BIOLARGO, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

This quarterly report on Form 10-Q contains forward-looking statements. These
forward-looking statements involve risks and uncertainties, including statements
regarding BioLargo’s capital needs, business plans and expectations. Such
forward-looking statements involve risks and uncertainties regarding BioLargo’s
ability to carry out its planned development and production of products.
Forward-looking statements are made, without limitation, in relation to
BioLargo’s operating plans, BioLargo’s liquidity and financial condition,
availability of funds, operating and exploration costs and the market in which
BioLargo competes. Any statements contained herein that are not statements of
historical facts may be deemed to be forward-looking statements. In some cases,
you can identify forward-looking statements by terminology such as “may”,
“will”, “should”, “expect”, “plan”, “intend”, “anticipate”, “believe”,
“estimate”, “predict”, “potential” or “continue”, the negative of such terms or
other comparable terminology. Actual events or results may differ materially. In
evaluating these statements, you should consider various factors, including the
risks outlined in our Form most recent annual report on Form 10-K, and, from
time to time, in other reports BioLargo files with the SEC. These factors may
cause BioLargo’s actual results to differ materially from any forward-looking
statement. BioLargo disclaims any obligation to publicly update these
statements, or disclose any difference between its actual results and those
reflected in these statements. The information constitutes forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Given these uncertainties, readers are cautioned not to place undue
reliance on such forward-looking statements.

Unless otherwise expressly stated herein, all statements, including
forward-looking statements, set forth in this Form 10-Q are as of June 30, 2022,
unless expressly stated otherwise, and we undertake no duty to update this
information.

As used in this report, “we” and “Company” refers to (i) BioLargo, Inc., a
Delaware corporation; (ii) its wholly-owned subsidiaries BioLargo Life
Technologies, Inc., a California corporation, ONM Environmental, Inc., a
California corporation, BioLargo Water Investment Group, Inc., a California
corporation (which wholly owns BioLargo Water, Inc., a Canadian corporation),
and BioLargo Development Corp., a California corporation, (iii) its
majority-owned subsidiary BioLargo Engineering, Science & Technologies, LLC, a
Tennessee limited liability company, and Canadian subsidiary BioLargo Water,
Inc.; and (iv) Clyra Medical Technologies, Inc. (“Clyra” or “Clyra Medical”), a
partially owned subsidiary.

The following discussion and analysis should be read in conjunction with our
unaudited consolidated financial statements and the related notes to the
consolidated financial statements included elsewhere in this report.

Our Business – Innovator and Solution Provider

BioLargo, Inc. invents, develops, and commercializes innovative platform
technologies to solve challenging environmental problems like PFAS
contamination, advanced water and wastewater treatment, industrial odor and VOC
control, air quality control, infection control, and myriad environmental
remediation challenges. Having conducted continual and extensive research and
development, BioLargo holds a wide array of issued patents, maintains a robust
pipeline of products, and provides full-service environmental engineering. With
a keen emphasis on partnerships with academic, government, and commercial
organizations and associations, BioLargo has proven itself by executing on
challenging environmental engineering projects, demonstrating its powerful
technologies through pilots, trials, and early commercial adoption, publishing
high-impact academic and industry publications, and winning over 80 grants. We
monetize our innovations through direct sales and recurring service contracts,
as well as through channel partnerships, meaning licensing agreements, exclusive
and non-exclusive distribution agreements, brand development partnerships, sale
referral partnerships, strategic joint venture formation, and/or the sale of the
IP. Channel partnerships allow us to extend the commercial reach of our products
and services disproportionately to our core infrastructure and staffing.

The past quarter’s results further validates our business model as we witnessed
organic revenue growth through our internal sales efforts (as demonstrated by
our engineering services subsidiary BLEST), as well as revenue growth
demonstrated by our channel partner’s marketing and sales efforts, (with revenue
increasing at our subsidiary ONM Environmental through the sales of pet odor
control products that feature our technology and are marketed under the Pooph
brand).

We believe we have three dominant catalysts for near-term monetization of our
core technologies and engineering services:

1) the advancement and commercialization of our PFAS removal system (the AEC, or
“Aqueous Electrostatic Concentrator”) as evidenced by our announcement on August
11, 2022 that BioLargo had secured its first PFAS mitigation customer to
engineer a comprehensive multi-phase PFAS mitigation plan for an industrial site
and signed a new channel partner agreement for PFAS remediation and that the
company has a number of other client projects in various stages of evaluation,
testing and where required commercial piloting and a number of channel partners
engaged in contract negotiations,

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2) the successful design, manufacture, pre-trial testing, and preparation for
commercialization with first customers of a novel “minimal liquid discharge”
wastewater treatment system in partnership with Garratt-Callahan, the largest
privately held water treatment company in America with more than 100 years
history, and

3) the manufacture and successful launch of a new pet odor control product based
on BioLargo’s intellectual property launched by our partners at Ikigai Marketing
Works, LLC, a venture now expanding sales and that is aimed at building a
national pet odor-control brand (Pooph) with distribution through big-box
retailers now preparing to launch, in order to position for sale of the brand to
a multi-national consumer products company.

