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Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2018

Consolidation, Policy [Policy Text Block]

Principles of Consolidation

The consolidated financial statements include the accounts of the Company, its majority owned subsidiaries, and Clyra. Management believes Clyra’s financial statements are appropriately consolidated with that of the Company after reviewing the guidance of ASC Topic

810,

“Consolidation”, because the Company owns

46.3%

of its outstanding voting stock at

September 30, 2018,

and

two

members of BioLargo’s board of directors are

two

three

members of Clyra’s board of directors (see Note

). All intercompany accounts and transactions have been eliminated.

Foreign Currency Transactions and Translations Policy [Policy Text Block]

Foreign Currency

The Company has designated the functional currency of Biolargo Water, Inc., our Canadian subsidiary, to be the Canadian dollar. Therefore, translation gains and losses resulting from differences in exchange rates are recorded in accumulated other comprehensive income (loss).

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of

three

months or less when acquired to be cash equivalents. Substantially all cash equivalents are held in short-term money market accounts at

one

of the largest financial institutions in the United States. Our cash account balances are typically greater than the Federal Deposit Insurance Corporation insurance limit of

$250,000

per owner per bank, and during such times, we are exposed to credit loss for amounts in excess of insured limits in the event of non-performance by the financial institution. We do

not

anticipate non-performance by our financial institution.

Clyra Medical is

not

a wholly owned subsidiary. Our cash balance held in Clyra and BioLargo and other subsidiaries are reflected in the following table:

	D ecember 31, 201 7		September 3 0 , 201 8
Biolargo, Inc. and wholly owned subsidiaries	$	461,914	$	511,095
Clyra Medical Technologies, Inc.		528,543		22,447
Total	$	990,457	$	533,542

Receivables, Policy [Policy Text Block]

Accounts Receivable

Trade accounts receivable are recorded net of allowances for doubtful accounts. Estimates for allowances for doubtful accounts are determined based on payment history and individual customer circumstances. The allowance for doubtful accounts as of

December 31, 2017

and

September 30, 2018

was

$2,500

and

$0,

respectively.

Concentration Risk, Credit Risk, Policy [Policy Text Block]

Credit Concentration

We have a limited number of customers that account for significant portions of our revenue. During the

nine

months ended

September 30, 2017

and

2018,

we had

three

and

two

customers that each accounted for more than

10%

of consolidated revenues in the respective periods, as follows:

	September 30 , 2017			September 30 , 2018
Customer A		26	%		44	%
Customer B		11	%		12	%
Customer C		11	%		<10	%

We had

five

customers that each accounted for more than

10%

of consolidated accounts receivable at

December

31,

2017

and

three

customers at

September 30, 2018

as follows:

	December 31, 2017			September 30 , 2018
Customer A		<10	%		23	%
Customer B		<10	%		17	%
Customer C		<10	%		10	%
Customer D		12	%		<10	%
Customer E		19	%		<10	%
Customer F		12	%		<10	%
Customer G		10	%		<10	%
Customer H		10	%		<10	%

Inventory, Policy [Policy Text Block]

Inventory

Inventory is stated at the lower of cost and net realizable value using the average cost method. All inventory is related to our Odor-

-More business segment. Inventory consisted of:

	D ecember 31, 2017		September 3 0 , 2018
Raw material	$	34,104	$	26,767
Finished goods		19,869		19,427
Total	$	53,973	$	46,194

Use of Estimates, Policy [Policy Text Block]

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the period reported. Actual results could differ from those estimates. Estimates are used when accounting for stock-based transactions, debt transactions, deemed dividends, allowance for bad debt, asset depreciation and amortization, among others.

The methods, estimates and judgments we use in applying these most critical accounting policies have a significant impact on the results of our consolidated financial statements.

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

Share-based Payments

For stock and stock options issued to consultants and other non-employees for services, the Company measures and records an expense as of the earlier of the date at which either: a commitment for performance by the non-employee has been reached or the non-employee’s performance is complete. The equity instruments are measured at the current fair value, and for stock options, the instruments are measured at fair value using the Black Scholes option model.

For equity instruments issued and outstanding where performance is

not

complete, but the instrument has been recorded, those instruments are measured again at their then current fair market values at each of the reporting dates (they are “marked-to market”) until the performance and the contract are complete.

Warrant Policy [Policy Text Block]

Warrants

The Unit Offerings of our convertible promissory note and a Series A stock purchase warrant are accounted for under the fair value and relative fair value method.

The warrant is

first

analyzed per its terms as to whether it has derivative features or

not.

If the warrant is determined to be a derivative, then it is measured at fair value using the Black Scholes Option Model, and recorded as a liability on the balance sheet. The warrant is re-measured at its then current fair value at each subsequent reporting date (it is “marked-to-market”).

