BioLargo, Inc. (PNK:BLGO) Q2 2024 Earnings Call Transcript

BioLargo, Inc. (PNK:BLGO) Q2 2024 Earnings Call Transcript August 14, 2024

Operator: Greetings. Welcome to the BioLargo Second Quarter 2024 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] Please note this conference is being recorded. I will now hand the conference over to your host, Brian Loper. You may begin.

Brian Loper: Great. Thank you, Holly. I appreciate that. Good afternoon, everyone. Welcome to BioLargo’s Q2 2024 earnings results conference call for the month ended June 30, 2024. By now, everyone should have had access to the earnings press release, which was issued on August 6. This call is being webcast and available for replay. In our remarks today, we will include statements that are considered forward-looking within the meanings of securities laws, including forward-looking statements about future results of operations, business strategies, and plans, our relationships with our customers, market and potential growth opportunities. In addition, management may make additional forward-looking statements in response to your questions.

Forward-looking statements are based on management’s current knowledge and expectations as of today, and are subject to certain risks and uncertainties, and may cause the actual results to differ materially from the forward-looking statements. A detailed discussion of such risks and uncertainties are contained in our most recent Form 10-K, Form 10-Q, and in other reports filed with the SEC. The company undertakes no obligation to update any forward-looking statements. And with that, I will now hand the call over to BioLargo’s Chief Executive Officer, Dennis Calvert.

Dennis Calvert: Hey, Brian, thank you very much. And thank you, everyone, for joining us. Also, want to mention Charles Dargan is with us, our CFO. Charlie, say hi? You there?

Charles Dargan: Yes, I’m here. Thank you very much, Dennis.

Q&A Session

Dennis Calvert: Okay, thank you.

Charles Dargan: I’m good.

Dennis Calvert: Thank you for being here. Great, we’re going to go quickly. I know a lot of questions about status on some of the business development is the burning question everyone wants to talk about. And so, we’ve had a great quarter, let’s start with that; record quarter per our announcement. Remember, we’re going to do a quick intro. BioLargo, we make life better. It’s a big calling. We focus on innovation to help make the world and peoples’ lives a better life and a better planet, also sustainable innovation, focused on high-impact innovation, keen emphasis on air, water, and energy, of course. Brian eloquently covered the cautionary forward-looking statements, the reel. Be sure and look at our Qs and our Ks. We do a robust disclosure on risk factors.

The nature of our business is high-risk. We’re innovating things that have never been done before. And the good news is that we persevere and we overcome, that that’s going to be one of the hallmarks of BioLargo, overcoming the obstacles to success. Who are we? Innovators and scientists, entrepreneurs passionate about sustainability and human health, driven by a purpose, right, make life better. Best-in-class, best-in-class is very important. If we didn’t think these innovations had a chance to be transformative as a technology innovation that can be a cornerstone of making change in the marketplace we wouldn’t do it. We make considerable investments in some of these assets. We’re going to talk about those, in particular the adoption cycles are very frustrating sometimes, but the innovations, nonetheless, we believe will find a home in the marketplace for transformative change.

And some of those take a long time, so [I’ll talk] (ph) about that too. Lots of engineering going on; our engineers that joined us, gosh, almost five years ago, world-class people, 25-30 years experience all around the world, doing innovation, supporting our innovations for commercial adoption. We focus on problems without good solutions, it’s really important. There’s something missing in the marketplace, that’s where we like to live. At the parent company, we have the finance, strategy, very much entrepreneurial spirit. Find a market opportunity, find a way to get adoption, get yourself into the marketplace to create revenue, and profit, and ultimate value technology for what we think is massive opportunities for distribution and partnership.

Lots of engineers. Lots of R&D; our group up in Canada is critical as well, $4.5 million in grants secured there over the time. Also an innovator themselves, also support innovation, a lot going on there. Clyra Medical, right, a transformative technology for inception control, there’s antimicrobials that are used in medical settings, oh my goodness, we’re in a very exciting business. That company is going to incubate it for about 13 years, and it’s poised for significance. And we’ve got some major partnerships that have taken a while to get to where they are but, nonetheless, we’re highly encouraged and optimistic about the future, and we believe it’s near at hand. Our Energy Technology is the youngest. We’ll talk about the developments there.

We’ve got a unique technology itself for long-duration energy storage, that’s batteries built for off-loading renewables, balancing the grid, large fixed-site batteries, 20-foot trailers, we’ll talk about that. We think it’s a transformative technology for long-duration energy storage. ONM, flagship revenue-generator for the company, Pooph is one of the fastest-growing pet odor control products in the marketplace, breaking records continually. We’ll talk about the detail of that, and really transformed the company because of its financial performance. We also do a lot of industrial odor control, over eight years, I think, in the field now, something like that. Really, really become expert in the field of odor and VOC, volatile organic compounds, that’s the gases that come off with chemistry and landfills.

The Equipment Group, relatively new, that’s focused on commercializing all of our water technologies, including PFAS. PFAS, of course, is a super-hot topic. We’re going to go into a little bit of a deeper dive. I think I’m going to ask Charlie to take a couple of these next two or three slides and provide some general commentary about these results. We’re presenting both quarterly and annual to try and give you a flavor for that. And so, Charlie, would you like to speak about some of these?

