This quarterly report on Form 10-Q contains forward-looking statements. These
forward-looking statements involve risks and uncertainties, including statements
regarding BioLargo's capital needs, business plans and expectations. Such
forward-looking statements involve risks and uncertainties regarding BioLargo's
ability to carry out its planned development and production of products.
Forward-looking statements are made, without limitation, in relation to
BioLargo's operating plans, BioLargo's liquidity and financial condition,
availability of funds, operating and exploration costs and the market in which
BioLargo competes. Any statements contained herein that are not statements of
historical facts may be deemed to be forward-looking statements. In some cases,
you can identify forward-looking statements by terminology such as "may",
"will", "should", "expect", "plan", "intend", "anticipate", "believe",
"estimate", "predict", "potential" or "continue", the negative of such terms or
other comparable terminology. Actual events or results may differ materially. In
evaluating these statements, you should consider various factors, including the
risks outlined in our Form most recent annual report on Form 10-K, and, from
time to time, in other reports BioLargo files with the SEC. These factors may
cause BioLargo's actual results to differ materially from any forward-looking
statement. BioLargo disclaims any obligation to publicly update these
statements, or disclose any difference between its actual results and those
reflected in these statements. The information constitutes forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Given these uncertainties, readers are cautioned not to place undue
reliance on such forward-looking statements.
Unless otherwise expressly stated herein, all statements, including
forward-looking statements, set forth in this Form 10-Q are as of March 31,
2022, unless expressly stated otherwise, and we undertake no duty to update this
information.
As used in this report, "we" and "Company" refers to (i) BioLargo, Inc., a
Delaware corporation; (ii) its wholly-owned subsidiaries BioLargo Life
Technologies, Inc., a California corporation, ONM Environmental, Inc., a
California corporation, BioLargo Development Corp., a California corporation,
and BioLargo Water Investment Group, Inc., a California corporation, and its
wholly owned Canadian subsidiary BioLargo Water, Inc. (iii) its majority-owned
subsidiary BioLargo Engineering, Science & Technologies, LLC, a Tennessee
limited liability company; and (iv) Clyra Medical Technologies, Inc. ("Clyra"),
a partially owned subsidiary.
The following discussion and analysis should be read in conjunction with our
unaudited consolidated financial statements and the related notes to the
consolidated financial statements included elsewhere in this report.
Our Business - Innovator and Solution Provider
BioLargo, Inc. invents, develops, and commercializes innovative platform
technologies to solve challenging environmental problems like PFAS
contamination, advanced water and wastewater treatment, industrial odor and VOC
control, air quality control, infection control, and myriad environmental
remediation challenges. Having conducted continual and extensive research and
development, BioLargo holds a wide array of issued patents, maintains a robust
pipeline of products, and provides full-service environmental engineering. We
invent or acquire novel technologies and develop them to maturity through our
operating subsidiaries using cutting-edge scientific and engineering
methodologies. With a keen emphasis on partnerships with academic, government,
and commercial organizations and associations, BioLargo has proven itself by
executing on challenging environmental engineering projects, demonstrating its
powerful technologies through pilots, trials, and early commercial adoption,
publishing high-impact academic and industry publications, and winning over 90
grants. We monetize our innovations through direct sales and recurring service
contracts, as well as through channel partnerships, meaning licensing
agreements, exclusive and non-exclusive distribution agreements, brand
development partnerships, sale referral partnerships, strategic joint venture
formation, and/or the sale of the IP. Channel partnerships allow us to extend
the commercial reach of our products and services disproportionately to our core
infrastructure and staffing.
The past year held a shift in focus at BioLargo toward the development and
commercial execution of several key business initiatives with the potential to
generate significant organizational and revenue growth for the company. Three of
these projects in particular represent the dominant catalysts for near-term
monetization of our core technologies and engineering services: 1) the
advancement of our PFAS removal system (the AEC, or "Aqueous Electrostatic
Concentrator") toward commercial trials with a Southern California municipal
water agency and a federal government agency, 2) the design, manufacture,
pre-trial testing, and preparation for field trials with first customers of a
novel "minimal liquid discharge" wastewater treatment system in partnership with
Garratt-Callahan, the largest privately held water treatment company in America
with more than 100 years history, and 3) the manufacture and successful launch
of a new pet odor control product based on BioLargo's intellectual property
launched by our partners at Ikigai Marketing Works, LLC, a venture aimed at
building a national pet odor-control brand with distribution through big-box
retailers to position for sale of the brand to a multi-national consumer
products company. Additionally, our engineering services division has begun the
initial phase of a large capital project in the cleantech and environmental
technologies space - a waste-to-energy conversion plant in South America (see
Waste-to-Energy Conversion Plant Project below).
