Biolargo, Inc.: Form 10-Q for the period ended Sep 30, 2024

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, 2024, unless expressly stated otherwise, and we undertake no duty to update this information.

When we refer in this report to “BioLargo,” the “Company,” “our Company,” “we,” “us” and “our,” we mean BioLargo, Inc., and our subsidiaries, including BioLargo Life Technologies, Inc., which holds our intellectual property; ONM Environmental, Inc., which manufactures, markets, sells and distributes our odor and volatile organic compound ("VOC") control products; BioLargo Energy Technologies, Inc. (“BETI”), formed to commercialize our proprietary battery technology; BioLargo Canada, Inc., our primary research and development team operating in Edmonton, Alberta Canada; BioLargo Engineering, Science & Technologies, LLC (“BLEST”), a professional engineering services division in Oak Ridge Tennessee; BioLargo Equipment Solutions & Technologies, Inc., which sells our water treatment products; BioLargo Development Corp., which employs and provides benefits to our employees; and Clyra Medical Technologies, Inc. (“Clyra Medical”), which commercializes our technologies in the medical and dental fields. All subsidiaries are wholly owned, except for BETI, BLEST and Clyra Medical.

The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this report.

DESCRIPTION OF BUSINESS

Our Business - Innovator and Solution Provider

BioLargo is in the business of creating new cleantech technologies to solve tough, globally relevant problems. We invent, develop, then commercialize disruptive technologies to tackle challenges in air quality, water, environmental engineering, battery energy storage, and advanced antimicrobial medical device platforms. Our model is to invent new technologies that solve specific problems, develop them and prove they work, and then commercialize them with purpose-suited subsidiaries, identify and secure the right partnerships to increase their commercial reach, or potentially sell the intellectual property.

Why do we do this work? Every member of our team – including PhD scientists, engineers, and entrepreneurs – has a passion for seeking new, never-before-seen innovations that can make life better around the world. We care about safeguarding the environment and human health for future generations. We care about making technologies that are affordable and flexible enough to be accessed around the world. And we care about being the best at what we do – creating best-in-class technologies to solve big, tough cleantech challenges.

Some of our areas of focus include environmental problems like PFAS contamination, water pollution by pharmaceuticals and micropollutants, air pollution by VOCs, hard-to-treat odors from landfills and sewage plants, infection and wound healing and the creation of energy storage systems that are more affordable, efficient, safer and environmentally friendly.

Below you’ll read about the cleantech ventures and projects we are focused on commercialization today. Behind those, however, is a pipeline of other cleantech innovations in various stages of development associated with our expansive array of issued and pending patents, and that have been funded in part by over 90 government grants.

We operate our business in distinct business segments:

• Odor and VOC control products, including consumer products, such as the Pooph-branded pet-odor control product, and our industrial odor control product, CupriDyne Clean Industrial Odor Eliminator, sold by our subsidiary ONM Environmental, Inc.;
• Water treatment equipment and solutions, including our PFAS removal system the Aqueous Electrostatic Concentrator (AEC), our water reuse and recycling technology co-developed with Garratt-Callahan called AROS, and our micro-pollutant treatment and energy-efficient disinfection solution, the AOS, all sold by our subsidiary BioLargo Equipment Solutions & Technologies, Inc.;
• Battery energy storage system solutions under the brand name CellinityTM being developed by our partially owned (96% subsidiary BioLargo Energy Technologies, Inc.;
• Medical products based on our technologies, including the FDA-cleared Bioclynse surgical wound irrigation solution sold by our partially owned (52%) subsidiary Clyra Medical Technologies, Inc.;
• Our professional engineering services division, which, in addition to serving outside clients on a fee for service basis, supports our internal business units, through our partially owned (77.5%) subsidiary BioLargo Engineering, Science & Technologies, LLC ("BLEST");
• Our research and support personnel, through our wholly-owned subsidiary BioLargo Canada, Inc., located on campus at the University of Alberta, Edmonton, Canada.

Odor Control (Consumer and Industrial)

ONM Environmental, Inc. ("ONM") is BioLargo’s wholly-owned subsidiary that delivers robust and comprehensive products and services to control and mitigate odor and VOCs for both consumer and industrial applications.

Pooph - Consumer Private-Label Products

ONM sells privately labeled odor-control products based on our technologies to third parties who market and sell the products under their own brand names. The most successful of these products is the "Pooph" branded pet odor control product sold by Pooph Inc. both directly to consumers and to national and regional retailers including Walmart, Amazon, Home Depot, Ace Hardware, Chewy.com, Target, Ralphs, PetCo, PetSmart, and others. Pooph is advertised on television nationally, and is expanding its product lines to other products based on our odor technologies. In addition to purchasing product from us at an agreed-upon manufacturing margin, Pooph Inc. pays us six percent royalty on their sales in exchange for exclusive rights to our technology for pet odors. During the three and nine months ended September 30, 2024, revenues from sales to Pooph comprised 76% and 78% of our company-wide revenue.

