This quarterly report on Form 10-Q contains forward-looking statements. These forward-looking statements involve risks and uncertainties, including statements regarding
BioLargo'scapital needs, business plans and expectations. Such forward-looking statements involve risks and uncertainties regarding BioLargo'sability to carry out its planned development and production of products. Forward-looking statements are made, without limitation, in relation to BioLargo'soperating plans, BioLargo'sliquidity and financial condition, availability of funds, operating and exploration costs and the market in which BioLargocompetes. 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 BioLargofiles with the SEC. These factors may cause BioLargo'sactual results to differ materially from any forward-looking statement. BioLargodisclaims 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 September 30, 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 Delawarecorporation; (ii) its wholly-owned subsidiaries BioLargo Life Technologies, Inc., a Californiacorporation, ONM Environmental, Inc., a Californiacorporation, BioLargo Water Investment Group, Inc., a Californiacorporation (which wholly owns BioLargo Water, Inc., a Canadian corporation), and BioLargo Development Corp., a Californiacorporation, (iii) its majority-owned subsidiary BioLargo Engineering, Science & Technologies, LLC, a Tennesseelimited liability company, and Canadian subsidiary BioLargo Water, Inc.; and (iv) Clyra Medical Technologies, Inc.("Clyra"), a partially owned subsidiary.
The following discussion and analysis should be read in conjunction with our
unaudited consolidated financial statements and the related notes to the
consolidated financial statements included elsewhere in this report.
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, BioLargoholds a wide array of issued patents, maintains a robust pipeline of products, and provides full-service environmental engineering. With a keen emphasis on partnerships with academic, government, and commercial organizations and associations, BioLargohas 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. In the third quarter of 2022 we again set a new company-wide quarterly revenue record, building on the second quarter's unprecedented performance. As a result, the Company has already locked in a record revenue growth rate for the entire year, even before the fourth quarter. A standout this quarter was the pet odor product sold by our consumer packaged goods partners at Ikigai, called Pooph, whose sales contributed significantly to the record product revenues of our odor and VOC control products division ONM Environmental.
The Company has several key projects that management believes will stimulate
accelerated growth through 2023. These are:
? The expected launch in major retailers of the Pooph pet odor control product
by the Company’s consumer packaged goods partners at Ikigai, which is expected
to start in Q4. ? Our first PFAS removal project at a large industrial site (announced in
August), currently in the initial phase of a multi-phase process, which we
expect to continue advancing as we engineer a comprehensive PFAS mitigation
Table of Contents ? Expanded commercial roll-out of the company's PFAS treatment technology through its growing network of sales rep organizations.
? Garratt-Callahan’s launch of the jointly developed minimal liquid discharge
wastewater treatment product. ? The Company's work with Ultra Safe Nuclear.
? Our engineering services division completed the first 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 Projectbelow). This project is expected to advance to additional phases in 2023, and has the potential to lead to additional projects of a similar nature.
These projects are of a greater commercial significance than projects contracted
and executed in previous years. Company management believes
earning more significant commercial opportunities for multiple reasons:
1. Credibility First, we have built our credibility as cleantech technology innovators and environmental engineering service providers to the point where clients, potential clients, and prospective partners rightfully view us as an effective and reliable means to solve their challenges. We operate with a mandate to serve our customers and partners with technical excellence, provide timely and cost-effective results, and a commitment to helping them make the best choices for any particular challenge. 2. Channel Partner Relationships
We have key relationships that we believe will continue advancing to become
high-revenue and profit generating projects with channel partners such as
Garratt-Callahan and Ikigai, as well as our new channel partners in the PFAS
3. Investments in Talent and Technology This "critical mass" of credibility as a cleantech solutions provider is a result of our investments in our talented team of engineers, scientists and team members who have a proven track record of executing complex engineering projects, and our history of developing creative and powerful new technologies that work and are best of class. 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.