Charles Dargan: Sure, I’d love to. Thanks, Dennis. And I’m just going to kind of go through this the way I see it versus necessarily the slides. But yes, as Dennis reported and we have reported, we had record revenues. And this was a record quarter for BioLargo, which I am particularly proud of. We did about $5 million in revenue in the three months and about almost $9.8 million in the six months. We maintained our margins. So, we produced gross profits of a little over $2 million for the 2024 three months, and $4.4 million for the six months. Now, while we did report net losses, those are very narrow. And as you can see from our net loss per share, they’re almost miniscule. And a lot of it has to do with the non-cash charges that we take for, certainly, stock options and other non-cash expenses that we offer or issue, and those were $670,000 in the three months, and almost $1.3 million in the six months.

So, from an operating perspective, we’re making headway, and becoming pretty close to cash flow breakeven. And if you look at our cash flow statement, we actually produced $330,000 of positive cash flow from operations in the six months, so very, very happy with that. And if you look at our balance sheet, you get to the point where we look really good. We’re $4 million of working capital positive. And we have $4.8 million of cash on the balance sheet, $2.1 million of accounts receivable. So, we’re doing the right things at the right time. The operations are moving in the right direction. And we have very little as it comes to debt outside of accounts payable, which are normal parts of our operation. And we’re only carrying about $184,000 in long-term debt, which most of which is, I believe, through our EIDL loan.

So, from that perspective, the company is one of its best positions, certainly from a balance sheet and income statement and a cash flow situation. So, Dennis, kind of back to you.

Dennis Calvert: Yes, no, I think that’s great. And then, the next slide basically takes our existing, and which you referenced, $9.7 million year-to-date revenue, and it doubles it. That’s just a pure math formula. Of course, we’re not trying to necessarily provide a projection for that, but we believe the current track will maintain, and we’ve got a chance to increase it. We believe that’s true. Big reliance of Pooph. Pooph, stays the course, we believe these numbers can become real for the year, but it is a record year. And Charlie and I have a constant conversation about when will we be in a position to remove questions about growing concern because we’re in profit, earnings per share. And it’s closer than everyone like to imagine.

It did take us a long time to get here, but it’s a very encouraging moment. And I just want to point out also, the feedback we get, especially in the OTC microcap community; we are very much given our balance sheet and our growth rate an anomaly in this space. It’s a — as part of the OTCQX, which is a nice steppingstone on the way to success, we are one of a few hundred companies out of 10,000 that have met the specifications to actually remove qualification, they call it penny stock-exempt. And in their lingo, that means that we’ve had multiple years of $6 million or more in revenue, we’ve had net shareholder equity that’s significant, and have met the reporting requirements to qualify with good confidence in the financial statements that we report; a nice designation.

Net stockholder equity, we mention this every time because this is an important number. And then, notice, over the last two years, it’s steadily risen. And what that shows is some discipline. It also shows that we’ve increased revenue, number one, that’s the biggest contributor. We’ve been able to finance some of the expansion of the subsidiaries with direct investment, which really is important because that helps us preserve dilution. I also point out that the Q, if it’s not on record at the moment, it’ll be on record any minute, so everybody have a chance to see that tonight or in the morning, so it’s in process of being filed as we speak. But in the Q, you’re going to notice some very specific things like that the company has not needed to raise direct investment through private offerings in Q2, which means no direct private placements with what we call a unit offering, and no dilution from that event.

And why is that, right, that’s the question, why is that? Well, first reason is because the operating units have continued to grow and generate cash. We’ve also been able to bring in capital directly into those units. And another key factor is we had some exercise of warrants. And the exercise of warrants, while calculated in year-total issued in outstanding and the fully diluted count, there was some conversion, and so we’re thankful for that, that’s been very meaningful for the company as well. So, generally speaking, this $5.9 million net shareholder equity is important because many of the national exchanges that we believe our company is on the route to being fully qualified for, and we want to pursue that. Generally speaking, a $5 million net shareholder equity requirement is a prerequisite to listing on an exchange, like a NASDAQ exchange.

And so, we’re well in excess of that, and we believe it will continue to grow. So, Charlie, do you have any comments on those thoughts? Any — [multiple speakers]

Charles Dargan: Yes. No, I think you’re absolutely right. And given the way that the operations have been moving and growing, I believe that, yes, I’m good with our revenue projections. And extremely important about positive stockholders’ equity and where we are now, which again we’re going to continue to grow, which is necessary for any kind of uplifting or decision for management to make about moving to the NASDAQ. So, yes, I am very positive about where the company is, and very excited for how we’ve been growing, and where we’re headed.

Dennis Calvert: Agreed, yes, good, and again, also very careful to preserve dilution — being very, very careful. We’re in such a good position compared to, again, most companies on the OTC who are at this stage of development, to be able to finance direct investment into the subsidiaries, which is extraordinarily valuable because it helps preserve on the dilution side of the parent. And the other we really are pursuing what we call a capital conservation strategy in the way we develop business. And when I can get along with it, I don’t want to do that, but it’s as simple as this idea of build it and they will come or they come and then we build it. And I say it that way because, in many cases, we’re patient to build as we have customers, expand staff as we have accounts.

Give you an example; the Engineering Group just landed these new contracts with the Air Force, which are awesome. And we expect those to generate about $110,000 or so a month. And we’ve added, I believe in the last 60-90 days, four people to the Engineering Group, so those are highly qualified engineering and support staff, which is awesome. But we did it when we had the contract in hand, okay. So, before those staff members come onboard, it means everybody’s pulling double duty, and then we backfill. And while that’s hard on the team, it’s really good for the income statement, and ultimately the balance sheet, because we have the cash flow to pay those people, and expand with money in the bank. So, we’re really working hard to do that. Same thing in the battery and the water technology, wherever we can, we’re focused on that kind of strategy, okay.