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Three main factors differentiate this past year from the years that preceded it
for BioLargo. First, we have built our credibility as cleantech technology
innovators and environmental engineering service providers to the point where
industry stakeholders, clients, and prospective partners rightfully view us as
an effective and reliable means to solve their challenges. This has resulted in
what we believe will continue advancing to become high-revenue and profit
generating projects with channel partners such as Garratt-Callahan and Ikigai.
This "critical mass" of credibility as a cleantech solutions provider is a
result of our investments in our talented team of engineers and scientists with
a track record of executing complex engineering projects, and our history of
developing creative and powerful new technologies. Secondly, our core patented
water treatment technologies, the BioLargo Advanced Oxidation System (AOS) and
Aqueous Electrostatic Concentrator (AEC), have now been demonstrated in
successful pilot projects, either on-site at a prospective client's facility, or
in-house with client-provided contaminated waters. Both of these technologies
are now primed for commercialization and monetization. Third, our multi-year
effort to remove debt from our balance sheet has almost concluded, with only one
$50,000 fixed-price convertible note due in 2023 remaining, along with
covid-related low-interest U.S. Small Business Administration loans (not
including debt owed by our partially owned subsidiary Clyra Medical
Technologies).
In the first quarter of 2022, our subsidiary ONM Environmental generated net
operating income of $187,000, as compared with a net operating loss in the first
quarter of 2021 of $176,000, and our engineering subsidiary reduced its
operating loss from $183,000 in the first quarter of 2021, to only $35,000 in
this most recent quarter. Several factors contributed to this: 1) each
subsidiary benefited from significant organic growth of contracts within its
main target market, 2) both executed some larger projects as compared to prior
experience, and 3) in the case of ONM Environmental, license royalties on
products based on our intellectual property began to generate a larger amount of
revenue. Of the Company's other two subsidiaries, Clyra Medical Technologies is
presently working to raise capital to support the marketing and sales of its
newly launched Bioclynse product, and BioLargo Water is working to land the
first commercial accounts for its innovative low-energy water treatment
technology the BioLargo AOS. After years of investing heavily in research and
development of our patented cleantech technologies (roughly $1.5 million in 2021
alone), we are at a turning point where our core assets are either seeing early
fruits of commercialization or are now ready for monetization.
Formula for Success: Technology, Talent and Purpose
Technology
BioLargo has continually advanced its robust portfolio of technologies since the
first acquisition of early iterations of the BioLargo technology in the spring
of 2007. Our innovations have primarily been developed through our internal
resources, and some through acquisition. These include patents, patents pending,
and trade secrets that include solutions for:
? Water decontamination, including:
o Removal of per- and poly-fluoroalkyl substances (PFAS) from drinking and
ground water
o Micropollutant destruction and removal
o Legionella detection and water treatment solutions
? Air quality controls and systems including odor and VOC control
? Mineral processing
? Infection control
? Wound management
? Disinfection
Talent
We have steadily grown our team to 31 team members and numerous other part-time
consultants, including highly qualified PhDs, engineers, MDs and medical
professionals, construction professionals, field service technicians,
innovators, sales marketing specialists, entrepreneurial and executive
leadership.
Purpose
Our mission to make life better drives us to serve others with integrity,
knowledge, technology, and solutions that protect the environment, improve
quality of life, and protect lives. All our technologies were developed from the
ground-up to be sustainable, practical solutions to significant global
challenges. We are unique in our ability to tailor our offerings to serve our
customers with proven expertise, proven technology and, if needed, we often have
the ability to develop new technical solutions to meet our customer's needs.
Combating the PFAS Forever-Chemical Crisis - the AEC
One of the most significant and timely innovations in our portfolio is our PFAS
removal and collection/disposal solution we call the Aqueous Electrostatic
Concentrator (AEC). Our engineers developed and are now preparing to
commercialize the AEC, which is a novel water treatment system that removes per-
and poly-fluoroalkyl substances (PFAS) from water at a fraction of the operating
cost and generating only a fraction of the PFAS-laden waste of the most common
currently used solutions (carbon filtration, ion exchange, and reverse osmosis).
PFAS chemicals have been linked to cancer, immune disorders, liver dysfunction,
and many other human health problems, and are contained in a vast range of
manufactured goods, common household products (e.g., cleaning products,
cookware), and electronics, and contaminate drinking water in unsafe levels all
over the globe.