Additionally, our engineering services division began work to complete the
initial phase which is now expected to be completed in Q3, of a large capital
project in the cleantech and environmental technologies space – a
waste-to-energy conversion plant in South America (see Waste-to-Energy
Conversion Plant Project below).

BioLargo’s commercial efforts are expanding for a number of reasons.

1. Credibility

First, we have built our credibility as cleantech technology innovators and
environmental engineering service providers to the point where industry
stakeholders, clients, and prospective partners rightfully view us as an
effective and reliable means to solve their challenges. We operate with a
mandate to serve our customers and partners with technical excellence, provide
timely and cost effective results, and a commitment to helping them make the
best choices for any particular challenge.

2. Channel Partner Relationships

We have key relationships that we believe will continue advancing to become
high-revenue and profit generating projects with channel partners such as
Garratt-Callahan (which, while we faced some delay in the start, these efforts
are expected to successfully launch with its first customer in the near term),
and Ikigai as well as our new channel partner in the PFAS remediation industry.

3. Investments in Talent and Technology

This “critical mass” of credibility as a cleantech solutions provider is a
result of our investments in our talented team of engineers and scientists and
team members who have a proven track record of executing complex engineering
projects, and our history of developing creative and powerful new technologies
that work and are best of class. Secondly, our core patented water treatment
technologies, the BioLargo Advanced Oxidation System (AOS) and Aqueous
Electrostatic Concentrator (AEC), have now been demonstrated in successful pilot
projects, either on-site at a prospective client’s facility, or in-house with
client-provided contaminated waters.

In the second quarter of 2022, two of our subsidiaries again made progress
towards generating a meaningful operating profit: (i) ONM Environmental
generated net operating income of $11,000, as compared with a net operating loss
in the first quarter of 2021 of $107,000; and, (ii) our engineering subsidiary
generated net operating income of $56,000, as compared with a net operating loss
in the first quarter of 2021 of $190,000. Several factors contributed to this
progress: 1) each subsidiary benefited from significant organic growth of
contracts within its main target market, 2) both executed some larger projects
as compared to prior experience, and 3) in the case of ONM Environmental,
license royalties on products based on our intellectual property began to
generate a larger amount of revenue. Of the Company’s other two subsidiaries,
Clyra Medical is presently working to raise capital to support the marketing and
sales of its newly launched Bioclynse product, and BioLargo Water is working to
land the first commercial accounts for its innovative low-energy water treatment
technology the BioLargo AOS. After years of investing heavily in research and
development of our patented cleantech technologies (roughly $1.5 million in 2021
alone), we are at a turning point where our core assets are either seeing early
fruits of commercialization or are now ready for monetization.

Formula for Success: Technology, Talent and Purpose

Technology

BioLargo has continually advanced its robust portfolio of technologies since the
first acquisition of early iterations of the BioLargo technology in the spring
of 2007. Our innovations have primarily been developed through our internal
resources, and some through acquisition. These include patents, patents pending,
and trade secrets that include solutions for:

? Water decontamination, including:

o Removal of per- and poly-fluoroalkyl substances (PFAS) from drinking and

ground water

o Micro-pollutant destruction and removal

o Legionella detection and water treatment solutions

o Minimum and zero liquid discharge systems (MLD/ZLD)

o Disinfection

o Electro Oxidation

? Air quality controls and systems including odor and VOC control

? Mineral processing

? Infection control

? Wound management

? Disinfection

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Talent

We have grown our team to 31 team members and numerous other part-time
consultants, including highly qualified PhDs, engineers, MDs and medical
professionals, construction professionals, field service technicians,
innovators, sales marketing specialists, entrepreneurial and executive
leadership.

Purpose

Our mission to make life better drives us to serve others with integrity,
knowledge, technology, and solutions that protect the environment, improve
quality of life, and protect lives. All our technologies were developed from the
ground-up to be sustainable, practical solutions to significant global
challenges. We are unique in our ability to tailor our offerings to serve our
customers with proven expertise, proven technology and, if needed, we often have
the ability to develop new technical solutions to meet our customer’s needs.

