BioLargo - Q1 2024

Transcript

Operator (participant)

Good afternoon, everyone, and welcome to the BioLargo first quarter 2024 earnings results. At this time, all participants have been placed on a listen-only mode. It is now my pleasure to turn the floor over to your host, Brian Loper. Sir, the floor is yours.

Brian Loper (Head of Investor Relations)

Great. Thank you, operator. Good afternoon, everybody, and welcome to BioLargo's Q1 2024 earnings results conference call for the month ended March 31st, 2024. By now, everyone should have had access to the earnings press release, which was issued earlier today. 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 that may cause the actual results to differ materially from the forward-looking statements.

A detailed discussion of such risks and uncertainties is contained in our most recent Form 10-Q, Form 10-K, and in other reports filed at the SEC. The company undertakes no obligation to update any forward-looking statements. On this call, we will refer to Non-GAAP measures that, when used in combination with GAAP results, provide us additional tools to understand our operations. With that, I'll now hand the call over to BioLargo's Chief Executive Officer, Dennis Calvert.

Dennis Calvert (CEO)

Hey, thank you, Brian, and thanks everyone for joining us. We've had a great quarter and a great year, and it's a wonderful time to regroup and take an inventory and talk a little bit about the future, for sure. I hope you saw the press release. BioLargo generates positive operating cash flow and record quarterly revenues for the first quarter of 2024. And not just a little bit, it's pretty meaningful. Of course, we still feel like we're just getting started in so many ways, but it is a significant milestone. And also, everyone probably saw the press release just a day ago about our upgrading to the OTCQX. Really nice move, very much a natural next step as the company is really moving into the upper tiers in the OTC that represents about 12,000 companies. It probably puts us in the top 4 or 500.

Of course, it also is a good signal to the market for the company's opportunity to continue upward and potentially national exchange listing, which we've talked about for years, and it's coming closer and closer, which is awesome. At BioLargo, we make life better. It's a big calling, right? Sustainable solutions for some of the biggest problems that face the planet, really focused on good for people, good for the planet, good for commerce. That's a sustainable solution. And that's where we live, and we've lived there for almost over 15 years. And as a result, we're now witnessing some of these technical innovations finding a way to market, generate significant revenues, really proving out our investment thesis, and that is to invent it, prove it, and partner. Easy to say, really hard to do, okay? But meaningful.

And when you get it right, it really works well as it is now. We're going to talk about that a little bit more, for sure. We covered the forward-looking statements, of course, and safe harbors. Always refer to the 10-K and the 10-Q for complete disclosures, including substantive risk factors. I always talk about risk, and really, we pride ourselves on risk mitigation, risk management. But everything we do has risk. I mean, when you're trying to provide transformative technologies in competitive markets, it's a jungle. It's a war out there. And so we pride ourselves on overcoming the hurdles. Sometimes it's taken us a while, but we do overcome. And again, we're witnessing that now. But always refer to those significant filings for a complete picture of the risk factors that impact our business.

Yeah, science and engineers, passionate about health and sustainability and human health, driven by a passion to do something worthy, worthy of a career, worthy of a company, worthy of significant investment. Focus on best-in-class solutions, lots of engineering, tons of engineering and science, and focus on problems without a good solution. That's a big calling. This slide always has way too much for us to cover, but we like to print it so that you can look at it later and just highlight we've got the BioLargo Engine, right? That's corporate office. That's finance. It's a lot of engineering support for all the operating units and R&D at our operation up in Edmonton, Canada, on campus University of Alberta. It's quite a collection of people.

We said in our press release, highly qualified people doing something important and having the freedom to go out and stretch and really tackle some of the biggest problems, as we say, that face the planet and face the industry. Anyway, Clyra is doing great. We're anxious for it to push through on the launch of products to the next stage. It's in the works. It's close. We're making significant investments in the infrastructure. We'll cover that in a minute. The energy company is the youngest, of course. We're producing battery cells. We'll talk about the detail on that in a minute. We'd hope to have those battery cells in our hands in Q1, so we're pushing a little late. There's a number of technical things going on there.

I'll describe that in a deeper presentation, but we're on the cusp of being able to deliver a battery for our own testing, also for third-party testing, which is a pivotal moment to really open up the opportunity to the next step. ONM Environmental, of course, breaking records. With the POOPH in ONM, they're probably carrying 90% of our revenue or 85%. It's a big number. Just continuing to push forward and break records. An incredible year and an incredible first quarter. Really significant. And again, full circle story for the company. Full circle story. It goes back to the origin story of the company. And we're also watching some of these additional product designs come to market in our partnership with POOPH. POOPH has done more above and beyond what we had ever really hoped for.

It's just an incredible opportunity that's continued to expand, and we're proud of that. The PFAS, of course, it's a super hot topic. These most recent regulatory shifts that came out in the last couple of weeks really pushed the market towards us. We're going to detail some of those for you in here in just a second as well. It's really meaningful for the value proposition that we put forward in that marketplace. And again, it's just pushing customers to us. Every time the new rule comes out, people look at you and go, "Oh, now I get it." It's like, "Yeah, now you get it." We're here with a solution that's years ahead, years ahead of those regs and the market. And as a result, we still are very optimistic, difficult, very hard, but optimistic about the future, for sure.