PFAS is often referred to as the "contaminant of the decade", and as such, it is
considered a multi-billion dollar commercial market opportunity. The White House
has named the PFAS crisis as a top policy agenda item and the EPA has and will
continue to tighten the regulatory requirements to mitigate and manage and limit
human exposure to PFAS, all of which will continue to push the market to find
and adopt commercially viable solutions. Notably, some emerging regulations on
PFAS in the U.S. are expected to skew the market toward seeking treatment
technologies that produce as little PFAS-laden solid waste as possible, a
favorable trend for our AEC that generates very little PFAS-laden waste.
Detection of unsafe levels of PFAS around the world has given rise to a number
of market opportunities, including in drinking water, industrial wastewater,
municipal wastewater, solid waste, organic foods and more.
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We have successfully validated the AEC as an effective system to selectively
extract and collect PFAS chemicals from contaminated water including performance
testing that shows "non-detect" levels of removal. We have recently demonstrated
more than six months of continuous operation showing no materially significant
degradation of the AEC system's components or performance over time. We have
also successfully demonstrated that the AEC is scalable and functional to a
commercial scale and that our engineering team has the experience and proven
experience to successfully deliver commercial systems to meet the needs of a
commercial installation and sale. Our team has a history of successful execution
in the environmental remediation industry and the knowhow to successfully
commercialize the AEC.
Equipped with a comprehensive set of data, including removal of PFAS chemicals
to "non-detect" levels utilizing client-provided contaminated water, we have
expanded our initial marketing of the AEC over the past six months and, through
that process, have created a prospective list of commercial opportunities and
projects that has provided critical affirmation for our value proposition for
the customer market. The process has allowed us to learn from our prospective
customers how to tailor our offering to best meet their needs, while at the same
time it has created an ever-expanding list of commercial prospects that exceeds
$90 million in total revenue potential, subject to our ability to stage in this
level of growth. While these potential customers are considering other competing
solutions (like carbon filtration, ion exchange and reverse osmosis systems),
each of which have serious negative features, they are actively seeking an
alternative like our AEC. Although we are highly encouraged and working to turn
these prospective customers into clients, we are still at the early stage of the
commercial process on each.
We are also currently negotiating with three channel partners and a number of
prospective industrial customers to contract for revenue-generating projects to
treat their PFAS. Having completed our initial testing of client water (to
"non-detect" levels) from a leading water district in southern California, we
are working on a proposal to proceed with a commercial field trial. We are
preparing a comprehensive plan for review with the agency to be delivered in the
near future.
ONM Environmental - Industrial Odor and VOC Solutions
ONM Environmental, Inc. is BioLargo's subsidiary that delivers robust and
comprehensive products and services to control and mitigate odor and volatile
organic compounds ("VOCs") emitted from a variety of industrial activities,
including landfills and other waste handling facilities. Its flagship product,
CupriDyne® Clean, reduces and eliminates tough odors and VOCs in various
industrial settings. CupriDyne Clean is delivered through misting systems,
sprayers, water trucks and similar water delivery systems designed, manufactured
and installed by ONM. We believe the product is the number-one performing
odor-control product in the market, and that it offers substantial savings to
our customers compared with competing products. In response to customer demand
for expanded services, ONM Environmental now holds General, Electrical, Plumbing
and Low Voltage contractor licenses issued by the California Contractors State
License Board, and offers a menu of services to landfills, transfer stations,
wastewater treatment facilities as well as facilities in non-waste related
industries. These services include engineering design, construction,
installation, ongoing maintenance and on-site support services to assist our
clients in the implementation and continued use of the various systems that
deliver our liquid products in the field (such as misting systems).
ONM Environmental offers a deodorizing and sanitizing technology, called
EcoMist®, that can be installed directly onto waste collection vehicles and
automatically sprays odor control products and/or sanitizer into refuse bins or
dumpsters during the waste collection process. EcoMist® is an "out-of-the-box"
product, allowing customers to install the system themselves, and will thus not
require a significant investment in logistics and servicing to support sales.
ONM Environmental is focusing on selling the product to its current customers
and garbage truck manufacturers.
We have been and expect to continue selling product to the largest solid waste
handling companies in the country, with a portion of chemistry product sales
resulting from national purchasing agreements (NPAs) with large waste handling
companies. ONM Environmental also is currently servicing an exclusive three-year
supply contract with a large municipality in Southern California for the
delivery of CupriDyne Clean, which will provide a steady source of chemistry
supply revenue for the company over the next three years.
