BioLargo — Incubating innovation in iodine

BioLargo is a diversified science and technology company developing and commercializing products in the healthcare, water treatment and waste handling industries. Its core development expertise is in novel products leveraging the unique chemistry of iodine, but it is also engaged in opportunistic business development to cultivate independent subsidiaries specializing in different markets. Its most commercially advanced product is CupriDyne Clean (under the Odor-No-More subsidiary), an industrial odor control product marketed to the waste management and water treatment industries (among others). Its medical subsidiary, Clyra Medical, is seeking approval for its iodine-based wound irrigation product, which has a 510(k) application submitted to the FDA. BioLargo is also in the process of concluding an acquisition of Scion Solutions, the developer of an autologous tissue therapy called SkinDisc for treating chronic wounds. It is also developing its Advanced Oxidation System (AOS) through the BioLargo Water subsidiary as a low-cost solution to industrial water treatment. The system is an electrochemical cell of unique design and is entering the pilot stage. Finally, these efforts, as well as other contracts, are supported by an in house environmental engineering services company, BioLargo Engineering Science and Technology.

BioLargo is revenue generating ($327,000 in Q218) and growing ($100,000 in Q217), but outpaced by expenses. The net loss for Q218 was $3.6m, of which $1.7m comprised non-cash payments associated with convertible notes. The majority of these notes have been recently converted ($2.0m vs $6.8m at year-end 2018), so we expect this expense to go down significantly.

Given the diverse operational focus of the company, it faces a diverse and unique set of risks. Although adoption of CupriDyne Clean is progressing steadily, it is entering a highly fragmented market. Given the lack of low-cost, effective options, we expect customer confidence in new solutions initially to be low. Gaining momentum in this environment may be difficult. The company has initial inroads with some of the largest players in the solid waste industry, but these need to be further developed before broader adoption. Adoption in other industries (such as water treatment, composting, or animal waste) remains exploratory, and these channels will likely be commercialized through distributers. The company’s medical subsidiary, Clyra, faces the risks typical of pre-commercial healthcare companies, both regulatory and clinical. The ongoing 510(k) application is lower risk than other regulatory pathways, but not completely without risk, and the company will have to perform clinical trials for both its irrigation product as well as SkinDisc to support marketing claims. The company’s water treatment program, AOS, is just entering the pilot stage, and all devices produced to this point have been small prototypes. The company will have to establish that this technology is scalable to address real-world industrial water treatment needs. This will be tested in the first pilot programs for poultry waste and oil sands processing. If the product is successful on this score, it will face certain commercial risks, including establishing an attractive value proposition over well-entrenched existing technology. The risks to each subsidiary are unique but, given this diversity, there is proportionally less risk to the parent company. The biggest risk to the parent is financial as we expect the company to require additional capital, which may result in dilution. This is a risk shared by pre-commercial companies, but we expect at least part of these financing needs to be satisfied through the licensing or potentially spinning-out of its technology.

BioLargo is a chemical technology company based in Westminster, California, which is developing a suite of products across a range of industries, including healthcare, waste management and water treatment. Instead of focusing on a particular industry, the company opportunistically develops new technology from its core expertise, and develops this technology though the use of operationally focused subsidiaries (Exhibit 1). Historically, this expertise has focused on the chemistry of iodine, although it has expanded beyond this original platform and includes in-licensed technology as well as a service business. It plans to continue to operate as a developer of new platforms and products that it can both integrate into its existing businesses and develop into new companies. The company maintains a team of PhD research scientists to drive this process.

BioLargo’s most commercially advanced technology is CupriDyne Clean, a product marketed for odor control through the Odor-No-More subsidiary. CupriDyne is currently commercially available and marketed to waste management and water treatment industries. The company’s healthcare subsidiary, Clyra Medical Technologies, is focused on developing products for topical disinfection and wound care. The company has submitted a 510(k) application to the FDA for an antimicrobial iodine product for wound irrigation, and a response is expected in H218. BioLargo is in the pilot stages of developing a water treatment technology through its BioLargo Water subsidiary with the so-called Advanced Oxidation System (AOS). The company has the BioLargo Engineering, Science and Technologies (BLEST) subsidiary, which is a full service engineering company. Finally, BioLargo previously licensed the iSAN iodine delivery system under to Clarion Water, although this product is currently on commercial hold at the company and is not covered in this report.