Formula for Success: Technology, Talent and Purpose
BioLargohas continually advanced its robust portfolio of technologies since the first acquisition of early iterations of the BioLargotechnology 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 Micro-pollutant destruction and removal o Legionella detection and water treatment solutions o Minimum and zero liquid discharge systems (MLD/ZLD) 26
Table of Contents o Disinfection o Electro-oxidation ? Air quality controls and systems including odor and VOC control ? Mineral processing ? Infection control ? Wound management ? Disinfection Talent
We have 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
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 per- and poly-fluoroalkyl substances (PFAS) removal and collection/disposal solution we call the Aqueous Electrostatic Concentrator (AEC). Our engineers developed and are now commercializing the AEC, which is a novel water treatment system that removes 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 current
White Househas made the PFAS crisis a critical agenda item and experts expect the EPAand local regulatory agencies to continue to tighten the regulatory requirements to mitigate, manage and limit human exposure to PFAS, all of which we believe 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. 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 demonstrated more than nine 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 to a commercial scale and that our engineering team has the proven experience to successfully deliver 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. In August 2022, our engineering division secured its first customer to engineer a comprehensive PFAS mitigation plan for an industrial site. The customer contract is for the first phase of what is expected to be a multi-phase comprehensive PFAS remediation project. The contract was secured in collaboration with a new channel partner, which has been appointed to promote, market, and distribute BioLargo'swater treatment equipment and PFAS-related engineering and project integration services. 27
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The AEC's commercial roll-out will be executed with the help of a network of sales representative organizations whose role will be to market and sell the treatment system, related equipment, and the Company's engineering services to municipal and industrial customers across the country. Thus far, we have already secured channel partner agreements with several sales representative organizations, and have verbal commitments from several more as a result of our own business development efforts at recent water industry trade shows. Assuming all these companies sign with us, we will have sales rep coverage for most of
the United States. In October 2022, we entered into a channel partner agreement with Product Recovery Management, Inc.to sell, distribute and act as a contract manufacturer for the AEC and other BioLargowater treatment technologies. Product Recovery Management (PRM) (https://www.prmfiltration.com/), based out of Butner, NC, is a UL-certified equipment integrator specializing in remediation services with over 40 years of history serving customers. PRM designs and manufactures treatment systems that address a wide variety of contamination challenges in the remediation and landfill industries, including PFAS contamination. Their Butneroperations include a 250,000 square foot manufacturing facility with large-scale fabrication capabilities. We are also in negotiations with multiple prospective industrial and municipal customers to treat PFAS contaminated water. Having completed our initial testing of client water (to "non-detect" levels) from a leading water district in Southern California, we are in continuing discussions with their technical team to organize a practical commercial field trial. In light of the fact that we now have our first commercial project under contract, we believe that our expected success will be a key factor to help advance marketing efforts in the municipal market as well as potentially minimize the need for small scale field piloting.
ONM Environmental – Industrial Odor and VOC Solutions
ONM Environmental, Inc.is BioLargo'ssubsidiary 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. ONM Environmental 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). 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 Californiafor 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 Packaged Goods Products" below) and our joint venture with BKT Co. Ltd.in South Koreaare 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.
Consumer Packaged Goods Products
We sell pet odor-control products under the brand "Pooph" to
Ikigai Marketing Works, LLC, founded by accomplished industry executives from the consumer-packaged goods industry who have executed successful launches of at least five blockbuster products. After a successful test marketing phase, they have been executing a national advertising campaign through extensive television and internet advertising, have launched the product for web sales on their own website and on Amazon, and are launching the products soon in major retailers in the United States(including Walmart). Our agreement with Ikigai grants them an exclusive license to sell the Pooph pet odor-control product, provided certain minimum volume thresholds are met once retail sales begin, and requires, in addition to purchasing product from us at an agreed-upon manufacturing margin, they pay a 6% royalty on sales. We are in negotiations to expand their rights under the license agreement. 28
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Sales of Pooph increased significantly in the past quarter, and accounted for a significant portion of revenues earned by our odor and VOC control products division, ONM Environmental. Ikigai management expects this trend of growth to continue, particularly with the expected launch of the product in major retailers in Q4 of 2022 and beyond.
