BIOLARGO, INC. (Form: 10-Q, Received: 05/15/2019 16:24:22)

Date: May 15, 2019

/s/ DENNIS P. CALVERT

Dennis P. Calvert

Chief Executive Officer

Note 1. Business and Organization

Description of Business

BioLargo, Inc. delivers innovative and sustainable technology-based products and services, as well as environmental engineering expertise, across a broad range of industries with an overriding mission to “make life better” with a focus on clean water, clean air, and advanced wound care. Our business strategy is straightforward: we invent or acquire technologies that we believe have the potential to be disruptive in large commercial markets; we develop and validate these technologies to advance and promote their commercial success as we leverage our considerable scientific, engineering, and entrepreneurial talent; we then monetize these technical assets through a variety of business structures that may include licensure, joint venture, sale, spin off, or by deploying direct to market strategies.

Liquidity / Going concern

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 three months ended March 31, 2019, we had a net loss of $2,749,000, used $869,000 cash in operations, and at March 31, 2019, we had a working capital deficit of $2,343,000, and current assets of $782,000. We do not believe gross profits will be sufficient to fund our current level of operations or pay our debt due prior to December 31, 2019, and will have to obtain further investment capital to continue to fund operations and seek to refinance our existing debt. We have been, and anticipate that we will continue to be, limited in terms of our capital resources. During the year ended December 31, 2018, and the three months ended March 31, 2019, we generated revenues of $1,364,000 and $364,000 through two business segments (Odor-No-More and BLEST – see Note 10, “Business Segment Information”). Neither generated enough revenues to fund their operations. Our cash position as of date hereof is insufficient to pay our debt obligations due in the next 12 months (see Note 4), which include (i) $2,072,000 in convertible notes, (ii) $440,000 notes due June 6, 2019, that we may extend to September 2019, and (iii) a line of credit in the amount of $430,000 due September 1, 2019. We must either refinance or renegotiate these obligations. Our cash position is insufficient to maintain our current level of operations and research/development, and thus we will be required to raise additional capital to continue to fund our operations in 2019, as well as our future business plans. We continue to raise money through private securities offerings, and continue to negotiate for more substantial financings from private and institutional investors. During the three months ended March 31, 2019, we received $730,000 cash provided by financing activities, and at March 31, 2019 had cash and cash equivalents of $512,000. No assurance can be made of our success at raising money through private or public offerings.

The foregoing factors raise substantial doubt about our ability to continue as a going concern. Ultimately, our ability to continue as a going concern is dependent upon our ability to attract significant new sources of capital, attain a reasonable threshold of operating efficiencies and achieve profitable operations by licensing or otherwise commercializing products incorporating our technologies. The consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

Organization

We are a Delaware corporation formed in 1991. We have five wholly-owned subsidiaries: BioLargo Life Technologies, Inc., organized under the laws of the State of California in 2006; Odor-No-More, Inc., organized under the laws of the State of California in 2009; BioLargo Water, Inc., organized under the laws of Canada in 2014; BioLargo Development Corp., organized under the laws of the State of California in 2016; and BioLargo Engineering Science and Technologies, LLC, organized under the laws of the State of Tennessee in 2017 (“BLEST”). Additionally, we own 42.0% of Clyra Medical Technologies, Inc. (“Clyra Medical”), organized under the laws of the State of California in 2012, and consolidate their financial statements (see Notes 2 and 8).

The unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to Rule 8-03 of Regulation S-X under the Securities Act of 1933, as amended. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for annual financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. For some of our activities, we are still operating in the early stages of the sales and distribution process, and therefore our operating results for the three months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019, or for any other period. These unaudited consolidated financial statements and notes should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes included in the Annual Report on Form 10-K for the year ended December 31, 2018 filed with the Securities and Exchange Commission (the “SEC”) on March 29, 2019, as amended.

Table of Contents

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 2. Summary of Significant Accounting Policies

In the opinion of management, the accompanying balance sheet and related statements of operations, cash flows, and stockholders’ deficit include all adjustments, consisting only of normal recurring items, necessary for their fair presentation in conformity with accounting principles generally accepted in the United States of America.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, and Clyra Medical. Management believes Clyra Medical’s financial statements are appropriately consolidated with that of the Company after reviewing the guidance of ASC Topic 810, “Consolidation”, and concluding that BioLargo controls Clyra Medical. While BioLargo does not have voting interest control through a majority stock ownership of Clyra Medical (it owns 42% of the outstanding voting stock), it does exercise control under the “Variable Interest Model”: there is substantial board overlap, BioLargo is the primary beneficiary since it has the power to direct Clyra Medical’s activities that most significantly impact Clyra Medical’s performance, and it has the obligation to absorb losses or receive benefits (through royalties and licensing) that could be potentially significant to Clyra Medical. BioLargo has consolidated Clyra Medical’s operations for all periods presented.

All intercompany accounts and transactions have been eliminated (see Note 8).

Foreign Currency

The Company has designated the functional currency of BioLargo Water, Inc., our Canadian subsidiary, to be the Canadian dollar. Therefore, translation gains and losses resulting from differences in exchange rates are recorded in accumulated other comprehensive income.

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of three-months or less when acquired to be cash equivalents. Substantially all cash equivalents are held in short-term money market accounts at one of the largest financial institutions in the United States. From time to time, our cash account balances are greater than the Federal Deposit Insurance Corporation insurance limit of $250,000 per owner per bank, and during such times, we are exposed to credit loss for amounts in excess of insured limits in the event of non-performance by the financial institution. We do not anticipate non-performance by our financial institution.

As of December 31, 2018 and March 31, 2019, our cash balances were made up of the following (in thousands):

	December 31, 2018		March 31, 2019
BioLargo, Inc. and wholly owned subsidiaries	$	193	$	183
Clyra Medical Technologies, Inc.		462		329
Total	$	655	$	512

Accounts Receivable

Trade accounts receivable are recorded net of allowances for doubtful accounts. Estimates for allowances for doubtful accounts are determined based on payment history and individual customer circumstances. The allowance for doubtful accounts as of December 31, 2018 and March 31, 2019 was zero.

Table of Contents

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Credit Concentration

We have a limited number of customers that account for significant portions of our revenue. During the three months ended March 31, 2018 and 2019, we had three customers that each accounted for more than 10% of consolidated revenues in the respective periods, as follows:

	March 31, 201 8			March 31, 201 9
Customer A		39	%		43	%
Customer B		18	%		10	%
Customer C		<10	%		26	%
Customer D		18	%		<10	%

We had two customers that each accounted for more than 10% of consolidated accounts receivable at December 31, 2018 and at March 31, 2019 as follows:

	December 31, 201 8			March 31, 201 9
Customer X		12	%		25	%
Customer Y		31	%		<10	%
Customer Z		<10	%		11	%

Inventory

Inventories are stated at the lower of cost or net realizable value using the average cost method. The allowance for obsolete inventory as of December 31, 2018 and March 31, 2019 was $3,000. As of December 31, 2018 and March 31, 2019, inventories consisted of (in thousands):

	December 31, 201 8		March 31, 201 9
Raw material	$	14	$	14
Finished goods		12		12
Total	$	26	$	26

Other Assets

Other Assets consisted of security deposits of $35,000 related to our business offices.

Impairment

Long-lived and definite lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the expected future undiscounted cash flows from the use of the asset and its eventual disposition is less than the carrying amount of the asset, then an impairment loss is recognized. The impairment loss is measured based on the fair value of the asset. Any resulting impairment is recorded as a reduction in the carrying value of the related asset in excess of fair value and a charge to operating results. As of December 31, 2018 and March 31, 2019, management determined that there was no impairment of its long-lived assets.

Earnings (Loss) Per Share

We report basic and diluted earnings (loss) per share (“EPS”) for common and common share equivalents. Basic EPS is computed by dividing reported earnings by the weighted average shares outstanding. Diluted EPS is computed by adding to the weighted average shares the dilutive effect if stock options and warrants were exercised into common stock. For the three months ended March 31, 2018 and 2019, the denominator in the diluted EPS computation is the same as the denominator for basic EPS due to the anti-dilutive effect of the warrants and stock options on the Company’s net loss.

Table of Contents

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the period reported. Actual results could differ from those estimates. Estimates are used when accounting for stock-based transactions, debt transactions, derivative liabilities, allowance for bad debt, asset depreciation and amortization, among others.

The methods, estimates and judgments we use in applying these most critical accounting policies have a significant impact on the results of our financial statements.

Share-Based Compensation Expense

We recognize compensation expense for stock option awards on a straight-line basis for employees over the applicable service period of the award, which is the vesting period. We recognize compensation expense for stock option awards for non-employees at the fair value on the grant date. Generally, the options issued to non-employees have been earned upon issuance. For the instances that options are issued to non-employees with a vesting schedule, the fair value is recorded on each vesting date. Share-based compensation expense is based on the grant date fair value estimated using the Black-Scholes Option Pricing Model.

For stock and stock options issued to consultants and other non-employees for services, the Company measures and records an expense as of the earlier of the date at which either: a commitment for performance by the non-employee has been reached or the non-employee’s performance is complete. The equity instruments are measured at the current fair value, and for stock options, the instruments are measured at fair value using the Black Scholes option model.