CupriDyne Clean represents the technology developed at BioLargo that has driven the majority of its commercial and development efforts. It is currently being marketed as an odor control solution for various industrial applications such as waste management and water treatment in US markets, but historically the company has examined the technology in an array of products including consumer products such as diapers, deodorizers, and cat litter (which are currently deprioritized, but available for partnering). It was launched as an industrial odor control product in 2016 and remains in the early stages of commercialization, with $190,000 in sales in Q218 ($327,000 in total sales for all odor products). In addition to the product, the Odor-no-More subsidiary also installs and maintains the systems used to deliver CupriDyne Clean.

The product is used by dissolving it in water, which is then aerosolized in the vicinity of the odor needing control or sprayed directly onto surfaces responsible for the odor. Unlike other odor solutions, it does not mask or bind odorants, but destroys them in the air. Additionally, in a detail that is important for many of its applications, CupriDyne does not destroy the source of the odor, for instance by killing microorganisms. This is key for waste management, water treatment and other industries because these microorganisms are important to the industrial process. The Water Environment Federation recently highlighted the product at its 2018 Odors and Air Pollutants Conference as a best practice for odor control. Additionally, the California Department of Pesticide Regulation has independently determined that CupriDyne does not have the properties of a pesticide, which is important for widespread use.

At its core, CupriDyne Clean is a product designed to generate low levels of molecular iodine (I2). I2 is generated through a chemical reaction with copper (hence the “Cupri” in CupriDyne) that occurs when the components of the product are mixed. The I2 is produced at very low doses that do not pose a threat to safety or have toxicity against other organisms, and infact is considered nutritive at these concentrations (as are the other reaction byproducts).

The chemistry of I2 is very well understood, but the innovation of this product was the determination that this chemistry could be leveraged for the elimination of airborne odors. Iodine is a reactive molecule with a significant oxidizing potential. Moreover, in solution, I2 can react (dissociate) in water in a pH-dependent manner to generate hypoiodous acid (HIO), which has a further increased oxidizing potential. In addition to the aforementioned salts, CupriDyne contains pH buffering agents to control the rate at which I2 is converted into HIO. We believe that both of these molecules contribute to the activity of the product.

Oxidizing potential is the capacity of this species to remove electrons from other molecules, which typically destroys them in the process. The oxidizing potential of I2 and HIO is tied to antiseptic properties, which is why aqueous iodine has been widely utilized for water purification in a number of different contexts. This is commonly recognizable in water purification tablets. Importantly, once CupriDyne is diluted in water, it is not concentrated enough to have antiseptic activity, but its oxidizing potential is significant enough to destroy a wide range of the volatile compounds that typically constitute odors. I2 alters the chemical structures of these volatile organics to odorless molecules.

Iodine has several unique properties that lend themselves to this application. First, I2 has a relatively high vapor pressure, which allows it to be easily volatilized at the concentrations used for CupriDyne to oxidize airborne molecules. The other halogens, chlorine and bromine, could hypothetically be more effective on this score because they have higher oxidation potentials and are more volatile (chlorine for instance in a gas at room temperature), but they are both highly toxic. By comparison, iodine is biologically benign at the concentrations present in CupriDyne (although there are adverse biological impacts at the concentrations used historically in medical preparations, see below).

CupriDyne Clean is marketed for any large-scale odor control application, but this lends itself naturally to certain industries. The product has had the most successful traction so far in the solid waste management industry, and the company is currently working with four of the top seven largest companies in the space (although details have not been released), and management has stated that it expects more contracts with top players shortly.