Combating the PFAS Forever-Chemical Crisis – the AEC

One of the most significant and timely innovations in our portfolio is our per-
and poly-fluoroalkyl substances (PFAS) removal and collection/disposal solution
we call the Aqueous Electrostatic Concentrator (AEC). Our engineers developed
and are now preparing to commercialize the AEC, which is a novel water treatment
system that removes PFAS from water at a fraction of the operating cost and
generating only a fraction of the PFAS-laden waste of the most common currently
used solutions (carbon filtration, ion exchange, and reverse osmosis). PFAS
chemicals have been linked to cancer, immune disorders, liver dysfunction, and
many other human health problems, and are contained in a vast range of
manufactured goods, common household products (e.g., cleaning products,
cookware), and electronics, and contaminate drinking water in unsafe levels all
over the globe.

PFAS is often referred to as the “contaminant of the decade”, and as such, it is
considered a multi-billion dollar commercial market opportunity. The White House
has named the PFAS crisis a critical agenda item and experts expect the EPA and
local regulatory agencies to continue to tighten the regulatory requirements to
mitigate and manage and limit human exposure to PFAS, all of which we believe
will continue to push the market to find and adopt commercially viable
solutions. Notably, some emerging regulations on PFAS in the U.S. are expected
to skew the market toward seeking treatment technologies that produce as little
PFAS-laden solid waste as possible, a favorable trend for our AEC that generates
very little PFAS-laden waste. Detection of unsafe levels of PFAS around the
world has given rise to a number of market opportunities, including in drinking
water, industrial wastewater, municipal wastewater, solid waste, organic foods
and more.

We have successfully validated the AEC as an effective system to selectively
extract and collect PFAS chemicals from contaminated water including performance
testing that shows “non-detect” levels of removal. We have recently demonstrated
more than six months of continuous operation showing no materially significant
degradation of the AEC system’s components or performance over time. We have
also successfully demonstrated that the AEC is scalable and functional to a
commercial scale and that our engineering team has the experience and proven
experience to successfully deliver commercial systems to meet the needs of a
commercial installation and sale. Our team has a history of successful execution
in the environmental remediation industry and the knowhow to successfully
commercialize the AEC.

On August 11, 2022, we announced that it has secured its first customer to
engineer a comprehensive PFAS mitigation plan for an industrial site, and has
signed an agreement with a new channel partner to sell the company’s PFAS
treatment equipment and engineering services. The customer contract is for the
first phase of what is expected to be a multi-phase comprehensive PFAS
remediation project. The contract was secured in collaboration with a new
channel partner, which has been appointed to promote, market, and distribute
BioLargo’s water treatment equipment and PFAS-related engineering and project
integration services.

We are also currently negotiating with additional channel partners and a number
of prospective industrial and municipal customers to contract for
revenue-generating projects to treat their PFAS. Having completed our initial
testing of client water (to “non-detect” levels) from a leading water district
in southern California, we are in continuing discussions with their technical
team to organize a practical commercial field trial. In light of the fact that
we now have our first commercial project under contract, we believe that our
expected success will be a key factor to help advance marketing efforts in the
municipal market as well as potentially minimize the need for small scale field
piloting.

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ONM Environmental – Industrial Odor and VOC Solutions

ONM Environmental, Inc. is BioLargo’s subsidiary that delivers robust and
comprehensive products and services to control and mitigate odor and volatile
organic compounds (“VOCs”) emitted from a variety of industrial activities,
including landfills and other waste handling facilities. Its flagship product,
CupriDyne® Clean, reduces and eliminates tough odors and VOCs in various
industrial settings. CupriDyne Clean is delivered through misting systems,
sprayers, water trucks and similar water delivery systems designed, manufactured
and installed by ONM. We believe the product is the number-one performing
odor-control product in the market, and that it offers substantial savings to
our customers compared with competing products. In response to customer demand
for expanded services, ONM Environmental now holds General, Electrical, Plumbing
and Low Voltage contractor licenses issued by the California Contractors State
License Board, and offers a menu of services to landfills, transfer stations,
wastewater treatment facilities as well as facilities in non-waste related
industries. These services include engineering design, construction,
installation, ongoing maintenance and on-site support services to assist our
clients in the implementation and continued use of the various systems that
deliver our liquid products in the field (such as misting systems).

We have been and expect to continue selling product to the largest solid waste
handling companies in the country, with a portion of chemistry product sales
resulting from national purchasing agreements (NPAs) with large waste handling
companies. ONM Environmental also is currently servicing an exclusive three-year
supply contract with a large municipality in Southern California for the
delivery of CupriDyne Clean, which will provide a steady source of chemistry
supply revenue for the company over the next three years.

