auditing Standards Codification Topic 718 “Share-Based Payment.” Application of this pronouncement requires significant judgment regarding the assumptions used in the selected option pricing model, including stock price volatility and employee exercise behavior. Most of these inputs are either highly dependent on the current economic environment at the date of grant or forward-looking expectations projected over the expected term of the award. Fair Value Measurement Generally accepted accounting principles establishes a hierarchy to prioritize the inputs of valuation techniques used to measure fair value. The hierarchy gives the highest ranking to the fair values determined by using unadjusted quoted prices in active markets for identical assets (Level 1) and the lowest ranking to fair values determined using methodologies and models with unobservable inputs (Level 3). Observable inputs are those that market participants would use in pricing the assets based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s assumptions about inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The Company has determined the appropriate level of the hierarchy and applied it to its financial assets and liabilities. Management believes the carrying amounts of the Company’s financial instruments as of December 31, 2024 and 2023, approximate their respective fair values because of the short-term nature of these instruments. Such instruments include cash, accounts receivable, prepaid assets, 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. Recent Accounting Pronouncements See Note 2 to the Consolidated Financial Statements, “Summary of Significant Accounting Policies – Recent Accounting Pronouncements”, for the applicable accounting pronouncements affecting the Company. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Not applicable.