Note 8 - Noncontrolling Interest - Clyra Medical

3 Months Ended

Mar. 31, 2023

Notes to Financial Statements

Noncontrolling Interest Disclosure [Text Block]

Note 8. 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 March 31, 2023.

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 $113,000. 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 6 months, 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 Clyra shares to 527,983 BioLargo shares of common stock.

As of March 31, 2023, the balance outstanding on this line of credit totals $147,000. As of December 31, 2022, the balance outstanding on this line of credit totaled $161,000.

Equity Transactions

As of December 31, 2022, Clyra had 91,149 common shares, and 2,800 Series A Preferred shares, outstanding. Of that amount, BioLargo owned 51,571 common shares, and 1,352 Series A Preferred shares. As of March 31, 2023, BioLargo owns 58% of Clyra’s issued and outstanding shares.

Sales of Common Stock

During the three months ended March 31, 2023, 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.

Sales of Series A Preferred Stock

During the three months ended March 31, 2023, Clyra sold 725 shares of its Series A Preferred Stock, and in exchange received $225,000 in gross and net proceeds. 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. Purchasers of the Series A Preferred Stock 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 the warrants issued totaled $110,000. Shares of Series A Preferred Stock earn a dividend of 15% each year, compounding annually; the company is under no obligation to pay such dividends in cash, and such dividends automatically convert to common stock upon conversion of the Series A Preferred Stock to common stock. Each share of Series A Preferred stock can be converted by the holder at any time for one share of common stock, and automatically convert upon the completion of a public offering of shares in which at least $5,000,000 of gross proceeds is received by the company. 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.

Clyra Stock Options

						Weighted
		Clyra				average
	Options		Exercise			price per
	Outstanding		price per share			share
Balance, December 31, 2022		15,833	$1.00	-	310	$	5.53
Granted		426	1.00	-	271		148.27
Balance, March 31, 2023		16,259	$1.00	-	310	$	9.27
Balance, December 31, 2021		14,004	$		1.00	$	1.00
Granted		648			1.00		1.00
Balance, March 31, 2022		14,652	$		1.00	$	1.00

Clyra issues options to its employees and consultants in lieu of compensation owed on a regular basis.  The fair value of the options issued in the three months ended March 31, 2023, and 2022 totaled $61,000 and $141,000, 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%.

	March 31, 2023			December 31, 2022
Risk free interest rate	3.88	–	4.27%		2.32	%
Expected volatility		40%			40	%
Expected dividend yield		—			—
Forfeiture rate		—			—
Expected life in years		10			10

Accounts Payable and Accrued Expenses

At March 31, 2023, and December 31, 2022, Clyra had the following accounts payable and accrued expenses (in thousands):

Category	2023		2022
Accounts payable	$	235	$	186
Accrued payroll		6		45
Accrued interest		8		7
Accrued dividend		29		---
Total	$	278	$	238

The accrued dividend relates to the Series A Preferred Stock. Clyra is not required to pay accrued dividends in cash. The holder of Series A Preferred Stock may convert accrued dividends to common stock at any time. Any accrued dividends automatically convert to Clyra common stock upon conversion of the Series A Preferred Stock.