The success of Pooph is an example of our strategy of developing distribution channels that do not rely on our in-house sales and distribution infrastructure, and do not require our investment in marketing dollars. We continue to explore potential partnerships and products along these lines with other parties, and to support existing private label products.

Industrial Odor and VOC Solutions

We believe ONM's industrial odor control product, CupriDyne Clean, is the number-one performing industrial odor-control product in the market, and that it offers substantial savings to our customers compared with competing products. We have been and expect to continue selling product to municipalities and some of the largest solid waste handling companies in the country, with a portion of chemistry product sales resulting from national purchasing agreements (NPAs). ONM Environmental continues to focus on securing more contracts with existing customers and developing business with new customers. ONM Environmental holds General Engineering, 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).

South Korean Joint Venture

In 2020, we partnered with a leading wastewater treatment solution provider based in South Korea in a joint venture to commercialize our CupriDyne Clean products in South Korea. We own 40% of the joint venture. Although the joint venture established manufacturing and is marketing the product, the pandemic significantly impacted the expected growth of the company. While the local management team continues to market the product to industrial clients, their efforts have struggled to gain a foothold. We are not obligated to contribute additional funds to the venture, and cannot predict its future success.

BioLargo Equipment Solutions & Technologies – Innovative Water Treatment Solutions

Over the years, we have developed multiple innovative technologies and equipment platforms that focus on challenging issues in the water treatment industry, including the AOS technology (developed to remove micro-pollutants), the AEC (developed to remove PFAS from water), and the AROS water reuse technology (co-developed with Garratt-Callahan), for applications to recycle cooling tower water (such as those used in data centers). As a result of increase in interest from potential customers for our PFAS solutions, we believe we will be better able to serve this market with a uniform identity and operating unit called BioLargo Equipment Solutions & Technologies, Inc. (“BEST”), which will manage the sales and distribution of our water treatment products and related services. As we transition this venture from incubation to commercialization, we are focusing staff and resources we believe necessary for success.

In February, 2024, three respected and experienced veterans of the water industry joined BEST’s board of directors to assist the company in its efforts to commercialize its innovative water treatment technologies. These are: 1) Jeffrey Kightlinger, former CEO of the Metropolitan Water District of Southern California, 2) Sally Gutierrez, retired career senior executive from the US Environmental Protection Agency, and 3) Larry Dick, former Vice Chairman of the Metropolitan Water District of Southern California and board member of the Municipal Water District of Orange County. Each brings their significant and distinctive experience from decades in the water industry to BEST’s board to help the company create the necessary regulatory and industry connections that will be critical for its efforts to secure larger and more high-profile projects for its PFAS treatment and other water treatment technologies.

The sales process in the municipal and industrial water and wastewater industry is a very technically intensive process, and can be long and arduous. The entirety of the sales cycle can be lengthy, in some cases even taking many months or in very large projects, multiple years to complete bench-scale in-house validation testing and piloting, field piloting, project scoping and bidding, and contracting, before a project starts. The process is also very engineering-intensive, and therefore the staff required to secure contracts for water treatment projects need to be engineers, in most cases. In our company, BLEST’s engineers fill this role.

Having secured its first contract to install an AEC system to remove PFAS from drinking water, BEST has been actively in scoping and bidding water treatment projects for over a year and as a result has developed a substantial pipeline of potential projects in which customers indicate a high level of interest. In addition, BEST regularly receives inquiries for new projects in development through the company’s network of manufacturer’s sales representatives. It is important to note that additional staffing is needed to meet what we believe is, and will continue to be a rapidly escalating level of customer interest in our solutions. Although BEST is primarily focused on AEC, AROS and AOS, discussed below, it offers comprehensive water treatment solutions, related equipment, and services, some of which may be manufactured by third parties and sold by BEST as an authorized distributor. The AEC, AROS and AOS are discussed in the following sections.

AEC, a solution for the PFAS “forever-chemicals” crisis

One of the most significant and timely innovations in our portfolio is our per- and polyfluoroalkyl substance (PFAS) removal and collection/disposal solution we call the Aqueous Electrostatic Concentrator (AEC), a novel water treatment system that removes PFAS from water at a lower operating cost while generating only a fraction of the PFAS-laden waste of the most common currently used solutions (carbon filtration, ion exchange, and reverse osmosis). PFAS are a group of chemicals used to make fluoropolymer coatings and products that resist heat, oil, stains, grease, and water. Fluoropolymer coatings can be in a variety of products. These include clothing, furniture, adhesives, food packaging, heat-resistant non-stick cooking surfaces, and the insulation of electrical wire. PFAS are a concern because they do not break down in the environment, can move through soil and contaminate drinking water sources, and build up (bioaccumulate) in fish and wildlife. 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. Detection of unsafe levels of PFAS around the world has given rise to a number of market opportunities for treatment and remediation technologies, including in drinking water, industrial wastewater, municipal wastewater, solid waste, organic foods and more.