Real quick, business unit, so, of course, everybody knows Pooph. Pooph is just killing it. And we’re so grateful. And the team at Pooph is projecting second-half of the year to be really significant. Now you’re going to see in the Q that a little bit of drop-off from Q1 to Q2, 10% to 12% top line, we attribute most of that to timing because revenues are continuing, of course, but also I’m going to show you a couple of really important things. They’ve got new retailers. Now, we’ve experienced new retailers in the past. Walmart is the most notable. And when they had to stock up for these new retailers, we saw some volatility, if you will, in the consistency of the order flow, while they stocked up and looked at a national distribution. Okay, so two new accounts have come on; Ralphs, which is a big deal.

And remember, Ralphs is part of Kroger Foods. That’s a ripple before a wave. And then, Target. Target’s a new account. And of course, these big brands are just everyone knows these big brands. And so, the big players continue to be big for the company. Home Depot, of course, is really coming on. And in each of these, they have their own life cycle of how product gets distributed and they get in all the stores. But it is expanding. And that’s going to take me to their next stated goal. Oh, two slides away. Here we go. Okay, so remember our relationship to Pooph, right? We did it. We did a business deal. The business deals we supply. We’re the supplier of the product. So, we wholesale the product to Pooph. Pooph then builds their brand, manages distribution, sets up retailers, sets up advertising.

They do all the work to get that brand and that product situated in the marketplace. We also do product development. There’s a lot of product development going on. We’re really busy with that. We support them in any way possible because we’re hooked at the hip. We’re business partners. We receive a manufacturer’s margin, a small royalty. And then, we bargained in exchange for exclusivity for a piece of the equity of the brand, on a 20% of the exit when it’s eventually sold. Now, again, I just have to highlight this as Pooph is growing and building a national brand. Our equity in that brand is increasing. Their success is our success. And people forget that, right? So we believe that as that brand establishes prominence and it finds an exit, we’re going to be a recipient of a very large check.

I’ve always said we think it’s going to be north of 100 million. And what’s great about this relationship and the success of Pooph has turned out to be good for both parties in such a meaningful way that we believe they want to continue to expand the brand. And how do we know that? Well, because we know what their goals are. They share their goals with us. Okay. And the first goal is they say we’re targeting 20% quarter-over-quarter growth. Okay. So, we get a little volatility there, right? But when you take 20%, let’s say start with a million. And you go up one quarter is 120. Another quarter is 120. You do that four times. That’s over 100% growth. So, what they’re saying to us is they believe they can achieve consistently over time, 100% year-over-year growth.

We know that most recently, best evidence is they’re in about 30,000, 35,000 outlets, something like that. Their stated goal is to get to 80,000 retail outlets. And they continue to march. The whites in the literature have both launched, new campaigns, new orders, new distribution; pretty busy. And then, Pooph potty, potty pads, Pooph potty pads, go to the web. They’re being advertised. They’re being promoted. I don’t believe they’re on a retail store yet. I don’t think they’re on a shelf. But we know that from a production side, they’re on the way. And so, again, very exciting, and each of these product innovations is an extension of our intellectual property. So, this is a flourishing relationship expected to continue stated goal, 100% growth a year.

And that’ll take us into just under 20 million, absent other assets coming to market in a meaningful way. And so, that’s good news for the company. Clyra, Clyra is just, people forget. This is — these are ideas, product ideas that go back to the origin story of the company. We first had said we’re going to put about 600,000 or 700,000 into equipment. That number’s going to be over 1.3 million. And what we’ve been focused on for a little over a year with our partner is the national rollout of a co-branded product that we believe will be transformative in the medical field. It’s a medical device. Remember, we’ve already secured FDA clearance under 510(k). Okay. So, now it’s all about the product. It has taken quite some time. It’s also been very taxing, taxing financially, taxing from a staffing perspective, very exciting.

Our optimism and confidence that these products will find significance in commercial rollout through partnership has never been higher. I can also say that we’ve got multiple parties who now have come to the table, all in different stages. But the main relationship that we’ve been over a year in development for is moving forward. And we’re just very anxious to show up one day and say, “Okay. We’re ready to launch.” And so we hope that soon. But we definitely believe we’re heading in the right direction. I also want to say on Clyra, sometimes the significance of the product and what it represents is kind of lost. What does that mean? That means just show me the numbers. Well, the numbers the numbers will show up eventually. We know that. And we’re anxious for that.

But the meaningfulness really is that we have a chance to be a change agent in the field of infection control and surgical suite. That’s what we’re talking about, and gentleness and broad spectrum efficacy with no harm to the body with a leave in product and some data that supports biofilm efficacy. When you put all those claims together, those products, those claims have been proven. And when you put them all together in a claim set, it makes it number one in the world, and again, in the world. So, I just I don’t know how to make it more clear. And if that’s true, which we know it is true, that’s representing over 13 years of work and probably about $18 million of investment to really get that product situated for massive scale rollout with big brands and big partners to make a meaningful impact for the world.

Now, Keystone is a big part of that. We’ve talked openly about it at our Q. Keystone is a large manufacturer, really well-situated, probably held significant player. And this is the machine that actually makes the product. And we’ve also had to supplement that with other equipment. That’s what that one point three plus million is about. And our partner at Keystone has also made dramatic investment. And we’re into the final steps of preparing for a product launch, very exciting; full circle story for the company. PFAS, I will tell you a lot of detail going on with PFAS. PFAS, that’s forever chemicals related to nonstick coatings. Big companies use this chemistry to make nonstick coatings for years. It’s now considered one of the most significant pollutants in the world; global problem.