Full Service Environmental Engineering
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
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 Knoxvilleoffice 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 developed a "minimal liquid discharge" (MLD) wastewater treatment system based on Garratt-Callahan proprietary technology that is able to reduce industrial wastewater discharge and therefore reduce wastewater discharge fees for customers. Garratt-Callahan is currently preparing to launch 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'sengineers completed 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 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 and/or sales to Garratt-Callahan customers can begin. Garret- Callahanhas identified multiple customer prospects, as has BioLargo, through its own marketing efforts. We are working on contractual agreements to move the project forward to first sales. In the second quarter of 2022, BLEST was contracted by Ultra Safe Nuclear to assist in producing the first prototype fuel production systems for their revolutionary new nuclear reactor called the Micro Modular Reactor (MMR®). Ultra Safe Nuclear is a Seattle-based nuclear energy innovator, and has invented a "fission battery" - a fourth generation modular nuclear reactor - that can deliver safe, zero-carbon, cost-effective energy anywhere. The MMR® uses ceramic-encapsulated nuclear fuel - Fully Ceramic Micro-encapsulated (FCM+++) - an extremely rugged and stable fuel with extraordinary high temperature stability. BioLargohas been retained to provide engineering design support, fabrication, and integration for the company's prototype fuel production systems. Because of the success of the early phase of the project, this project is expected to expand over the coming months in scope and significance to BioLargo, making them an important customer for BLEST. 29
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April 2022, our engineering subsidiary was hired to conduct a comprehensive project plan (i.e., "feasibility") study by a Southern Californiabased 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 between two million and up to 8 million tons of municipal solid waste annually and is projected to produce 500 megawatts of energy per year. The initial feasibility study having been completed, our engineers are now preparing proposals for the next phase of the project. The client has reviewed the feasibility study and is currently evaluating its plans for advancing the project forward. It is expected that if the project moves forward, the second phase is expected to begin in the first quarter 2023.
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. In June of 2022, the fourth peer-reviewed scientific paper about the AOS was published, in the journal Environmental Science and Pollution Research. BioLargo'sAOS 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 Californiawhere stormwater was treated by the AOS. It has an ongoing pilot near Montrealto 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 Canadais 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. In the second quarter, the development work funded by this grant advanced, focusing on improving the performance of the conductive materials within the AOS which allow for water disinfection and decontamination.
Municipal Wastewater Treatment Pilot –
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. 30
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January 2022, 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. This AEC system was recently shipped to the municipal wastewater treatment plant, and is expected to be installed and operational shortly. 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. It has secured its first manufacturer's representatives and is actively expanding these efforts to build out a national rep network. 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. There are channel partnerships in development for Clyra's BioClynse product in three separate healthcare markets. Conclusion In the past quarter:
? Our company generated approximately
representing a 111% increase compared with the third quarter of 2021 and a 13%
increase compared with the second quarter of 2022, (see "Results of Operations", below);
? Our company continued to demonstrate the commercial viability of our cleantech
products and services through organic growth leading to increased revenue;
? We improved our financial condition by increasing cash flow from revenues,
adding to the improved balance sheet resulting from dramatic reduction in debt
over the past year; and
? We advanced the commercialization of our technology assets in target markets
through channel partnerships that are either already in place and executing,
or are currently developing.
BioLargohas 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. 31
Table of Contents 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, including our flagship product, CupriDyne Clean;
? BLEST, our professional engineering services division supporting our internal
business units and serving outside clients on a fee for service and/or project
? BioLargo Water, our Canadian division that has been historically pure research
and development, and is now transitioning to focus on commercializing our AOS
? Clyra Medical, our partially owned subsidiary focused on the medical device
? Our corporate operations, which support the operating segments with legal,
accounting, human resources, and other services. Consolidated revenue for the three and nine months ended
September 30, 2022, was $1,500,000and $3,786,000which is a 111% and 117% increase over the same periods in 2021. Our service revenue increased 1% and 127% for the three and nine months ending September 30, 2022, while revenue from product sales and related services increased by 182% and 113% for the three and nine months ending September 30, 2022as compared to the same periods in the prior year. Our product revenue includes sales of our CupriDyne Clean industrial odor control product, and sales of consumer packaged goods products based on our CupriDyne formula. ONM Environmental Our wholly owned subsidiary ONM Environmental generated revenues through sales of its flagship product CupriDyne Clean, and by providing design, installation, and maintenance services on the systems that deliver CupriDyne Clean at its clients' facilities. Revenue (ONM Environmental) ONM Environmental's revenues for the three and nine months ended September 30, 2022, were $1,199,000and $2,499,000, an increase of $779,000and $1,441,000from the same periods in 2021, and an increase of $411,000as compared with the prior quarter. The increase in revenues was almost entirely due to an increase in the volume sales of private label odor-control products, specifically the Pooph branded pet-odor product, and an increase in license royalties from sales of the Pooph branded pet-odor product. License royalties were $218,000and $316,000for the three and nine months ended September 30, 2022; no license royalties were recognized in the same periods in 2021. Because ONM Environmental has no control over the marketing and sales activity or levels of its private-label clients, including Pooph, it cannot predict sales volumes related to these clients in future periods.