The following methodology and assumptions were used to calculate share-based compensation for the three months ended March 31, 2018 and 2019:

	2018					2019
	Non Plan			2018 Plan		Non Plan			20 18 Plan
Risk free interest rate		2.43	%		n/a		2.65	%		2.65	%
Expected volatility		252	%		n/a		152	%		152	%
Expected dividend yield		—			n/a		—			—
Forfeiture rate		—			n/a		—			—
Life in years		7			n/a		7			7

Expected price volatility is the measure by which our stock price is expected to fluctuate during the expected term of an option. Expected volatility is derived from the historical daily change in the market price of our common stock, as we believe that historical volatility is the best indicator of future volatility.

The risk-free interest rate used in the Black-Scholes calculation is based on the prevailing U.S. Treasury yield as determined by the U.S. Federal Reserve. We have never paid any cash dividends on our common stock and do not anticipate paying cash dividends on our common stock in the foreseeable future.

Historically, we have not had significant forfeitures of unvested stock options granted to employees and Directors. A significant number of our stock option grants are fully vested at issuance or have short vesting provisions. Therefore, we have estimated the forfeiture rate of our outstanding stock options as zero.

Table of Contents

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Warrants

Warrants issued with our convertible promissory notes, note payables, line of credit are accounted for under the fair value and relative fair value method.

The warrant is first analyzed per its terms as to whether it has derivative features or not. If the warrant is determined to be a derivative and not qualify for equity treatment, then it is measured at fair value using the Black Scholes option model, and recorded as a liability on the balance sheet. The warrant is re-measured at its then current fair value at each subsequent reporting date (it is “marked-to-market”).

If the warrant is determined to not have derivative features, it is recorded into equity at its fair value using the Black Scholes option model, however, 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 convertible note.

The convertible note issued with the warrant is recorded at its fair value, 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 warrant. Further, the convertible promissory note is examined for any intrinsic beneficial conversion feature (“BCF”) of which the convertible price of the note is less than the closing common stock price on date of issuance. If the relative fair value method is used to value the convertible promissory note and there is an intrinsic BCF, a further analysis is undertaken of the BCF using an effective conversion price which assumes the conversion price is the relative fair value divided by the number of shares the convertible debt is converted into by its terms. The BCF value is accounted for as equity.

The warrant and BCF relative fair values are also recorded as a discount to the convertible promissory notes. As present, these equity features of the convertible promissory notes have recorded a discount to the convertible notes that is substantially equal to the proceeds received.

Non-Cash Transactions

We have established a policy relative to the methodology to determine the value assigned to each intangible we acquire, and/or services or products received for non-cash consideration of our common stock. The value is based on the market price of our common stock issued as consideration, at the date of the agreement of each transaction or when the service is rendered or product is received.

Revenue Recognition

We adopted ASU 2014-09, “Revenue from Contracts with Customers”, Topic 606, on January 1, 2018. The guidance focuses on the core principle for revenue recognition.

The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps:

Step 1: Identify the contract(s) with a customer.

Step 2: Identify the performance obligations in the contract.

Step 3: Determine the transaction price.

Step 4: Allocate the transaction price to the performance obligations in the contract.

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

We have revenue from two subsidiaries, Odor-No-More and BLEST. Odor-No-More identifies its contract with the customer through a written purchase order, in which the details of the contract are defined including the transaction price and method of shipment. The only performance obligation is to create and ship the product and each product has separate pricing. Odor-No-More recognizes revenue at a point in time when the order for its goods are shipped if its agreement with the customer is FOB Odor-No-More’s warehouse facility, and when goods are delivered to its customer if its agreement with the customer is FOB destination. Revenue is recognized with a reduction for sales discounts, as appropriate and negotiated in the customer’s purchase order.

Table of Contents

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

BLEST identifies services to be performed in a written contract, which specifies the performance obligations and the rate at which the services will be billed. Each service is separately negotiated and priced. Revenue is recognized as services are performed and completed. BLEST’s contracts typically call for invoicing for time and materials incurred for that contract. To date, there have been no discounts or other financing terms for the contracts.

In the future, we may generate revenues from royalties or license fees from our intellectual property. In the event we do so, we anticipate a licensee would pay a license fee in one or more installments and ongoing royalties based on their sales of products incorporating or using our licensed intellectual property. Upon entering into a licensing agreement, we will determine the appropriate method of recognizing the royalty and license fees.

Government Grants

We have been awarded multiple research grants from governmental and quasi-governmental institutions. The grants received are considered “other income” and are included in our Consolidated Statements of Operations. We received our first grant in 2015 and have been awarded over 60 grants totaling over $3.6 million. Some of the funds from these grants are given directly to third parties (such as the University of Alberta or a third-party research scientist) to support research on our technology. The grants have terms generally ranging between six and eighteen months and support a majority, but not all, of the related research budget costs. This cooperative research allows us to utilize (i) a depth of resources and talent to accomplish highly skilled work, (ii) financial aid to support research and development costs, (iii) independent and credible validation of our technical claims.

The grants typically provide for (i) recurring monthly amounts, (ii) reimbursement of costs for research talent for which we invoice to request payment, and (iii) ancillary cost reimbursement for research talent travel related costs. All awarded grants have specific requirements on how the money is spent, typically to employ researchers. None of the funds may be used for general administrative expenses or overhead in the United States. These grants have substantially increased our level of research and development activities in Canada. We continue to apply for Canadian government and agency grants to fund research and development activities. Not all of our grant applications have been awarded, and no assurance can be made that any pending grant application, or any future grant applications, will be awarded.

Income Taxes

The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of asset and liabilities. Deferred tax assets and liabilities are determined based on the differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The effect on deferred tax asset and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

We account for uncertainties in income tax law under a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns as prescribed by generally accepted accounting principles (“GAAP”). Under GAAP, the tax effects of a position are recognized only if it is “more-likely-than-not” to be sustained by the taxing authority as of the reporting date. If the tax position is not considered “more-likely-than-not” to be sustained, then no benefits of the position are recognized.

Fair Value of Financial Instruments

Management believes the carrying amounts of the Company’s financial instruments (excluding debt and equity instruments) as of December 31, 2018 and March 31, 2019 approximate their respective fair values because of the short-term nature of these instruments. Such instruments consist of cash, accounts receivable, prepaid assets, accounts payable, lines of credit, and other assets and liabilities.

Tax Credits

Our research and development activities in Canada may entitle our Canadian subsidiary to claim benefits under the “Scientific Research and Experimental Development Program”, a Canadian federal tax incentive program designed to encourage Canadian businesses of all sizes and in all sectors to conduct research and development in Canada. Benefits under the program include credits to taxable income. If our Canadian subsidiary does not have taxable income in a reporting period, we instead receive a tax refund from the Canadian Revenue Authority. Those refunds are classified in Other Income on our Consolidated Statement of Operations and Comprehensive Loss.

Table of Contents

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Recent Accounting Pronouncements

In August 2018, the FASB issued Accounting Standards Update No. 2018-13, “Fair Value Measurement (Topic 820), Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.” The amendments in this update modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year. Management has not concluded its evaluation of the guidance. Its initial analysis is that it does not believe the new guidance will substantially impact the Company’s financial statements.

In June 2018, The FASB issued Accounting Standards Update No. 2018-07, “Compensation – Stock Compensation (topic 718): Improvements to Nonemployee Share-Based Payment Accounting”. The amendments in this update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts and Customers. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. This new guidance did not materially impact our stock compensation expense.

In February 2016, the FASB issued ASU Update No. 2016-02, “Leases,” which will require lessees to recognize most leases on their balance sheets as a right-of-use asset with a corresponding lease liability, and lessors to recognize a net lease investment. Additional qualitative and quantitative disclosures will also be required. We adopted this standard effective January 1, 2019 using the modified retrospective transition method approved by the FASB in July 2018. The adoption of the new standard resulted in a $399,000 gross up of assets and liabilities; this balance may fluctuate over time as we enter into new leases, extend or terminate current leases.

Note 4. Debt Obligations

The following table summarizes our debt obligations outstanding as of December 31, 2018 and as of March 31, 2019 (in thousands).

	December 31, 201 8		March 31, 201 9
C urrent liabilities:
Notes payable, mature June 6, 2019	$	400	$	440
Note payable, matures on demand 60 days’ notice (or March 8, 2023)		—		50
Line of credit, matures September 1, 2019 or later (on 30-day demand)		430		430
Convertible notes payable:
Convertible notes, mature December 31, 2019 ⁽ ¹ ⁾		75		75
Convertible note, matured January 11, 2019		300		—
Convertible note, matures July 15, 2019		550		420
Convertible note, matures July 20, 2019 ⁽ ¹ ⁾		440		440
Convertible note, matures October 7, 2019		—		370
Convertible note, matures November 5, 2019 and December 7, 2019		—		554
Convertible nine-month notes, due October, November 2019		—		213
Total convertible notes payable	$	1,365	$	2,072
Total current liabilities	$	2,195	$	2,992

L ong-term liabilities :
Note payable issued by Clyra Medical to Scion, matures June 17, 2020 (See Note 8)		1,007		1,007
Convertible notes payable, mature June 20, 2020 ⁽¹⁾		25		25
Convertible notes payable, mature April 20, 2021 ⁽¹⁾		100		100
Convertible notes, mature June 15, 2021 ⁽¹⁾		110		110
Note payable, matures March 8, 2023 (or on demand 60 days’ notice)		50		—
Total long-term liabilities	$	1,292	$	1,242

Total	$	3,487	$	4,234

⁽ ¹ ⁾ These notes are convertible at our option at maturity.