Okay, ready for this? This is new. New slide, it’s fascinating. When the industry started using PFAS, it was sold anywhere from $50 to about a $1,000 a pound. That means the raw chemistry was sold into industry, used to combine with products or making products at about that price. The cost to remove it from the environment is between $2.7 and $18 million a pound. Okay, what’s the point? It’s to compare. It generated billions in revenue. It’s going to cost trillions to clean it up. And this is the travesty of the industry. It’s estimated to be social cost about $17 trillion. And remember, I tell this story all the time. I asked a water engineer one time in the water table. I said, how long did it take to get in that water table? He said, 50 years.

How long does it take to get out? He said, it’ll be at least 50 years. And these top companies were the largest producers of PFAS production for industry, estimated annual profits of about a billion. This is going to be an industry that’s going to be around for the next 25 years. Okay. And we’re well-situated here to be a winner. We’re going to talk about that. Its primary benefit is we’re the most excellent collector, the most excellent collector. When you compare us to all other technologies, we super concentrate the contaminant. We also offer a destruction technique as well. But the main value proposition is that we can create a waste stream that’s a pound or two pounds versus 40,000 pounds of carbon. We do have our first account. It’s scheduled for like Stockholm and New Jersey, supposed to go in the field sometime October, November.

Our installation will have to be done when the building is built. So, you see that little building that’s electrical, that’s plumbing, that’s access. That’s all the things that a general contractor is going to do. So, if we face delay, we might face delay. From our perspective, we’ll be ready to go and we’re in construction now and we’ve received the bulk of our payment. And because of our milestone obligations, we’ve been able to recognize some of the revenue for this. So, it’s a very good situation. I also have said this publicly and I want to say it again. And I welcome a challenge, okay, to our knowledge. That’s just the caveat. We don’t know of any other company that’s actually secured a commercial account. From an alternative technology to be really clear, not an ion exchange, not a carbon.

Those are old technology has been around a long time. And they and they do have some market adoption of old tech who with customers who need to move quickly to get people out of drinking water, that’s where they moved. From an alternative technology perspective, we think we’re the only account company in the world that we know of. It’s got a commercial account. It’s a big statement. And it’s — the good news is small enough to where we believe our risk of failure is extraordinarily low. It’s something we can manage at the stage of the development of the technology. So, this is a big win. And we have multiple trials and underway. And we’ve most recently expanded into some other fields, leachate being one of them. This is a new slide. So, once you see it, untreated leachate in the middle.

Right to left, right, post AEC, that means that we’ve hit this with one, two, three treatment systems, one after the other. And produced post AEC PFAS free water, even to a non-detect status. Now, this is leachate. Leachate is the water that comes out of the bottom of a landfill. Landfill, landfill business is good for BioLargo. Remember, we’ve been serving that industry for over 10 years. We already have national accounts. They’re really going to fall under extreme pressure because the regulatory news is tightening for managing the waste streams. Okay. The PUC, that’s Public Utility Commission, historically would take the concentrated PFAS, excuse me, the concentrated leachate that has high concentration of PFAS, and they would treat it at the PUC.

That’s the public wastewater treatment. All right. Utility commission, they don’t want it anymore. That means it’s going to go, because it’s being designated under CERCLA and RCRA and hazmat, we’re predicting that the cost of treat is going to go up dramatically. In fact, we think it’s about 10X. So, what’s our value proposition? Well, this is a pretty good graph. I know it’s hard to see. We will make this publicly available, so if you can’t read it all. Basically, the blue lines describe the cost of treat, assuming the cost of waste handling. Let’s call it the $3 number. So, this is a 10-year life cycle, right? On a drinking water system that would treat basically water associated with 10,000 people, 10-year life cycle cost. We have between a 40% and 300% lower life cycle costs than a carbon system.

And the variable is what’s going to happen to the cost of handling. Now, we’ve taken a pretty bold statement. Again, time will prove us right or wrong, but we’re predicting a 10X in the current cost of treat, a 10X. The cost of handling hazmat for PFAS is going to go through the roof. And as it does, it makes some of these incumbent technologies so economically unsound. And in addition, you’re going to have a very difficult time meeting specification when it’s all the way down to four parts per trillion. And there’s an expectation that ultra-short chain molecules will continue to fall under regulatory pressure. Right now, we have long and short, and there’s an ultra-short category. We believe they’re all going to find regulatory pressure. And as they do, especially for the ultra-short, ion exchange and carbon systems simply can’t meet spec.

Okay. So, that means what you thought the old stuff could do is not going to work as the regulatory enforcement continues. They’re going to need to change out. In addition, right, carbon systems have an issue that’s called breakthrough. Breakthrough means it works, it works, it works, and then it doesn’t work. So, there’s a lot of problems with that system. And, of course, our value proposition, number one, is cost efficiency and super concentration and then a turnkey destruction. We have a backlog of prospects. We’re beating the bushes daily. We have strategic partnerships. We have channel partnerships. It’s all expanding. It’s all really, really, really a great sign. And we still are challenged by the fact that we’re in an early adopter stage, right?

So, for decision-makers that are primarily influenced by political considerations, they have a very difficult time adopting emerging tech. The alternative markets like leachate, like groundwater, like industrial wastewater, municipal wastewater, will lean more heavily towards business and engineering decisions. And in those cases, we have a very good chance of earlier adoption. So, the fact that our technology can work in all of those different markets because of the nature of its design is a significant advantage for us. And we believe that we’ll continue to see adoption and expanded interest in these other markets. Okay. Battery technology, Cellinity battery, right, sodium, liquid sodium, runs about 160C. That’s in the world of liquid sodium batteries, that’s low temp.