Okay, this is a slide from the last quarter. So that's six years, right? Six years. Look at that revenue growth. I always say we didn't forecast it. We just did it. It's really good. And then here's the quarter and what it looks like. All right? And notice the significant increase in revenue, but not a significant increase in SG&A to correspond, and hence positive cash flow. Q1, $481,000. An increase of $483,000 from -$2,000 in Q4. Revenue over Q4 is up about $390,000, 9% quarter-over-quarter, 28% compared to Q1 2023. Net loss is reduced quite a bit and 32% decrease and 57% increase in net loss of the amount of the net loss. $623 is non-cash equity compensation expense. And the accounting treatment on that is just really incredible. So that vesting schedule impacts the P&L in that way.

Of course, we do believe we'll overcome that as well as we continue to increase the top-line revenue. And of course, that's highly subject to our partner's delivery, but we do believe that it's a bright future. We took the run rate that we're currently operating, and we just multiplied by 4. It's really pretty simple. If we just do what we're doing and maintain this average threshold, then year-end 2024, we'll come in at around $19 million. That's pretty awesome. That'll be another 100% year-over-year growth. And while we're not projecting the positive cash flow from that, what we can say is we're always very capital conservative.

We want to conserve that capital by leveraging partnerships, making incremental investment, breaking through the proof of claim, and then really relying on the tools and resources of partners to expand at a national and potentially global level, as we've done with POOPH. That's the best example. And what it really shows is the power of that model. I'm going to just go back real quick. Let's just take a look at that SG&A again one more time. As the incremental revenues climb dramatically and the overhead rates, the overhead SG&A stays relatively flat, the incremental cash flow can be substantial. We expect that trend to also continue to hold true. We are investing. So when we look at net loss, that includes all the R&D and the non-cash charges to the equity compensation arrangement.

As much as possible, we're focused on investing in capital assets for making money, as we are with Clyra. We made a substantial commitment of almost $800,000 to beef up the infrastructure to support distribution of substance, big numbers. We're excited about that. It's been a long time coming. Again, we would have expected it to really launch sooner. But in the throes of the battle, what we've learned, of course, is that the detail required to support the kind of significant expectations of our future really required that we invest and prepare and invest and prepare. We've been doing that all along, and it's really quite exciting. The other is net shareholder equity. Again, big number because why? Well, because if you want to talk about national exchanges, that net shareholder equity number is a big number.

We do expect that to continue to rise with rising revenue, rising cash flow, and incremental investment. And remember that part of our strategy that's so unique is we do have the ability to capitalize some of the ventures, the subsidiaries, and their venture status with partners, investors who come in and purchase equity in those subsidiaries to give us some leverage, right? Leverage without relying on dilution at the parent level when a lot of people believe our valuation is still quite low. So we're really sensitive to that, and we've executed that strategy successfully now for years. We expect it to continue. So when we're talking about the portfolio, again, sometimes if you've been watching the company, you know a lot of this, but I'll cover it quickly because sometimes we get new people to come in, and they just want to understand, right? So POOPH.

POOPH is an incredibly wonderful product and company, and we partnered with them now 2.5, 3 years ago. They've done exactly what they said. They're experts in brand building, brand building. They've built national brands for the last 30 years as individuals in their career. They came to us and said, "Hey, we think you've got a product that could be a billion-dollar brand." We said, "We do too." They said, "Well, we can do that with you." So we made a deal. We said, "We'll do that if we can control supply chain, make a little bit of money on the supply chain, make a little bit of money on a royalty." We gave an exclusive to our partner for the pet odor control category in exchange for participation in the exit if it exits at 20%.

They're doing so well and breaking such significant records that we hope they really want to grow it to a significant level. We hope so. That would be awesome for everybody. They're doing so well with it. The products, we've got some stats here that are helpful. Their thesis for us is their target is 20% quarter-over-quarter growth. Now, that's POOPH tells us, 20% quarter-over-quarter. Our number as a wholesaler basically increased when their numbers increase and decreased when their numbers decrease. So far, they've consistently hit that mark, which is roughly 100% growth year-over-year. They've also expanded retail outlets. At one time, they said, "We're targeting 25,000 retails." We know we've blown through those numbers. Now, what's happened is they've got such a great presence, and the numbers are so significant. Less and less information is available.

We think that's just fine. It's a highly, highly competitive market. So we win with numbers, and that's exactly what they're doing. Now, they are advertising: Walmart, Amazon, Ace Hardware, Home Depot, some others. Once in a while, you see in advertisements. But they've got a whole menu and an expanding menu of national accounts. We also have new products. And coming soon, we don't know the official launch dates, but we've been active on the supply chain and the design. They're really cool. We know there'll be some new content that will come out to support their merchandising strategy on the television, direct to consumer. So again, very excited. Nothing's changed except that they've proven that they're able to achieve their goals, which is 20% quarter-over-quarter. So as we say, say a prayer and support them. Let's keep going. It's really exciting. POOPH. Okay, Clyra.

We talked about it briefly. We just made these significant commitments. We haven't spent all that money, but we spent a lot of it and more coming, more to be spent to support the kind of rollout of products at a very large level, very large level. The thesis of the Clyra products, we did make a decision. Sometimes I'll hear, "Why don't we have 100 reps out there selling this product?" We made a decision for a number of what we thought was wise decisions to focus on the partnership at a high level, partner with distribution. That often includes co-branding. It includes very much like POOPH, a buy rate as a manufacturer where we contract manufacturing. We're not building manufacturing. We contract with professional manufacturing companies, and we have a markup.