In addition to growing its revenues organically through the sale of odor and VOC
control chemistry and air quality control systems to its primary market segment
(municipal solid waste handling in California), ONM Environmental aims to
accelerate its growth through development of new sales and distribution
channels. Some of these, including our partnership with Ikigai Marketing Works,
LLC (see “Consumer Private-Label Products” below) and our joint venture with BKT
Co. Ltd. in South Korea are already actively advancing toward their end-goal,
which is to foster new distribution opportunities for our patented odor and VOC
control chemistry without being limited by our own sales and distribution
infrastructure. Additional new opportunities for distribution channels are
presently being developed, including in new vertical market segments such as
pulp and paper, wastewater, oil and gas, construction, and the auto industry, as
well as in new geographical markets including South and Central America. Company
management will provide more information on each of these emerging partnerships
as they each become finalized.

Consumer Private-Label Products

We sell pet odor-control products branded under the brand “Pooph” to Ikigai
Marketing Works, LLC, founded by accomplished industry executives from the
consumer-packaged goods industry who have executed successful launches of at
least five blockbuster products. After development of television commercials and
a successful test marketing campaign, they have begun a national advertising
campaign, and plan to launch the products in major retailers in the United
States (e.g., Walmart, Target, etc.). Initial sales volume for the product has
exceeded early expectations. Our agreement with Ikigai grants them an exclusive
license to sell the Pooph pet odor-control product, provided certain minimum
volume thresholds are met once retail sales begin, and requires, in addition to
purchasing product from us at an agreed-upon manufacturing margin, they pay a 6%
royalty on sales. We are in negotiations to expand their rights under the
license agreement.

Full Service Environmental Engineering

Our subsidiary BioLargo Engineering, Science & Technologies, LLC (“BLEST”)
offers full service environmental engineering to third parties and provides
engineering support services to our internal teams to accelerate the
commercialization of our technologies. Its website is found at
www.BioLargoEngineering.com.

BLEST focuses its efforts in three areas:

? providing engineering services to third-party clients;

? supporting internal product development and business units’ services to
customers (e.g., the AOS); and

? advancing their own technical innovations such as the AEC PFAS treatment

technology

The subsidiary is located in Oak Ridge (a suburb of Knoxville, Tennessee), and
employs a group of scientists and engineers who collectively worked together for
almost 30 years and experience in diverse engineering fields. The team is led by
Randall Moore, who served as Manager of Operations for Consulting and
Engineering for the Knoxville office of CB&I Environmental & Infrastructure and
was formerly a leader at The Shaw Group, Inc., a Fortune 500 global engineering
firm. The other team members are also former employees of CB&I and Shaw. The
team is highly experienced across multiple industries and they are considered
experts in their respective fields, including chemical engineering, wastewater
treatment (including design, operations, data gathering and data evaluation),
process safety, energy efficiency, air pollution, design and control, technology
evaluation, technology integration, air quality management & testing,
engineering management, permitting, industrial hygiene, applied research and
development, air testing, environmental permitting, HAZOP review, chemical
processing, thermal design, computational fluid dynamics, mechanical
engineering, mechanical design, NEPDES permitting, RCRA/TSCA compliance and
permitting, project management, storm water design & permitting, computer
assisted design (CAD), bench chemistry, continuous emission monitoring system
operator, data handling and evaluation and decommissioning and decontamination
of radiological and chemical contaminated facilities. The engineering team also
has developed an extended network of trusted engineering subcontractors that
assist in serving specific client projects as needed, from time to time.

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In association with Garratt-Callahan, a national industrial water treatment
company, BLEST is developing a “minimal liquid discharge” wastewater treatment
system based on Garratt-Callahan proprietary technology that would industrial
wastewater discharge and therefore reduce wastewater discharge fees for
customers. Garratt-Callahan is currently preparing to launch the MLD system to
its customers. BLEST will serve as the manufacturing partner and Garratt
Callahan will serve as the selling distributor to leverage their national sales
force and over one hundred years of providing services and products to
customers. BioLargo’s engineers finished building the first full-scale prototype
of this new technology and tested it with Garratt-Callahan client provided
water, with Garratt-Callahan technical staff present on-site at BLEST’s
facility. In this “factory acceptance” testing, the system removed over 98% of
the target contaminants from water provided by a Garratt-Callahan client in
continuous operation, in line with results achieved by Garratt-Callahan’s
original bench-scale and batch processing tests. This factory acceptance testing
was a necessary step before commercial trials with Garratt-Callahan customers
can begin. A number of first customer prospects have already been identified,
and initially the plan was to conduct an on-site field trial for that customer.
Now, in collaboration with the technical team at Garratt-Callahan, we are
recommending that a field trial is not required given the level of validation
that has been done. We are working on contractual agreements to move the project
forward to first sales.