On April 10, 2024, the EPA announced the final National Primary Drinking Water Regulation (NPDWR) setting maximum contaminant levels for six PFAS chemicals as low as four parts per trillion in drinking water – a standard our AEC has been shown to meet in pilot studies. We anticipate that these new regulations will increase demand in the United States for PFAS water treatment equipment and services.

On April 19, 2024, the EPA announced it had finalized new regulations that treat two PFAS chemicals – PFOS and PFOA – as hazardous substances under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), also known as the Superfund law. The new rules allow the EPA to hold polluters financial responsible for contaminated sites, and will also lead to these PFAS chemicals being listed as “hazardous materials” under the Hazardous Materials Transportation Act, which will require materials containing these chemicals to be transported using special protocols. Although final rules have not been issued, in February 2024 the EPA proposed changes to the Resource Conservation and Recovery Act regulations by adding nine PFAS chemical compounds to its list of hazardous constituents in Title 40 of the Code of Federal Regulations Part 261 Appendix VIII. Combined with the new CERCLA regulations, a final RCRA regulation of PFAS may increase the costs of the handling, transport, and disposal of PFAS-containing materials including water treatment waste. The first draft of regulations for wastewater and leachate are expected by the end of 2024.

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, which meets new EPA standards. We have demonstrated more than 10,000 hours of continuous operation showing no materially significant degradation of the AEC system’s components or performance over time. As a modular system, we believe the AEC is scalable to small portable commercial units as well as very large commercial operations, and we believe that our engineering team has the experience to deliver systems to meet the needs of any sized commercial installation. In order to provide a full turn-key solution for our customers, we have developed an expanded offering whereby we can bundle a service package with each customer project that includes a membrane exchange program, the collection of PFAS, and transport and destruction of the PFAS.

Our strategy to market our PFAS treatment technology and related engineering services is as follows: 1) focus on demonstrating our technology’s efficacy in first demonstration projects, trials, and early customer deployments with the understanding that this early success can be leveraged to secure larger and more numerous subsequent projects, 2) market our PFAS expertise and our technology by presenting at industry events and conferences around the country, cultivating our status as “thought leaders” in the space, 3) use our network of manufacturer’s representatives and channel selling partners to maximize the number of potential opportunities with early adopters, and 4) engage in discussions with credible distribution partners at established water treatment technology companies. Part and parcel to our strategy, we are in the early stages of developing a collaboration with the US EPA to have our AEC technology validated through a rigorous third-party pilot study whereby our technology would be operated and analyzed by EPA staff to a high degree of technical scrutiny. Such third-party validation could significantly facilitate market adoption of the AEC by effectively de-risking the technology for customers.

The AEC’s commercial roll-out is being 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. We have secured channel partner agreements with several sales representative organizations ensuring coverage for most of the continental United States. We have one PFAS project in New Jersey readying for installation and operation, waiting on the completion of other facilities. We believe this project represents a key milestone for the commercialization of the AEC, as industry validation of the technology in a first municipal drinking water treatment project will play an important role in convincing additional municipalities to adopt the technology for treating PFAS-contaminated water, as the company will publish reference customer data from the project that highlights the AEC’s distinct advantages over incumbent technologies like carbon filtration and ion exchange.

To summarize why we are confident in our PFAS technology’s commercial future:

• We have successfully completed over a dozen pilot studies with prospective customers’ PFAS contaminated water;
• We have successfully maintained operation of our AEC PFAS treatment system for over 10,000 hours continuously, thus demonstrating its resilience to long-term use;
• We have submitted bids and proposals and have received indications of interest from a wide range of customer types, all of which have a PFAS challenge;
• We have had the fortune to add several high-profile experts from the industry to our team who are assisting in opening doors in the industry;
• We have entered into discussions about partnership and opportunities for collaboration with industry-leading firms who have a gap in their PFAS treatment technology portfolio. These opportunities do not convert into partnerships overnight, but they represent strong avenues for accelerating adoption of our PFAS treatment solution;
• We are recognized as industry experts in the PFAS space and are constantly invited to present about PFAS technology around the country;

We remain confident that our PFAS treatment solution will continue to find early adopters and over time will break into the mainstream market.