We establish a sell rate or a take rate, and then our partners can take those products throughout their distribution channel with proven call pattern, complementary to existing products, to really introduce a very technical product to a very technical audience, the healthcare field. The first targets, as we've mentioned, is orthopedic surgery with this Bioclynse. There's a number of other opportunities that are coming. We're now negotiating with a number of national parties, which is awesome. Two in particular that are quite significant, and some other entrants are now entering into the field. And the good news is that all this work that we've done to prepare for such a significant rollout is also providing the comfort and the credibility and the information necessary for some of these large companies to know that they can depend on us. And that's very important.

The kind of numbers we believe can happen will demand a lot from us, a lot of support, some capital, and the infrastructure to be well in place and proven and ready for the kind of scale we're talking about. That's what we've been doing. Our optimism has not waned. It's grinding. I can tell you that. It's a lot of work, and it's really demanding, but it's good. We do believe we're going to successfully land these partnerships and start to see revenue. If you think about the logistics of that, you're probably talking about really launching product in early 2025. Again, it's such a high level. It's such a high level that the numbers can become dramatic for the company. We're very excited about Clyra. PFAS. PFAS is, as we say, everywhere. Rhetorically, it's not everywhere. It seems like it's everywhere.

It's in your products and in your body and cosmetics and food and food packaging and on and on it goes. And it's getting so much attention. I just noticed just a couple of days ago, they were talking about re-releasing Dark Waters, the movie. Just again, I want to say, if you haven't watched it, find it. I think it's on Netflix. And it's the story of the attorney who took on big industry, mostly DuPont, for producing these forever compounds that nature cannot degrade. And if nature can't degrade them, they stick around "forever." And of course, they're linked to birth defects and cancer. And it's a huge global problem. Now, total addressable market, I've heard people say $17 trillion. Let me just understand the magnitude here. And we know that the government has just allocated just about $10 billion.

One of the 3M litigation cases settled for, I want to say, $10.5 billion. DuPont's had a couple of billion-dollar cases settle. Tyco for the firefighting foam has had some really large settlements as well. What's just recently happened is the regulations continue to tighten. As they do, we're looking smarter and smarter, smarter and smarter. Now, this has been almost four years of work, and we've got over 13 trials. We've got our first customer and a commercial installation in process. We're building that unit as we speak. Okay, on April 10th, the EPA came out with the finalized standard of four parts per trillion. That's a testing limit. That means that if you test for PFAS and detect greater than four parts per trillion, you have a problem, and you have to fix it. Now, that's a drinking water standard, right? Drinking water standard.

A lot of the industries are going to have other standards, but it really points the way towards how the government is thinking about this contaminant. And basically, I've heard people say that no amount of PFAS is good. All right, say that again. None. We've even seen some people really pushing for regulatory enforcement to a non-detect level. I asked a hydrologist the other day working. I was at one of these big conferences. I said, "How many years is it going to take the water table to clean up the PFAS?" "50," was the answer. "50 years." It's just not going to. It took 50 years to get it out. It took 50 years to get out, if you can get it out. Nobody's really sure. Anyway, the point is that the government's taking aggressive action, and it's forcing industry.

A lot of people have been on the sidelines waiting for regulatory. They say, "Oh, they'll never go to four parts per trillion." And we've been saying for the last two years, "Yes, they will." And sure enough, they did. Just recently, some additional rules came through announcing this $10 billion in funding, $9 billion to support municipal fixes for drinking water, and $1 billion for underserved communities. So that's a $10 billion package. And they also started this CERCLA. CERCLA designates the Superfund law, and the Superfund law now says that the polluters will be forced to pay, okay? They'll be forced to pay. So this is really a designation creating legal liability for the polluter and legal recourse for the people that have been injured. And because PFAS is everywhere, there's a lot of complication. Are you a passive receiver and an active polluter?

Did you make compounds and release them in a production facility? That's an active. Are you in a waste facility, waste handling, where the PFAS collects? What are you going to do? Are you liable because you've collected PFAS that somebody else made? Lots of complicated rules. So there's still uncertainty about what to do, but I'll tell you what is known, okay? And what's known is that it's fallen under Superfund, which is pointing to the direction of making the waste stream a hazmat. That's what it's doing. And we've predicted that that's what would happen, and we did it four years ago. And sure enough, that's what's coming true. And as a result, it really is like an aha-uh-oh moment is a better way to say it, an uh-oh moment.

If you don't have a solution, they can shrink the footprint of the waste stream. High waste, high money. Prices going up. The other thing, these are recent, and I don't want to pretend to be expert here. Tonya Chandler's our expert here, and she's speaking all over the country still. But basically, these notices, there's always something moving. And every time they do it, they're kind of boxing in the market. Just the other day, there was this example where they said, "We're not going to tell you that you can't recharge carbon." Listen to this. So carbon's an incumbent. It's an incumbent technology that's used. It's been around forever, 50 years, more. And it does okay at collecting a lot of PFAS, okay? The problem is it's got other issues. Channels, it can get bolus breakthrough.

It's going to have a hard time with some of the short-chain molecules. But the big thing is it's just huge waste stream. Remember, our thesis is where that produces 80,000 lbs, we produce like 2 lbs or 3 lbs. It's a big deal. Well, okay. If that waste stream is a hazmat, right, then what are you going to do with 80,000 lbs of hazmat? Well, you got to pay to have it handled. Well, a lot of the incumbents have said, "Well, we'll be able to recharge, recharge the resin." Well, no. That's going to be a real problem. And so, for example, a lot of that recharge of carbon's done through incineration.