Despite the ever-increasing waste disposal needs of Americans, the municipal solid waste (MSW) industry has become increasingly concentrated. The US Environmental Protection Agency (EPA) estimates that in 2010 there were approximately 250 million tons of MSW, up 20% from 1990.1 However, the estimated number of landfills was significantly down over roughly the same period: 1,900 in 2009 vs 7,900 in 1988.

Waste transfer stations are an additional market for CupriDyne Clean. These are the facilities where MSW is unloaded from collection trucks and placed into long-distance transport vehicles. Because of this, unlike landfills, transfer stations need to be close to collection sites and therefore population centers, and have significant odor control needs. There are no statistics on the precise number of transfer stations operating in the US, but the company estimates that there are approximately four transfer stations servicing each landfill on average. Materials recovery facilities (MRFs), where recycling is sorted, represent a similar market to transfer stations, and many of these facilities are operated by the same companies that operate landfills and transfer stations.

The industry has become increasingly vertically consolidated, with the largest companies controlling all aspects of the waste stream from collection to disposal. However, significant fragmentation remains. The largest MSW companies are Waste Management Inc and Republic Services, which together only control approximately 25% of operational landfills. Moreover, the operational structure of these large waste companies is highly stratified, with a large number of both regional and local operations that must be engaged separately. We believe that penetration into a given waste management network can facilitate cross-pollination and allow scale up. Management states that over 500 landfills and 600 transfer stations are operated by the company’s current clients and, although a small fraction of these are already ordering product, these represent the lowest hanging fruit.

Another major market that the company is targeting is wastewater treatment. According to the American Society of Civil Engineers (ASCE), there are 14,748 water treatment facilities in the US, and wastewater treatment demands are steadily increasing. Approximately 24% of the country relies on septic treatment systems and is not serviced by these facilities, but that number is steadily decreasing. The ASCE estimates that wastewater treatment demands are expected to increase 23% by 2032 as regions shift to centralized wastewater treatment. These facilities are generally located just outside population centers and therefore face significant pressure to maintain odor control. The company has a limited penetration into this market to date and is currently servicing a small number of pilot customers in Southern California. The company’s longer-term strategy is to use distributors to facilitate entering this market.

Based on the company’s experience with its current clients, it estimates that landfills will provide the largest revenue per client at an average of $120,000 per year. It is reasonable that landfills would use the largest amount of product given their larger footprint and the lack of potential physical containment solutions. Transfer stations and water treatment plants, by comparison, are smaller and odors can be physically controlled via barriers (building walls or pool covers for instance) more easily. However, despite this, given the larger number of these facilities, they represent greater market opportunities (Exhibit 3).

Although landfills, transfer stations and water treatment plants represent the biggest market opportunities, CupriDyne is being explored in other markets. Municipal composting is a relatively small but growing industry where CupriDyne Clean has been successfully tested. The product naturally lends itself to this market considering it does not kill bacteria and does not interfere with decomposition. Finally, the company has identified livestock production as a potential market, which is under increasing pressure to control its emissions and odors. As an example, there have been a number of high-profile lawsuits in the US against pork producers citing the nuisance produced by odor (as well as other factors), with settlements ranging from the tens to hundreds of millions.

The single largest headwind limiting the adoption of CupriDyne Clean or any other odor control product is that facilities in these industries have been constructed with odor in mind. Landfills are built away from habitation; transfer stations and water treatment plants are at the edges of communities and have physical controls. Simply said, odor control is not an issue for a large number of facilities. These industries also employ a number of standardized practices that limit odor emissions. For instance, the practice of daily cover in landfills substantially limits the amount of malodorants released into the air. However, as communities expand, these historic measures to limit the impact of odors may become insufficient.

