BIOLARGO, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

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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 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
Delaware corporation; (ii) its wholly-owned subsidiaries BioLargo Life
Technologies, Inc., a California corporation, ONM Environmental, Inc., a
California corporation, BioLargo Water Investment Group, Inc., a California
corporation (which wholly owns BioLargo Water, Inc., a Canadian corporation),
and BioLargo Development Corp., a California corporation, (iii) its
majority-owned subsidiary BioLargo Engineering, Science & Technologies, LLC, a
Tennessee limited 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 accompanying notes to the consolidated financial statements included elsewhere in this report.

Our Company – 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. 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.



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 drive accelerated growth through 2023. These are:

? The expected launch at major retailers of the Pooph pet odor control product

by the company’s consumer packaged goods partners in Ikigai, which is expected to

    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

we expect continued progress as we engineer comprehensive PFAS mitigation

    plan.




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  ? Expanded commercial roll-out of the company's PFAS treatment technology
    through its growing network of sales rep organizations.



? Garratt-Callahan launch of the jointly developed Minimal Liquid Discharge

    wastewater treatment product.




  ? The Company's work with Ultra Safe Nuclear.



? Our engineering services division has completed the first phase of a major investment

    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). 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 greater commercial importance than the projects contracted and executed in previous years. The management of the company considers BioLargo is now gaining greater business opportunities for several 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 to grow into high-revenue, profit-generating projects with channel partners such as Garratt-Callahan and Ikigai, as well as our new industry channel partners remediation of 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


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 Elimination of per- and poly-fluoroalkyl substances (PFAS) from the drink 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)




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  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 expanded our team to 31 team members and many other part-time consultants, including highly qualified doctors, engineers, medical and medical professionals, construction professionals, service technicians on the field, innovators, sales marketers, business leaders and leaders.


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.



Fighting the Eternal PFAS 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 House has made the PFAS crisis a critical agenda item and experts expect
the EPA and 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's water treatment equipment and PFAS-related
engineering and project integration services.



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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 BioLargo water 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 Butner operations 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 odors 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. 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 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 Packaged Goods Products" below) and our joint venture with
BKT Co. Ltd. in South Korea 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.



Consumer packaged goods



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.





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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

Our subsidiary BioLargo Engineering, Science and Technology, LLC (“BLEST”) offers a comprehensive environmental engineering service to third parties and provides engineering support services to our internal teams to accelerate the commercialization of our technologies. Its website is 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 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 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's engineers 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-Callahan has
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. BioLargo has 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.



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Waste-to-energy plant project



In April 2022, our engineering subsidiary 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 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 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'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. 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 Project – 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.



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In 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 business has generated approximately $1.5 million company-wide revenue

an increase of 111% compared to the third quarter of 2021 and an increase of 13%

    increase compared with the second quarter of 2022, (see "Results of
    Operations", below);



? Our company continued to demonstrate the commercial viability of our clean technologies

products and services through organic growth leading to increased revenue;

? We have improved our financial position by increasing cash flow from revenues,

on top of balance sheet improvement resulting from dramatic debt reduction

    over the past year; and



? We advanced the commercialization of our technology assets in target markets

through distribution partnerships already in place and running,

    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 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

business units and serving external clients for a service and/or project fee

    bid basis;



? BioLargo Water, our Canadian division which has historically been pure research

and development, and is now in transition to focus on bringing our AOS to market

    system;



? Clyra Medical, our partially owned medical device-focused subsidiary

    industry; and



? Our corporate businesses, which support the operating segments with legal services,

    accounting, human resources, and other services.




Consolidated revenue for the three and nine months ended September 30, 2022, was
$1,500,000 and $3,786,000 which 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, 2022 as 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 $1,199,000 and $2,499,000, an increase of $779,000 and $1,441,000
from the same periods in 2021, and an increase of $411,000 as 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 $218,000 and
$316,000 for 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 $1,199,000 and $2,499,000, an increase of $779,000 and $1,441,000
from the same periods in 2021, and an increase of $411,000 as 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 $218,000 and
$316,000 for 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 profit (ONM Environment)



For the three and nine month ended September 30, 2022, ONM Environmental
generated operating income of $400,000 and $418,000, compared with an operating
loss of $72,000 and $355,000 for 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 $283,000 and $1,254,000 of revenue from third parties,
compared to $281,000 and $555,000 for 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 $83,000 of deferred revenue for ongoing
projects that had achieved certain completion milestones.



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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 and nine months
ended September 30, 2022, intersegment revenue totaled $118,000 and $359,000,
compared to $135,000 and $515,000 for 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 $179,000 and $158,000. For the three and nine months ended September 30,
2021, BLEST had an operating loss of $140,000 and $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 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. 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 $44,000 and $52,000, which was an increase of $19,000 and
$27,000 from 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 $66,000 of tax credits, primarily related to the refund filed
pertaining to the research and development tax credit.



On March 19, 2021we have been advised that the SBA has approved Clyra’s PPP loan forgiveness request totaling $43,000.

Selling, general and administrative expenses – 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 $1,640,000 in the nine months ended September 30, 2022, compared to
$1,314,000 in 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




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The increase in salaries and payroll expenses in the nine months ended September
30, 2022 versus 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, 2022
versus 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 $271,000 and
$1,018,000 in the research and development of our technologies and products. In
the three and nine months ended September 30, 2021, we spent $343,000 and
$1,027,000 in the research and development of our technologies and products.
This was due to limited liquidity and $59,000 capitalized 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
$14,000 and $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 $847,000
and $3,724,000, a loss of $0.00 and $0.01 per share, compared to a net loss for
the three and nine months ended September 30, 2021, of $1,435,000 and
$5,103,000, a loss of $0.01 and $0.02 per 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.



Net income (loss) by 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 )





Cash 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
$2,803,000 cash 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 $3,786,000 through 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 Capital and private securities
offerings. (See Note 3.) We have been, and anticipate that we will continue to
be, limited in terms of our capital resources.



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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, 2022 in 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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