In addition to growing its revenues organically through the sale of odor and VOC
control chemistry and air quality control systems to its primary market segment
(municipal solid waste handling in California), ONM Environmental aims to
accelerate its growth through development of new sales and distribution
channels. Some of these, including our partnership with Ikigai Marketing Works,
LLC (see Consumer Products below) and our joint venture with BKT Co. Ltd. in
South Korea (see South Korean Joint Venture) are already actively advancing
toward their end-goal, which is to foster new distribution opportunities for our
patented odor and VOC control chemistry without being limited by our own sales
and distribution infrastructure. Additional new opportunities for distribution
channels are presently being developed, including in new vertical market
segments such as pulp and paper, wastewater, oil and gas, construction, and the
auto industry, as well as in new geographical markets including South and
Central America. Company management will provide more information on each of
these emerging partnerships as they each become finalized.
Consumer Private-Label Products
Ikigai Marketing Works, LLC, which was founded by accomplished industry
executives from the consumer-packaged goods industry who have executed
successful launches of at least five blockbuster products, has licensed from us
a CupriDyne-based household pet odor removal product and a laundry additive for
pet related odors. After development of television commercials and a successful
test marketing campaign, they have begun a national advertising campaign, and
plan to launch the products in major retailers in the United States (e.g.,
Walmart, Target, etc.). Initial sales volume for the product has exceeded early
expectations.
South Korean Joint Venture
On February 12, 2020, we executed a "Joint Venture Framework Agreement" with a
leading wastewater treatment solution provider based in South Korea (BKT Co.
Ltd., "BKT"), to create a South Korean entity that would manufacture odor and
VOC control products based on our CupriDyne Clean products. We own 40% of the
joint venture. Although the joint venture established manufacturing and is
marketing the product, the COVID-19 pandemic significantly impacted the expected
growth of the company, and continues to do so as the country of South Korea
continues implementing measures to reduce infections. Management at Odin reports
that while initial sales have required extraordinary efforts, continued testing
and trial success has reinforced its confidence in continued expansion of sales
for the future.
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Full Service Environmental Engineering
Our subsidiary BioLargo Engineering, Science & Technologies, LLC ("BLEST")
offers full service environmental engineering to third parties and provides
engineering support services to our internal teams to accelerate the
commercialization of our technologies. Its website is found at
www.BioLargoEngineering.com.
BLEST focuses its efforts in three areas:
? providing engineering services to third-party clients;
? supporting internal product development and business units' services to
customers (e.g., the AOS); and
? advancing their own technical innovations such as the AEC PFAS treatment
technology
The subsidiary is located in Oak Ridge (a suburb of Knoxville, Tennessee), and
employs a group of scientists and engineers who collectively worked together for
almost 30 years and experience in diverse engineering fields. The team is led by
Randall Moore, who served as Manager of Operations for Consulting and
Engineering for the Knoxville office of CB&I Environmental & Infrastructure and
was formerly a leader at The Shaw Group, Inc., a Fortune 500 global engineering
firm. The other team members are also former employees of CB&I and Shaw. The
team is highly experienced across multiple industries and they are considered
experts in their respective fields, including chemical engineering, wastewater
treatment (including design, operations, data gathering and data evaluation),
process safety, energy efficiency, air pollution, design and control, technology
evaluation, technology integration, air quality management & testing,
engineering management, permitting, industrial hygiene, applied research and
development, air testing, environmental permitting, HAZOP review, chemical
processing, thermal design, computational fluid dynamics, mechanical
engineering, mechanical design, NEPDES permitting, RCRA/TSCA compliance and
permitting, project management, storm water design & permitting, computer
assisted design (CAD), bench chemistry, continuous emission monitoring system
operator, data handling and evaluation and decommissioning and decontamination
of radiological and chemical contaminated facilities. The engineering team also
has developed an extended network of trusted engineering subcontractors that
assist in serving specific client projects as needed, from time to time.
In association with Garratt-Callahan, a national industrial water treatment
company, BLEST is developing a "minimal liquid discharge" wastewater treatment
system based on Garratt-Callahan proprietary technology that would industrial
wastewater discharge and therefore reduce wastewater discharge fees for
customers. Garratt-Callahan is currently preparing to launch the MLD system to
its customers. BLEST will serve as the manufacturing partner and Garratt
Callahan will serve as the selling distributor to leverage their national sales
force and over one hundred years of providing services and products to
customers. BioLargo's engineers finished building the first full-scale prototype
of this new technology and tested it with Garratt-Callahan client provided
water, with Garratt-Callahan technical staff present on-site at BLEST's
facility. In this "factory acceptance" testing, the system removed over 98% of
the target contaminants from water provided by a Garratt-Callahan client in
continuous operation, in line with results achieved by Garratt-Callahan's
original bench-scale and batch processing tests. This factory acceptance testing
was a necessary step before commercial trials with Garratt-Callahan customers
can begin. The first customer has already been identified, and initially the
plan was to conduct an on-site field trial for that customer. Now, in
collaboration with the technical team at Garratt-Callahan, we are recommending
that a field trial is not required given the level of validation that has been
done. We are working on contractual agreements to move the project forward to
first sales.