Well, the government's came out and said, "We don't like incineration." So we can't say, "Don't incinerate it." But if you do, we're going to establish testing guidelines that can distinguish between long-chain and short-chain molecules, including the breaking of long-chain with terms of many short-chain. So one, a very, very sophisticated test that's going to exclude most people from doing that. And the second is you're going to be liable for the release of PFAS to the air. That's a problem, okay? And that's one of the biggest problems when you look at the carbon systems because it's really in a spot where they're going to have a hard time answering to these regs. I mean, and it's going to get tighter and tighter.

So this is constantly evolving, and every time a new rule comes out, we go, "Well, there you go," because it's really pointing people to us, okay? So again, the thesis, we covered this already, but we can save money. We work in all sorts of different types of water. That's very unusual because of the nature of our using an electrostatic field to migrate and collect PFAS in a flow of water. And then, of course, we have a fraction of the footprint. We like to keep these a lot of words here, but we like to keep it up because people will come back and look at it, and it's really the principle of our value proposition and our selling approach. And it is a turnkey solution. Don't forget that. So truckload versus a pail. It's really pretty simple.

If the cost of handling hazmat material and its ultimate just removal, destruction, and then what do you do with all the equipment as that continues to regulate, our value proposition shines and shines bright. We like to show this because this is about a 1,000-gallon-per-minute system. And so this would be a decent-sized commercial account. It'd be about 30 ft by 25 ft, small building. We can also go vertical. The first assignment is a much smaller system, which we think is good for the first in-the-field deployment. And that's scheduled to happen in the October-November timeframe. Okay. Cellinity. As you recall, we acquired this technology. We've just built a small production facility primarily for building out batteries for demonstration and testing. We do believe that there's commercial opportunity in any size of those factories.

But based on the response we're getting from our partnering strategy, we believe that achieving some economy of scale is very important. So we're going to talk about how that's going to happen. Every day, there's something in the news, just rhetorically. It's almost every day. And you hear about big data. You hear about Bitcoin mining and artificial intelligence, supercomputing, how people are worried that the grid can't handle a 3-10x increase in demand. Renewable energy is still a priority. And even if it's not renewable, you still need storage, right, to deal with peak demand, right? So batteries are not going anywhere. And I don't know if you saw this morning on LinkedIn, we saw this article that they just passed the tariff, putting a 25% tariff on China for importing batteries to the United States. That's a big deal. That's a big deal.

Made in America, no runaway fire risk. There you go. Lithium. Lithium's got issues. People are still deploying lithium batteries in fixed-site locations like their garage and buildings and mission-critical operations. They need the batteries, but they have a fire risk. And it's real. The safety risk is real. Again, just do an internet search. You'll see it for yourself. So the value proposition then gets defined pretty easily, right? Better, safer, less expensive, no rare earth, no geopolitical, no importing from a foreign country, certainly no child labor and all the other stuff that you hear about. None of that. Non-venting seal design, longer building. 0-100, 100-0, right? You don't have to notice when you get a lithium battery like in a car, it does discharge to 20%, charge to 80%, right?

Because as it gets to the outer limits of its range, it causes damage to the ion exchange that happens across the electrodes, degrading their performance. That's why they don't last as long. We have none of that. We have none of that. So we believe this is going to be a winner. Now, it's early. We got work to do. We also have talked about this thesis. I don't want to get too long-winded because I can really go here. When we first built that small production facility, we said to ourselves, "We can make and sell batteries," which is still true, by the way. But to get to scale, what we need to do is we need to show demand for our battery, whatever that is, show demand, right?

And then as we looked at the economics and the capital required to get to that scale, we believe the way to do that is to partner through a licensing venture orientation where we would take a minority position and a royalty and literally build the factory to suit. So big customer, I need some batteries. Do you know what the question to ask is? How many would you like? How many factories do we need to build for you? Because we're asking for a royalty and a minority share. We're essentially working on tech transfer. And we've got such an incredible response at this stage. It's very encouraging. Again, work to do. A lot of work to do. Chicken and egg everywhere. And what we learned also, of course, is that the scale-up of the manufacturing technique for components is really critical, the components that go into the batteries.

We've been dealing with supply chain at BioLargo for 16 years, by the way. It's always this way. You come in with an innovation. You say, "Gosh, I hope I can get the supply chain squared away." Well, how do you get supply chain squared away? Well, you have demand. If you are a big customer, supply chains will participate, right? There's a certain amount of economy that comes with scale. What we're doing, really, is we're proving up the technical pieces of the battery. We'll then take it through our testing. We'll take it through third-party testing. We'll then begin working on the scale-up version of that cell that will make packs. We're also negotiating partnerships.

And we've got so many groups that are interested at this stage, it's really encouraging to us, encouraging to pursue, encouraging to invest incrementally to get through this validation stage and see if we can put these partnerships together. Ultimately, if you have scaled production, a lot of batteries, you can be in the energy business. And that's what we're learning, of course. And so that's a later down. That's a later event to be considered. But once you're there, you can be in the grid-scale storage business. You can be in the renewable business. You can partner with renewable energy. The batteries are a critical component of making all that pencil and work. So here's the marching orders where it's complete pilot manufacturing, making tests for sales. Again, we'd hope to have that done in Q4. It's late. Q1, we are at the final stroke.