AROS Minimal Liquid Discharge Water Treatment

In partnership with Garratt-Callahan, one of the country’s oldest and largest privately held water treatment companies, our engineers developed a “minimal liquid discharge” wastewater treatment system called the Aqueous Reuse Optimization System (AROS) that minimizes industrial wastewater discharges and thus the regulatory fees associated with wastewater discharge, including for uses like cooling towers at data centers. Garratt-Callahan, who invented and patented the technology, is currently marketing the AROS system to its existing customer base and to new prospective 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.

Presently, both BioLargo and Garratt-Callahan are engaged in pilot projects with potential customers for the AROS system, and the companies are currently engaged in discussions with multiple potential first customers for the technology.

Advanced Oxidation System (AOS)

The Advanced Oxidation water treatment system (AOS) is our patented water treatment device that generates highly oxidative and energetic species of iodine and other molecules which allow it to eliminate pathogenic organisms and organic contaminants rapidly and effectively 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, including the normally hard-to-treat class of recalcitrant water contaminants called “micropollutants”, while using very little electricity and input chemicals.

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 AOS has, broadly speaking, two target applications: 1) treatment of municipal or industrial wastewater to eliminate bacteria, viruses, other organisms, and regulated organic contaminants, while using less electrical energy than other technologies, and 2) treatment of water or wastewater specifically to eliminate micropollutants/pharmaceuticals, at which the AOS particularly excels at compared to existing technologies. Our work to have the AOS adopted in the US and Canada for application 1) has been met with resistance because existing technologies, while less energy efficient than our technology, are effective enough against target contaminants, and our “value-add” of also eliminating hard-to-treat micropollutants isn’t relevant unless regulations dictate that those chemicals must be removed. Similarly, application 2) is only relevant in jurisdictions where those hard-to-treat micropollutants are regulated. Unfortunately, this does not include the US or Canada, but it does include several European countries. For that reason, presently, much of our business development efforts to secure projects for the AOS focus on development of partnerships to demonstrate the AOS for the European micropollutant market, or for domestic industrial or pharmaceutical wastewater treatment purposes where micropollutants are major contributors to facilities’ wastewater surcharge fees.

The AOS has been and will continue to be included as a component of treatment trains (comprehensive systems) we scope for other projects. In addition, it is included in the catalog of offerings being sold through our independent representatives as well as channel partners. BEST will continue to attempt to cultivate sales channels in Canada, Europe and South America, where there has been more interest.

BioLargo Energy Technologies, Inc.

Our subsidiary BioLargo Energy Technologies, Inc. (“BETI”) was founded to commercialize a novel battery technology with the potential to help facilitate the ongoing shift toward renewable energy production by providing a safer, longer lasting, more eco-friendly, and more affordable alternative to lithium-ion batteries. Designed for long duration energy storage, also known as "battery energy storage solutions" (BESS), our battery, called Cellinity™, uses a novel “liquid sodium” chemistry that uses common domestically sourced materials, and which has significant advantages over other battery chemistries for use in stationary, long-duration energy storage.

BETI operates out of a pilot-scale battery production facility in our Oak Ridge Tennessee engineering headquarters, and is currently manufacturing and testing prototype batteries. Preliminary internal testing has confirmed many of the technology's exceptional performance claims that make it an attractive battery technology for long duration energy storage, including the stability of the chemistry of the battery cell and the reliability of the component construction as a sealed, non-venting cell design with no self-discharging. These recent tests also helped verify the battery's ability to quickly charge and discharge at a high voltage. Work has begun to design and produce a scaled-up version of our Cellinity battery, and we have begun discussions with highly qualified independent organizations to perform validation testing. One such opportunity, that is in the early stages of development, is a collaboration with the US Department of Energy to conduct third-party validation testing on Cellinity batteries.

Once prototype batteries are built and tested, and assuming such tests show the batteries have the characteristics we expect would differentiate it from other battery technologies, we will complete the design on a larger sized battery cell that would then be incorporated into battery packs and battery sizes meant for industrial facilities. Once designed, our engineers will work to develop manufacturing processes that would allow scale production to ensure costs of goods in line with market demand and conditions.

We believe our Cellinity batteries will have features that far surpass comparable lithium-ion batteries, the dominant incumbent technology in the market, including:

• Increased safety, no runaway fire risks, and a more sustainable design – with no rare-earth elements – that is capable of being manufactured completely from a domestic supply chain
• Ability to charge and discharge completely, with no degradation of performance, ensuring virtually unlimited charge/discharge cycles, and without self-discharge and no out-gassing
• Increased energy efficiency and energy density in comparison to lithium-ion batteries, and a longer useful life expectancy of at least 10 years and expected to be up to 20 years or more

Our battery has high energy density and high voltage, making it well-suited for large format long duration energy storage rather than mobile energy storage purposes like EVs. Its electrical performance metrics also make it well-suited for long duration storage, meaning batteries which expend their electricity over up to ten hours, rather than being limited to two- or four-hour expenditures like many lithium-ion batteries. Such batteries are sought after for grid-scale leveling, storage of renewable energy, and emergency power redundancy purposes.