Waste-to-Energy Conversion Plant Project
In April, our engineering subsidiary (BLEST) was hired to conduct a
comprehensive project plan (i.e., "feasibility") study by a Southern California
based sustainable energy services company intending to build a waste-to-energy
conversion plant in South America. The site of the proposed conversion plant is
approximately 296 acres, where it is planned to process over two million tons of
municipal solid waste annually. A feasibility study is typically the first step
in the design process for a new project of this size, and will address multiple
fundamental factors that will influence the design and operation of the
anticipated facility, including technology options, rough costs to construct and
operate, environmental impacts, and rough equipment sizing. The feasibility
study would then inform and facilitate the development of a design basis
document, then conceptual design, and ultimately the front-end engineering
design. It is important to note that the term feasibility as used in this
context does not involve any sort of technology trials to determine if they are
workable, rather the comprehensive plan being prepared is to assist the
developer in proper planning, permitting, budgeting for a very large project.
Thus far, BioLargo's engineers have been contracted on the feasibility study
only, but expect to be involved in subsequent phases should the project move
forward as planned. ONM Environmental was critical in bringing this project to
the company and will work with BioLargo's engineers to execute this project. ONM
Environmental brings to the table a team with extensive expertise surrounding
the design and operation of waste handling facilities, and BLEST brings a team
of veteran engineers with decades of experience designing and integrating
complex projects as well as specific expertise in the area of waste-to-energy
conversion.
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BioLargo Water and the Advanced Oxidation System - AOS
BioLargo Water is our wholly owned subsidiary located in Edmonton, Alberta,
Canada, that developed and is commercializing our Advanced Oxidation water
treatment system (AOS). The AOS is our patented water treatment device that
generates highly oxidative and energetic species of iodine and other molecules
which allow it to rapidly and effectively eliminate pathogenic organisms and
organic contaminants as water passes through the device. The key value
proposition of the AOS is its ability to reduce or eliminate a wide variety of
waterborne contaminants with high performance while using very little
electricity and input chemicals. This is made possible by the highly oxidative
iodine compounds and reactive oxygen species generated within the AOS reactor as
well as the unique and proprietary physical constitution and geometry of the
reactor. Our proof-of-concept studies and on-site pilot projects have generated
results that project the AOS will be more cost- and energy-efficient than
commonly used advanced water treatment technologies such as UV,
electro-chlorination, and ozonation. Furthermore, our technology has been proven
capable of removing hard-to-treat organic micropollutants such as
pharmaceuticals from water more quickly and energy-efficiently than other
technologies. Together, these characteristics make the AOS an economical and
versatile tool to enable wastewater treatment and reuse in the face of emerging
water contaminants and increasing regulatory scrutiny on industrial wastewater
discharge. The capabilities of the AOS as a sustainable water treatment
technology have been the subject of several high-impact academic papers in
scientific journals. The company pursues a policy of publishing about the
technology in academic journals as much as possible in order to promote
transparency about the technology's safety and efficacy while also contributing
to the field of advanced water treatment science.
BioLargo's AOS water treatment technology has completed several pre-commercial
demonstration pilots, including one at a poultry farm in Alberta, one at a
microbrewery in Southern California, and another in Southern California where
stormwater was treated by the AOS. It has an ongoing pilot near Montreal to
treat municipal wastewater. It is our belief that once these pre-commercial
pilots have concluded with the AOS, our ability to entice major water industry
players to partner with BioLargo Water to accelerate market adoption of the AOS
will be increased dramatically. Our team in Canada is in discussions with
potential early adopters in the agriculture space, and has secured significant
provincial and federal grant funding to help defray the cost of a first
commercial project.
In the first quarter of 2022, BioLargo Water received a grant from Next
Generation Manufacturing Canada (NGen) to support the company's collaboration
with a specialized electrical component designer to assist in optimizing the
electrical performance of the AOS with the ultimate goal of maximizing the
lifespan of the AOS' components.