Compared to lithium, it’s higher, right? It’s above room temperature. But the beauty of a battery that can operate at 160C is that it requires no parasitic load to keep it cool. What does everybody tell you about batteries? Don’t let it get hot. Don’t let it get hot. Ours actually loves the heat. So, we have a little bit of a presentation. Let’s see if I can make it work here real quick. There we go. [Video Playing] Okay. Thank you very much. Okay. We include this slide because we want it to be public record, so you can look at it later. There’s so much data you can’t possibly present it. But basically, we have a series of features that make it a very attractive commercial offering. And we covered some of those, right? This is the design. Once you make your cells, which we’re making cells now, and you can refine the manufacturing technique to produce them to scale, you take those cells and you assemble them in racks, and racks make packs, and ultimately you create these packs, these modules, that can store energy, okay?

Primarily focused on offloading renewable and balancing the grid, okay? So these are 1 to 2-megawatt-hour units on the left, basically 20-foot trailers. And these are small 25-kilowatt-hour units on the right, something you might put next to your home or next to an EV charging station and the like, okay? This is our little manufacturing facility. It’s a pilot facility. This is producing cells. We’re testing cells now. We made an announcement just about, oh, I don’t know, a little bit ago. Let me see if I can remember that. Here we go. Next slide, in June, right, June-July, okay. So, just recently announced that we were making our first cells, we’re in the testing and the refinement of the manufacturing process, and we’re just beginning to work on the Scale-Up to what we call the Spartan cell, and the Spartan cell will be a 10X of this smaller cell unit that we believe will be the commercial design.

Okay. So, we’re making good progress. What’s unusual about our strategy is we believe the business model is quite unique. Cell battery factories, don’t sell batteries. Cell factories, not batteries. Okay, why? Why do that? Well, I’m going to show you why. The average battery factory is going to take two and a half years to manufacture, to set up, to make operational. We believe that with about a $100 million CapEx, that battery factory can produce 1.5 gigawatt hours of battery storage cells and packs per year, and in today’s market, that would generate $0.5 billion top line revenue. So, what we’ve done is we’ve gone out to the marketplace and said, we’d like to put our partners in the business. So, who are the partners? Well, it could be a financial type, somebody that wants to make money.

It could be someone that’s in the renewable energy business. It could be a public utility. It could be countries. It could be land developers, energy parks, data centers, big data. People that want a lot of batteries, okay? And our model is to put them in the business. And what we seek in that business relationship is a 6% royalty and 19% carry interest in the equity of the project. That means that as credits are generated, which right now would represent about 40% credit, that can accrue to the general partnership. We would participate based on our equity ownership. It also allows for clean financing. It also allows for leverage and scalability in the financing. Okay. So, we’ve gone out to the marketplace. We have at least seven of these interested parties at the table.

We have lots of handshakes going on, not formalized business deals yet, primarily because we’re working on the financing and working on the equity to pull this off as we advance the science of the batteries. The excitement and the response from our proposal is astounding. I believe that this is the type of business opportunity that not only conserves capital, but highlights the core competencies of our company. Engineering, the dealmaking, the support, the training, the handover, leveraging the balance sheet and the capital resources of people that want a lot of batteries, okay? Now, the caveat to all this is there’s a lot of work to do. So, it’s early in this stage. We’ve also historically been able to bring in direct investment capital. Again, another capital conserving strategy for BioLargo so that we don’t dilute on a continual basis the parent company, the capital necessary to advance these causes.

And right now, we’re focused on a couple of things, the scale up of the battery design, the refinement of the modeling for a battery factory, the processes and the capital and the time, so we’re doing extensive detail in that area, and then the partnerships and what those can look like in the various financing that comes to bear. Personally, and I think corporately, we’re very excited because it’s not only is the battery itself represent a significant opportunity, but the business model presents scalability. So, that’s the business update for the quarter. I think we’re going to open it up to questions now. So, Mr. Loper, are you with me?

A – Brian Loper: Yes, sir. Thank you very much, Dennis. That was a great overview, dove into some key areas of the business. Thank you for doing that. If anybody had trouble with that video about the Cellinity battery, we are going to make it available on biolargoenergy.com. All right. So, yes, excellent news this quarter with record revenue, right, I mean it’s got to be the key takeaway here. Another positive quarter, record quarter having a record year, like $5 million in Q2; we’re up to almost $10 million so far this year. And we’ve seen this now for a number of quarters in a row, which is terrific for folks that have been holding for a while, but we’re also ready for payday. So, I’m wondering, from your perspective, we’re on an upward trajectory with Pooph, Clyra, with the WaterTech, with battery, but what would have to happen for BioLargo to stop seeing such growth?

Dennis Calvert: What would have to happen to stop seeing growth? You mean what would derail it? What’s the risk of having it derailed? Is that the question?

Brian Loper: Yes.

Dennis Calvert: Okay, that’s fair enough. I think there’s a couple of things in dynamic on that. It’s an interesting question. The first is that I think Pooph has demonstrated significance in their ability to meet their targets over time. So, we don’t expect that to change. They are in a very competitive market, so rest assured it’s just a lot of competition. But they’re extraordinarily good at what they do and the product lines are expanding and the retail outlets are expanding, and they’re doing great. Okay? So, that’s one. We also have expanding commercial opportunities of significance, Clyra being one of them. When it finally does launch, and we believe, as I said before, we’re close to being able to move forward in a significant way.