Cost of Goods Sold (ONM Environmental)
ONM Environmental's revenues for the three and nine months ended
September 30, 2022, were $1,199,000and $2,499,000, an increase of $779,000and $1,441,000from the same periods in 2021, and an increase of $411,000as compared with the prior quarter. The increase in revenues was almost entirely due to an increase in the volume sales of private label odor-control products, specifically the Pooph branded pet-odor product, and an increase in license royalties from sales of the Pooph branded pet-odor product. License royalties were $218,000and $316,000for the three and nine months ended September 30, 2022; no license royalties were recognized in the same periods in 2021. Because ONM Environmental has no control over the marketing and sales activity or levels of Pooph, it cannot predict sales volumes related to it in future periods. Management at Pooph has indicated their intentions to continue their national advertising campaign as they place the product in national retail chains.
Operating Income (ONM Environmental)
For the three and nine month ended
September 30, 2022, ONM Environmental generated operating income of $400,000and $418,000, compared with an operating loss of $72,000and $355,000for the three and nine months ended September 30, 2021. Provided that its private-label clients continue to increase their purchase of product, we expect this trend to continue.
BLEST (engineering division)
Revenue (BLEST) For the three and nine months ended
September 30, 2022, our engineering segment (BLEST) generated $283,000and $1,254,000of revenue from third parties, compared to $281,000and $555,000for the same three and nine months in 2021. The increase is due to completion of projects, an increased number of client contracts, and the recognition of $83,000of deferred revenue for ongoing projects that had achieved certain completion milestones. 32
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In addition to providing service to third party clients, BLEST provides services to
BioLargoand its subsidiaries for internal BioLargoprojects. These services are billed internally, are considered intersegment revenue, and are eliminated in the consolidation of our financial statements. In the three and nine months ended September 30, 2022, intersegment revenue totaled $118,000and $359,000, compared to $135,000and $515,000for the same periods in 2021. Intersegment revenue 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 and nine months ended
September 30, 2022, its cost of services were 82% and 60% of its revenues, versus 71% and 76% cost of services in comparable periods in 2021. These fluctuations are a result of more subcontract costs for the three months and increases in efficiencies related to flat-fee monthly contracts for the nine months. Operating Loss (BLEST) For the three and nine months ended September 30, 2022, BLEST had an operating loss of $179,000and $158,000. For the three and nine months ended September 30, 2021, BLEST had an operating loss of $140,000and $513,000. Other Income Our wholly owned Canadian subsidiary has been awarded more than 80 research grants over the years from various Canadian public and private agencies, including the Canadian National Research Institute- Industrial Research Assistance Program(NRC-IRAP), the National Science and Engineering Research Council of Canada(NSERC), and the Metropolitan Water Districtof 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. We continued to win grants and it is important to note that amounts paid directly to third parties are not included as income in our financial statements. During the three and nine months ended September 30, 2022, we received grant income totaling $44,000and $52,000, which was an increase of $19,000and $27,000from the same periods in 2021. 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. On February 7, 2022, we received notice that the SBA had partially approved ONM Environmental's application for forgiveness of its PPP loan in the amount of $174,000. During the three months ended September 30, 2022, Biolargo Water recorded $66,000of tax credits, primarily related to the refund filed pertaining to the research and development tax credit.