There are a number of capital improvements that can be utilized to control odors with varying degrees of success depending on the parameters of the facility. Transfer stations are the most amenable to capital solutions, given that they are typically partially or fully enclosed. One of the simplest measures is mixing malodorous air with large volumes of fresh air to dilute any released scents. Chemical scrubbers are utilized for odor control in manufacturing and other settings but require complete control of airflow and have high capital costs that limit their application to waste processing. CupriDyne Cleanhas the potential to be used in such scrubbers, although ozone generators provide a solution not wholly unlike CupriDyne Clean in that they provide a method of chemically oxidizing odorants. However, ozone itself has a strong scent and potentially negative health effects, so its implementation must be made carefully with the welfare of workers in mind.

Competing chemical odor control products can be roughly divided into three categories: fragrances, barriers and adsorbents. Fragrances are straightforward and mask odors. Barriers are products that form a layer of material that traps odorants. These include products like RusFoam, which forms a foamy layer of material applied as a daily cover in landfills and prevents the escape of odors. Adsorbents are products that bind odor molecules and sequester them from the air. These come in two subtypes: solid mineral granules that are typically placed at the perimeter of facilities or solubilized absorbents that are dissolved in water and sprayed into the air to remove airborne scents. The Ecosorb product from OMI Industries is an example of a chemical adsorbent. Generally speaking, the market for these chemical solutions is highly fragmented and penetration is low.

Clyra Medical is a subsidiary (46.3% owned by BioLargo) established to explore the medical applications of BioLargo’s technology, with a particular focus on wound care. This is being pursued through two independent products. First, the company has adapted its iodine technology (similar to how it is used in CupriDyne) for use as a wound irrigation solution. This product has been submitted to the FDA for 510(k) approval, and there is the potential to adapt the technology to other products such as wound dressings. Second, the company recently announced the planned acquisition of Scion Solutions and its SkinDisc technology. SkinDisc is an autologous cell therapy product intended for the treatment of chronic wounds, which the company intends to advance to clinical trials. The strategic goal of the Scion acquisition is to establish Clyra with a sufficient platform to operate as an independent company, with a spin-out planned for 2019. Clyra will be raising capital independently towards this goal (as per the contingencies on the acquisition discussed below).

Iodine has a long history of use in the medical setting and is indispensable in current medical practice as a topical antiseptic. Tincture of iodine was developed as a pre-surgical antiseptic in the early 20th century. Currently, the most widespread iodine formulation is povidone iodine (eg Betadine), which is an iodophore that slowly releases the molecular iodine (I2) responsible for these products’ antiseptic properties.

As previously discussed, I2 is an oxidizing agent which reacts with a range of organic and non-organic molecules. At the high concentrations used in medical preparations of iodine, this reactivity is sufficient to chemically modify proteins, lipids and nucleic acids. This indiscriminate reactivity is responsible for the broad-spectrum antimicrobial activity of iodine, which is excellent against Gram-positive bacteria and many Gram-negative bacteria, viruses and other microorganisms. Additionally, given this mechanism, microorganisms are generally unable to develop strategies to mitigate the damage and acquired resistance is not observed.

However, the reactivity of iodine with biologic molecules, which is responsible for its efficacy as an antiseptic, also limits its applicability in the medical setting. Iodine will similarly react with tissue that it can penetrate and can cause irritation to mucous membranes and exposed tissue. This is why iodine is limited to topical skin use, but even in this case irritation and skin reactions are not unheard of, albeit rare.

The goal with BioLargo’s wound irrigation product is to provide sufficient antisepsis while avoiding the limiting irritation of other iodine preparations. The precise formulation of the company’s medical products has not been released. However, we are aware that it relies on the same basic technology as CupriDyne: copper-mediated in situ generation of I2. Based on the information provided, it is unclear how the product can achieve these stated goals, although the company has provided a series of claims regarding the product (Exhibit 4). However, we are aware that the company has performed a series of studies in pigs to support the safety and activity of the product. In addition, a potential ancillary benefit is that the product is capable of delivering antiseptic levels of I2 without the risk of staining associated with other iodine products.