When it does, the economics will astound you. And as I said on a number of occasions, if we like Pooph and the implications to our company, Clyra could be a 7x to 10x from that. I mean, it is a dramatic development, and with significant distribution and revenue growth of extraordinary opportunity. Hence, we’ve now invested 13 years and $18 million. We’re not messing around. We’re really serious about that product line and the importance for the world, okay? In addition, the engineers have demonstrated, like in this last quarter, they generated revenue of about $1 million. That was a record quarter for the engineers. Let’s not miss that. Of that, there were some equipment sold that was part and parcel of the projects. So, it wasn’t, it’s a margin that’s a markup on the supply of equipment.

So, it’s not services, but that’s part and parcel what they’ve done. And we also believe that the water company with the equipment group is also going to continue to expand. So, what threatens us? What threatens us? Well, not much, I mean, we have competition to overcome at every level, but our balance sheet is strong. Our cash position is strong. We’ve demonstrated ability to make sure that we get the capital necessary to execute. We deploy capital conserving strategies. We feature transformative tech that finds a foothold. So, as we form these partnerships, we’ve had some that have moved very slow. Gary Callan is one of them. It’s a very slow developing relationship. It’s still very, very good, and we predict success. I know it’s hard for people to understand how that could take so long.

I guess as you look back at our development cycle on the industrial odor control that took us years to find our foothold in the marketplace, it’s kind of the nature of presenting disruptive tech in an old, stodgy market that’s slow to adopt. Nonetheless, we predict success. So, I don’t know if that answers the question, but we’re not in a position of feeling a significant level of fear on things that can derail us from continuing to be successful. In fact, it’s the opposite. The opposite is that with our diversity, with our leveraging our core competency, conserving capital in the way we do, we think the future is exactly the opposite, quite promising and very exciting since we’re in a better financial position with more critical mass and more customers and more revenue, more success than we’ve ever had before.

So, we think it’s time to leverage that up. Okay?

Brian Loper: Great. Yes. Thank you for answering that. So, first question here before we dive into the subsidiaries, gentlemen Michael says, thank you for the call and the Q&A. The growth was accompanied by a dilution of the share capital. Are there plans to stop the dilution?

Dennis Calvert: Yes. Sure. Thank you. So, of course, yes. So, two things have happened there, one, notice that last quarter, which we already mentioned, we have not raised any money directly into the parent company nor have we tapped into our equity line because we didn’t need it. So, then, how do you support innovation like our battery tech and the medical company, right? So, the answer is, you bring direct investment in, which is what we’ve focused on in the past and will continue to focus on in the future. The parent company, BioLargo has supplemented those endeavors from time-to-time to make sure they get where they need to go. Last year, we made an investment of about $750,000 in Clyra. It’s important to note that we did that on the same terms as the current round of investment.

So, the investors who come in, we basically match the price. We’ve also recently done the same thing in the Battery Tech, where the valuation is set, it needs a little more money. We’ve been in the enviable position to advance capital to advance its cause while we then seek third-party investment capital into the subsidiaries without diluting the parents, okay? So, that’s pretty dramatic in the last 100 days, right? And so, if you look at the share count, the dilution impact is continuing to lessen. And of course, I did mention that we had conversion of warrants and some option coverage that did face some dilution in the last quarter, but those were already factored into the fully diluted share count and now they’ve converted from a warrant to an execution.

So, all of that’s getting better. So, we think it’s a very good sign, and we think it can continue. Go ahead.

Brian Loper: All right. So, yes, let’s dive into the moneymakers. Few questions here about Pooph. So, Mr. [Falk] (ph) asked, it appears merchants are well stocked with Pooph. Will there be a bit of a slowdown in wholesale sales?

Dennis Calvert: Yes. We don’t know that. So, Joe, I appreciate that question. I don’t know. We don’t have any indication that that’s the case. I think that the sell through of product is really marketing driven for Pooph. I think that’s how they would answer the question and they’ve got expanded marketing and expanded product line. So, right now, we have no reason that we’re aware of to predict a reduction in sales for Pooph.

Brian Loper: All right. Mr. [Gingerelli] (ph) asked the Pooph potty pads would seem to be an excellent addition to the product line. Are there sales projections from Pooph, Inc. or O&M for the pads that you can share?

Dennis Calvert: No, I wish I did have it. I don’t even know how to even touch it. We first of all, the marketing and the budgets is well within the control of Pooph, Inc. They control their spend. I know historically that when to sell more, they spend more. And the beauty has been they get a nice rate of return, right? So, they get a nice return of dollar spend versus dollars generated revenue. So, that metric has been a really favorable metric for Pooph, and that’s where their expertise rests. But they’re also under no obligation to give us forecast in that way. And so, the way we think about it is they’re going to go test, market, find the market, build customer awareness, and refine it continually. That’s what they do. And given their track record, we bet it’ll — I would bet it’s going to be a nice hit, nice home run. But that’s all I got, okay.

Brian Loper: All right. So, let’s move on to Clyra. So, you had mentioned during the presentation that you’ve been working on a deal for over a year now, a co-branded product for commercial scale rollout, that that’s all moving forward. You mentioned that there are multiple parties involved. And I was wondering if you could clarify if that’s in the deal, in production, distribution?

Dennis Calvert: Yes, sorry. Yes, we should be more clear. Thank you for the clarification question. Yes, that we should be more clear. So, the product focused on the surgical suite, which is Bio Cleanze is a product that’s already cleared under 510(k) as a med device by the FDA. And as we co-brand it, we would then be required to file paperwork with the FDA. And if there’s any enhancement to the claim set, those would also have to be approved under review by the FDA. Okay? And that exact detail of that, we don’t believe it’s an elongated process, but there is some process. Okay? So that’s underway. Relative to the concept of other parties, in order to successfully produce this product with our intended partner, we needed to bring scaled manufacturing capability, and we found that through Keystone Industries.