For the three months ended March 31, 2018 and 2019 we recorded $832,000 and $985,000 of interest expense related to the amortization of discounts on convertible notes payable and coupon interest from our convertible notes and line of credit.

The following discussion includes debt instruments to which amendments were made or included other activity that management deemed appropriate to disclose. Each of the debt instruments contained in the above table are disclosed more fully in the financial statements contained in the Company’s Annual Report filed March 29, 2019, as amended.

Notes payable, mature June 6, 2019

On September 19, 2018, we received $400,000 and issued promissory notes originally due January 5, 2019 and incurring interest at an annual rate of 12%, and stock purchase warrants (see Note 6), to two investors (the first held by Vernal Bay Investments, LLC (“Vernal”) in the original principal amount of $280,000, and the second held by Chappy Bean, LLC (“Chappy Bean”) in the original principal amount of $120,000). By letter dated January 3, 2019, we notified the holders of the two notes in the aggregate principal amount of $400,000 of our election to extend the maturity date of the notes by 60 days, to March 6, 2019. As provided in the notes, our election to extend increased the principal amount of each note by 10%, such that the aggregate principal balance of the two notes increased to $440,000 as of January 5, 2019.

On March 5, 2019, we executed amendments to these two notes that (i) extended the maturity dates to June 6, 2019, and (ii) provide that we may further extend the maturity dates to September 6, 2019 by giving written notice of such extension and increasing the principal due on the notes at that time by 10%. As consideration of the extension of the maturity dates reflected in the March 5, 2019 amendments, we (i) increased the annual percentage rate of interest from 12% to 18%, effective as of March 7, 2019, and (ii) lowered the exercise price, and increased the number of shares available, on warrants that had been previously issued to the two investors (at the time of their original investment).

Table of Contents

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Convertible note payable, matures January 11, 2019 (Triton)

On October 16, 2018, we entered into a Securities Purchase Agreement (“Triton Purchase Agreement”) with Triton Fund, LP (“Triton”) for a $225,000 bridge loan, and issued a promissory note in the principal amount of $300,000 (the “Triton Note”). The Triton Note incurred interest at an annual rate of 5%, and was scheduled to mature January 11, 2019. The $75,000 original issue discount was recorded as a discount on our convertible note and was amortized to interest expense in the three-month ended March 31, 2019.

On January 8, 2019, we paid the Triton Note in full.

Convertible Note, matures July 15, 2019 (Vista Capital)

On January 7, 2019, we and Vista Capital agreed to amend the convertible promissory note originally issued December 14, 2017 (“Vista 2017 Note”) and extend its maturity date to April 15, 2019. The principal amount of the note was increased to $605,100. The note will continue to earn interest at the rate of five percent per annum. The amendment re-defined the conversion price to equal 80% of the lowest closing bid price of the Company’s common stock during the 25 consecutive trading days immediately preceding the conversion date. The amendment also reduced the prepayment penalty from 20% to 15%, such that a prepayment requires the payment of an additional 15% of the then outstanding balance, and reduced the penalty for a default from 30% to 25% of the outstanding balance. The intrinsic value of the beneficial conversion feature resulted in a fair value totaling $487,000, all of which was recorded as interest expense during the three months ended March 31, 2019.

On March 28, 2019, we and Vista agreed to further extend the maturity date of the Vista 2017 Note, to July 15, 2019. In consideration for the extension, we agreed to increase the principal balance of the note by 10 percent, to $420,000. The increase in principal totaling $38,000 was recorded as a loss on debt extinguishment during on our statement of operations for the three months ended March 31, 2019.

During the three months ended March 31, 2019, Vista Capital elected to convert $225,000 of the outstanding principal and interest of the Vista 2017 Note and we issued 1,679,248 shares of our common stock. Of that amount, 1,638,479 shares were issued as payment of principal, and 40,769 shares as payment of interest. As of March 31, 2019, the outstanding balance on the Vista Note totaled $420,000.

Convertible Note, matures October 7, 2019 (Vista Capital)

On January 7, 2019, Vista Capital invested an additional $300,000 and we issued a convertible promissory note (the “Vista 2019 Note”) in the principal amount of $330,000, maturing nine months from the date of issuance (October 7, 2019). The Vista 2019 Note earned a one-time interest charge of 12%, recorded as a discount on convertible notes and will be amortized over the term of the note. The Vista 2019 Note allows Vista Capital to convert the note to our common stock at any time at a price equal to 65% of the lowest closing bid price of the Company’s common stock during the 25 consecutive trading days immediately preceding the conversion date. The Vista 2019 Note contains standard provisions of default, and precludes the issuance of shares to the extent that Vista Capital would beneficially own more than 4.99% of our common stock. We may pre-pay the Vista 2019 Note within 90 days of the issuance date by giving 10 business day notice of the intent to pre-pay, and then tendering 120% of the outstanding balance of the note. Vista Capital has the option to convert the note to common stock during the 10-day period. The Vista 2019 Note also includes a term that allows Vista Capital to adopt any term of a future financing more favorable than what is provided in the note. For example, these provisions could include a more favorable interest rate, conversion price, or original issue discount. The Vista 2019 Note also requires that we include the shares underlying conversion of the note on the next registration statement we file with the SEC (but not the registration statement filed November 6, 2018). The intrinsic value of the beneficial conversion feature resulted in a fair value totaling $300,000, and is recorded as a discount on convertible notes on our balance sheet. This discount will be amortized over the term of the note as interest expense, all of which will be recorded in 2019.

With respect to the above transactions with Vista Capital, Lincoln Park Capital Fund, LLC agreed to waive the provisions of the Purchase Agreement dated August 25, 2017, prohibiting variable rate transactions. As consideration for this waiver, we issued to Lincoln Park a warrant to purchase 250,000 shares of our common stock at $0.25 per share, expiring five years from the date of grant. In the event the shares underlying the warrant are not registered, the warrant allows the holder to do a “cashless” exercise. (See Note 6).

Table of Contents

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Convertible Notes, due November 5, 2019 and December 7, 2019 (Tangiers Global)

On January 31, 2019, we issued a 12% Convertible Promissory Note to Tangiers Global, LLC (“Tangiers”) in the aggregate principal amount of up to $495,000 (the “Tangiers Note”). The note allows for two payments, each due in nine months after receipt, and incurs a guaranteed interest of 12% at inception. - The initial payment of $300,000 was received on February 5, 2019, representing a $330,000 principal amount and 10% original issue discount. It is due November 5, 2019. We received the second payment, in the amount of $150,000, on March 7, 2019, increasing the principal amount due under the note to $495,000. This second amount, plus guaranteed interest, is due December 7, 2019. In the aggregate, the principal amount of the note, plus guaranteed interest, totals $554,000.

The Tangiers Note is convertible at the option of Tangiers at a conversion price equal to 75% of the lowest closing bid price of the Company’s common stock during the 25 consecutive trading days prior to the conversion date. The intrinsic value of the beneficial conversion feature resulted in a fair value totaling $185,000, and is recorded as a discount on convertible notes on our balance sheet. This discount will be amortized over the term of the note as interest expense, all of which will be recorded in 2019.

We may prepay the Tangiers Note up to 180 days after the effective date. If a prepayment is made within 90 days, we must pay a prepayment penalty of 25%; from 91 to 180 days, we must pay a prepayment penalty of 30%. We may pay such prepayment penalties, if we so choose, by issuing common stock at the conversion price. If such shares are not eligible for removal of restrictions pursuant to a registration statement or Rule 144 within 10 trading days following the six-month anniversary of the effective date, Tangiers may rescind the stock issuance and force the Company to pay the prepayment penalty in cash. Upon the occurrence of an event of default, as such term is defined under the Tangiers Note, additional interest will accrue from the date of the event of default at a rate equal to the lower of 22% per annum or the highest rate permitted by law, and an additional 25% shall be added to the principal amount of the note.

In connection with the Tangiers Note, the Company caused its transfer agent to reserve 3,000,000 shares of the Company’s common stock, in the event that the Tangiers Note is converted.

With respect to the above transaction with Tangiers, Lincoln Park consented to waive the provisions of the Purchase Agreement dated August 25, 2017 prohibiting variable rate transactions. As consideration for the consent, we agreed to issue Lincoln Park a stock purchase warrant allowing for the purchase of 50,000 shares of our common stock at $0.25 per share, expiring five years from the date of grant. In the event the shares underlying the warrant are not registered, the warrant allows the holder to do a “cashless” exercise. (See Note 6).

Nine-month Notes payable

During the three months ended March 31, 2019, we issued convertible promissory notes (each, an “OID Note”) in the aggregate principal amount of $212,500, with a 25% original issue discount. These notes are convertible into shares of the Company’s common stock at a conversion price of $0.25 per share, and mature nine months from the date of issuance. On January 14, 2019, we received $50,000 and issued an OID Note in the principal amount of $62,500. On January 22, 2019, we received $20,000 and issued an OID Note in the principal amount of $25,000. On February 4, 2019, we received $100,000 and issued an OID Note in the principal amount of $125,000. The original issuance discount totaled $42,500, recorded as a discount on convertible notes payable on our balance sheet. The discount will be amortized and recorded to interest expense over the term of the notes.