The company’s wound care program is its most advanced for the product, and it has submitted a 510(k) application to the FDA for marketing approval. This is a typical pathway for approval of wound dressings and irrigation solutions, and no clinical studies are needed for the initial application if it is found to be “substantially equivalent” to existing products, ie not sufficiently different to warrant safety or efficacy risks. However, we do expect the company to perform post-approval studies to support claims that the product improves healing, etc. A response from the FDA on the initial application is expected in H218. In addition to irrigation solution, the technology could also be integrated into other wound care products such as dressings.

The company has also identified a series of follow-on indications where it believes the product could be useful and has provided basic timelines for these programs (Exhibit 5). However, we believe these will be predicated on the approval and success of the irrigation product.

On 2 October 2018, the company announced that it had entered a definitive agreement to acquire Scion Solutions, a developer of cell therapies for the treatment of chronic wounds. As part of the deal, Scion will receive 20% of Clyra stock (half vested on closing the deal, and the remainder tied to performance milestones), 7.1m shares of BioLargo stock (with the same provisions as the Clyra stock), and a promissory note for $1.25m. The whole deal is contingent on Clyra raising an initial minimum capital of $1m within the following 120 days. The technology developed by Scion is unrelated to the iodine-based technology developed by BioLargo, but the acquisition is being pursued to position Clyra as a diversified wound care company.

Scion’s primary development program was the so-called SkinDisc technology, a therapy that uses a patient’s own plasma and bone marrow to make a cell-rich biogel for use in chronic wounds. The product is delivered as a kit intended for use in the operating room, which enables the production of a biogel generated by the patient’s own tissue. This biogel can act as a scaffold for additional cells to migrate into the healing environment to promote healing. This process is designed to be completed in less than 30 minutes, so that a patient’s cells can be extracted and the wound treated in a single procedure.

The product has been tested in over 250 patients and the company reports that no adverse events were observed and that the product successfully aided in the salvage of limbs that would have otherwise been amputated. We expect a formal clinical trial will be required to support an application to the FDA. The company’s current timeline is to launch the product in 2022 following completion of such a study and FDA approval. If the product can successfully prevent amputations in clinical trials, this could significantly improve outcomes (given the high mortality in these patients) and we believe it will be an attractive value proposition to payers (given the high costs of these procedures).

The majority of development in the wound care space is devoted to addressing difficult-to-heal chronic wounds. Chronic wounds consist of four basic subtypes (Exhibit 6), but the common unifying factor in all chronic wounds is reduced blood flow to the site of injury. The initial lesion can be any sort of superficial tissue damage, but lack of blood flow triggers progressive tissue degeneration due to the restriction of necessary white blood cells and oxygen to the wound site. Increased inflammation causes the destabilization of the extracellular matrix under the skin, preventing the migration of new cells into the wound.2 Additionally, healing is further frustrated by the growth of biofilms, which proliferate in the absence of immune cells to protect the wound site.3

The total addressable market for chronic wounds is very large given the high prevalence of the disease. A recent analysis estimated an existing annual cost to Medicare alone of $6.9bn for diabetic foot ulcers and $4.6bn for pressure ulcers.5

There is a wide range of products for use in the treatment of chronic wounds. This includes preparation materials, fillers, wound dressings, debridement aids and medical devices, among others. The irrigation solution will compete most directly with antimicrobial preparation and dressing products. Smith & Nephew currently has an iodine-based wound dressing and preparative gel called Iodosorb (cadexomer iodine), and we expect this product to be the primary competition for the wound irrigation solution. It uses a polymer-based system to slowly release stored iodine. To our knowledge, it is the only iodine-eluting wound care product currently available. There are a number of other competing technologies including silver and chlorhexidine washes and wound dressings. This includes Tegaderm from 3M and Acticoat from Smith & Nephew, among others. By comparison, the SkinDisc product does not have direct analogs on the market, although we expect it to compete primarily with other procedures, for example those treated by negative pressure therapy and skin grafting. It may also compete with wound care biologics such as Regranex (becaplermin; Smith & Nephew), as well as biomembranes such as Epifix (amniotic membrane, MiMedx).