And so we're optimistic that we'll be showing up with a battery in our hand that's working very, very soon, at which point we can start the testing and the next piece of the work to scale up, being in partnerships and build the first components. Again, we've had such a positive reception to the plan that we believe we're onto something that presents an extraordinarily scalable model that will allow us to expand, the opportunity to expand on a global basis. That's the thesis. Okay. So to wrap it all up, we have a family of companies, Innovation Engine. We're excited about the business. There's my contact information, DC at BioLargo. You're welcome to reach out to us. We'd love to chat. And now I'm going to open it up to questions. Mr. Brian, can you come back?

Brian Loper (Head of Investor Relations)

Great. Thank you, Dennis. Appreciate that overview.

Pretty exciting stuff for BioLargo. Q1 here, positive cash flows, really solid revenue. Wanted to clarify, is POOPH still the leading revenue driver?

Dennis Calvert (CEO)

Yeah, sure. I don't know the exact number, but it's got to be 85%-90%. Yep.

Brian Loper (Head of Investor Relations)

Excellent. All right. So we have a few questions. Let's start with POOPH. I think it's the most exciting one. So Michael Matheson, analyst at Singular Research, he asked, "Are there any new retailers that have signed up to sell POOPH, and where do they stand in rollout?"

Dennis Calvert (CEO)

Yeah. We have the benefit of that knowledge, but it's not public information. And it's really obvious why, right? Why? Well, because POOPH's managing a lot of national accounts. And each one has a different margin analysis. And in fact, they pursue what they call an omnichannel, omnichannel strategy.

That means all channels, and each channel has a cost metric and a reward. And they pursue all of them at the same time. So omnichannel. So yes. And their stated mission is to use direct-to-consumer to brands, to build brands, and leverage that brand so that they drive customers to the retailers to support, essentially, global rollout. So that's what they're doing. So yes, it is expanding. There's a lot there already. We believe it's well over 30,000. And I know along the way, they said over this next year, they'd love to be at about 80,000. I don't know where they're at in that, and I'm not sure we'll be publishing it. I just think what we're going to see is significant growth in revenue. And that's what we have seen, and that's where we're going to find our rest.

Brian Loper (Head of Investor Relations)

Yes.

And you've mentioned before Pooph having new products like wipes or puppy pads. Is there any ETA or projections on sales for those?

Dennis Calvert (CEO)

I don't know. We're not aware. In the past, what we know, what we do know, is that the way Pooph operates is they test, test, test, test, test, and refine. It's a methodical process designed to optimize results. They don't spend a lot of money and hope to spin their way to success. It's precision. So I suspect they'll do similar with these. They'll test and test and test. And when they get it just right, then they'll push the accelerator down. And so we've seen some of these products in early marketing. And so I suspect that we'll see some of these results start to show up here in the near future. But again, I'm not in a position to predict timing.

Brian Loper (Head of Investor Relations)

All right.

Switching gears, a few questions here on Clyra. So from an investor, John Thiebing, what has prevented Clyra from finalizing with their intended partner?

Dennis Calvert (CEO)

Yeah. It's a great question. Yeah. Mostly, it's preparation for launch. And again, we use the language, and people mince words all the time with all of these talks. It's hard to do. And some of the words we talked about were negotiating a partnership. And everybody got their head around that. That's fine. It's a little more than that. What we're really doing is preparing to launch product in a national market with a big partner. And so material terms are agreed upon. The partners, the parties who want to play together have met agreement about what the products are and the claims. And so then the question is, are we ready to go big? And that's, hence, the investment.

And so we needed to make sure that we had strong supply chain partners, ready with all the technical support, ready with all the FDA compliance, ready with all the technical challenges to go to scale, and dozens and dozens. I mean, in fact, it's hundreds of items on the checklist. So we've been marching through all that. And I think the answer is when that product is ready for that scale, everybody wants to launch. And so we've been pushing that along. And it's been very intense and demanding, hence the major investments that we're making on the supply chain. Now, when we make those investments in capital equipment, we're buying equipment for our supply chain partners that we own in their locations to help support them in the kind of scale for the product design that we've made mutual agreement with our partners.

So the answer is there's a lot going on, and we're very excited, and we're making real commitments. And we're anxious to see that result in a launch of a global product, again, co-branded with great partners. So standby is coming.

Brian Loper (Head of Investor Relations)

Yeah. And in the release, it also said that you're investing in scaled-up manufacturing of Bioclynse. Do you have a forecast when you'll be ready for?

Dennis Calvert (CEO)

Well, that's a good question. We feel like, in many ways. Some of these products have special design and packaging and the way they're used in the marketplace, confidential. And so some of that requires some special equipment. And so all of that's been specced. And if everybody's in go mode, you're probably talking about 4-6 months before the first product's coming off the line, at which point you're ready to launch.

And so really, we're at that moment where, "Is everybody ready or not ready? And let's check off the list. And as we say, let's get going," so.

Brian Loper (Head of Investor Relations)

All right. All right. Now, let's talk a little bit about water. Let's see here. Patrick Signorelli, how quickly does the company expect to begin signing additional AEC projects now that EPA regulations have been finalized?

Dennis Calvert (CEO)

Yeah. Well, we've got a bunch in process. So again, when we have a proposal with a client, those are 20-page documents that go through a complete specification and a capital budget and an execution, including the service contracts and the warranty and all the things that go with it. So we've got many, many, over 20 of those kind of projects that have gone through that exhaustive process. Now, the regs have kicked in. There's still a lot of deciphering going on.

But generally speaking, people are realizing the waste stream's going to be a big deal, and it's our value proposition highlighted. And so when it's such an easy question to ask, I don't think I can win on the answer. We think soon. We've been very optimistic. We've got a lot of prospects at the table, and we're hoping to get them closed just as soon as we can. So that's what we got.