Municipal Wastewater Treatment Pilot - Montreal
Our commercial-scale AOS demonstration pilot (run in partnership with acclaimed
water experts at the Centre des Technologies de L'Eau) at a municipal wastewater
treatment plant near Montreal, Quebec, is ongoing and providing important data
that shows the AOS is removing five target pharmaceuticals from the wastewater
faster and using less electricity than the ultraviolet disinfections system used
in the facility. Notably, the pilot project also showed that the AOS was able to
also remove total coliforms (bacteria) from the municipal wastewater more
effectively than the UV disinfection system currently in use at the facility.
Recently, BioLargo Water was awarded a grant from the government of Canada's
Natural Sciences and Engineering Research Council (NSERC) that allowed for the
extension of the pilot project to allow for use of a new, higher flow-rate AOS
system, as well as the installation of an AEC system at the pilot to assess its
removal of PFAS chemicals from the municipality's wastewater.
Clyra Medical Technologies
Clyra Medical Technologies, Inc. is our partially owned subsidiary creating
medical products based on our technology. It is launching a product to be used
by surgeons generally, with a first target market aimed toward orthopedic
surgeons for use as a wound irrigation solution and to help manage patient care
and outcomes. Clyra has secured its first two hospital customers for the
product, established a robust quality control system for FDA compliance,
recruited a national director of sales, and is negotiating with three separate
channel partners to form a commercial alliance. Its other product designs are on
hold until such time as it is able to secure the capital and resources to
complete any final development and support additional inventory, technical
support and sales for these products. In March 2022, Clyra and BioLargo
finalized an agreement with Scion Solutions, LLC, whereby the intellectual
property (primarily, the SkinDisc) acquired in September 2018 was returned to
Scion, and in exchange Scion forgave the outstanding principal and interest due
on the promissory note owed by Clyra with an outstanding principal amount of
$1,007,000, returned all its shares of Clyra common stock, and its two
principals forgave $305,000 in accounts payable owed to them. In addition to the
SkinDisc intellectual property, Scion received 2,000,000 of the 5,000,000 shares
it had earned from the September 2018 sale of SkinDisc to Clyra/BioLargo. There
are channel partnerships in development for Clyra's BioClynse product in three
separate healthcare markets.
Conclusion
In the past quarter, our company:
? grew its revenues significantly, with consolidated revenue growing 69% over
the same period in 2021, to $965,000. ONM Environmental was profitable, and
BLEST came just shy of profitability
? continued to demonstrate the commercial viability of our cleantech products
and services through organic growth leading to increased revenue
? improved its financial condition by through increasing cash flow from
revenues, adding to the improved balance sheet resulting from dramatic
reduction in debt over the past year
? advanced the commercialization of its technology assets in target markets
through channel partnerships that are either already in place and executing,
or are currently developing
BioLargo has advanced its technologies and infrastructure to achieve a critical
mass to capitalize on its commercial efforts and have a positive impact around
the world with clean water, clean air, and infection control solutions. The
company presents a scalable business model that targets high-impact cleantech
market opportunities. We leverage our considerable scientific, engineering, and
entrepreneurial talent to monetize our technologies and ensure high-quality
customer service and increased revenue potential. We seek to unlock the value of
our portfolio of disruptive technologies to advance our mission to "make life
better" and continue creating shareholder value.
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Results of Operations
We operate our business in distinct business segments:
? ONM Environmental, which manufactures and sells our odor and VOC control
products and services for sale by itself and third parties through private
labels;
? BLEST, our professional engineering services division, advancing innovations
like the AEC to remove PFAS contaminants from water, serving outside clients
on a fee for service basis, and supporting our internal business units;
? Clyra Medical, our partially owned subsidiary which develops and sells medical
products based on our technology;
? BioLargo Water, our Canadian division that has been historically pure research
and development, and is now transitioning to focus on commercializing our AOS
system; and
? Our corporate operations, which support the operating segments with legal,
accounting, human resources, and other services.
Consolidated revenue for the three months ended March 31, 2022, was $965,000,
which is a 69% increase over the same period in 2021. Our service revenue
increased 180%, while revenue from product sales and related services increased
by 37%. Our product revenue includes sales of our CupriDyne Clean industrial
odor control product, and sales of private-label products based on our CupriDyne
formula.
ONM Environmental
Our wholly-owned subsidiary ONM Environmental generates revenues through (i)
sales of our flagship product CupriDyne Clean, including related design,
installation, and maintenance services on the systems that deliver CupriDyne
Clean at its clients' facilities, and (ii) sale of private-label products to
third parties.
