Note 9 - Noncontrolling Interest - Clyra Medical

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Noncontrolling Interest Disclosure [Text Block]

Note

9.

   Noncontrolling Interest – Clyra Medical

In

May 2012,

we formed a subsidiary for the purpose of marketing and selling medical products containing our technology, Clyra Medical Technologies, Inc. (“

Clyra”). We initially owned

100%

of this subsidiary, and then Clyra granted shares to management, such that we owned approximately

85%

of Clyra’s shares.

On

December 30, 2015,

Clyra sold shares of its Series A Preferred Stock (“

Preferred Shares”) to Sanatio Capital, LLC (“Sanatio”) for

$750,000.

As a result of the sale, Sanatio owned

40%

of Clyra’s issued and outstanding shares, BioLargo owned

54%,

and the remainder was owned by management. Concurrent with the sale of the Preferred Shares, the shareholders entered into a shareholders’ agreement that provides for a

three

-member board of directors, consisting of the company’s president, a person appointed by BioLargo, and a person appointed by Sanatio. BioLargo appointed its president, Dennis P. Calvert, to serve on Clyra’s board. Sanatio appointed its owner, Jack B. Stromment, to serve on the board. In

June 2017,

Mr. Strommen was elected to BioLargo’s board of directors.

As set forth in Clyra

’s Amended and Restated Articles of Incorporation, Preferred Shares accrue an annual dividend of

8%

for a period of

five

years. Although the dividends began to accrue immediately, Clyra has

no

obligation to declare a dividend until a product of the company has received a premarket approval by the United States Federal Drug Administration (“FDA”), or for which a premarket notification pursuant to form

510

(k) has been submitted and for which the FDA has given written clearance to market the product in the United States (either, “FDA Approval”). After FDA Approval, annually on

December 20,

and unless prohibited by California law governing distributions to shareholders, Clyra is required to declare and pay any accruing dividends to holders of Preferred Shares then accrued but unpaid. Management classifies the Preferred Shares dividend as a medium probability of occurring and as of

September 30, 2017

the Preferred Shares dividend has a cumulative undeclared dividend balance of

$105,000.

Holders of Preferred Shares are

 entitled to preferential payments in the event of a liquidation, dissolution or winding up of the company, in an amount equal to any accrued and unpaid dividends. After such preference, any remaining assets are distributed pro-rata between holders of Clyra common stock and Preferred Shares as if the Preferred Shares had converted to Clyra common stock. Holders of Preferred Shares

may

convert the shares to Clyra common stock initially on a

one

-to-

one

basis. The conversion formula is subject to change in the event Clyra sells stock at a lower price than the price paid by Sanatio.

In addition to the foregoing, Clyra entered into a consulting agreement with Beach House Consulting, LLC, through which Jack B. Strommen will be providing consulting services to the company. Mr. Strommen will be assisting the company in its sales and mark

eting activities once it has FDA Approval on a product, at which point the agreement provides that Mr. Strommen is to receive

$23,438

per month for a period of

four

years.

In

April 2017,

BioLargo purchased

500

shares of Clyra common stock from a former member of Clyra

’s management.

In

August 2017,

Clyra commenced a private securities offering of its common shares at a price of

$160

per share, and accepted

$1,000,000

in subscriptions. It issued

6,250

shares of its common stock to

two

investors. Of that amount, BioLargo invested

$250,0

00

and was issued

1,562.5

shares. On

August 4, 2017,

Clyra issued

1,690

shares of its common stock to Sanatio in exchange for payment of amounts outstanding under a line of credit held by Sanatio. Subsequent to the issuance of shares to investors in the offering, and to Sanatio for the conversion of the line of credit, BioLargo owns

15,297.5

shares of Clyra common stock, which is

46.3%

of the outstanding stock at Clyra. Two members of BioLargo’s board of directors (Dennis P. Calvert and Jack B. Strommen) comprise a majority of the

three

-member Clyra board of directors. Based on the foregoing, management believes Biolargo, Inc. controls the activities of Clyra and has therefore consolidated Clyra’s accounts with BioLargo’s.

On

September 27, 2017,

Clyra submitted to the FDA an application for premarket notification under Section

510

(k) for a wound care product. It is now in the formal

90

-day review process by the FDA.