Dear
Stockholders,
With
the challenging development cycles and barriers to entry our company has faced
on its journey to commercialize its important platform technologies, one might
ask the question – why do we do this?
The
answer is easy:
- What
we’re doing is important
- What
we’re building will be huge
- We
believe we’re going to win.
With
your support, we’ve invested over $20 million developing ground-breaking
technologies that will make life better for our planet and all of us. We’ve introduced these technologies into
markets that give us massive revenue potential. And importantly, our success in
the odor business has given us the confidence that with our disruptive products
and creative commercial strategies, we know we will succeed with all our
technologies.
Last
Friday (March 29th), we published our annual report (click here),
and in it you’ll learn that we have so much to be excited about at BioLargo.
As
you read through this letter, we believe you will agree that the positives of
our business far outweigh the negatives and that we are well-positioned to grow
our company now and in the future.
But
we do not believe, for one
second, that the market recognizes the value of what we’ve created – in fact,
we believe that each of our business units described below have independent
value that far exceeds our current company-wide “market value”. Let’s take a
closer look together - read
on below for more information.
Odor-No-More’s CupriDyne Clean
We
know this business unit is capable of generating enough cash flow to fund
BioLargo’s entire business. How will we achieve that result with our limited
financial resources? In two ways – first, by focusing on our national customers
that represent over 3,000 potential locations to use our products and services,
and second, by expanding into new industries, such as cannabis, with
experienced partners who allow us to support, rather than capitalize, the
efforts.
We’ve
now proven that CupriDyne Clean (www.cupridyne.com) is simply the best
odor and VOC (volatile organic compound) control product on the market, known
for its industry-best performance, safety and cost-effectiveness. The four
largest waste handling companies in the U.S. use it to control odors and VOCs at
their transfer stations, landfills, and other smelly facilities. We are ramping
up to expand our infrastructure to support these customers. Getting to this
point with these big companies has been harder than we thought it would be, but
we’re now over that hump. This segment alone represents an estimated $1.3B
total addressable market for CupriDyne Clean, and just the four top customers
we’re serving represent more than 3,000 locations. Revenues per location in
this market range from $2,500 to as much as $20,000/month. If we secure a 30% penetration
rate with just these national customers, and we benchmark revenues at the
lowest and ultra-conservative figure per month, these customers present an
opportunity equal to $2,500,000 per month or more. We are steadily marching
ahead in this market, growing our staff as resources permit and winning
customers because of our performance, value and service.
Solid
waste handling isn’t the only market for CupriDyne Clean. Our product is now
being pulled into new, high growth and high margin markets like cannabis
production and processing where operators are scrambling to identify adequate
odor control solutions that are part and parcel to their operating permitting
requirements. There are more than 15,000 cannabis production sites in
California alone, and many are abruptly discovering that the smell of their
facilities bothers both neighbors and regulators. Rather than distract from our
inroads in waste handling, we’ve started working with partners who are
experienced in the industry and well-capitalized to take advantage of this
massive opportunity. We will keep you posted on these very exciting
developments as they unfold. And the cannabis industry is only the beginning.
Many industries emit VOCs that regulators require they manage – and CupriDyne
Clean manages them better than anything out there. Now that the product’s high value
proposition has been proven in its first market, the flood gates can open in
additional industries.
BioLargo Engineering, Science &
Technologies (BLEST)
We
are proud to say that our engineering division BioLargo Engineering, Science
& Technologies (BLEST) is nearing its goal of achieving positive cash flow
and thereby contributing to the corporate overhead. Less than 18 months old, we
believe that the decision to acquire/build the engineering division will
ultimately prove to have been a pivotal and financially beneficial decision for
BioLargo. Not only do its external client contracts generate cash flow for the
company (which we expect to increase dramatically in 2019), but it also dramatically
changes our other business units’ capacity to put their technology assets into
action through engineering and scale-up. The existence of our engineering
division gives BioLargo Water the necessary resources to execute its
pre-commercial and commercial pilots without needing incredibly expensive
support from an outside engineering service provider. This benefit cannot be
overstated.
The
engineering division made significant progress in 2018 toward becoming a profit
center for BioLargo. Some highlights include:
- BLEST was retained to serve as “Owner’s Engineer” for a proposed integrated biofuels production project on the east coast worth approximately $687M.
- BLEST began a time and materials contract to test the emissions from an energetic materials incinerator at a large U.S. military installation on the East coast. This contract is worth almost $100,000 and is expected to lead to more than $300,000 of work in 2020.
- BLEST is providing wastewater treatment equipment and services to a microbrewery in Southern California, representing the company’s initial foray into food & beverage wastewater treatment.