Each OID Note is convertible by the investor at any time at $0.25 per share. This initial conversion price shall be adjusted downward in the event the Company subsequently issues a convertible promissory note at a lower conversion rate (with this lower conversion rate becoming the adjusted conversion rate under the OID Note), or conducts an equity offering at a per-share price less than $0.25. The Note earns interest at five percent (5%) per annum, due at maturity. The Company may prepay an OID Note only upon 10 days’ notice to the investor, during which time the investor may exercise his/her right to convert the note to stock.

The Company must prepay the OID Notes upon the conclusion of a “qualifying offering” (an offering raising $3.5 million or more); in the event a qualified offering is not concluded prior to the maturity date, or the Note is otherwise not paid in full, the Company shall redeem the notes by issuing the number of shares of common stock equal to the outstanding balance divided by the lower of (i) the current conversion price and (ii) seventy percent (70%) of the lowest daily volume weighted average price (“VWAP”) during the 25 trading days immediately preceding the conversion.

In addition to the note, each OID investor will receive a warrant to purchase common stock for $0.25 per share, expiring 5 years from the date of issuance (the “Warrant”). The number of shares purchasable under the warrant is equal to the 75% of the principal balance of the note divided by $0.25 (thus, a $100,000 investment would yield a note with principal balance of $125,000, and a warrant allowing for the purchase of up to 375,000 shares). The warrant will allow for cashless exercise so long as the shares underlying the warrant are not registered. The Company does not have the obligation to register the shares underlying the warrant (or the OID Notes). (See Note 6).

Table of Contents

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 5. Share-Based Compensation

Issuance of Common Stock in exchange for payment of payables

Payment of Officer Salaries

On March 29, 2019, we issued 579,996 shares of our common stock at $0.16 per share in lieu of $93,000 of accrued and unpaid salary to our officers.

On March 31, 2018, we issued 323,030 shares of our common stock at $0.26 per share in lieu of $84,000 of accrued and unpaid obligations to our officers.

Payment of Consultant Fees and Accrued Interest

During the three months ended March 31, 2019, we issued 788,907 shares of our common stock at a range of $0.16 – $0.23 per share in lieu of $138,000 of accrued interest and accrued and unpaid obligations to consultants.

During the three months ended March 31, 2018, we issued 1,008,478 shares of our common stock at a range of $0.25 – $0.41 per share in lieu of $277,000 of accrued interest and accrued and unpaid obligations to consultants.

Stock Option Expense

During the three months ended March 31, 2018 and 2019, we recorded an aggregate $320,000 and $352,000, respectively, in selling general and administrative expense related to the issuance and vesting of stock options. We issued options through our 2018 Equity Incentive Plan, our (now expired) 2007 Equity Incentive Plan, and outside of these plans.

2018 Equity Incentive Plan

On June 22, 2018, our stockholders adopted the BioLargo 2018 Equity Incentive Plan (“2018 Plan”) as a means of providing our directors, key employees and consultants additional incentive to provide services. Both stock options and stock grants may be made under this plan for a period of 10 years. Our Board of Director’s Compensation Committee administers this plan. As plan administrator, the Compensation Committee has sole discretion to set the price of the options. The plan authorizes the following types of awards: (i) incentive and non-qualified stock options, (ii) restricted stock awards, (iii) stock bonus awards, (iv) stock appreciation rights, (v) restricted stock units, and (vi) performance awards. The total number of shares reserved and available for awards pursuant to this Plan as of the date of adoption of this 2018 Plan by the Board is 40 million shares. The number of shares available to be issued under the 2018 Plan increases automatically each January 1 ^st by the lesser of (a) 2 million shares, or (b) such number of shares determined by our Board.

Activity for our stock options under the 2018 Plan from December 31, 2018, through the year ended March 31, 2019, is as follows: (The 2018 Plan inception was June 2018, therefore there is no activity through March 31, 2018).

						Weighted
						Average		Aggregate
	Options		Exercise			Price per		intrinsic
As of March 31, 2019 :	Outstanding		Price per share			share		Value ⁽¹⁾
Balance, December 31, 2018		1,318,517	$0.22	–	0.43	$	0.30
Granted		890,280	0.16	–	0.22		0.19
Expired		—		—			—
Balance, March 31, 2019		2,208,797	$0.16	–	0.43	$	0.25	$	—

(1) – Aggregate intrinsic value based on closing common stock price of $0.16 at March 31, 2019.

Table of Contents

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The options to purchase 890,280 shares granted during the three months ended March 31, 2019 are comprised of options issued to employees, consultants, officers, and directors: (i) we issued options to purchase 300,000 shares of our common stock at an exercise price on the respective grant date of $0.22 per share to our CFO as described below. We also issued options to purchase 168,404 shares of our common stock to employees in lieu of salary at an exercise price on the respective date ranging between $0.16 - $0.25 per share. The fair value of these options totaled $36,000 and is recorded as selling, general and administrative expense. We issued options to purchase 421,876 shares of our common stock at an exercise price on the respective grant date of $0.16 per share to members of our board of directors for services performed, in lieu of cash. The fair value of these options totaled $68,000 and is recorded as selling, general and administrative expenses.

Chief Financial Officer Contract Extension

On January 16, 2019, we agreed to extend the engagement agreement dated February 1, 2008 (the “Engagement Agreement”, which had been previously extended multiple times) with our Chief Financial Officer, Charles K. Dargan, II. The Engagement Extension Agreement dated as of January 16, 2019 (the “Engagement Extension Agreement”) provides for an additional term to expire September 30, 2019 (the “Extended Term”), and is retroactively effective to the termination of the prior extension on September 30, 2018. Mr. Dargan has been serving as the Company’s Chief Financial Officer since such termination pursuant to the terms of the December 31, 2018 extension.

For the Extended Term, Mr. Dargan was issued an option (“Option”) to purchase 300,000 shares of the Company’s common stock, at a strike price equal to the closing price of the Company’s common stock on January 16, 2019 of $0.22, to expire January 16, 2029, and to vest over the term of the engagement with 75,000 shares having vested as of March 31, 2019, and the remaining shares to vest 25,000 shares monthly beginning January 31, 2019, and each month thereafter, so long as the Engagement Agreement is in full force and effect. The Option was issued pursuant to the Company’s 2018 Equity Incentive Plan. The fair value of the option totaled $67,000, of which $17,000 was recorded as selling, general and administrative expense during the three months ended March 31, 2019.

The issuance of the Option is Mr. Dargan’s sole source of compensation for the Extended Term. As was the case in all prior terms of his engagement, there is no cash component of his compensation for this term. Mr. Dargan is eligible to be reimbursed for business expenses he incurs in connection with the performance of his services as the Company’s Chief Financial Officer (although he has made no such requests for reimbursement in the past). All other provisions of the Engagement Agreement not expressly amended pursuant to the Engagement Extension Agreement remain the same, including provisions regarding indemnification and arbitration of disputes.

2007 Equity Incentive Plan

On September 7, 2007, and as amended April 29, 2011, the BioLargo, Inc. 2007 Equity Incentive Plan (“2007 Plan”) was adopted as a means of providing our directors, key employees and consultants additional incentive to provide services. Both stock options and stock grants may be made under this plan for a period of 10 years, which expired on September 7, 2017. The Board’s Compensation Committee administers this plan. As plan administrator, the Compensation Committee has sole discretion to set the price of the options. As of September 2017, the Plan was closed to further stock option grants.

Activity for our stock options under the 2007 Plan for the three months ended March 31, 2018 and 2019 is as follows:

								Weighted
								Average		Aggregate
	Options			Exercise				Price per		intrinsic
As of March 31, 2018 :	Outstanding			p rice per share				share		Value ⁽¹⁾
Balance, December 31, 2017		9,831,586			$0.23	–	1.89	$	0.44
Expired		(50,000	)			1.89			0.91
Balance, March 31, 2018		9,781,586			$0.23	–	1.65	$	0.43	$	—

As of March 31, 2019 :
Balance, December 31, 2018		9,691,586			$0.23	–	0.94	$	0.43
Expired		(30,000	)		0.38	–	0.70		0.50
Balance, March 31, 2019		9,661,586			$0.23	–	1.65	$	0.43	$	—

(1) – Aggregate intrinsic value based on closing common stock price of $0.16 at March 31, 2019.

Table of Contents

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Non-Plan Options issued

During the three months ended March 31, 2019, we issued options to purchase 731,250 shares of our common stock at exercise prices ranging between $0.16 – $0.25 per share to vendors for fees for service. The fair value of the options issued totaled $139,000, is recorded in our selling, general and administrative expense.

During the three months ended March 31, 2018, we issued options to purchase 619,435 shares of our common stock at exercise prices ranging between $0.26 – $0.28 per share to members of our board of directors and vendors for fees for services totaling $158,000.