Brian Loper (Head of Investor Relations)

That's great. Yeah. Just one note on that. I know you guys didn't have to make any changes to your technology when the new regs came out. You were already meeting those standards, whereas some competitors are going to have to do some.

Dennis Calvert (CEO)

Yeah. Let's be more specific. Yeah. So the 4 parts per trillion, we've already proven non-detect capability, right? And consistently, below 4 parts per trillion is wheelhouse.

Also, the new PFAS compounds that have been designated, we've proven success in eliminating those in a variety of different types of water as well. So yeah. And then, of course, the simple intuition on the handling is less is more, right? The smallest footprint on the waste stream wins. That's us, the smallest footprint. And remember, the whole argument was be the most efficient collector, and then you can manage the waste. You can manage destruction. It's pretty easy to handle 2 lbs of PFAS for destruction. It's not easy to handle 80,000 pounds of carbon-laden PFAS. It's a hazmat. It's just not. And the same thing, even the ion exchange systems that we've seen deployed, they have a rejectate, which is a concentrated waste stream.

And the thesis has been, "Well, we can regenerate the resins to reuse them again, making them 'efficient,' right, more economically efficient." I don't think so. I mean, now you got to get down to 4 parts per trillion, and you got a hazmat. And in order to break the long-chain molecules attached to a resin, you're going to destroy the resin, right? Now, somebody may prove me wrong, but so far, we haven't seen anything like that in the market. So again, these technical challenges are subtle, but very technical. And we're out in the marketplace educating and helping train the customers and the engineers to understand what's going on. I mean, and we're always amazed. We go out, and we lay it out just the way we see it. And what we hear is, "Oh my goodness. Well, you're a game changer." I mean, that's what we hear.

You're a game changer." We say, "Yeah, we are. We should get going." They go, "I got to rethink my strategy." We say, "Yeah, that's right." We offer a performance guarantee, right? Performance guarantee. We offer a full-service solution for the destruction. Our packaging of the proposal, as far as we can tell, is literally unmatched. We haven't seen anything that can match with the proposal. Now, what's missing? Well, we don't have 100 installed, right? If they didn't know BioLargo, who's BioLargo, right? All those questions come up. That's part of the early adoption cycle. You got to kind of get over that. How do you get over it? You earn your way through. That's what we're doing. We're earning our way through.

Brian Loper (Head of Investor Relations)

We do have a technical question here since we're on the topic.

A gentleman named John DiMonti is wondering how a carbon system creates 80,000 lbs of waste, but the BioLargo system creates two pounds of waste. How is that possible?

Dennis Calvert (CEO)

Yeah. Yeah. These are proven through experimentation and through piloting, by the way. We're not making it up. A carbon system—it's a little technical. I'm going to go fast. And if engineers on the phone probably correct me. This is the businessman's version. There's all my qualifications, right? Carbon is an adsorber, adsorber. And it relies on its charge to collect particulates of its opposite charge. And all the nooks and crannies in this highly porous surface attract and bind to the surface, including PFAS. And that's how it works. Okay. That's good, right? Yeah, it's pretty good. It can take some PFAS out. But it also binds everything else.

It takes out all the minerals, other contaminants, and they fill up all the spots. And then over time, they can channel. So they require longer contact time. That's an issue. And then they can channel. That channel's. I always tell the story. It's like pouring water down an anthill. It finds its channel, and it runs down the channel. Same thing happens in carbon, okay? And then it has an issue with bolus breakthrough. So it can accumulate PFAS and then all of a sudden releases it. And the way we say that is it works until it doesn't work. It's working, it's working, and working, and then all of a sudden, it's not working because it essentially is filling up, right? All those sites are filling up. Okay. That's the incumbent. So the AEC is in the concentration technique.

It's a machine that has a plus and a minus. You flow water through a cell. It's a big plate. It's about 26 by 30-something inches. And as the water flows through that plate, it is cast through or flown through an electrostatic field. And what that does is it pulls the PFAS to one side or the other. It's to its opposite charge. But behind or in front of the electrode is a membrane, not a membrane forcing the water through, but forcing the water across. And as it comes across the membrane, the PFAS is attracted and bound to the surface. The business word is like fly paper. So as a result, the other contaminants pass through. So one is an indiscriminate collector, and the other is highly selective extraction. It selects the PFAS. The others go through. Now, we get a year of attraction on those membranes.

That's pretty good. What actually happens is the electricity that's flowing through actually degrades them well before their loading capacity is met. And that also has great remote monitoring features and all sorts of really technical things that make it feasible in the marketplace. But the punchline is we can load that membrane and let all the other contaminants flow through because we are selectively extracting the contaminant of interest. So the thesis, right, be the most efficient collector. So that's how it works. And again, easy to say. The art of the execution's pretty dramatic: flow, temperature, electricity, substrate, degradation. I mean, there's a lot going on. And that's the stuff of patents and the stuff of our art. And so we've had enough now work with that to be able to go into the field and make these things work for a long time.

So that's what we're doing.

Brian Loper (Head of Investor Relations)

All right. Thank you for that. All right. So last line of questioning here is on BioLargo Energy Technologies. I'm not sure about this one, but did we abandon battery manufacturing?