We are exploring multiple opportunities to commercialize our proprietary liquid sodium batteries through joint ventures with third parties. The third parties would finance the construction of independent battery manufacturing facilities designed and built under the direction of our engineers, and the joint venture would market, manufacture and distribute batteries. BioLargo would (i) receive a minority equity position in each joint venture, (ii) separately manufacture and sell at a profit to the joint venture certain proprietary battery components, and (iii) receive a royalty on the revenues of the joint venture.

Given the global growing demand for better batteries, and, while we are witnessing a number of current examples in which battery manufacturers have secured forward-contracts to supply batteries to its customers with backlogs of orders that amount to multiple years of production capacity, we believe our offer to partner with customers to secure needed inventory provides for a clear potential pathway to access capital, and more readily scale up production to meet demand around the world. At this point, we do not intend to finance and build our own manufacturing facilities, nor would we develop in-house sales channels, although that possibility remains on the table if needed.

Clyra Medical Technologies, Inc. - Bioclynse Wound Irrigation Solution

Clyra Medical Technologies, Inc. is our partially owned subsidiary creating medical products based on our technologies. Its primary product is a surgical wound irrigation solution called Bioclynse that can help manage patient care and outcomes. The first target market for this product is orthopedics, including hip and knee replacement surgeries. Management believes Bioclynse outperforms competing products as it has proven performance in biofilm disruption and inhibition, is non-toxic and non-cytotoxic, is non-sensitizing to tissue, and unlike competing products, does not need to be rinsed and/or removed from a surgical cavity. Clyra management is focused on developing partnerships with large, well-established distributors who can help rapidly accelerate the product’s access to clinicians and surgeons in hospitals around the country. It, and its manufacturing partner, Keystone Industries, have invested in manufacturing equipment to support at-scale manufacturing for the Bioclynse product's use in sterile settings, such as in surgery. In total, Clyra has committed approximately $1.6 million in equipment and related assets to support the national roll out of Bioclynse. During the year ending December 31, 2024, through the date of this report, Clyra has sold $2,671,000 of its common stock, of which $741,000 was purchased by BioLargo, and financed equipment valued at $1,025,000.

To prepare for the expected national rollout of Bioclynse, Clyra also recently appointed Dr. Steven J. Kavros as its Chief Medical Officer. Dr. Kavros has more than 20 years’ experience in roles such as Director at the Rochester Mayo Clinic’s Gonda Vascular Wound Healing Center. Clyra also appointed a new Executive Director of Finance to enhance the company’s capital structure and liquidity management capabilities.

Full Service Environmental Engineering

BioLargo Engineering, Science & Technologies, LLC (“BLEST”) offers full service environmental engineering to third parties and provides engineering support services to our internal teams to accelerate the commercialization of our technologies.

BLEST focuses its efforts in three areas:

• providing engineering services to third-party clients as well as affiliated BioLargo entities;
• supporting internal product development; and
• advancing their own technical innovations such as the AEC PFAS treatment technology and the battery energy storage system.

BLEST operates out of an engineering facility in Oak Ridge, Tennessee (a suburb of Knoxville), and employs a group of scientists and engineers, many of whom are owners of the entity (BioLargo owns 77.5% as of September 30, 2024 and December 31, 2023). 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. Many of the other team members are also former employees of CB&I and Shaw, with the exception of more recent staff hires. The team is highly experienced across multiple industries and we believe 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 team has decades of high-level experience in the energy industry. The engineering team has also developed an extended network of trusted engineering subcontractors that assist in serving specific client projects as needed.

BLEST engineers generate revenue through services to third party clients, as well as for internal BioLargo projects such as the AEC and battery (revenues from internal projects are eliminated in the consolidation of our financial statements and are designed “intersegment revenue”). Third party contracts include ongoing work at U.S. Air Force bases for air quality control. In the second quarter of 2024, BLEST secured new contracts to provide air quality control compliance services to additional U.S. Air Force bases, increasing its ongoing contract-based revenue to approximately $100,000 per month. Efforts to expand this work as well as with other clients are consistently ongoing.

The staff time devoted to supporting the AEC (PFAS) and battery related work is demanding, and, BLEST needs to hire more qualified staff to meet and expanding demand for our growing list of customers and/or expected customers. When we combine the demands of current revenue generating projects and expected growth, we are presented with an obvious challenge to manage quality, timely performance as well as access to qualified staff. We are working carefully to find balance to help ensure we meet the demands of both in a practical customer centric and capital conserving way. It may be for example, when we secure larger and larger contracts for PFAS or Garrett Callan related work, we will need to depend heavily on our contact manufactures to meet the customer demands in the near term as we scale up our infrastructure and work force capabilities.