Activity of our non-plan stock options issued for the three months ended March 31, 2018 and 2019 is as follows:

								Weighted
	Non-plan							a verage		Aggregate
	Options			Exercise				p rice per		intrinsic
As of March 31, 2018 :	o utstanding			p rice per share				share		value ⁽¹⁾
Balance, December 31, 2017		20,018,408			$0.25	–	1.00	$	0.51
Granted		619,435			0.26	–	0.28		0.26
Expired		(2,400,000	)			0.99			0.99
Balance, March 31, 2018		18,237,843			$0.25	–	1.00	$	0.45	$	—

As of March 31, 2019 :
Balance, December 31, 2018		19,319,496			$0.23	–	1.00	$	0.43
Granted		731,250			0.16	–	0.25		0.19
Balance, March 31, 2019		20,050,746			$0.25	–	1.00	$	0.42	$	—

(1) – Aggregate intrinsic value based on closing common stock price of $0.16 at March 31, 2019.

Note 6. Warrants

We have certain warrants outstanding to purchase our common stock, at various prices, as described in the following table:

							Weighted
							a verage		Aggregate
	Warrants		Exercise				p rice per		intrinsic
As of March 31, 2018 :	o utstanding		p rice per share				share		value ⁽¹⁾
Balance, December 31, 2017		22,104,817		$0.125	–	1.00	$	0.45
Issued		2,611,513		0.25	–	0.48		0.35
Balance, March 31, 2018		24,716,330		$0.125	–	1.00	$	0.44	$	—

As of March 31, 2019 :
Balance, December 31, 2018		26,872,430		$0.25	–	1.00	$	0.42
Issued		3,861,041		$0.16	–	0.25	$	0.24
Balance, March 31, 2019		30,733,471		$0.20	–	1.00	$	0.40	$	—

Table of Contents

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Warrants issued as part of debt extension

On March 5, 2019, we executed amendments extending the maturity dates issued to Vernal Bay and Chappy Bean to June 6, 2019 (see Note 4). As consideration for this extension, we agreed to reduce the exercise price, and increase the number of shares purchasable, by the warrants held by Vernal Bay and Chappy Bean. Vernal Bay had been issued a warrant to purchase 1,387,500 shares at $0.25 per share, expiring September 19, 2023. We agreed to lower the exercise price to $0.20 per share, and proportionately increase the number of shares in the warrant to 1,734,375. By doing so, the maximum investment amount under the warrant of $346,875 remained the same. Chappy Bean’s warrant to purchase 600,000 shares was similarly modified, such that it now allows for the purchase of 750,000 shares at $0.20 per share. The reduction in warrant exercise price resulted in a fair value of $56,000 recorded as loss on debt extinguishment in the three months ended March 31, 2019.

Warrants issued as consent for variable rate debt

On January 7 and January 31, 2019, Lincoln Park Capital Fund, LLC agreed to waive the provisions of the Purchase Agreement dated August 25, 2017, prohibiting variable rate transactions. As consideration for the waivers, we issued to Lincoln Park a warrant to purchase 300,000 shares of our common stock at $0.25 per share, expiring five years from the date of grant. In the event the shares underlying the warrant are not registered, the warrant allows the holder to do a “cashless” exercise. The fair value of these warrants totaled $54,000 and was recorded as a discount on note payable on our consolidated balance sheet and will amortize to interest expense in 2019 over the term of the notes. (See Note 4).

Warrants Issued concurrently with the Nine-month note payable

Pursuant to the terms of the OID Offering, in addition to the Note, the investor will receive a warrant to purchase common stock for $0.25 per share, expiring 5 years from the date of issuance (the “Warrant”). The number of shares purchasable under the warrant is equal to the 75% of the principal balance of the note divided by $0.25 (thus, a $100,000 investment would yield a note with principal balance of $125,000, and a warrant allowing for the purchase of up to 375,000 shares). We issued warrants to purchase 637,500 shares of our common stock. The warrant will allow for cashless exercise so long as the shares underlying the warrant are not registered. The Company does not have the obligation to register the shares underlying the warrant. The fair value of these warrants totaled $89,000 and was recorded as a discount on note payable on our consolidated balance sheet and will amortize to interest expense in 2019 over the term of the notes. (See Note 4).

Warrants Issued to One-Year Noteholders

In conjunction with three separate investments of one-year convertible notes, we issued three sets of warrants to purchase an aggregate 400,000 shares to two investors. These warrants were issued July 8, 2016 (400,000 shares at $0.65 exercise price) and December 30, 2016 (400,000 shares at $0.75 exercise price).

Each of these warrants contained provisions that required a reduction to the exercise price and increase to the number of warrant shares in the event that we sold our common stock at a lower price than the exercise price (subject to some exceptions). During the three months ended March 31, 2019, we adjusted downward the warrant exercise price three times to $0.12, resulting in an increase of 2,426,666 warrants available for exercise. The increase in warrants resulted in a fair value totaling $342,000, recorded as a deemed dividend in our statement of stockholders’ equity.

Fair Value – Interest Expense

To determine interest expense related to our outstanding warrants issued in conjunction with debt offerings, the fair value of each award grant is estimated on the date of grant using the Black-Scholes option pricing model and the relative fair values are amortized over the life of the warrant. For the determination of expense of warrants issued for services, extinguishment of debt and settlement management also uses the option-pricing model. The principal assumptions we used in applying this model were as follows:

	March 31, 2018				March 31, 2019
Risk free interest rate			2.54%			2.18	–	2.62%
Expected volatility			252%			86	–	110%
Expected dividend yield			—				—
Forfeiture rate			—				—
Expected life in years		5	–	10		2	–	5

Table of Contents

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The risk-free interest rate is based on U.S. Treasury yields in effect at the time of grant. Expected volatilities are based on historical volatility of our common stock. The expected life in years is based on the contract term of the warrant.

Note 8. Noncontrolling Interest – Clyra Medical

We consolidate the operations of our partially owned subsidiary Clyra Medical (see Note 2).

Acquisition of In-process Research and Development

On September 26, 2018, Clyra Medical entered into a transaction with Scion Solutions, LLC, for the purchase of its intellectual property, including its SkinDisc. The consideration provided to Scion is subject to an escrow agreement (“Escrow Agreement”) and earn out provisions and includes: (i) 21,000 shares of the Clyra Medical common stock; (ii) 10,000 shares of Clyra Medical common stock redeemable for 7,142,858 BioLargo common shares (detailed below); and (iii) a promissory note in the principal amount of $1,250,000 to be paid through new capital investments and revenue, as detailed below. This consideration was initially held in escrow pending Clyra Medical raising $1 million “base capital” to fund its business operations.

On December 17, 2018, the parties entered into a closing agreement (“Closing Agreement”) reflecting the satisfaction of the obligation to raise $1 million “base capital”; at that time, one-half of the shares of Clyra Medical common stock exchanged for the Scion assets were released to Scion. The remaining Clyra Medical common shares (a total of 15,500 shares) remain subject to the Escrow Agreement’s performance metrics, each vesting one-fifth of the remaining shares of common stock: (a) notification of FDA premarket clearance of certain orthopedics products, or recognition by Clyra Medical of $100,000 gross revenue; (b) the recognition by Clyra Medical of $100,000 in aggregate gross revenue; (c) the granting of all or any part of the patent application for the SkinDisc product, or recognition by Clyra Medical of $500,000 in gross revenue; (d) recognition by Clyra Medical of $1 million in aggregate gross revenue; and (e) recognition by Clyra Medical of $2 million in gross revenue.

Scion Solutions – Note Payable and Clyra Liability

The promissory note in the principal amount of $1,250,000 issued by Clyra Medical to Scion on September 26, 2018 (“Clyra-Scion Note”) accrues interest at the rate of 5%. Principal and interest due under the note are to be paid periodically at a rate of 25% of investment proceeds received by Clyra Medical. If the note is not paid off within 18 months after the date of issuance, it is automatically extended for additional 12-month periods until the note is repaid in full. Payments after the initial 18-month maturity date are required to be made in annual installments in an amount equal to the greater of (i) 25% of investment proceeds received during the 12-month period, and (ii) 5% of Clyra Medical’s gross revenues.

Non-Controlling Interest

As of March 31, 2019, Clyra had raised $1,110,000 at a price of $200 per share. During the three months ended March 31, 2019, Clyra raised $110,000 and issued 550 shares of Clyra. At March 31, 2019, the balance due on the Clyra-Scion Note equaled $1,007,000. The shares of BioLargo common stock held by Clyra for the benefit of Scion (the redemption shares) are recorded on our balance sheet as a liability to “Clyra Medical Shareholder”.

Table of Contents

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

As of March 31, 2019, Clyra Medical had the following common and preferred shares outstanding:

Shareholder	Shares		Percent
BioLargo, Inc.		28,053		42.0	%
Sanatio Capital ⁽¹⁾		11,520		17.4	%
Scion Solutions ⁽²⁾		15,500		23.4	%
Other		11,772		17.2	%
Total		66,845

Notes:

(1) Includes 9,830 Series A Preferred shares (see below), and 1,690 common shares.

(2) Does not include an additional 15,500 shares held in escrow subject to performance metrics.