Revenue (ONM Environmental)
ONM Environmental's revenues for the three months ended March 31, 2022, were
$598,000, an increase of $278,000 or 87% from the same period in 2021. The
increase in revenues was due to an increase in the volume of sales of private
label odor-control products, and an increase in license royalties. Because ONM
Environmental has no control over the marketing and sales activity or levels of
its private-label clients, it cannot predict sales volumes related to these
clients in future periods. One client has indicated it intends to continue to
increase the number of products it is purchasing from ONM Environmental in
future periods.
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 6% in 2022, to 51%, compared to the
same period in 2021. The increase in cost of goods is due to lower margins in
the private-label products, and increases in raw material costs.
Selling, General and Administrative Expense (ONM Environmental)
ONM Environmental's selling, general and administrative expenses decreased by 8%
($26,000) during the three months ended March 31, 2022, as compared with the
same period in 2021. These expenses decreased due to a reduction of sales and
support staff. We expect these expenses to remain consistent in the year ending
December 31, 2022.
Operating Income (Loss) (ONM Environmental)
ONM Environmental generated $598,000 in revenue, a gross margin of $309,000, and
had total costs and expenses of $292,000, resulting in operating income of
$13,000, compared with an operating loss of $176,000 for the three months ended
March 31, 2021. Provided that its private-label clients continue to purchase
product, we expect this trend to continue.
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BLEST (engineering division)
Revenue (BLEST)
Our engineering segment (BLEST) generated $355,000 of revenue from third parties
in the three months ended March 31, 2022, compared to $128,000 in 2021,
representing a 177% increase from the prior year. The increase is due to
completion of projects within our budgeted amount, an increased number of client
contracts, and the recognition of $119,000 of deferred revenue for ongoing
projects that had achieved certain completion milestones.
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. In the three months ended
March 31, 2022, it totaled $188,000, primarily used to further engineer and
develop our flagship AOS water filtration system and our AEC PFAS treatment
system. In addition, BLEST engineers are performing a critical role in the AOS
pilot projects, some of which are supported by third-party research grants and
has been instrumental in developing and supporting a professional engineered
design service for misting systems being sold by our ONM operating unit.
Cost of Goods (Services) Sold (BLEST)
BLEST's cost of services includes employee labor as well as subcontracted labor
costs. In the three months ended March 31, 2022, its cost of services were 42%
of its revenues, versus 82% in 2021. This decrease is due to recognition of
deferred revenue, and contracts with better margins. Without the recognition of
deferred revenue, its cost of services were 63% of revenues. We expect the cost
of services to increase in 2022 based on the contracts currently in progress.
Selling, General and Administrative Expense (BLEST)
BLEST's SG&A expenses were $134,000 in the three months ended March 31, 2022,
compared to $100,000 in the same period in 2021. We expect these expenses to
remain flat in 2022; increases in engineering staff are included in cost of
services.
Operating Loss (BLEST)
BLEST generated $357,000 in revenue from third parties, a gross margin of
$207,000, and had total costs and expenses of $242,000, resulting in an
operating loss of $35,000, compared with an operating loss of $183,000 in 2021.
BLEST provides substantial support to BioLargo's other operations, including
BioLargo Water and Odor-No-More. While we are unable to record revenues
generated from services by the engineering group to other BioLargo operating
divisions for important project 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. BLEST's need for a cash subsidy to support its
operations has decreased over time. We expect that in 2022 its sales and thus
its gross profit will continue to increase. Our goal for this operation is that
it produces a profit and contributes to corporate overhead in a significant way,
although predicting when that will happen given the uncertainties in the market,
and our limited resources, is difficult.
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 (for example, stock option
compensation expense) expenses. Our consolidated SG&A increased in the aggregate
by 4% ($75,000) in the three months ended March 31, 2022, to $1,839,000. Our
non-cash expenses (through the issuance of stock and stock options) were
relatively flat 2022 compared with 2021 ($818,000 compared to $696,000). The
largest components of our SG&A expenses included (in thousands):
Three months ended Three months ended
March 31, 2022 March 31, 2021
(in thousands, (in thousands,
unaudited) unaudited)
Salaries and payroll related $ 809 $ 731
Professional fees 149 168
Consulting 316 404
Office expense 310 282
Board of director expense 111 65
Sales and marketing 59 78
Investor relations 85 35
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Research and Development
In the three months ended March 31, 2022, we spent $392,000 in the research and
development of our technologies and products. This was an increase of 20%
(+$65,000) compared to 2021.
Interest expense
Our interest expense for the three months ended March 31, 2022, was $13,000, a
decrease of 86% compared with 2021. The significant decrease in interest expense
is related to the significant decrease of our debt obligations and a reduction
of debt issued during 2022 versus 2021. Of our total interest expense in 2022,
$7,000 was paid in cash, and the remainder, comprised primarily of non-cash debt
discounts related to warrants issued in conjunction with debt instruments being
amortized over the life of the debt instrument; for the three months ended March
31, 2022, non-cash interest expense totaled $4,000.
