Note 8 - Noncontrolling Interest - Clyra Medical

9 Months Ended

Sep. 30, 2022

Notes to Financial Statements

Noncontrolling Interest Disclosure [Text Block]

Note 8.   Noncontrolling Interest – Clyra Medical

We consolidate the operations of our partially owned subsidiary Clyra Medical, of which we owned 58% of its outstanding shares as of  September 30, 2022.

BioLargo and its partially owned subsidiary Clyra Medical entered into an agreement dated  March 3, 2022, whereby BioLargo agreed to convert $633,000 in working capital advances, made to or on behalf of Clyra Medical, into 2,042 shares of Clyra Medical common stock at a rate of $310 per share.

Debt Obligations of Clyra Medical

On  April 8, 2022, Clyra Medical issued a promissory note in the principal amount of $100,000 to an individual investor, payable  April 8, 2024 bearing 8% annual interest. The note  may be converted by its holder at any time prior to the maturity date, and automatically converts to stock upon (i) Clyra’s sale of $5,000,000 or more of its common or preferred stock, or (ii) the maturity date, at a conversion price equal to 70% of the lowest price-per-share of shares sold to a future investor prior to the maturity date.

On  June 30, 2020, Clyra Medical entered into a Revolving Line of Credit Agreement whereby Vernal Bay Capital Group, LLC committed to provide a $1,000,000 inventory line of credit. Since inception, $260,000 in line of credit draws were made and Clyra has repaid $97,000. As of  September 30, 2022, the balance outstanding on this line of credit totals $163,000. Funds from the line of credit must be used to produce inventory. Additional draws are conditional upon the presentation of invoices or purchase orders to the lender equal to the greater of one-half of principal outstanding on the line of credit, and $200,000. The line of credit accrues interest at 15%, requires Clyra pay interest and principal from gross product sales, and is due on demand. Clyra is required to pay 60% of gross product sales to reduce amounts owed on the line of credit. Clyra issued Vernal Bay 323 shares of its common stock as a commitment fee for the line of credit, valued at $70,000. A security agreement of the same date grants Vernal Bay a security interest in Clyra’s inventory, as that term is defined in the Uniform Commercial Code.

Prepaid Marketing - Consulting Agreement

On  December 30, 2015, Clyra entered into a consulting agreement with Beach House Consulting, LLC, through which Jack B. Strommen will be providing consulting services to Clyra related to its sales and marketing activities, and in exchange receive $23,000 per month for a period of four years. On  June 30, 2020, at Clyra’s request, Beach House Consulting agreed to accept 3,639 shares of Clyra common stock, in lieu of cash, as full prepayment of the consulting fee. The obligation to provide the consulting services is dependent on Clyra generating an average of $250,000 in monthly sales over three consecutive months, which has not been met. The value of the shares issued to Beach House were higher but the asset was impaired in 2021, the asset totals $591,000 and is recorded as a non-current asset on our balance sheet.

Clyra Medical Equity transactions

As of September 30, 2022, Clyra Medical had the following common shares outstanding:

Shareholder	Shares		Percent
BioLargo, Inc.		51,249		58	%
Sanatio Capital		18,704		21	%
Other		19,118		21	%
Total		89,071

Sales of Common Shares

During the nine months ended September 30, 2022 and 2021, Clyra raised $0 and $50,000 at $310 per Clyra share.

Stock Options

Clyra issues options to its employees and consultants in lieu of compensation owed on a regular basis. As of  December 31, 2021, the Company had issued options to purchase 14,004 shares of Clyra stock. During the nine months ended  September 30, 2022 and 2021, Clyra issued options to purchase 1,403 and 2,074 shares of its common stock. Each option issued has an exercise price of $1.00 per share, are vested upon issuance and an expiration date 10 years from the date of grant. The fair value of the options issued in the nine months ended  September 30, 2022 and 2021 totaled $304,000 and $442,000. We used the Black-Scholes model to calculate the initial fair value, assuming a stock price on date of grant of $310 per share. Because Clyra is a private company with no secondary market for its common stock, the resulting fair value was discounted by 30%. We also used a risk-free rate ranging between 2.32% - 3.83%, a volatility of 40% and an expected life of 10 years.

Clyra Accounts Payable and Accrued Expenses

Clyra had the following accounts payable and accrued expenses as follows:

	September 30, 2022		December 31, 2021
Accounts payable and accrued expense	$	202	$	149
Accrued interest		4		51
Accrued payroll		5		30
Total Clyra Medical accounts payable and accrued expenses	$	211,000	$	230