Sanatio Capital purchased Series A Preferred shares in 2015. Sanatio Capital is owned by Jack B. Strommen, who subsequently joined BioLargo’s board of directors. Preferred Shares accrue an annual dividend of 8% for a period of five years. Although the dividends began to accrue immediately, Clyra Medical has no obligation to declare a dividend until a product of the company has received a premarket approval by the United States Federal Drug Administration (“FDA”), or for which a premarket notification pursuant to form 510(k) has been submitted and for which the FDA has given written clearance to market the product in the United States (either, “FDA Approval”). After FDA Approval, annually on December 20, and unless prohibited by California law governing distributions to shareholders, Clyra Medical is required to declare and pay any accruing dividends to holders of Preferred Shares then accrued but unpaid. As the declaration and payment of such dividends is contingent on an uncertain future event, no liability has been recorded for the dividends. The accumulated and undeclared dividend balance as of March 31, 2019 is $200,000.

Holders of Preferred Shares are entitled to preferential payments in the event of a liquidation, dissolution or winding up of the company, in an amount equal to any accrued and unpaid dividends. After such preference, any remaining assets are distributed pro-rata between holders of Clyra Medical common stock and Preferred Shares as if the Preferred Shares had converted to Clyra Medical common stock. Holders of Preferred Shares may convert the shares to Clyra Medical common stock initially on a one-to-one basis. The conversion formula is subject to change in the event Clyra Medical sells stock at a lower price than the price paid by Sanatio.

Preferred shares may be converted to common shares on a one-to-one basis, and have voting rights equal to common shares on a one-to-one basis.

Note 10. Business Segment Information

BioLargo currently has four operating business segments, plus its corporate entity which is responsible for general corporate operations, including administrative functions, finance, human resources, marketing, legal, etc. The four operational business segments are:

Odor-No-More (“ONM”) -- which is selling odor and volatile organic control products and services (located in Westminster, California);

Clyra Medical (“Clyra”) -- which is engaged in developing medical products and preparing launch into commercial activity with approval of its FDA 510 (K) application in process;

BLEST -- which provides professional engineering services on a time and materials basis for outside clients and supports our internal operations as needed (located in Oak Ridge, Tennessee);

BioLargo Water (“Water”) -- which historically focused entirely on R&D, and has now shifted its focus to commercializing the AOS technology (located in Edmonton, Alberta Canada); and

Historically, none of our operating business units operated at a profit and therefore each required additional cash to meet its monthly expenses. The additional sources of the cash to fund the shortfall from operations of Odor-No-More, BLEST and BioLargo Water have been provided by BioLargo’s sales of debt or equity, research grants, and tax credits. Clyra Medical has been funded by third party investors who invest directly in Clyra Medical in exchange for equity ownership in that entity. For example, during the year ended December 31, 2018, we provided Odor-No-More with approximately $417,000 in cash to supplement its operations. As this subsidiary’s sales have increased (from approximately $500,000 in calendar year 2017 to over $1 million in calendar year 2018), and its gross margins have improved, it has generated more cash for its operations and relied less on corporate to supplement its cash to pay its bills.

The segment information for the three months ended March 31, 2018 and 2019, is as follows (in thousands):

As of March 31, 2019	BioLargo			ONM			Clyra			BLEST			Water			Elimination			Total
Revenue	$	—		$	301		$	—		$	183		$	—		$	(120	)	$	364
Intersegment revenue		—			—			—			(120	)		—			—			—
Operating loss		(948	)		(90	)		(287	)		(110	)		(227	)		—			(1,662	)
Grant income		—			—			—			—			82			—			82
Interest expense		(632	)		—			(12	)		—			—			—			(985	)
Depreciation		—			(4	)		—			(12	)		—			—			(16	)
Research and development		(172	)		—			(49	)		(122	)		(209	)		126			(426	)
Loss on extinguishment		(184	)		—			—			—			—			—			(184	)
Net loss		(2,105	)		(90	)		(299	)		(110	)		(145	)		—			(2,749	)

As of March 31, 2018	BioLargo			ONM			Clyra			BLEST			Water			Elimination			Total
Revenue	$	—		$	224		$	—		$	189		$	—		$	(120	)	$	364
Intersegment revenue		—			—			—			(150	)		—			—			—
Operating loss		(1,093	)		(109	)		(199	)		(45	)		(156	)		—			(1,602	)
Grant income		—			—			—			—			5			—			5
Interest expense		(830	)		—			—			(2	)		—			—			(832	)
Depreciation		—			(4	)		—			(6	)		—			—			(10	)
Research and development		(343	)		—			(87	)		(100	)		(142	)		150			(522	)
Net loss		(1,924	)		(109	)		(199	)		(46	)		(151	)		—			(2,429	)

As of March 31, 2019	BioLargo		ONM		Clyra		BLEST		Water		Elimination			Total
Tangible assets	$	673	$	182	$	277	$	329	$	48	$	(6	)	$	1,503
Intangible assets		1,893		—		—		—		—		—			1,893

As of December 31, 2018	BioLargo		ONM		Clyra		BLEST		Water		Elimination			Total
Tangible assets	$	353	$	220	$	462	$	230	$	33	$	(6	)	$	1,292
Intangible assets		1,893		—		—		—		—		—			1,893

Table of Contents

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 11. Commitments and Contingencies

Calvert Employment Agreement

On May 2, 2017, the Company entered into an employment agreement with its President and Chief Executive Officer Dennis P. Calvert (the “Calvert Employment Agreement”), replacing in its entirety the previous employment agreement with Mr. Calvert dated April 30, 2007.

The Calvert Employment Agreement provides that Mr. Calvert will continue to serve as our President and Chief Executive Officer and receive base compensation equal to his current rate of pay of $289,000 annually. In addition to this base compensation, the agreement provides that he is eligible to participate in incentive plans, stock option plans, and similar arrangements as determined by the Company’s Board of Directors, health insurance premium payments for himself and his immediate family, a car allowance, paid vacation of four weeks per year, and bonuses in such amount as the Compensation Committee may determine from time to time.

Pursuant to the Calvert Employment Agreement, we granted Mr. Calvert a non-qualified stock option (the “Option”) to purchase 3,731,322 shares of our common stock, exercisable at $0.45 per share, which represented the market price of the Company’s common stock as of the date of the agreement, exercisable for ten years from the date of grant and vesting in equal increments over five years (see Note 6). The Option provides that any portion of the Option which has not yet vested shall be immediately vested in the event of, and prior to, a change of control, as defined in the Calvert Employment Agreement. The Calvert Employment Agreement also provides for a grant of 1,500,000 shares of common stock, subject to the execution of a “lock-up agreement” whereby the shares remain unvested unless and until the earlier of (i) a sale of the Company, (ii) the successful commercialization of the Company’s products or technologies as demonstrated by its receipt of at least $3 million in cash, or the recognition of $3 million in revenue, over a 12-month period from the sale of products and/or the license of technology, and (iii) the Company’s breach of the employment agreement resulting in his termination. The Option contains the other terms standard in option agreements issued by the Company, including provisions for a cashless exercise.

The Calvert Employment Agreement has a term of five years, unless earlier terminated in accordance with its terms. The Calvert Employment Agreement provides that Mr. Calvert’s employment may be terminated by the Company due to his death or disability, for cause, or upon a merger, acquisition, bankruptcy or dissolution of the Company. “Disability” as used in the Calvert Employment Agreement means physical or mental incapacity or illness rendering Mr. Calvert unable to perform his duties on a long-term basis (i) as evidenced by his failure or inability to perform his duties for a total of 120 days in any 360-day period, or (ii) as determined by an independent and licensed physician whom Company selects, or (iii) as determined without recourse by the Company’s disability insurance carrier. “Cause” means that Mr. Calvert has (i) engaged in willful misconduct in connection with the Company’s business; or (ii) been convicted of, or plead guilty or nolo contendre in connection with, fraud or any crime that constitutes a felony or that involves moral turpitude or theft. If Mr. Calvert’s employment is terminated due to merger or acquisition, then he will be eligible to receive the greater of (i) one year’s compensation plus an additional one-half year for each year of service since the effective date of the employment agreement or (ii) one year’s compensation plus an additional one-half year for each year remaining in the term of the agreement. Otherwise, he is only entitled to receive compensation due through the date of termination.

The Calvert Employment Agreement requires Mr. Calvert to keep certain information confidential, not to solicit customers or employees of the Company or interfere with any business relationship of the Company, and to assign all inventions made or created during the term of the Calvert Employment Agreement as “work made for hire”.

Office Leases

We have long-term operating leases for office, industrial and laboratory space in Westminster, California, Oak Ridge, Tennessee, and Alberta, Canada. Payments made under operating leases are charged to the Consolidated Statement of Operations and Comprehensive Loss on a straight-line basis over the term of the operating lease agreement. For the three months ended March 31, 2018 and 2019, total rental expense was $49,000 and $51,000, respectively. On January 1, 2019, we adopted ASC 842 which resulted in a right-of-use asset and lease liability, the adoption resulted in an immaterial cumulative effect of an accounting change that was not recorded. Our right-of-use asset and lease liability operating leases included our office space BioLargo/ONM and BLEST. Our BioLargo/ONM lease has a 4-year extension and we included this extension in the net present value of our lease payments, which used the incremental borrowing cost to BioLargo of 18%. Water operations lease is considered short-term and not included.