If the warrant is determined to

not

have derivative features, it is recorded into equity at its fair value using the Black Scholes option model, however, limited to a relative fair value based upon the percentage of its fair value to the total fair value including the fair value of the convertible note.

The convertible note is recorded at its fair value, limited to a relative fair value based upon the percentage of its fair value to the total fair value including the fair value of the warrant. Further, the convertible promissory note is examined for any intrinsic beneficial conversion feature (“BCF”) of which the convertible price of the note is less than the closing stock price on date of issuance. If the relative fair value method is used to value the convertible promissory note and there is an intrinsic BCF, a further analysis is undertaken of the BCF using an effective conversion price which assumes the conversion price is the relative fair value divided by the number of shares the convertible debt is converted into by its terms. The adjusted BCF value is accounted for as equity.

The warrant and BCF relative fair values are also recorded as a discount to the convertible promissory notes. As present, these equity features of the convertible promissory notes have recorded a discount to the convertible notes that is substantially equal to the proceeds received.

Non Cash Transactions [Policy Text Block]

Non-Cash Transactions

We have established a policy relative to the methodology to determine the value assigned to each intangible we acquire, and/or services or products received for non-cash consideration of our common stock. The value is based on the market price of our common stock issued as consideration, at the date of the agreement of each transaction or when the service is rendered or product is received.

Revenue Recognition, Policy [Policy Text Block]

Revenue Recognition

We adopted ASU

2014

09,

“Revenue from Contracts with Customers”, Topic

606,

January 1, 2018.

The guidance focuses on the core principle for revenue recognition.

The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps:

Step

Identify the contract(s) with a customer.

Step

Identify the performance obligations in the contract.

Step

Determine the transaction price.

Step

Allocate the transaction price to the performance obligations in the contract.

Step

Recognize revenue when (or as) the entity satisfies a performance obligation.

We have revenue from

two

subsidiaries, Odor-

-More and BLEST. Odor-

-More identifies its contract with the customer through a purchase order whether in writing or verbal, in which the details of the contract are defined including the transaction price and method of shipment. The only performance obligation is to create and ship the product and each product has separate pricing. Odor-

-More recognizes revenue at a point in time when the order for its goods are shipped if its agreement with the customer is FOB Odor-

-More’s warehouse facility, and when goods are delivered to its customer if its agreement with the customer is FOB destination. Revenue is recognized with a reduction for sales discounts, as appropriate and negotiated in the customer’s purchase order.

BLEST identifies services to be performed in a written contract, which specifies the performance obligations and the rate at which the services will be billed. Each service is separately negotiated and priced. Revenue is recognized as services are performed and completed. BLEST’s contracts typically call for invoicing for time and materials incurred for that contract. To date, there have been

discounts or other financing terms for the contracts.

In the future, we

may

generate revenues from royalties or license fees from our intellectual property. In the event we do so, we anticipate a licensee would pay a license fee in

one

or more installments and ongoing royalties based on their sales of products incorporating or using our licensed intellectual property. Upon entering into a licensing agreement, we will determine the appropriate method of recognizing the royalty and license fees.

Government Grants [Policy Text Block]

Government Grants

We have been awarded multiple research grants from the Canadian National Research Institute – Industrial Research Assistance Program (NRC-IRAP) and the National Science and Engineering Research Council of Canada (NSERC). The grants received are considered other income and are included in our consolidated statements of operations. We received our

first

grant in

2015

and have been awarded over

grants totaling approximately

$1,600,000.

Some of the funds from these grants are given directly to

third

parties (such as the University of Alberta or a

third

-party research scientist) to support research on our technology. The grants have terms generally ranging between

six

and

eighteen

months and support a majority, but

not

all, of the related research budget costs. This cooperative research allows us to utilize (i) a depth of resources and talent to accomplish highly skilled work, (ii) financial aid to support research and development costs, (iii) independent and credible validation of our technical claims.

The grants typically provide for (i) recurring monthly amounts, (ii) reimbursement of costs for research talent for which we invoice to request payment, and (iii) ancillary cost reimbursement for research talent travel related costs. All awarded grants have specific requirements on how the money is spent, typically to employ researchers.

None

of the funds

may

be used for general administrative expenses or overhead in the United States. These grants have substantially increased our level of research and development activities in Canada. We continue to apply for Canadian government and agency grants to fund research and development activities.

Not

all of our grant applications have been awarded, and

assurance can be made that any pending grant application, or any future grant applications, will be awarded.