The BioLargo Water subsidiary was formed to investigate applications of some of the company’s discoveries to water treatment. The company is developing a water treatment device, which it has termed the Advanced Oxidation System (AOS). As the name implies, it is intended for use in the oxidation step of water purification when biological contaminants are destroyed. The system is still in the prototype stage of development as the company investigates its mechanism and applicability.

Like much of the other technology at BioLargo, the AOS is centered on the chemistry of iodine. Iodine has a long history in water purification (as discussed above) based on the oxidative potential of iodine itself as well as the hypoiodite ion. However, the AOS is designed to further enhance the oxidative potential of iodine by electrochemically generating more highly reactive molecules. Water entering the device is lightly doped with iodine, and it flows through an array of alternating electrodes. These electrodes then generate a variety of oxidative species, which include high-order iodine oxyanions. These molecules are extremely reactive and some such as periodate (IO4-) can break a wide array of chemical bonds and are highly cytotoxic. The fact that this type of system could generate iodine oxyanions was a discovery made at BioLargo and the company is currently studying the mechanism of their generation. It has generated data, which support that the system can disinfect water from a range of microorganisms. A benefit of the system is that the high reactivity of the species generated can also remove a range of organic contaminants.

This process is superficially similar to electrochlorination, which is another electrochemical water purification process employing chlorine. Electrochlorination generates sodium hypochlorite (NaOCl) from sodium chloride (NaCl) and is the main method of “chlorinating” drinking water. However, there are a number of differences in the systems and their purpose. First off, although both systems employ halogens in their operation, electrochlorination uses ionic chloride, whereas the AOS uses the more reactive and oxidizing molecular iodine as its feedstock. The chemistry of ionic halides is fundamentally different from molecular halogens, and as a result the products of these two systems are different, and the AOS generates more reactive, higher-order oxyanions. Moreover, due to the different chemistry, as well as aspects of the cell design (the AOS is designed to produce a high capacitance), the electrical needs of the systems are significantly different. The company is positioning the AOS as a potential low-energy solution for water purification. A final difference is that the end-product of electrochlorination is chlorinated water, which retains some resistance to further contamination. This is important for municipal water systems, where there is potential for contaminants to enter the water stream between treatment and use, and chlorination is used to limit these risks. We do not expect the AOS to generate long-living reactive species, and therefore the product of the system is functionally purified water.

There are several technologies that can be employed in the oxidation step of water purification. Instead of generating hypochlorite in an electrochlorinator, it can be added directly to the waste stream as a solid. This requires very little capital investment, but has higher operating costs. Similarly, gaseous chlorine can be used, although it is poisonous and requires safety controls. UV and ozone systems operate by generating oxygen and hydroxyl radicals (O·, HO·). These systems are better at removing organic contaminants, albeit with limitations. UV treatment is ineffective in turbid water, as the light cannot penetrate. Also, ozone requires both high capital costs and high energy costs. The AOS is positioned as a solution that can disinfect and remove organic contaminants from potentially turbid water with lower energy and capital costs than ozone or UV.

We expect the AOS to be employed predominantly at the point of waste generation. Current prototypes of the device can purify approximately four gallons or less per minute. However, given its simple solid state and lateral flow design, BioLargo believes that it can be highly scalable and modular in nature. Hypothetically, a particular throughput could be reached by the placement of multiple individual units in parallel, with few other capital costs. It is applicable to a range of industries and the company has initiated a series of pilot programs to test its real-world feasibility with the first applications being the processing of poultry waste and the treatment of oil sands process affected water (Exhibit 8). All of these pilot efforts are grant supported, and pose little financial risk to the company. Given the potential environmental benefits of the system, the company has received over 60 separate grants to support its development.