Results of Operations

Our revenues increased 63% and 80% in the three and nine months ended September 30, 2024, as compared with the same periods in 2023, primarily due to an increased volume of sales of our pet odor control product private labeled to a third party under the brand name “Pooph”, which comprised 76% and 78%, respectively of our company-wide revenues in such periods. Our financial statements separate revenue based on products and services. Revenues from the sale of products for the three and nine months ended September 30, 2024, increased 56% and 81% over the same periods in 2023. Revenues from services for the three and nine months ended September 30, 2024, increased 191% and 72% over the same periods in 2023.

ONM Environmental

Our wholly-owned subsidiary ONM Environmental generates revenues through (i) sales of our flagship product CupriDyne Clean, including related design, installation, and maintenance services on the systems that deliver CupriDyne Clean at its clients’ facilities, and (ii) sale of private-label products to third parties, including the Pooph branded pet odor control product.

Revenue (ONM Environmental)

ONM Environmental’s revenues increased 53% (to $3,853,000) and 69% (to $12,437,000) in the three and nine months ended September 30, 2024, compared with the same periods in 2023. The increase in revenues was almost entirely due to an increase in the volume of sales of our pet odor product private labeled to a third party under the brand name "Pooph". Because ONM Environmental has no control over the marketing and sales activity or levels of the Pooph branded products, it cannot predict sales volumes related to it in future periods. Pooph management has indicated their intentions to continue advertising and expanding sales. While they have performed well in the past, their execution of those future plans has inherent risks that are out of our control.

Cost of Goods Sold (ONM Environmental)

ONM Environmental’s cost of goods sold includes costs of raw materials, contract manufacturing, and portions of depreciation, salaries and expenses related to the manufacturing and installation of its products. As a percentage of revenue, ONM Environmental’s costs of goods for the three and nine months ended September 30, 2024, were 55% and 54%, an increase of 8% and 7%, compared to the same period in 2023. The current period increase in cost of goods is due the introduction of new Pooph-branded product lines with lower margins for initial stocking orders.

Selling, General and Administrative Expense (ONM Environmental)

ONM Environmental’s selling, general and administrative expenses decreased 6% and 9% during the three and nine months ended September 30, 2024, as compared with the same period in 2023. The decrease is due to less employees and a reduction of office expenses.

Operating Income (ONM Environmental)

ONM Environmental generated operating income of $1,382,000 and $4,668,000 in the three and nine months ended September 30, 2024, compared to operating income of $969,000 and $2,786,000 for the three and nine months ended September 30, 2023. The generation of operating income for the three and nine months ended September 30, 2024, was entirely dependent on the sale of Pooph branded products.

BLEST (engineering)

Revenue (BLEST)

Our engineering segment's (BLEST's) revenues increased 243% (to $498,000) and 260% (to $1,685,000), in the three and nine months ended September 30, 2024, as compared with the same periods in 2023. The increase in revenue in the three and nine months ended September 30, 2024, as compared with prior periods is due to $878,000 of revenue recognized in the second quarter of 2024 from the sale of water treatment equipment. Although we are focused on sales of water treatment equipment such as our AEC, AOS, and AROS systems, the sales cycle for municipal and industrial water treatment equipment is long, and management does not expect a to record similar level revenue from equipment sales in the fourth quarter of 2024. With recent new contracts, our engineers are generating approximately $100,000 in monthly services revenues for air quality management services at U.S. Air Force bases. These ongoing contracts are expected to continue provide a monthly base revenue, in addition to regular work for other clients. In the future, equipment sales will be primarily handled through our subsidiary dedicated for that purpose - BioLargo Equipment Solutions & Technologies, Inc. (BEST).

In addition to providing services to third party clients, BLEST provides services 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, 2024, intersegment revenue for BLEST totaled $326,000 and $754,000 and for the three and nine months ended September 30, 2023, intersegment revenue for BLEST totaled $698,000 and $1,276,000.

Cost of Revenues (BLEST)

BLEST’s cost of revenues includes employee labor, subcontracted costs and material costs. In the three and nine months ended September 30, 2024, costs were 100% and 74% of revenues, versus 46% and 59% in the same period in 2023. The increase is related to increased costs on fixed fee contracts, and work attributed to the AEC project in Lake Stockholm New Jersey. Management expects future periods to reflect a cost of revenue more in line with historical numbers.

Selling, General and Administrative Expense (BLEST)

BLEST’s SG&A expenses were $218,000 and $659,000, in the three and nine months ended September 30, 2024, compared to $213,000 and $612,000, in the three and nine months ended September 30, 2023, the increase is due to additional employees. In June and July 2024, BLEST hired four additional full-time employees.