In June 2022, BLEST was contracted by Ultra Safe Nuclear to assist in producing
the first prototype fuel production systems for their revolutionary new nuclear
reactor called the Micro Modular Reactor (MMR®). Ultra Safe Nuclear is a
Seattle-based nuclear energy innovator, and has invented a “fission battery” – a
fourth generation modular nuclear reactor – that can deliver safe, zero-carbon,
cost-effective energy anywhere. The MMR® uses ceramic-encapsulated nuclear fuel
– Fully Ceramic Micro-encapsulated (FCM+++) – an extremely rugged and stable
fuel with extraordinary high temperature stability. BioLargo has been retained
to provide engineering design support, fabrication, and integration for the
company’s prototype fuel production systems. Because of the success of the early
phase of the project, this project is expected to expand over the coming months
in scope and significance to BioLargo, making them an important customer for
BLEST.

Waste-to-Energy Conversion Plant Project

In April 2022, our engineering subsidiary was hired to conduct a comprehensive
project plan (i.e., “feasibility”) study by a Southern California based
sustainable energy services company intending to build a waste-to-energy
conversion plant in South America. The site of the proposed conversion plant is
approximately 296 acres, where it is planned to process between two million and
up to 8 million tons of municipal solid waste annually. A feasibility study is
typically the first step in the design process for a new project of this size,
and will address multiple fundamental factors that will influence the design and
operation of the anticipated facility, including technology options, rough costs
to construct and operate, environmental impacts, and rough equipment sizing. The
feasibility study would then inform and facilitate the development of a design
basis document, then conceptual design, and ultimately the front-end engineering
design. It is important to note that the term feasibility as used in this
context does not involve any sort of technology trials to determine if they are
workable, rather the comprehensive plan being prepared is to assist the
developer in proper planning, permitting, budgeting for a very large project.
Thus far, BioLargo’s engineers have been contracted on the feasibility study
only, but expect to be involved in subsequent phases should the project move
forward as planned. ONM Environmental was critical in bringing this project to
the company and will work with BioLargo’s engineers to execute this project. ONM
Environmental brings to the table a team with extensive expertise surrounding
the design and operation of waste handling facilities, and BLEST brings a team
of veteran engineers with decades of experience designing and integrating
complex projects as well as specific expertise in the area of waste-to-energy
conversion. We expect to conclude the phase 1 work in Q3 if no changes to the
scope are requested by the client.

BioLargo Water and the Advanced Oxidation System – AOS

BioLargo Water is our wholly owned subsidiary located in Edmonton, Alberta,
Canada, that developed and is commercializing our Advanced Oxidation water
treatment system (AOS). The AOS is our patented water treatment device that
generates highly oxidative and energetic species of iodine and other molecules
which allow it to rapidly and effectively eliminate pathogenic organisms and
organic contaminants as water passes through the device. The key value
proposition of the AOS is its ability to reduce or eliminate a wide variety of
waterborne contaminants with high performance while using very little
electricity and input chemicals. This is made possible by the highly oxidative
iodine compounds and reactive oxygen species generated within the AOS reactor as
well as the unique and proprietary physical constitution and geometry of the
reactor. Our proof-of-concept studies and on-site pilot projects have generated
results that project the AOS will be more cost- and energy-efficient than
commonly used advanced water treatment technologies such as UV,
electro-chlorination, and ozonation. Furthermore, our technology has been proven
capable of removing hard-to-treat organic micropollutants such as
pharmaceuticals from water more quickly and energy-efficiently than other
technologies. Together, these characteristics make the AOS an economical and
versatile tool to enable wastewater treatment and reuse in the face of emerging
water contaminants and increasing regulatory scrutiny on industrial wastewater
discharge. The capabilities of the AOS as a sustainable water treatment
technology have been the subject of several high-impact academic papers in
scientific journals. The company pursues a policy of publishing about the
technology in academic journals as much as possible in order to promote
transparency about the technology’s safety and efficacy while also contributing
to the field of advanced water treatment science. In June of 2022, the fourth
peer-reviewed scientific paper about the AOS was published, in the journal
Environmental Science and Pollution Research.

BioLargo’s AOS water treatment technology has completed several pre-commercial
demonstration pilots, including one at a poultry farm in Alberta, one at a
microbrewery in Southern California, and another in Southern California where
stormwater was treated by the AOS. It has an ongoing pilot near Montreal to
treat municipal wastewater. It is our belief that once these pre-commercial
pilots have concluded with the AOS, our ability to entice major water industry
players to partner with BioLargo Water to accelerate market adoption of the AOS
will be increased dramatically. Our team in Canada is in discussions with
potential early adopters in the agriculture space, and has secured significant
provincial and federal grant funding to help defray the cost of a first
commercial project.