The leases have no additional payment terms such as common area maintenance payments, tax sharing payments or other allocable expenses. Likewise, the leases do not contain other terms and conditions of use, such as variable lease payments, residual value guaranties or other restrictive financial terms.

Table of Contents

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Clyra Medical Consulting Agreement

Our partially owned subsidiary Clyra Medical (see Note 8) entered into a consulting agreement with Beach House Consulting, LLC, through which Jack B. Strommen will be providing consulting services to Clyra Medical related to its sales and marketing activities once it has received FDA Approval (as defined in Note 8 and the associated agreement) on a product, at which point the agreement provides that Mr. Strommen is to receive $23,000 per month for a period of four years. This agreement has not started, and the total cash obligation related to the agreement would be $1.1 million.

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common stock	BLGO	OTC Markets (OTCQB)

Large accelerated filer ☐	Accelerated filer ☐

Non-accelerated filer ☐	Smaller reporting company ☒

	Emerging growth company ☐


Item 1	Financial Statements

Item 2	Management's Discussion and Analysis and Financial Condition and Results of Operations

Item 4	Controls and Procedures


Item 2	Unregistered Sales of Equity Securities and Use of Proceeds

Item 5	Other Information

Item 6	Exhibits

	Signatures

	Exhibit Index

	DECEMBER 31, 2018			MARCH 3 1 , 2019 (unaudited)

Assets
Current assets:
Cash and cash equivalents	$	655		$	512
Accounts receivable		257			210
Inventories, net of allowance		26			26
Prepaid expenses and other current assets		17			34
Total current assets		955			782

In-process research and development (Note 8)		1,893			1,893
Equipment, net of depreciation		126			110
Other non-current assets		35			35
Right-of-use, operating lease, net of amortization		—			399
Deferred offering cost		176			176
Total assets	$	3,185		$	3,395
Liabilities and stockholders’ equity (deficit)
Current liabilities:
Accounts payable and accrued expenses	$	501		$	631
Notes payable		400			490
Line of credit		430			430
Convertible notes payable		1,365			2,072
Discount on convertible notes payable, and line of credit, net of amortization		(205	)		(646	)
Lease liability		—			116
Customer deposit		—			32
Total current liabilities		2,491			3,125

Long-term liabilities:
Convertible notes and note payable		285			235
Clyra Medical note payable (Note 8)		1,007			1,007
Liability to Clyra Medical shareholder (Note 8)		643			643
Discount on convertible notes payable, net of amortization		(118	)		(105	)
Lease liability		—			283
Total long-term liabilities		1,817			2,063
Total liabilities		4,308			5,188

COMMITMENTS, CONTINGENCIES (Note 11)

STOCKHOLDERS’ EQUITY (DEFICIT):
Preferred Series A, $.00067 Par Value, 50,000,000 Shares Authorized, -0- Shares Issued and Outstanding, at December 31, 2018 and March 31, 2019, respectively.		—			—
Common stock, $.00067 Par Value, 400,000,000 Shares Authorized, 141,466,071 and 144,473,453 Shares Issued, at December 31, 2018 and March 31, 2019, respectively.		95			97
Additional paid-in capital		110,222			112,556
Accumulated other comprehensive loss		(90	)		(94	)
Accumulated deficit		(111,723	)		(114,641	)
Total BioLargo Inc. and Subsidiaries stockholders’ equity (deficit)		(1,496	)		(2,082	)
Non-controlling interest (Note 8)		373			289
Total stockholders’ equity (deficit)		(1,123	)		(1,793	)
Total liabilities and stockholders’ equity (deficit)	$	3,185		$	3,395

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended March 31, 2019 .

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from to

	MARCH 31, 2018			MARCH 31, 2019

Revenue
Product revenue	$	224		$	301
Service revenue		39			63
Total revenue		263			364

Cost of revenue
Cost of goods sold		(134	)		(140	)
Cost of service		(29	)		(52	)
Total cost of revenue		(163	)		(192	)
Gross profit		100			172


Operating expenses:
Selling, general and administrative expenses		1,170			1,392
Research and development		522			426
Depreciation and amortization		10			16
Total operating expenses		1,702			1,834

Operating loss		(1,602	)		(1,662	)

Other income (expense):
Grant income		5			82
Interest expense		(832	)		(985	)
Loss on extinguishment of debt		—			(184	)
Total other (expense) income		(827	)		(1,087	)

Net loss		(2,429	)		(2,749	)

Net loss attributable to noncontrolling interest		(107	)		(173	)
Net loss attributable to common shareholders	$	(2,322	)	$	(2,576	)

Net loss per share attributable to common stockholders:
Loss per share attributable to shareholders – basic and diluted	$	(0.02	)	$	(0.02	)
Weighted average number of common shares outstanding:		104,695,818			142,246,766

Comprehensive loss attributable to common shareholders

Net loss	$	(2,429	)	$	(2,749	)
Foreign translation adjustment		8			(4	)
Comprehensive loss		(2,421	)		(2,753	)

Comprehensive loss attributable to noncontrolling interest		(107	)		(1,793	)
Comprehensive loss attributable to shareholders	$	(2,314	)	$	(2,580	)

	Common stock				Additional paid-in		Accumulated			Accumulated other comprehensive			Non- controlling			Total stockholders’
	Shares		Amount		capital		deficit			Loss			interest			equity (deficit)
Balance, December 31, 2017		104,164,465	$	70	$	97,093	$	(101,205	)	$	(62	)	$	695		$	(3,409	)
Issuance of common stock for service		714,436		1		196		—			—			—			197
Issuance of common stock for interest		617,072		—		165		—			—			—			165
Financing fee in stock		252,385		—		85		—			—			—			85
Sale of stock for cash		658,226		—		168		—			—			—			168
Stock option compensation expense		—		—		320		—			—			—			320
Warrants and conversion feature issued as discount on convertible notes payable		—		—		282		—			—			—			282
Deemed dividend for the change in accounting for derivative liability		—		—		297		(297	)		—			—			—
Net loss		—		—		—		(2,323	)		—			(107	)		(2,430	)
Foreign currency translation		—		—		—		—			8			—			8
Balance, March 31, 2018		106,406,584	$	71	$	98,606	$	(103,825	)	$	(54	)	$	588		$	(4,614	)

	MARCH 31, 2018			MARCH 31, 2019
Cash flows from operating activities
Net loss	$	(2,429	)	$	(2,749	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock option compensation expense		320			352
Common stock issued in lieu of salary to officers and fees for services from vendors		196			206
Common stock issued for interest		165			25
Interest expense related to amortization of the discount on convertible notes payable and line of credit and deferred financing costs		635			851
Interest expense related to the fair value of warrants issued as consent for variable debt		—			54
Loss on extinguishment of debt		—			184
Deferred offering expense		4			—
Amortization and depreciation expense		10			16
Changes in assets and liabilities:
Accounts receivable		(8	)		47
Inventories		(3	)		—
Accounts payable and accrued expenses		127			129
Prepaid expenses and other current assets		(13	)		(16	)
Customer deposits		—			32
Net cash used in operating activities		(996	)		(869	)

Cash flows from investing activities
Equipment purchases		(19	)		—
Net cash used in investing activities		(19	)		—
Cash flows from financing activities
Proceeds from convertible notes payable		380			750
Proceeds from the sale of stock in Clyra Medical		—			110
Repayment of note payable		—			(300	)
Proceeds from sale of stock to Lincoln Park Capital		168			—
Proceeds from notes payable		—			170
Proceeds from line of credit		390			—
Net cash provided by financing activities		938			730
Net effect of foreign currency translation		8			(4	)
Net change in cash		(69	)		(143	)
Cash at beginning of year		990			655
Cash at end of period	$	921		$	512
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest	$	—		$	32
Income taxes	$	—		$	3
Non-cash investing and financing activities
Fair value of warrants issued with convertible notes	$	282		$	1,061
Conversion of convertible notes payable into common stock	$	—		$	220
Convertible Notes issued with Original Issue Discount	$	—		$	217
Fair value of stock issued for financing fees	$	85		$	—
Right of use, operating lease and liability	$	—		$	399
Deemed dividend	$	297		$	342

	December 31, 2018		March 31, 2019
Accounts payable and accrued expense	$	302	$	370
Accrued interest		122		151
Accrued payroll		77		110
Total accounts payable and accrued expenses	$	501	$	631

	March 31, 2018		March 31, 2019
Salaries and payroll related	$	451	$	494
Professional fees		192		196
Consulting		162		291
Office expense		210		240
Board of director expense		68		68
Sales and marketing		54		58
Investor relations		33		45

Net loss	March 31, 2018			March 31, 2019
Odor-No-More	$	(200	)	$	(90	)
BLEST		(47	)		(110	)
Clyra Medical		(199	)		(299	)
BioLargo Water		(151	)		(145	)
Corporate		(1,832	)		(2,105	)
Consolidated net loss	$	(2,429	)	$	(2,749	)