Operating Loss (BLEST)

BLEST incurred an operating loss of $375,000 and $1,067,000 in the three and nine months ended September 30, 2024, compared to an operating loss of $568,000 and $1,388,000 in the three and nine months ended September 30, 2023. This operating loss is reflective of the focus at BLEST on advancing internal BioLargo projects such as the Cellinity battery and AEC water treatment system. Our consolidated financial statements eliminate these revenues as intercompany balances. The decrease in operating loss was due to an increase in third party-revenues. Because BLEST had an operating loss, we invested cash during the quarter to maintain operations.

Clyra Medical

Clyra Medical has not yet begun commercial sales of its Bioclynse surgical wound irrigation product, and thus has not generated revenues in 2024; past revenues have been nominal. In the three and nine months ended September 30, 2024, it incurred total costs and expenses of $857,000 and $2,019,000, which included $291,000 and $512,000 in research and development expenses. In the same period in 2023, total costs and expenses were $427,000 and $1,250,000, which included $68,000 and $262,000 in research and development expenses. The increases in costs and expenses is related to the development and commercialization of Bioclynse. Management is not yet in a position to disclose when Clyra will begin generating revenue.

BETI

BioLargo Energy Technologies, Inc., (BETI) is focused on development of our Cellinity battery, and thus has not generated generate revenue. For the three and nine months ended September 30, 2024, it incurred total costs and expenses of $194,000 and $575,000, which included $133,000 and $346,000 in research and development expenses. In the same periods in 2023, total costs and expenses were $559,000 and $943,000, which included $537,000 and $840,000 in research and development expenses. The primary focus of BETI is the development of its battery technology. We do not expect BETI to generate revenue in the near future as it continues its research and development activities.

BEST

BioLargo Equipment, Sciences and Technologies, Inc. (BEST), was formed in 2024 to commercialize BioLargo's proprietary water treatment equipment, including its PFAS removal device the AEC. As the first AEC sale occurred prior to the Company's formation, and the sales cycle for advanced water treatment systems is long, BEST has not yet generated revenues. We intend future water treatment projects to be contracted through BEST. During the three and nine months ended September 30, 2024 BEST incurred $59,000 and $174,000 in total expenses primarily related to salaries and marketing.

Selling, General and Administrative Expense – consolidated

Our SG&A expenses include both cash (for example, salaries to employees) and non-cash expenses (for example, stock option compensation expense). For the three and nine months ended September 30, 2024 consolidated SG&A decreased 8% (to $2,093,000) and increased by 16% (to $6,720,000). The largest components of our SG&A expenses included (in thousands):

In the three and nine months ended September 30, 2024, our non-cash expenses from the issuance of stock and stock options totaled $337,000 and $1,629,000 compared to $762,000 and $1,588,000 for the three and nine months ended September 30, 2023. This decrease is due to stock option issuances for previously issued stock options that expired during the three months ended September 30, 2023. Our non-cash expenses were mostly flat for the nine months ended September 30, 2024, compared to same period is 2023. The majority of this stock option expense is recorded in Consulting expense. Salaries and payroll related expense increased due to the addition of new employees; companywide, there are 36 full time employees. Professional fees increased due to the addition of our BEST subsidiary, private securities offerings for BioLargo and Clyra, and other organizational needs that required professionals. Investor relation expense remained flat for the three months ended September 30, 2024, compared to the same period in 2023. Investor relation expense increased for the nine months ended September 30, 2024, compared to the same period in 2023, as we continue to tell the BioLargo story to the public markets through speaking events and trade shows.

Research and Development

In the three and nine months ended September 30, 2024, we spent $690,000 and $2,098,000 in the research and development of our technologies and products, of which $512,000 was through Clyra Medical. This was a decrease of 1% and an increase of 14% compared to the three and nine months ended September 30, 2023. The three months remained flat, and the nine months increase is primarily due to work related to (i) the battery project, and (ii) the AEC. As these products mature, we expect the level of research and development to decrease.

Interest expense

Our interest expense for the three and nine months ended September 30, 2024, was a net interest income of $1,000 and interest expense of $12,000 compared to interest expense of $12,000 and $72,000 in the three and nine months ended September 30, 2023. We generated $13,000 of interest income, offset by $12,000 of interest expense. The decrease is due to a decrease in financing activities.

Other Income and Expense

For the nine months ended September 30, 2024, we had $15,000 of grant income, as compared with the $32,000 in the nine months ended September 30, 2023. Grant income is primarily generated through our wholly owned Canadian subsidiary, we have been awarded more than 80 research grants over the years from various public and private agencies, including the Canadian National Research Institute – Industrial Research Assistance Program (NRC-IRAP), the National Science and Engineering Research Council of Canada (NSERC), and the Metropolitan Water District of Southern California’s Innovative Conservation Program “ICP”. The research grants received are considered reimbursement grants related to costs we incur and therefore are included as Other Income. Grant funds paid directly to third parties are not included as income in our financial statements.