And we entered into a supply arrangement with Keystone so that they can contract manufacture to an FDA spec. We like them very much. They meet spec. They can meet volume requirements. They’re substantial. They’re expert. And they also have other channels in which they currently sell product that might be really good for us. There’s a high level of collaboration. Having said all that, the focus is on these products to get ready for the scale required to support supply, okay? That’s it. So, in that relationship, there’s basically three parties. There’s our distributor, right, that would then share a brand on a co-branded products. They would secure some rights to exclusivity naturally. That’s how it works. There’s us, which is basically called a virtual manufacturer.

That means that our label, our liability, our claims that are approved through a clearance with the FDA, a clearance process under 510(k) for a label are produced under contract manufacturing with a qualified FDA contract manufacturer. That’s what we’ve got. So, there’s three parties in that deal. Okay? In addition, remember that we have multiple product designs. Those other product designs have other partners that are coming to the table. So, that would include burn, wound, dermatology, dental, potential ocular. We don’t have a lot of work there yet, so eye care, and more and more. Our patents cover a lot of different areas in the health care and medical field that we can apply. Those are the ones that are on the drawing board. The good news in the platform is that we can actually see potential medical device, even drug pathways.

There’s all sorts of opportunities for this technology. Right now, we’re focused on getting our surgical product under a co-branded partnership launched, and that will provide ample proof-of-claim and financial success and all the things that we’re all looking for. So, we’re really anxious to get that done.

Brian Loper: Yes, absolutely. And this is something we’ve been talking about for quite a while now. So, it’s been frustrating to say the least for some to hear all this but not quite see it on the balance sheet quite yet. So, Mr. Gingerelli asked in general terms, when can we expect Clyra sales to begin? And what is an estimate of the dollar value?

Dennis Calvert: Yes. It’s really hard. So, yes, so it’s of course, the burning question for everyone, when and how much, right? So there you go. Pat, you nailed it. When and how much? It’s taken us so long, and we’re in such the throes of preparation, that I think it’s a mistake to pin down a date. We’re now at a position where we just believe that we’ve done the work necessary to get this partnership going, and it’s going to take its normal course. Once that happens, there’s a series of things that’ll happen, right? The first is formation of the formal relationship, that’s the contract. So, once you get your contract, there’s deposits, there’s orders, there’s then making sure paperwork with the FDA is complete, and there’s a process it goes through.

That process could be anywhere from, let’s call it, four to seven months, that’s reality, okay? So, there’s a deal that’s signed first. Then there’s the final prep to launch product. Then there’s sales training, then there’s distribution. And so, all in, from the time you say go, you’re probably talking about six to 12 months before you hit your full run rate. It’s hard for us to predict the full run rate. But it wouldn’t surprise us if those revenues, as it hits full run rate, could easily exceed four and five times the revenue that we’re doing at Pooph, okay, so it’s big business, or more. If you look at the size of the market that we’re focused on, and the idea that we are a transformative technology in that industry, with claims and safety profile that the other incumbents cannot meet, and we’ve combined it with a global partner of highly recognized brand, and sophistication, and standing in the marketplace, we think that that product is the kind of product that could, over time, go into the quarter to $500 million in revenue kind of profile.

So, it’s very important to get perspective of what we think the future can hold. The timing of it is extraordinarily uncertain. And so, it is what it is. What I can say is it’s meaningful, and it’s — to-date, if it happens the way we think it’s going to happen, it would be one of the biggest commercial successes in the portfolio of the company. But we do have others in the works, so we think there’s more to come. Roundabout way to say you got to wait it out.

Brian Loper: Yes. Pat’s got another question for you. Are there products for wound care that are on par with Clyra at this time regarding effectiveness?

Dennis Calvert: Are they on the drawing board or are they on pause, what was the question?

Brian Loper: On par, are they as a —

Dennis Calvert: Par. On par, thank you. Yes, so are they able to compete in the market? Yes, we think so. Yes, for sure. So, wound and burned is a classic, that’s a market where we anticipated, years ago, and we’ve always believed that it would have a showcase for the technology in that market. It’s not as big as surgery, okay; it’s not as big a market. But it layers in, right? So, when you say a wound care product, that’s a product that, in the lingo of that industry primarily refers to chronic infected wounds, but it’s much more, right? It’s much more. It’s bandages and dermatology, and it just goes on, and on, and on. And so, in each of those is sort of a sub-niche market within the category. And when you put them all together, it still is not as big as surgery, okay?

So, on par, yes, broad-spectrum efficacy, gentleness, no systemic, no local tox, data from research that proves it’s got biofilm efficacy. Yes, it’s a winner, right? So, not only is it on par, I think I’d argue that it’s superior to all the product that I will compete with. We believe it’s superior, which is why I’m just going to remind everyone, we’ve been willing to invest 13 years and $18 million to get here. It’s not time to cower; we’re in it to win it.

Brian Loper: All right. Moving on to water, so this is a question by Mr. [Goshi Shareef Haran] (ph). It’s a two-parter, but we’ll break it down here. All right, so competitive lead time, how long do you estimate it will take before competitors can develop a similar PFAS treatment solution considering the technology advancements and market position?

Dennis Calvert: It’s a good question. We don’t know anyone that’s working on a similar design. So, let’s start with that, we think we’re unique in our thinking about these products. The EPA came out and said to the world, “We’re going to sponsor innovation for disruption technologies.” And the theme at that time was what they call in the field or in-situ destruction out in the field. But since then, the PFAS has become of global importance. It’s now designated $17 trillion market. The incumbents are falling short. Regulatory enforcement has expanded to CERCLA and RCRA, which means the hazardous materials themselves are really critical to handle carefully in compliance with the law. A lot of money flew into destruction, which is fine.