Our outstanding debt as of March 31, 2022, was lower than as of December 31,
2021. We expect our interest expense in the year ending December 31, 2022, to be
in line with the prior year, provided we do not issue debt with attached
warrants during the remainder of the year. Additionally, we record the relative
fair value of the warrants and the intrinsic value of the beneficial conversion
feature sold with the convertible notes payable which typically results in a
full discount on the proceeds from the convertible notes. This discount is
amortized as interest expense over the term of the convertible notes. We also
are currently selling units of common stock and warrants instead of using
convertible debt for financing our working capital needs, which if continued,
will continue to reduce our ongoing interest expense as compared with prior
years.
Other Income
ONM Environmental's total net income of $187,000 for the three months ended
March 31, 2022, includes a one-time recognition of $174,000 in income attributed
to the cancellation (forgiveness) of a portion of its Paycheck Protection
Program ("PPP") loan.
Primarily through our wholly owned Canadian subsidiary, we have been awarded
more than 80 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
$25,000 in the three months ended March 31, 2022, to $5,000. Grant funds paid
directly to third parties are not included as income in our financial
statements.
Although we are continuing to apply for government and industry grants, and
indications from the various grant agencies is highly encouraging, we cannot be
certain of continuing those successes in the future. We are very active in both
the US and Canada, pursuing grant support for various uses of our products.
Net Loss
Net loss for the three months ended March 31, 2022, was $1,544,000 a loss of
$0.01 per share, compared to a net loss for the three months ended March 31,
2021, of $1,878,000 a loss of $0.01 per share. Our net loss this year declined
primarily because of an increase in sales, a reduction of interest expense, and
the ONM Environmental's recognition $174,000 in income attributed to the
cancellation (forgiveness) of a portion of a Paycheck Protection Program loan.
The net income (loss) per business segment is as follows (in thousands):
Three months ended Three months ended
March 31, 2022 March 31, 2021
(in thousands, (in thousands,
Net income (loss) unaudited) unaudited)
ONM Environmental $ 187 $ (176 )
BLEST (35 ) (183 )
Clyra Medical (247 ) (434 )
BioLargo Water (223 ) (107 )
BioLargo corporate (1,226 ) (978 )
Consolidated net loss $ (1,544 ) $ (1,878 )
In the three months ended March 31, 2022, approximately 53% of our net loss was
due to non-cash expenses, including $4,000 in interest expense, $801,000 of
stock option compensation expense, and $17,000 of services paid by the issuance
of stock options.
In the three months ended March 31, 2021, approximately 46% of our net loss was
due to non-cash expenses, including $464,000 in interest expense, $585,000 of
stock option compensation expense, and $111,000 of services paid by the issuance
of common stock.
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We believe that ONM Environmental and BLEST (engineering) can achieve net income
and positive cash flow from operations in the future, although predicting when
that will happen is difficult given numerous uncertainties in the market, our
limited capital resources, and our lack of history achieving current results. We
expect the Company to continue to incur a aggregate net loss on a consolidated
basis for the foreseeable future, even if these two subsidiaries show net income
rather than a net loss.
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. For the
three months ended March 31, 2022, we had a net loss of $1,544,000, used
$1,140,000 cash in operations, and at March 31, 2022, we had working capital of
$804,000, and current assets of $2,048,000. During the three months ended March
31, 2022, we generated revenues of $965,000. (See Note 9.) Only one of our
subsidiaries - ONM Environmental - generated positive operating income. None of
our other operational subsidiaries did so.
We do not believe gross profits in the year ended December 31, 2022, will be
sufficient to fund our current level of operations, and therefore believe we
will have to obtain further investment capital to continue to fund operations,
such as through our purchase agreement with Lincoln Park Capital, and private
sales of our securities. (See Note 3.) 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.
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 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.
Note 2, "Summary of Significant Accounting Policies" in Part I, Item 1 of this
Form 10-Q and in the Notes to Consolidated Financial Statements in Part II, Item
8 of the Form 10-K filed with the SEC on March 31, 2022, and "Critical
Accounting Policies and Estimates" in Part II, Item 7 of the Form 10-K, describe
the significant accounting policies and methods used in the preparation of the
Company's consolidated financial statements. There have been no material changes
to the Company's critical accounting policies and estimates since the filing of
the Company's Form 10-K on March 31, 2022.
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