Dennis Calvert (CEO)

Yeah. No, no, no, no, not at all. Yeah. No, what we said in the early description of our activity is that we believe that plant that we created, if turned into a commercial enterprise, could generate about $3.5 million-$4 million worth of batteries a month. That's what we said. And we still believe that's true. The caveat is always the same. Have we proven demand, right? So do we have an offtake? Do we have sufficient proof on the demand side to give us leverage on the supply chain? Again, that goes back to the same story for every technology we've ever had. And just think about POOPH.

With the success of POOPH, when we open another product category into the same channel, every supply chain partner in the world wants that business. We get great rates, I mean, incredible rates on the supply chain. We bargain from a position of power because we have a big order. Well, that dynamic's going to be required in the battery industry for sure. And so you got to piece the pieces together. And if somebody says, "Hey, make some batteries and sell them," yeah, that's not a bad option. I think we're going to be really busy with the bigger option with partners paying us to build factories. I mean, if somebody comes in and says, "Yeah, we can do some small batteries, but hey, I want to optimize the component manufacturing. I want to optimize the performance of the cell.

And here's an order for a $100 million project," that sounds like a good business. And that's kind of what's happening. It's moving very quickly. So very quickly. There's a lot of work to do. I don't want to be this is big business. They're highly competitive. And so there's a lot to do to get to the point where we have partners saying, "Let's do it and start funding things." So it's not done. Very critical. But if I didn't believe that that was achievable with our better battery technology and highly skilled people that have been doing that for their career, we wouldn't be doing it this way. We're going to leverage our core competencies. That's technology. It's finding its way through the barrier, bringing enough capital, get through, developing a business model that's got leverage so it can scale to significance globally.

If you've got a business model that says, "How many batteries would you like? I'll build you a factory so that you have all the batteries you'll ever need. How big a factory would you like?" That's a business. Just be clear. That's what we're talking about. I believe it's really optimistic. Now, what do we need? We got to have a battery. We got to have data. We got to show the world that this battery's going to perform as represented. That's what we're doing. So can we sell some batteries? Sure. Sure. I think we're going to move a lot quicker than that, though, in the other category. We'll see. Got some work to do.

Brian Loper (Head of Investor Relations)

Yeah, certainly. So what are the top two priorities for BioLargo Energy through the end of the year?

Dennis Calvert (CEO)

The first is we need this battery in our hand so that we can show it to people and show that it works. So everybody's on point and really focused. It's intense. It's good. It's a good intensity. We did have some technical things that happened in the production when we got to actually assembling the components. Some of it has just required supplier participation, refinement of frequencies, I mean, all kinds of really technical stuff. We're working our way through them. None of them are deal killers. They're just another hurdle to overcome. So we're doing that. Once that battery's in our hand, which could be soon, we don't know exactly the dates, then we'll start testing, and we'll also send some batteries out to third parties. We've interviewed a number of third-party testing groups who want to take our business, which is great.

And so that'll help. And then the first task so that's number 1, get the battery. Number 2, we need to then begin the engineering design of a scaled-up cell. And we're going to go to about a 3.5 by 13 in cell. And those will be assembled into packs to make a battery energy storage system, packs of batteries, packs of cells. That's the way to think about it. And then the third is start forming these partnerships. There's a lot of partnerships already at the table, but they inevitably, as you might imagine, will find themselves to the point to say, "Are you sure this battery's going to work?" And we say, "Yes, we are sure, but here's exactly where we're at in the revalidation process." And that revalidation is required before somebody's going to put up $100 million or more.

And so that's what we're doing. So that's the top three, right? Finish this battery and get it proven and tested. Start that process. Scale up. And then start negotiating partnerships.

Brian Loper (Head of Investor Relations)

All right. All right. And Mr. Kurtis Norvell was wondering, what is the fastest way for BioLargo Energy to monetize the patents?

Dennis Calvert (CEO)

Yeah. Well, we think what we're talking about is faster than trying to piece all the pieces together to be a small battery producer. It may actually happen that we'll have those tools in place to make batteries, and we can start selling some. That's fine. There's nothing wrong with that. That's not a bad plan. It's hard to get big doing that. It's hard to get scale. So we took our investment thesis, which we showed you the short graphics, and we took it out to the marketplace and said, "Here's our plan.

Partner to build a factory for somebody who really wants a big factory to make a lot of batteries," right? Who wants to do that? And there's all types of different people. It could be the public utility. It can be data centers. It can be AI. It could be anybody in the AI business, anybody that's in renewable energy, right, running solar. Solar's a big customer. Whoever's got the bandwidth to really need this tool to leverage their business, and that's a lot of people. And then they're going to ask the obvious question. "Well, listen. Here's what we heard. Let me get this right. You'll build me a factory so I can make as many batteries as I want." And we say, "That's right.

How many would you like?" And they say, "Well, I need to see that the battery is going to perform to the specification that you've shown me." And they say, "Yeah, that's what we're doing. So as soon as I get that done, how many batteries would you like?" And it really is that kind of simple, okay? Now, it's still big numbers. But look, you got to remember there's a 30% Inflation Reduction Act credit for the deployment of batteries, 10% made in America, plus if you're going to bundle some of these other opportunities for tax credits and incentive-based financing. And we've mentioned that we've got some really nice relationships. We'll have more disclosures soon. Some work in the tribal nations, which is really fascinating with great partners. And you know why it's really fascinating?