There’s nothing, “Wrong” with that. But the thesis, in our opinion, at inception, right, should have been, could have been, to focus on super concentration, because if you super concentrate, destruction is actually very easy. Right now, people say destruction is so hard because, what? Well, because you’re dealing with 80,000 pounds of junk. Okay? And depending on the destruction technique, you’ve got pressure and energy and explosiveness and production of gases and the creation of toxic molecules that are the result of the destruction technique. I mean, it’s all sorts of stuff going on, okay? So, we look at that market and we say, “Look, we’re in the patent process. We have a lot of know-how and trade secrets. We’ve invested three and a half years on this actual design.

And the creation of the design comes from 25 years of field experience by what we would call world-class environmental engineers.” I mean, they’ve been doing this thing for 25 and 30 years, right? So, can someone come out with something comparable? I guess in theory it’s capable, but we’ve got patent advantage, we’ve got three and a half years jump, we’ve got career experience, and we’ve now advanced ourselves to a commercial status that no one with the alternative technology has even gotten a commercial account. So, I don’t know. I don’t think they can catch us. I think we’re in a pretty good spot. And the incumbent technologies that are finding deployment are going to have a very difficult time. I mean, it’s just not going to last. And the crazy thing about that is when you look at the politics, if you will, of the customers making decisions about deploying old technologies, what’s happening is they’re more concerned with the politics of making a safe choice.

We get it, safe choice. And they don’t pay the bills. The federal government or the state or the public utility pays those bills and they pass the cost to the rate payer. That’s what happens, Okay? So, they’re more interested in not failing. And so, it’s really easy to say, I’m going to go with a carbon or ion exchange system when there’s no scaled deployment of alternative technology in the marketplace yet. And if they’ve got to go fast, that’s what they do. They go fast with something that’s safe politically, even if the cost to handle the waste stream is 5X. That’s what they’ll do. You know, why, because they’re just going to pass the rate back to us in the form of higher bills for their water. We’re trying to break that model, okay? So understand how difficult it is.

We’re lobbying with both sides of the aisle. We’re at the Senate. We’re at the Congress. We do have professional lobbyists. We’re working with probably PFAS, you know, we’re working all the channels to really go to the people that care and say, “Look, not only can you solve the issue, but you can save billions,” literally billions and billions for the United States of America and other countries. So, that’s what we’re doing. And we will find our way through it. I believe we will find our way through it. We’ll also find our way into some meaningful partnerships that will move significance in the marketplace. But the early days, they talk about the adoption cycle, the Valley of Death and all that, right? The fact that we’ve got a commercial account, proven technology, and we’re in a financially stable business, we are in a financially stable business.

And we’re innovating in a highly difficult, slow adopting, critical market PFAS. So, yes, I think we’re going to win, so —

Brian Loper: Another question from the analyst, cost analysis assumptions, can you give us a little more color on the assumptions you made in your cost analysis regarding the cost advantage of AEC, particularly in relation to the current regulatory environment and potential future tightening, step-up, and cost to your competitors?

Dennis Calvert: Yes, let’s see. Yes, boy, I need Tanya on the phone. Yes, sure. Let me come up with a little bit of that. Let’s see. Yes, when we looked at that, we did a systematic approach and we can read detail of this as well later. We’re happy to have some of this published. I’m actually doing a presentation next Thursday where all of that data is going to be public information at the Sustain SoCal event. And that’s going to be online as well, I believe and it’s also local at UCI, University of California, Irvine. I encourage anyone to come. We looked at the — when you do the analysis, two things. We looked at what the systems were commonly deployed, a flow rate, the average population served, looked at the CapEx, and then we calculated the amount of waste stream, and we looked at the average cost to treat waste, and we also looked at the average cost to transport waste, okay?

And we built a model, okay? And so, in our system, for a small system for a small community, to replace the module, the carbon replacement for a carbon system, you’re going to spend something like $21,600. And that’s for the AEC. The carbon system would be two and a half times that number, almost $50,000. Our disposal at $3 a pound is 413 bucks, the disposal for 14,000 pounds of department, roughly $45,000, $400 versus $45,000. Okay, so it’s that kind of analysis. And then, when you look at a bigger system, right, capital cost is probably in the $4 million to $8 million range. Replacing a carbon module, right? For a large carbon system to handle that kind of flow rate is about $300,000. Ours would cost about $6,000. We produce the waste stream of carbon.

That’s 540,000 pounds of waste, right? To destroy that, haul it and destroy it, it would be about $3 million. $3 million, okay? Ours is about estimate disposal for our system is, and then the estimated disposal for that 540,000 is 1.6 million. So, the module replacement when the carbon is spent and the replacement is almost equal to the CapEx when the carbon is spent. That’s approximately $4.9 million on a system that costs $4 million to $8 million to build. Okay. So, then the assumption curve, when you look at those numbers, as you calculate the cost to manage the waste stream, if that number continues to climb, the economics swing in our favor dramatically. So, again, we said between 400% and 300% savings on the life cycle costs of the system.

And we’ll try and get some public information out so people can see that in more detail. Again, that’s a lot of detail.

Brian Loper: All right. Great. Thank you for that. Appreciate it. Those are all the questions we have time for today. But thank you very much, Dennis, for the answers and going through this all with us.

Dennis Calvert: Yes, thanks, everyone, for joining us. And again, stay in touch, reach out to us anytime, and we appreciate you very much. Keep plugging away.

Operator: This concludes today’s conference, and you may disconnect your lines at this time. Thank you for your participation.