		Incorporated by Reference Herein
Exhibit Number	Exhibit Description	Form	File Date
3.1	Bylaws of BioLargo, Inc., as amended and restated	Form 10-KSB	5/23/2003
3.2	Amended and Restated Certificate of Incorporation for BioLargo, Inc. filed March 16, 2007	Form 10-KSB	5/4/2007
3.3	Amended and Restated Articles of Incorporation of Clyra Medical Technologies, Inc.	Form 8-K	1/6/2016
3.4	Certificate of Amendment to Certificate of Incorporation, filed May 25, 2018	Pos Am	6/22/2018
4.1	Form of Convertible Promissory Note issued in 2015 Unit Offering	Form 10-K	3/31/2015
4.2	Form of Series A Stock Purchase Warrant issued in 2015 Unit Offering	Form 10-K	3/31/2015
4.3	Form of Stock Options issued in exchange for reduction in accounts payable.	Form 10-K	3/31/2015
4.4	BioLargo, Inc. Investors’ Rights Agreement dated December 30, 2015, as a shareholder of Clyra Medical Technologies, Inc.	Form 8-K	1/6/2016
4.5	Stock purchase warrant issued with Line of Credit in June 2016	Form 10-Q	8/15/2016
4.6	Form of Note issued to One Year Note holder dated December 30, 2016	Form S-1	1/25/2017
4.7	Form of Warrant issued to One Year Note holder dated December 30, 2016	Form S-1	1/25/2017
4.8	Stock Option dated February 10, 2017 issued to Chief Financial Officer Charles K. Dargan II.	Form 8-K	2/14/2017
4.9	Form of Note issued in Summer 2017 Offering	Form 10-Q	8/14/2017
4.10	Form of Warrant issued in Summer 2017 Offering	Form 10-Q	8/14/2017
4.11	Form of One-Year Note issued July 2017	Form 10-Q	8/14/2017
4.12	Form of Warrant issued to One-Year Noteholder July 2017	Form 10-Q	8/14/2017
4.13	Two-year Note in face amount of $440,000 issued July 2017	Form 10-Q	8/14/2017
4.14	Purchase Agreement, dated as of August 25, 2017 by and between BioLargo, Inc. and Lincoln Park Capital Fund, LLC	Form 8-K	8/31/2017
4.15	Securities Purchase Agreement, dated as of December 14, 2017 by and between BioLargo, Inc. and Vista Capital Investments, LLC.	Form 8-K	12/22/2017
4.16	Registration Rights Agreement, dated as of December 14, 2017, by and between BioLargo, Inc. and Vista Capital Investments, LLC.	Form 8-K	12/22/2017
4.17	Convertible Promissory Note issued to Vista Capital Investments LLC dated December 14, 2017	Form 8-K	12/22/2017

4.18	December 18, 2017, amendment to Promissory Note dated December 14, 2017 issued to Vista Capital Investments, LLC.	Form 8-K	12/22/2017
4.19	Stock Option dated December 31, 2017, issued to Chief Financial Officer Charles K. Dargan II	Form 8-K	1/3/2018
4.20	Promissory Note dated January 16, 2018, by and between BioLargo, Inc. and FirstFire Global Opportunity Fund, LLC.	S-1	1/17/2018
4.21	Line of credit, matures September 1, 2019	Form 10-Q	5/14/2018
4.22	Warrant issued with Line of credit that matures September 1, 2019	Form 10-Q	5/14/2018
4.23	$50,000 convertible note, matures March 8, 2020	Form 10-Q	5/14/2018
4.24	Form of convertible notes that mature April 20, 2021 (Spring 2018 Offering)	Form 10-Q	5/14/2018
4.25	Form of warrant issued with convertible notes that mature April 20, 2021 (Spring 2018 Offering)	Form 10-Q	5/14/2018
4.26	Amendment to $440,000 convertible notes that matures July 20, 2019	Form 10-Q	5/14/2018
4.27	2018 Equity Incentive Plan	Form S-8	6/22/2018
4.28	Stock Option Award Agreement under 2018 Equity Incentive Plan	Form S-8	6/22/2018
4.29	Notice of Stock Option Grant under 2018 Equity Incentive Plan	Form S-8	6/22/2018
4.30	Restricted Stock Unit Award Agreement under 2018 Equity Incentive Plan	Form S-8	6/22/2018
4.31	Notice of Restricted Stock Unit Award under 2018 Equity Incentive Plan	Form S-8	6/22/2018
4.32	September 2018 Amendment to Promissory Note dated December 14, 2017 issued to Vista Capital Investments, LLC.	Form 8-K	9/18/2018
4.33	Promissory Note issued to Vernal Bay Investments, LLC on September 19, 2018	Form 8-K	9/24/2018
4.34	Promissory Note issued to Chappy Bean, LLC on September 19, 2018	Form 8-K	9/24/2018
4.35	Stock Purchase Agreement and Plan of Reorganziation dated September 26, 2018, with Scion Solutions, LLC	Form 8-K	10/2/2018
4.36	Promissory note issued by Clyra Medical Technologies dated September 26, 2018	Form 8-K	10/2/2018
4.37	Convertible Promissory Note issued to Triton Funds LP dated October 12, 2018	Form 8-K	10/22/2018
4.38	January 2019 Amendment to Promissory Note dated December 14, 2017, by and between BioLargo, Inc. and Vista Capital Investments, LLC.	Form 8-K	1/11/2019
4.39	Convertible Promissory Note issued to Vista Capital Investments LLC dated January 7, 2019	Form 8-K	1/11/2019
4.40	Convertible Promissory Note issued to Tangiers Global, LLC dated January 31, 2019	Form 8-K	2/11/2019
4.41	Stock Purchase Warrant Issued to Lincoln Park Capital on January 31, 2019	Form 8-K	2/11/2019
4.42	Amendment dated March 5, 2019 to Convertible Promissory Note issued to Tangiers Global, LLC dated January 31, 2019	Form 8-K	3/8/2019
4.43	Amendment dated March 5, 2019 to Promissory Note issued to Vernal Bay Investments, LLC on September 19, 2018	Form 8-K	3/8/2019
4.44	Amendment dated March 5, 2019 to Promissory Note issued to Chappy Bean, LLC on September 19, 2018	Form 8-K	3/8/2019

10.1†	Engagement Agreement dated February 1, 2008 between BioLargo, Inc. and Charles K. Dargan, II	Form 8-K	2/4/2008
10.2	License Agreement between Clyra Medical Technologies, Inc., dated December 17, 2012	Form 8-K	1/6/2016
10.3	December 30, 2015 amendment to License Agreement with Clyra Medical Technologies, Inc.	Form 8-K	1/6/2016
10.4	Consulting Agreement dated December 30, 2015 with Beach House Consulting LLC	Form 8-K	1/6/2016
10.5	Commercial Office Lease Agreement for 14921 Chestnut St., Westminster, CA 92683	Form 8-K	8/24/2016
10.6†	February 10, 2017 extension to Engagement Extension Agreement with Charles K. Dargan, II.	Form 8-K	2/14/2017
10.7†	Employment Agreement with Dennis P. Calvert dated May 2, 2017.	Form 8-K	5/4/2017
10.8†	Lock-Up Agreement with Dennis P. Calvert dated April 30, 2017	Form 8-K	5/4/2017
10.9†	Lock-Up Agreement with Dennis P. Calvert dated May 2, 2017.	Form 8-K	5/4/2017
10.10	Commercial Office Lease Agreement for Oak Ridge Tennessee	Form 8-K	9/8/2017
10.11	Escrow Agreement dated September 26, 2018 regarding Clyra/Scion transaction	Form 8-K	10/2/2018
10.12	Closing Agreement dated December 17, 2018 between Clyra Medical and Scion Solutions	Form 8-K	12/19/2018
10.13†	January 16, 2019 Engagment Extension Agreement by and between BioLargo, Inc. and Charles K. Dargan	Form 8-K	1/18/2019
10.14	Securities Purchase Agreement by and between BioLargo, Inc., and Bellridge Capital, LP dated April 18, 2019	Form 8-K
10.15	10% Convertible Promissory Note issued to Bellridge Capital, LP dated April 18, 2019	Form 8-K
10.16*	Securities Purchase Agreement by and between BioLargo, Inc., and Crossover Capital dated May 10, 2019
10.17*	Convertible Promissory Note issued to Crossover Capital dated May 10, 2019
31.1*	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Rules 13(a)-14 and 15(d)-14 under the Securities Exchange Act of 1934
31.2*	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Rules 13(a)-14 and 15(d)-14 under the Securities Exchange Act of 1934
32*	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.
101.INS**	XBRL Instance
101.SCH**	XBRL Taxonomy Extension Schema
101.CAL**	XBRL Taxonomy Extension Calculation
101.DEF**	XBRL Taxonomy Extension Definition
101.LAB**	XBRL Taxonomy Extension Labels
101.PRE**	XBRL Taxonomy Extension Presentation

Date: May 15, 2019		BIOLARGO, INC. By: /s/ DENNIS P. CALVERT
		Dennis P. Calvert Chief Executive Officer


Date: May 15, 2019		By: /s/ CHARLES K. DARGAN, II
		Chief Financial Officer

AGGREGATE SUBSCRIPTION AMOUNT:

Aggregate Principal Amount of Note:	US$110,000.00

Aggregate Purchase Price:	US$100,000.00*

Principal Amount: $110,000.00	Issue Date: May 10 , 2019
Purchase Price: $ 100,000.00
Original Issue Discount: $ 10,000.00