for forgiveness Clyra’s PPP loan totaling
Selling, General and Administrative Expense – consolidated
Our SG&A expenses include both cash expenses and non-cash expenses (including non-cash stock option compensation expenses). Our SG&A expenses decreased by 2% (
$35,000) and increased by 2% ( $79,000) in the three and nine months ended September 30, 2022, compared to the same periods in 2021. Our non-cash expenses totaled $1,640,000in the nine months ended September 30, 2022, compared to $1,314,000in the nine months ended September 30, 2021. The largest components of our SG&A expenses included (in thousands): Three months ended: Nine months ended: September 30, September 30, September 30, September 30, 2022 2021 2022 2021 Salaries and payroll related $ 593 $ 552 $ 2,035 $ 1,912 Professional fees 110 149 451 500 Consulting 155 189 605 805 Office expense 341 311 1,072 900 Sales and marketing 71 96 205 255 Investor relations 86 100 233 196 Board of director expense 68 64 246 198 33
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The increase in salaries and payroll expenses in the nine months ended
September 30, 2022versus 2021 is primarily related to the implementation of a stock option bonus compensation program for employees and other related stock option compensation expenses, and also the hiring of additional personnel to support increasing operations. The decline in the three months ended September 30, 2022versus 2021 is consistent with reduced stock option grants to employees. Consulting expense decreased as we have reduced the use of consultants to identify business opportunities. The reduction in professional fees is largely due to the reduced use of outside legal counsel and other service providers. Research and Development In the three and nine months ended September 30, 2022, we spent $271,000and $1,018,000in the research and development of our technologies and products. In the three and nine months ended September 30, 2021, we spent $343,000and $1,027,000in the research and development of our technologies and products. This was due to limited liquidity and $59,000capitalized equipment related to the development of our AEC filters. Interest expense Our interest expense for the three and nine months ended September 30, 2022, was $14,000and $42,000, a decrease of 46% and 80% compared with the same periods of 2021. Our interest expense includes interest from outstanding debt and it is related to the issuance of and modification of convertible promissory notes. We expect our interest expense to be lower in each quarterly period of the year ending December 31, 2022, as compared with the same periods in 2021, due to reduced amounts of debt on our balance sheet. Net Loss Net loss for the three and nine months ended September 30, 2022, was $847,000and $3,724,000, a loss of $0.00and $0.01per share, compared to a net loss for the three and nine months ended September 30, 2021, of $1,435,000and $5,103,000, a loss of $0.01and $0.02per share. The decrease in net loss is due primarily to a reduction in interest expense. As noted above (see "Interest Expense"), the reduction of interest expense is directly related to our reduction of the use of debt instruments to finance our working capital requirements.
The net income (loss) per business segment is as follows (in thousands):
Three months ended Nine months ended September 30, September 30, September 30, September 30, 2022 2021 2022 2021 BioLargo corporate (789 ) (851 ) (2,944 ) (2,813 ) ONM 400 (72 ) 592 (355 ) Clyra Medical (248 ) (239 ) (760 ) (1,011 ) BLEST (152 ) (136 ) (131 ) (513 ) BioLargo Water (58 ) (137 ) (481 ) (411 ) Net loss (847 ) (1,435 ) (3,724 ) (5,103 )
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 nine months ended
September 30, 2022, we had a net loss of $3,724,000, used $2,803,000cash in operations, and at September 30, 2022, we had working capital of $1,503,000, and current assets of $2,532,000. During the nine months ended September 30, 2022, we generated revenues of $3,786,000through our operational subsidiaries. (See Note 9.) Our subsidiaries did not individually or in the aggregate generate profits sufficient to fund their operations, or for our corporate operations or other business segments. We do not believe gross profits in 2022 will be sufficient to fund our current level of operations during the next 12 months, and therefore we will have to obtain further investment capital to continue to fund operations and seek to refinance our existing debt, such as through our purchase agreement with Lincoln Park Capitaland private securities offerings. (See Note 3.) We have been, and anticipate that we will continue to be, limited in terms of our capital resources. 34
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If we are unable to rely on our current arrangement with Lincoln Park to fund our working capital requirements, we would have to rely on other forms of financing, and there is no assurance that we will be able to do so, or if we do so, it will be on favorable terms. Our current financing arrangement with Lincoln Park expires in
March 2023; we expect to enter into a new agreement with Lincoln Park prior to that expiration. We operate our business in five distinct business segments. Each of these segments obtains cash to fund operations in unique ways. ONM and BLEST generate cash by selling products and services. Clyra Medical obtains cash from revenues, and third-party investments of sales of its common stock. BioLargo Water generates cash through government research grants and tax credits; our corporate operations currently generate cash through private offerings of stock, debt instruments, and warrants, and then provides supplemental capital to support to our various business segments as they advance their technologies, products and commercial efforts.
Critical Accounting Policies
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 of the Company's Form 10-K filed March 31, 2022in Part II, Item 8, and "Critical Accounting Policies and Estimates" in Part II, Item 7, 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 Company's Form 10-K filed March 31, 2022.
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