You get to do a great work for a community that needs it. And when we talk about that kind of opportunity, we bundle workforce development, microplant focus, community engagement, this whole sort of holistic approach that allows for us to provide an economic and social transformative opportunity for a community. And of course, the funding for that target community is unbelievably significant. And so, right? That's just another wrinkle on how we get this positioned in the marketplace. And it's significant. So again, and again, I hate to make it sound simple, but you know where it all starts? You got to have a better battery. So really, we've got to prove that we have a better battery. And all this vision of what could be is not going to take place until we've done that.

And then once it's done, I think we're going to see such a flurry of activity that we'll form these partnerships, and we'll have three or four or five projects underway, essentially replicating these designs three or four different times, each creating this massive demand, right, which gives us economy of scale on the supply chain and leverages the balance sheet of our partner. That's a scalable model. How many would you like, sir? And again, I hate to make it sound so simple, but really, if you have a better battery and you have the skills that we have, we do have the talent in our company to do this. And we're going to leverage that talent. They've been doing their craft for 30 years. We've got subject matter experts on board, and we're executing. Now, I need a battery. I need third-party verification.

I need to consolidate supply chain. So that's what we're doing. It wasn't easier, but it is significant. I can tell you that. It's significant. And at the same time, we're serving clients and managing cash flow and making now we're making some cash and making some positive cash flow. It's a good time for BioLargo.

Brian Loper (Head of Investor Relations)

Absolutely. All right. I'm saving the best question for last here. This is from our investor, Patrick Signorelli. But some platforms, including Vanguard, do not allow purchasing of BLGO stock. Were you aware of that? And is there anything on your end that can be done to remove those restrictions?

Dennis Calvert (CEO)

Yeah. This is such a hassle for everyone. So Pat, I'm empathetic with you and the implication on the company. It's a fascinating turn of events.

We've seen big brokerage firms say, "Yes, yes, yes," and all of a sudden say, "No," like an allocation. And it's as varied as the firms. I've never seen anything like it. And it starts with a small stock, right? We're in an OTC market, not in a NASDAQ-qualified marketplace, and a small stock price. The small stock price, low, $0.30-$0.35, a lot of people see that as a negative. We made a decision, okay? And the decision is to look out for our shareholders by avoiding catastrophic manipulation of the cap structure to accommodate some of these issues until the company was well along in a strong financial position and really could reap some of the benefits of it being public and its valuation. We think that's happening now.

So in the perfect world, we would continue to execute, and we'll see a natural rise of our market cap valuation. As that's occurring, the ultimate answer for Pat and for many people is to get it listed on a national exchange like a NASDAQ or NYSE. One of those is national exchanges that would take it out of this category at a much higher price. We're weighing the balance between those choices, always. And we've always taken the conservative approach and said, "You know what we need? We need a successful business. When we have a successful business, we can take care of that." So I think the answer is continue succeeding. That will take care of itself. Grow the top line. Now, we got about a $100 million market cap. I was at Wall Street for about, I don't know, nine days, two or three weeks ago.

They just all run together, making the circuit, meeting with exchanges and a number of bankers and conferences. I heard a story, one of the bankers for microcap that's sub-$250 million market cap, told a story about 83 IPOs and 73 of the IPOs since the average raise was $8 million, average market cap was under $50 million, okay? Under $50 million. So that's half our market cap. Average raise, $8 million. Of 73 of the 83, they've lost 65% of their value since they listed, okay? So the small cap market has had a lot of uncertainty. So now that's happening while we're growing 100% a year and a half ago and 108% this year and generating positive cash flow with a portfolio that we've invested years building, a significant investment that is potentially transformative in all these markets.

We are so unusually unique in the world right now that people gravitate to our company. And so we think it's only a matter of time until when people say, "You're not on the radar. Who's BioLargo?" It's just going to be different. People are going to say, "I know who BioLargo is." And you say, "Yeah." And why? Well, because we're going to have technical performance, financial technical performance. Okay. So these regs that are in the way these brokerage firms are being forced to deal with is a function of regulatory pressures from Congress, okay? I mean, it's real simple. They don't say you can't do it. They just make the paperwork so burdensome, they don't want to do it. So these brokerage firms are making choices. They don't want to do a small stock because it takes too much paperwork, okay?

So do you put your stock in that account because they're really good for you? That's your business. But I had an investor one time he says to me, "I've got $30 million in my IRA." I said, "Tell them you're moving your money and see if they'll take our shares." At some point, people say, "I want to take care of my customer." So that's the question asked. Do they want to take care of your customer, right? And then raising the bar with the equity. So it's both. It needs to do both. Again, long answer, but very complicated question. I hope that helps, Pat.

Brian Loper (Head of Investor Relations)

Yeah. Thank you for that. So that's all the time we have today for questions. I want to thank you, Dennis, for.

Dennis Calvert (CEO)

Well, let me close out. Yeah. Let's close it out real quick.

So if we look forward, we want to bring some customers in, an expanded PFAS, of course, check the milestones on the battery tech, get this Clyra deal into go mode. We need to get that done as soon as we possibly can. And then maintain the platform. Keep doing what we're doing because we're heading in such a good direction. And we'll be watching carefully on the incremental cash flow generated from increasing sales. So if POOPH is able to continue its targeted 20% quarter-over-quarter over time, I think that's going to bode really well for BioLargo and its shareholders. So this is a great time to be a stockholder of BioLargo. And thank you, everyone. I'll look for your emails. Please reach out to us. If I'm not responsive, just ping me again because we're not ignoring you, all right? Thank you very much.

Brian Loper (Head of Investor Relations)

Thanks, Dennis.

Operator (participant)

Thank you, everyone. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.