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In the first quarter of 2022, BioLargo Water received a grant from Next
Generation Manufacturing Canada (NGen) to support the company’s collaboration
with a specialized electrical component designer to assist in optimizing the
electrical performance of the AOS with the ultimate goal of maximizing the
lifespan of the AOS’ components. In the second quarter, the development work
funded by this grant advanced, focusing on improving the performance of the
conductive materials within the AOS which allow for water disinfection and
decontamination.

Municipal Wastewater Treatment Pilot – Montreal

Our commercial-scale AOS demonstration pilot (run in partnership with acclaimed
water experts at the Centre des Technologies de L’Eau) at a municipal wastewater
treatment plant near Montreal, Quebec, is ongoing and providing important data
that shows the AOS is removing five target pharmaceuticals from the wastewater
faster and using less electricity than the ultraviolet disinfections system used
in the facility. Notably, the pilot project also showed that the AOS was able to
also remove total coliforms (bacteria) from the municipal wastewater more
effectively than the UV disinfection system currently in use at the facility.

Recently, BioLargo Water was awarded a grant from the government of Canada’sNatural Sciences and Engineering Research Council (NSERC) that allowed for the
extension of the pilot project to allow for use of a new, higher flow-rate AOS
system, as well as the installation of an AEC system at the pilot to assess its
removal of PFAS chemicals from the municipality’s wastewater.

Clyra Medical Technologies

Clyra Medical Technologies, Inc. is our partially owned subsidiary creating
medical products based on our technology. It is launching a product to be used
by surgeons generally, with a first target market aimed toward orthopedic
surgeons for use as a wound irrigation solution and to help manage patient care
and outcomes. Clyra has secured its first two hospital customers for the
product, established a robust quality control system for FDA compliance,
recruited a national director of sales, and is negotiating with three separate
channel partners to form a commercial alliance. Its other product designs are on
hold until such time as it is able to secure the capital and resources to
complete any final development and support additional inventory, technical
support and sales for these products. There are channel partnerships in
development for Clyra’s BioClynse product in three separate healthcare markets.

Conclusion

In the past quarter:

Our company generated approximately $1.3 million in company-wide revenue,

? representing a 37% increase compared with the first quarter of 2022, and a

185% increase compared with the second quarter of 2021.

? ONM Environmental and BLEST generated net operational income.

? Our company continued to demonstrate the commercial viability of our cleantech

products and services through organic growth leading to increased revenue

? We improved our financial condition by through increasing cash flow from

revenues, adding to the improved balance sheet resulting from dramatic
reduction in debt over the past year

? We advanced the commercialization of our technology assets in target markets

through channel partnerships that are either already in place and executing,

or are currently developing

BioLargo has advanced its technologies and infrastructure to achieve a critical
mass to capitalize on its commercial efforts and have a positive impact around
the world with clean water, clean air, and infection control solutions. The
company presents a scalable business model that targets high-impact cleantech
market opportunities. We leverage our considerable scientific, engineering, and
entrepreneurial talent to monetize our technologies and ensure high-quality
customer service and increased revenue potential. We seek to unlock the value of
our portfolio of disruptive technologies to advance our mission to “make life
better” and continue creating shareholder value.

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Results of Operations

We operate our business in distinct business segments:

? ONM Environmental, which manufactures and sells our odor and VOC control

products and services, including our flagship product, CupriDyne Clean;

? BLEST, our professional engineering services division supporting our internal

business units and serving outside clients on a fee for service and/or project

bid basis;

? BioLargo Water, our Canadian division that has been historically pure research

and development, and is now transitioning to focus on commercializing our AOS

system;

? Clyra Medical, our partially owned subsidiary focused on the medical device

industry; and

? Our corporate operations, which support the operating segments with legal,

accounting, human resources, and other services.

Consolidated revenue for the three and six months ended June 30, 2022, was
$1,323,000 and $2,287,000 which is a 185% and 121% increase over the same
periods in 2021. Our service revenue increased 325% and 250% for the three and
six months ending June 30, 2022, while revenue from product sales and related
services increased by 122% and 73% for the three and six months ending June 30,
2022. Our product revenue includes sales of our CupriDyne Clean industrial odor
control product, and sales of private-label products based on our CupriDyne
formula.

ONM Environmental

Our wholly owned subsidiary ONM Environmental generated revenues through sales
of its flagship product CupriDyne Clean, and by providing design, installation,
and maintenance services on the systems that deliver CupriDyne Clean at its
clients’ facilities.

