Note 10 - Noncontrolling Interest - Clyra Medical

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Noncontrolling Interest Disclosure [Text Block]

Note 10. Noncontrolling Interest – Clyra Medical

As discussed in Note 2 above, we consolidate the operations of our partially owned subsidiary Clyra Medical, of which we owned 58% of its outstanding shares as of December 31, 2022.

Debt Obligations of Clyra Medical

Promissory Note

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, and 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.

Line of Credit

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. Clyra Medical received $260,000 in draws and made repayments totaling $99,000. 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 note earns interest at 15%, matures in one year, and requires Clyra pay interest and principal from gross product sales. For the first 180 days, on a monthly basis, Clyra is required to pay 30% of gross product sales to reduce amounts owed, and thereafter 60% of gross sales. Clyra issued Vernal Bay 322 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. Clyra may prepay the note at any time.

On December 13, 2022, we entered into an amendment of the Revolving Line of Credit Agreement whereby the maturity date of the line of credit was extended to September 30, 2024, and the payment terms were modified such that amounts of principal due in each month are capped at a maximum of 15% of the principal amount then due under the note. Additionally, BioLargo agreed to allow Vernal Bay to elect to convert, any time prior to the note’s maturity date, the 322 shares of Clyra common stock it received as consideration for the line of credit into shares of Biolargo common stock at the then market price of BioLargo’s common stock.  Vernal Bay elected to convert the shares (see Note 14).

As of December 31, 2022, the balance outstanding on this line of credit totals $161,000. As of December 31, 2021, the balance outstanding on this line of credit totaled $187,000. 

Equity Transactions

As of December 31, 2022, Clyra had 91,149 common shares, and 2,075 Series A Preferred shares, outstanding. Of that amount, BioLargo owned 52,601 common shares, and 1,349 Series A Preferred shares. BioLargo owns 58% of Clyra’s issued and outstanding shares.

Sales of Common Stock

During the year ended December 31, 2022, Clyra did not sell shares of its common stock. On March 2, 2022, BioLargo converted $633,091 owed to it by Clyra into 2,032 shares of Clyra common stock.

During the year ended December 31, 2021, Clyra sold 161 shares of its common stock for $50,000 to private investors at $310 per Clyra share.

Sales of Series A Preferred Stock

On December 20, 2022, Clyra sold 725 shares of its Series A Preferred Stock, and in exchange received $225,000 in gross and net proceeds, from two accredited investors. Each investor also received a 3-year warrant to purchase the same number of additional shares of common stock for $372 per share. The fair value of these warrants totaled $55,000. Shares of Series A Preferred Stock earn a dividend of 15% each year. Each share of Series A Preferred stock can be converted by the holder at any time for one share of common stock. Accrued dividends may be converted to common stock at a conversion rate of $310 per share.

Each investor also entered into an agreement with BioLargo whereby the investor may exchange some or all of its Series A Preferred stock, plus accrued dividends, into shares of BioLargo common stock, at a price equal to a 20% discount of the volume weighted average price over the 30 prior trading days. Elections must be made during the 18-month period that begins 18 months after the closing of the Series A Preferred offering (which has not yet taken place), or June 30, 2023, whichever is earlier.

Subsequent to December 31, 2022, Clyra continued to sell its Series A Preferred Stock (see Note 14).

Stock Options

							Weighted
	Clyra						average
	Options			Exercise			price per
	Outstanding			price per share			share
Balance, December 31, 2020		11,411	$			1.00	$	1.00
Granted		2,594				1.00		1.00
Balance, December 31, 2021		14,004	$			1.00	$	1.00
Granted		1,829		1.00	-	310		40.24
Balance, December 31, 2022		15,833	$	1.00	-	310	$	5.53

Clyra issues options to its employees and consultants in lieu of compensation owed on a regular basis.  During the years ended December 31, 2022 and 2021, Clyra issued options to purchase 1,829 and 2,594 shares of its common stock, respectively. Each option vests upon issuance and has an expiration date 10 years from the date of grant. The exercise price of the options granted in the year ended December 31, 2021, was $1.00 per share. Of the 1,829 options granted in the year ended December 31, 2022, the exercise price of 1,597 are $1.00 per share, and the remainder are $310 per share. The fair value of the options issued in the year ended December 31, 2022 and 2021 totaled $408,000 and $564,000, respectively. 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.

Accounts Payable and Accrued Expenses

At December 31, 2022 and 2021, Clyra had the following accounts payable and accrued expenses (in thousands):

Category	2022		2021
Accounts payable	$	186	$	149
Accrued payroll		45		30
Accrued interest		7		51
Total	$	238	$	230