Clyra Medical
Technologies
Clyra
Medical is another massive opportunity. It’s almost entirely independent from our
other work because it obtains working capital through third party investors rather
than relying on the parent company for financial support. While its first
commercial product traverses through the arduous FDA 510(k) application process,
we acquired the “SkinDisc”, a revolutionary product that regenerates tissue
using stem cells (and has 250 case studies proving it, with no adverse
reactions). Although the FDA process has been slow, and while we thought we
could get approval without an expensive large animal study, we’re about to
embark on that challenge and now feel we have a clear path to the finish line. We
remain confident that this application will succeed in the face of these
expanded requirements, and – more than that – that these new requirements
simply highlight the uniqueness of the Clyra product and hint at its highly
differentiated value proposition that will come to bear once it goes to market.
The world has simply never seen a low-dose iodine-based wound care product like
ours that delivers the “gold standard” in antimicrobial activity without the
side-effects traditionally associated with iodine-based products. This unique
property is part of what led to the expanded requests by the FDA, but is also a
big part of why this product will be a powerhouse when it goes to market.
A
quote from the annual report says it nicely, “We believe this product’s future
role in the advanced wound care industry will be disruptive to many incumbent
competing products like silver, hypochlorous acid and even other iodine-based
products and therefore our extraordinary investment of time and money will have
significant opportunity to generate a considerable return on investment as the
products find their way through the FDA process for clearance and then to
market adoption. Simply stated, we
believe it is worth it and that we will succeed.”
We
should remind the reader that when this product does go commercial, its target
market is very large. Clyra’s products have an estimated total addressable
market of more than $2.5B by 2022.
BioLargo Water’s Advanced Oxidation
System (AOS)
Our
Advanced Oxidation System (AOS) is one of our most important technology assets
and is very close to commercialization. This technology has significant
potential to revolutionize water treatment and allow cost-effective treatment
across several industries. We therefore believe it has a very bright commercial
future and that that future is coming very soon.
The
AOS was developed in collaboration with numerous leading academics at
universities across Canada and the US and was supported by more than 65
government grants. The result of all this work is a patented water treatment
technology that can eliminate both biological pathogens and hard-to-treat
pharmaceutical micropollutants from waste water more cost-efficiently and while
using less electricity than any other technologies. We also recently reported
the results of an independent study confirming its usefulness to cost
effectively remove micropollutants from water – an unprecedented achievement
for the AOS. We expect this work to be published in science journals around the
world in 2019, which will be highly impactful to promote the value of the AOS
in the water treatment industry.
However, it’s not enough just to invent a powerful technology – it has to be
proven in the field through pre-commercial pilots in order to demonstrate to
industry players that it is robust and economical enough for the real world.
That is exactly what we are doing right now with the AOS. We have several field
pilots underway to demonstrate the economic feasibility and technical prowess
of the AOS in real-world settings at poultry producing facility, a
microbrewery, and soon in a stormwater treatment and reuse setting. These
pre-commercial pilots represent a significant turning point in the AOS’
development cycle, and will pave the way for commercial trials and eventually
sales and strategic partnerships or licensing opportunities.
Is
all this work and money to develop this technology worth it? Yes. Not only does
the technology have a total addressable market in the water industry of
approximately $44B, but it has the potential to enable cost-efficient water
treatment and reuse in countless settings, creating a better future for the
world. There is a reason our company slogan is “we make life better”.
Looking
forward in 2019
In
2019 we expect to achieve a number of crucial milestones that will, together,
have a significant positive impact on our company’s value. These include:
- Securing
direct outside investment capital into BioLargo Water and Clyra Medical Technologies
- Executing
strategic partnerships to deploy our technology assets into new markets such as
cannabis production for CupriDyne Clean
- FDA
approval of our Clyra product
- Successful
of our pre-commercial AOS pilots and subsequent commercial launch.
At
the outset of this letter we mentioned a trend of converting our technology
assets into monetized commercial assets. We are seeing this happen right now,
and this is reflected by the shift of our resources away from R&D
activities and toward commercial activities, marketing, and sales. Reflected by
this is the fact that our fundamentals are improving: our two commercial
business units generated revenues of $1,364,000 – more than twice 2017’s number
– and our monthly cash burn rate is decreasing.
BioLargo has built an incredible portfolio of patented, proven
technology assets that are, in the near future, expected to create enormous
value for the company and its shareholders. We believe the value of these
assets is not currently reflected by the parent company’s market
capitalization, but we believe that it won’t be long until this changes. We
hope that after reading about the outlook of our company’s dynamic business
units you will agree that our future is ever brighter for BioLargo.
Sincerely,
Dennis P. Calvert
President & CEO
BioLargo, Inc.