Revenue (ONM Environmental)

ONM Environmental’s revenues for the three and six months ended June 30, 2022,
were $700,000 and $1,300,000, an increase of $362,000 and $662,000 , from the
same periods in 2021. The increase in revenues was due to an increase in the
volume of CupriDyne clean sales and sales of private label odor-control
products, and an increase in license royalties. Because ONM Environmental has no
control over the marketing and sales activity or levels of its private-label
clients, it cannot predict sales volumes related to these clients in future
periods. One client has indicated it intends to continue to increase the number
of products it is purchasing from ONM Environmental in future periods.

Cost of Goods Sold (ONM Environmental)

ONM Environmental’s cost of goods sold includes costs of raw materials, contract
manufacturing, and portions of salaries and expenses related to the
manufacturing of our products. As a percentage of revenue, costs of goods was
46% and 47% in the three and six months ended June 30, 2022, versus 47% and 51%
in the same periods in 2021.

Operating Income (Loss) (ONM Environmental)

For the three and six months ended June 30, 2022, ONM Environmental generated
$700,000 and $1,300,000 in revenue, a gross margin of $373,000 and $686,000, and
had total costs and expenses of $368,000 and $662,000, resulting in operating
income of $11,000 and $18,000, compared with an operating loss of $107,000 and
$283,000 for the three and six months ended June 30, 2021, respectively. The
results reflect a trend over the past year in which the company’s operating loss
reduced as its income increased, to the point this quarter where it generated an
operating profit. The operating income is consistent with the company’s growth
in revenue. Provided that its private-label clients continue to purchase
product, and continue to expand their marketing budget, we expect this trend to
continue.

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BLEST (engineering division)

Revenue (BLEST)

For the three and six months ended June 30, 2022, our engineering segment
(BLEST) generated $617,000 and $972,000 of revenue from third parties, compared
to $183,000 and $274,000 for the same three and six months in 2021. The increase
is due to completion of projects within our budgeted amount, an increased number
of client contracts, and the recognition of $89,000 of deferred revenue for
ongoing projects that had achieved certain completion milestones.

In addition to providing service to third party clients, BLEST provides services
to BioLargo and its subsidiaries for internal BioLargo projects. These services
are billed internally, are considered intersegment revenue, and are eliminated
in the consolidation of our financial statements. In the six months ended June
30, 2022, it totaled $241,000, primarily used to further engineer and develop
our flagship AOS water filtration system and our AEC PFAS treatment system. In
addition, BLEST engineers are performing a critical role in the AOS pilot
projects, some of which are supported by third-party research grants and has
been instrumental in developing and supporting a professional engineered design
service for misting systems being sold by ONM Environmental.

Cost of Goods (Services) Sold (BLEST)

BLEST’s cost of services includes employee labor as well as subcontracted labor
costs. In the three and six months ended June 30, 2022, its cost of services
were 61% and 54% of its revenues, versus 71% and 76% cost of services in
comparable periods in 2010. These fluctuations are a result of increases in
efficiencies related to flat-fee monthly contracts.

Operating Income (Loss) (BLEST)

For the three and six months ended June 30, 2022, BLEST generated $617,000 and
$972,000 in revenue from third party clients (net of $53,000 and $241,000
intercompany (aka intersegment) revenue), with a gross margin of $242,000 and
$449,000, and had total costs and expenses of $186,000 and $428,000, resulting
in operating income of $56,000 and $21,000.

For the three and six months ended June 30, 2021, BLEST generated $183,000 and
$274,000 in revenue from third party clients, with a gross margin of $42,000 and
$65,000, and had total costs and expenses of $236,000 and $438,000, resulting in
a net loss of $190,000 and $373,000.

Selling, General and Administrative Expense – consolidated

Our SG&A expenses include both cash expenses and non-cash expenses (including
non-cash stock option compensation expenses). Our SG&A expenses increased by 3%
($42,000) and ($115,000) in the three and six months ended June 30, 2022,
compared to the same periods in 2021. Our non-cash expenses totaled $1,201,000
in the six months ended June 30, 2022, compared to $1,314,000 in the six months
ended June 30, 2021. Our employees, vendors and consultants received a greater
number of stock and stock options in lieu of cash owed, stock options issued as
part of an employee retention program in 2022 and 2021. The largest components
of our SG&A expenses included (in thousands):

Three months ended: Six months ended:
June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021
Salaries and payroll related $ 633 $ 628 $ 1,442 $ 1,360
Professional fees 198 188 344 356
Consulting 133 212 450 615
Office expense 420 308 730 590
Sales and marketing 75 81 134 159
Investor relations 62 61 147 96
Board of director expense 68 69 178 134

The increase in salaries and payroll expenses is primarily related to the
implementation of a stock option bonus compensation program for employees and
other related stock option compensation expenses, and also the hiring of
additional personnel to support increasing operations. The small increase in the
six months ended June 30, 2022 versus 2021 is consistent with the growth of the
business and increasing efficiencies of the personnel. Consulting expense
decreased as we have reduced the use of consultants to identify business
opportunities. The reduction in professional fees in the six months ended June
30, 2022, is largely due to the reduced use of outside legal counsel and other
service providers. Office expense increased due to rental increases and
increased office space.