While the FASB has issued a proposed Accounting Standards Update,

Not

-for-Profit Entities - (Topic

958

): “Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made”, there has been

guidance related to for profit entities such as BioLargo. In reviewing Topic

606,

“Revenue from Contracts with Customers”, and its potential application to the Canadian government grants, our management concluded that these grants do

not

meet the requirements for revenue recognition. Specifically, these grants typically provide reimbursement for research personnel working on the BioLargo technology. For some grants, funds are given directly to

third

parties for research on our technology and are

not

controlled by the Company. In this structure, the grants are

not

revenue, but rather a reimbursement.

Segment Reporting, Policy [Policy Text Block]

Business Segment Information

2017,

the Company operated with

three

business segments. In

2018,

given the increased operations of the engineering division formed in late

2017,

we determined that it should be considered our

fourth

business segment. This decision was based on the manner in which the chief operating decision maker now manages the engineering division, including resource allocation and performance assessment.

Our

four

business segments include: (i) Odor-

-More, which is engaged in developing and selling odor and VOC control products and services; (ii) BLEST, which provides professional engineering services; (iii) Clyra, which is engaged in developing medical products utilizing our technology, with an emphasis in the medical field and advanced wound care; and (iv) our corporate operations (labeled in the below table as “BioLargo/Other”), which includes certain functional roles that do

not

engage in revenue generating activities, such as general corporate and administrative functions, including finance, human resources, marketing, legal, and research and development.

The segment information for the

three

and

nine

months ended

September 30, 2017

and

2018,

is as follows:

	T hree months September 30,						Nine months September 30,
	2017			2018			2017			2018
Revenues
Odor-No-More	$	172,045		$	245,979		$	318,040		$	785,929
BLEST		—			31,047			—			80,864
Consolidated revenue	$	172,045		$	277,026		$	318,040		$	866,793

Cost of goods/services
Odor-No-More	$	(123,278	)	$	(97,578	)	$	(219,207	)	$	(426,042	)
BLEST		—			(23,968	)		—			(59,608	)
Consolidated costs of goods/services	$	(123,278	)	$	(121,546	)	$	(219,207	)	$	(485,650	)

Net loss
Odor-No-More	$	(112,500	)	$	(111,963	)	$	(387,500	)	$	(365,651	)
BLEST		—			(63,555	)		—			(180,281	)
Clyra		(223,610	)		(219,971	)		(708,182	)		(596,333	)
BioLargo/Other		(1,910,016	)		(1,984,246	)		(6,050,186	)		(7,266,948	)
Consolidated net loss	$	(2,246,126	)	$	(2,379,735	)	$	(7,145,868	)	$	(8,409,213	)

The segment information as of

December 31, 2017

and

September 30, 2018,

is as follows:

	December		September
		31, 2017		30, 2018
Assets, net
Odor-No-More	$	210,725	$	231,216
BLEST		—		150,087
Clyra		528,543		25,807
BioLargo/Other		756,152		681,775
Consolidated assets, net	$	1,495,420	$	1,088,885

Earnings Per Share, Policy [Policy Text Block]

Earnings (Loss) Per Share

We report basic and diluted earnings (loss) per share (“EPS”) for common and common share equivalents. Basic EPS is computed by dividing reported earnings by the weighted average shares outstanding. Diluted EPS is computed by adding to the weighted average shares the dilutive effect if stock options and warrants were exercised into common stock. For the

nine

months ended

September 30, 2017

and

2018,

the denominator in the diluted EPS computation is the same as the denominator for basic EPS due to the anti-dilutive effect of the warrants and stock options on the Company’s net loss.

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements

June 2018,

The FASB issued Accounting Standards Update

No.

2018

07,

“Compensation - Stock Compensation (topic

718

): Improvements to Nonemployee Share-Based Payment Accounting”. The amendments in this update expand the scope of Topic

718

to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic

718

to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that Topic

718

applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic

718

does

not

apply to share-based payments used to effectively provide (

) financing to the issuer or (

) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic

606,

Revenue from Contracts and Customers. The amendments in this update are effective for public business entities for fiscal years beginning after

December 15, 2018,

including interim periods within that fiscal year. Management has

not

concluded its evaluation of the guidance. Its initial analysis is that it does

not

believe the new guidelines will substantially impact the company’s financial statements.

May 2017,

the FASB issued Accounting Standards Update

No.

2017

09,

“Compensation – Stock Compensation (topic

718

): Scope of Modification Accounting”. The amendments in this update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic

718.

An entity should account for the effects of a modification unless all the following are met: (i) the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the modified award is the same as the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the original award immediately before the original award is modified, (ii) The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified and (iii) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after

December 15, 2017.

Management has analyzed the new guideline and it has

not

substantially impacted its accounting for stock compensation awards upon adoption in the current period.