Net Loss

Net loss for the three and nine months ended September 30, 2024, was $1,060,000 and $2,615,000 a loss of $ (0.002) and $ (0.005) per share, compared to a net loss for the three and nine months ended September 30, 2023, of $1,508,000 and $3,628,000, a loss of $ (0.004) and $ (0.01) per share. Our net loss for the three and nine months ended September 30, 2024, decreased because of the increase in revenue.

The net income (loss) per business segment is as follows (in thousands):

Liquidity and Capital Resources

For the three and nine months ended September 30, 2024, we generated revenues of $4,351,000 and $14,122,000 and had a net loss of $1,060,000 and $2,615,000. For the nine months ended September 30, 2024, we used $1,290,000 net cash used in operating activities. On September 30, 2024, we had current assets of $7,394,000, of which $3,882,000 was cash and cash equivalents, current liabilities of $3,200,000, and working capital of $4,194,000.

During the nine months ended September 30, 2024, we continued to invest in capital equipment and resources preparing to launch and commercialize products and further research and development on our battery technology. We and our partially owned subsidiaries continue to sell securities to ensure available working capital. During the nine months ended September 30, 2024, we received $2,858,000 from financing activities, including sales of stock, warrant exercises, and option exercises. We have been, and anticipate that we will continue to be, limited in terms of our capital resources, and expect to continue to need further investment capital to fund our business plans and investments in our new technologies.

For these reasons, we continue to sell securities to ensure available working capital, both directly and through our subsidiaries; during the nine months ended September 30, 2024, we received net proceeds of $2,858,000. Additionally, during the nine months ended September 30, 2024, we received $909,000 in gross proceeds from the exercise of stock options and warrants. We have been, and anticipate that we will continue to be, limited in terms of our capital resources, and expect to continue to need further investment capital to fund our business plans and investments into our new technologies. The foregoing factors raise substantial doubt about our ability to continue as a going concern, unless we are able to (i) continue to increase revenues, generate cash from operations, and/or generate cash from financing activities, (ii) convert assets such as our $3,209,000 in accounts receivable into cash; or, (iii) if necessary, reduce ongoing cash obligations by curtailing portions of our operations.

Critical Accounting Policies

Our discussion and analysis of our results of operations and liquidity and capital resources are based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of our condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, valuation of offerings of debt with equity or derivative features which include the valuation of the warrant component, any beneficial conversion feature and potential derivative treatment, and share-based payments. We base our estimates on anticipated results and trends and on various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results that differ from our estimates could have a significant adverse effect on our operating results and financial position.

Our significant accounting policies and methods used in the preparation of the Company’s condensed consolidated financial statements are described in (i) in Part I, Item 1 of this Form 10-Q, Note 2, “Summary of Significant Accounting Policies” and (ii) in the Form 10-K for the year ended December 31, 2023, filed with the SEC on April 1, 2024, in the Notes to Consolidated Financial Statements in Part II, Item 8, and “Critical Accounting Policies and Estimates” in Part II, Item 7. There have been no material changes to the Company’s critical accounting policies and estimates since the filing of its Form 10-K.

We conducted an evaluation, under the supervision and with the participation of management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended – the “Exchange Act”) as of the end of the period covered by this Report. There were no changes in our internal control over financial reporting during the quarter ended September 30, 2024, which were identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

Our procedures have been designed to ensure that the information relating to our company, including our consolidated subsidiaries, required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow for timely decisions regarding required disclosure. However, our Company is continuing to grow and evolve, as our product and services sales continues to grow, and as we diversify our clients to include municipalities, increasing strain on our accounting systems. These activities put stress on our overall controls and procedures. We do not yet have the resources to implement the more sophisticated control systems used by larger companies. Although we have made some improvements, our chief executive officer and chief financial officer have concluded that, as of the evaluation date, our disclosure controls and procedures were not effective, due to the material weakness identified below.

It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

Under the supervision and with the participation of our management, including our chief executive officer and the chief financial officer, we have established internal control procedures in accordance with the guidelines established in the 2013 Framework —Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Management evaluated the effectiveness of our internal controls, and concluded that due to our limited financial and personnel resources, the fact that we operate our business in three distinct locations in the U.S. and Canada, and the lack of sophisticated reporting systems, we continue to have a material weakness in our internal controls with respect to the closing our financial statements. Until the Company has the financial resources to implement more robust automated systems, or to hire additional dedicated accounting personnel, we expect this material weakness to continue.

Our management, including our chief executive officer and chief financial officer, does not expect that our disclosure controls or our internal control over financial reporting, or any system we design or implement in the future, will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

PART II

OTHER INFORMATION