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Research and Development

In the three months and six months ended June 30, 2022, we spent $355,000 and
$747,000, respectively, and in the three and six months ended June 30, 2021, we
spent $356,000 and $683,000, respectively, in the research and development of
our technologies and products.

Interest expense

Our interest expense for the three and six months ended June 30, 2022, was
$15,000 and $28,000, a decrease of 83% and 85% compared with the same periods of
2021. Our interest expense includes interest from outstanding debt and it is
related to the issuance of and modification of convertible promissory notes. The
Company has made a concerted effort to pay down debt and has been able to raise
capital through equity offerings instead of convertible debt offerings.

Net Income (Loss)

Net loss for the three and six months ended June 30, 2022, was $1,333,000 and
$2,877,000, a loss of $0.00 and $0.01 per share, compared to a net loss for the
three and six months ended June 30, 2021, of $1,790,000 and $3,668,000, a loss
of $0.01 and $0.02 per share. The 27% and 22% decrease in net loss is due
primarily to an increase in revenue and gross profit, as well as a reduction in
interest expense. As noted in above (see “Interest Expense”), the reduction of
interest expense is directly related to our reduction of the use of debt
instruments to finance our working capital requirements.

The net income (loss) per business segment is as follows (in thousands):

Three months ended Six months ended
June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021

BioLargo corporate $ (929 ) $ (987 ) $ (2,155 )$ (1,965 )
ONM 11 (108 ) 192 (284 )
Clyra Medical (265 ) (338 ) (512 ) (772 )
BLEST 56 (190 ) 21 (373 )
BioLargo Water (206 ) (167 ) (423 ) (274 )
Net loss $ (1,333 )$ (1,790 )$ (2,877 )$ (3,668 )

Liquidity and Capital Resources

The accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the settlement
of liabilities and commitments in the normal course of our business. For
the six months ended June 30, 2022, we had a net loss of $2,877,000, used
$1,864,000 cash in operations, and at June 30, 2022, we had working capital of
$962,000, and current assets of $2,141,000. Two of our subsidiaries – ONM
Environmental and BLEST – generated positive operating income. None of our other
operational subsidiaries did so. (See Note 9.)

We do not believe operating profits in the year ended December 31, 2022, will be
sufficient to fund our current level of operations, and therefore believe we
will have to obtain further investment capital to continue to fund operations,
such as through our purchase agreement with Lincoln Park Capital, and private
sales of our securities. (See Note 3.) We have been, and anticipate that we will
continue to be, limited in terms of our capital resources.

If we are unable to rely on our current arrangement with Lincoln Park to
continue to fund our working capital requirements, we will have to rely on other
forms of financing, and there is no assurance that we will be able to do so, or
if we do so, it will be on favorable terms.

We operate our business in five distinct business segments. Each of these
segments obtains cash to fund operations in unique ways. ONM and BLEST generate
cash by selling products and services. Clyra Medical obtains cash from product
sales, and third-party investments of sales of its common stock. BioLargo Water
generates cash through government research grants and tax credits; our corporate
operations currently generate cash through private offerings of stock, debt
instruments, and warrants, and then provides supplemental capital to support to
our various business segments as they advance their technologies, products and
commercial efforts.

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Critical Accounting Policies and Estimates

Our discussion and analysis of our results of operations and liquidity and
capital resources are based on our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and disclosure of contingent assets and liabilities. On
an ongoing basis, we evaluate our estimates and judgments, including those
related to revenue recognition, valuation of offerings of debt with equity or
derivative features which include the valuation of the warrant component, any
beneficial conversion feature and potential derivative treatment, and
share-based payments. We base our estimates on anticipated results and trends
and on various other assumptions that we believe are reasonable under the
circumstances, including assumptions as to future events. These estimates form
the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. By their nature,
estimates are subject to an inherent degree of uncertainty. Actual results that
differ from our estimates could have a significant adverse effect on our
operating results and financial position.

Note 2, “Summary of Significant Accounting Policies” in Part I, Item 1 of this
Form 10-Q and in the Notes to Consolidated Financial Statements in Part II, Item
8 of the 2020 Form 10-K, and “Critical Accounting Policies and Estimates” in
Part II, Item 7 of the 2020 Form 10-K, describe the significant accounting
policies and methods used in the preparation of the Company’s consolidated
financial statements. There have been no material changes to the Company’s
critical accounting policies and estimates since the 2020 Form 10-K.

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