Note 10 - BioLargo Energy Technologies, Inc.

6 Months Ended

Jun. 30, 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 56% of its outstanding shares as of June 30, 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 $117,000. 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. On January 9, 2023, Vernal Bay elected to convert Clyra shares to 527,983 BioLargo shares of common stock.

As of June 30, 2023, the balance outstanding on this line of credit totals $143,000. As of December 31, 2022, the balance outstanding on this line of credit totaled $161,000.

Equity Transactions

As of June 30, 2023, Clyra had 95,301 shares issued and outstanding, of which 89,070 were common shares, and 6,231 were preferred shares. As of December 31, 2022, Clyra had 91,145 shares issued and outstanding, of which 89,070 were common shares, and 2075 were preferred shares. As of June 30, 2023 and December 31, 2022, of the outstanding amount, BioLargo owned 51,571 common shares and 1,352 Series A Preferred shares.

BioLargo Conversion of Intercompany Balances

On March 2, 2022, BioLargo converted $633,000 owed to it by Clyra into 2,042 shares of Clyra common stock.

Sales of Series A Preferred Stock

During the three months ended June 30, 2023, Clyra sold 3,427 shares of its Series A Preferred Stock, and in exchange received $1,062,000 in gross and net proceeds from 26 accredited investors. During the six months ended June 30, 2023, Clyra sold 4,879 shares of its Series A Preferred Stock, and in exchange received $1,287,000 in gross and net proceeds from 28 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 $324,000, and is 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 Series A Preferred Stock. 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		858		1.00	-	271		146.06
Balance, June 30, 2023		16,691		$1.00	-	310	$	12.76
Balance, December 31, 2021		14,004		$1.00			$	1.00
Granted		1,026		1.00				1.00
Balance, June 30, 2022		15,030		$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 totaled $66,000 and $127,000 in the three and six months ended June 30, 2023, and $82,000 and $223,000 in the three and six months ended June 30, 2022. 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%.

	June 30, 2023			December 31, 2022
Risk free interest rate	3.48	–	3.58%		2.32	%
Expected volatility	40	-	48%		40	%
Expected dividend yield	—				—
Forfeiture rate	—				—
Expected life in years	10				10

Accounts Payable and Accrued Expenses

At June 30, 2023, and December 31, 2022, Clyra had the following accounts payable and accrued expenses (in thousands):

Category	2023		2022
Accounts payable	$	199	$	186
Accrued payroll		10		45
Accrued interest		5		7
Accrued dividend		74		---
Total	$	288	$	238

BioLargo Energy Technologies, Inc (BETI) [Member]

Notes to Financial Statements

Noncontrolling Interest Disclosure [Text Block]

Note 10. BioLargo Energy Technologies, Inc.

Subsidiary BioLargo Energy Technologies, Inc. (“BETI”) was formed for the purpose of commercializing a sodium-sulfur battery technology. BioLargo purchased 9,000,000 shares of its common stock upon its formation.

During the three months ended June 30, 2023, BETI sold 132,000 shares of its common stock to nine accredited investors and received $330,000 in gross and net proceeds. During the six months ended June 30, 2023, BETI sold 450,000 shares of its common stock to 15 accredited investors, and in exchange received gross and net proceeds totaling $980,000. Of that amount, $100,000 in shares were purchased by BioLargo.

Each investor also entered into an agreement with BioLargo whereby the investor may exchange some or all of its shares of BETI common stock into shares of BioLargo common stock, at a price equal to a 20% discount of the volume weighted average price over the 20 trading days prior to the election to exchange. Elections must be made during calendar year 2024.

As of June 30, 2023, there are 9,457,000 shares outstanding, of which BioLargo holds 9,050,000 (96%).