BioLargo Engineering, Science and Technologies (BLEST) is unlike the other subsidiaries of BioLargo in that it is a service company specializing in environmental engineering. It has a staff of six professionals, and there are currently 14 clients under contract. The unit is close to break-even, and BioLargo has previously stated that it expects it to be profitable in the near term.

BLEST’s operations are functionally independent of the rest of BioLargo, although there are a number of synergies. The team has been involved in the design and installation of CupriDyne capital systems, and we expect this revenue stream to scale with the advancement of the product in general. Additionally, the team is involved in setting up the pilot operation for the AOS, and we expect the team to be the primary professionals used for this purpose once the product enters the market. Moreover, BLEST’s engineers are well seasoned in the solid waste and wastewater markets, whose knowledge we expect to aid in CupriDyne and AOS sales.

BioLargo faces a series of risks as diverse as its various businesses. We expect CupriDyne Clean to remain the company’s core product and the primary growth driver going forward. However, it faces a series of commercial challenges. The odor control market is poorly developed and highly fragmented, which may make marketing the product more difficult despite its efficacy. There are a large number of available products with marginal effectiveness, which has reduced the expectations of potential customers, and the company faces an uphill battle in changing perceptions. We believe this is at least in part responsible for the slow rate of adoption to date. The company’s strategy is to target the largest companies in the industry to establish credibility. Implementation of CupriDyne Clean requires some capital expenditure in most cases, which is a potential barrier for a product that has not been proven on the market yet. Additionally, the customer base for the product is highly distributed, and there are a large number of independent operators in the waste industry. Even in the case of the larger consolidated companies in the space, sales contracts tend to be site specific. The product also faces the risks inherent in technology. There is a degree of IP risk, and a competing product with very similar technology may be able to enter the market if the company cannot defend its patents.

Clyra faces the risks typical of a development-stage healthcare company. These include both clinical and regulatory risk. The wound irrigation product may receive marketing authorization in the absence of a clinical trial, but the company will have to perform these studies post approval to support marketing claims. We expect SkinDisc to also require a clinical study before approval, which carries associated risks. Historically, there have been a large number of products that have failed clinical studies in the wound care space. These products also face commercial risks, given the large number of wound care products available, and the fact that many are marketed by some of the largest healthcare companies.

The AOS is the earliest-stage program at the company and still carries significant development risk. To date, only prototypes have been developed. The company is initiating a series of pilot studies, which it hopes will elucidate some of the real-world strengths and limitations of the product. The prototypes that the company has developed have all been relatively small in scale, with relatively low flow rates. However, many of the potential customers the company has identified will require high throughput solutions, and the scalability has not been tested. These customers, similar to and in part overlapping with CupriDyne customers, are frequently independent operators, and there is therefore significant legwork to gain market share, even if the product delivers on its promises.

Finally, BioLargo as a whole faces risks common to pre-profit companies. It ended Q218 with $651,000 in cash. In the same quarter it had an operating loss of $1.6m, so we expect the company to require additional cash to cover these losses until profitability. Raising this capital may result in future dilution.

BioLargo is a revenue-generating company, albeit in the early stages of commercialization. The company had revenue of $327,000 for Q218, which was a substantial increase year-on-year ($100,000 in Q217). The net loss for the period was $3.6m, although a large fraction of this was driven by non-cash interest expense ($1.7m). Company debt is largely held as convertible notes. It has been pursuing reduction in this debt load through conversion to equity, and reduced it to $2.0m from $6.8m at year-end 2017. We expect the company to require additional capital to reach profitability, although we expect a portion of this to be met through business development activity, either the licensing or spinning out of its various products and subsidiaries. However, in the near term, the company has stated the intent to uplist to NASDAQ (or equivalent national market), which will require a capital raise to satisfy the exchange’s $5m equity listing requirement. In a special shareholder meeting on 26 September 2018, a reverse stock split was approved (at a rate between 1:4 and 1:40) to be completed sometime in the following year, in order to meet the NASDAQ minimum bid requirement of $4.00.