Note 9 - Stock-Based Compensation and Other Employee Benefit Plans

3 Months Ended

Mar. 31, 2013

Compensation and Employee Benefit Plans [Text Block]

Note 9. Stock-Based Compensation and Other Employee Benefit Plans

2007 Equity Incentive Plan

On August 7, 2007, and as amended April 29, 2011, our Board of Directors adopted the BioLargo, Inc. 2007 Equity Incentive Plan (“2007 Plan”) as a means of providing our directors, key employees and consultants additional incentive to provide services. Both stock options and stock grants may be made under this plan. The Compensation Committee administers this plan. The plan allows grants of common shares or options to purchase common shares. As plan administrator, the Compensation Committee has sole discretion to set the price of the options. The Compensation Committee may at any time amend or terminate the plan.

During the three-month periods ended March 31, 2012 and 2013, a portion of the unvested option issuances  vested, resulting in selling, general and administrative expense of $30,289 and 19,400, respectively.

During the three-month period ended March 31, 2012, we recorded the issuance of an option to purchase an aggregate 6,667 shares of our common stock to an independent member of our Board of Directors, pursuant to the terms of the 2007 Equity Plan which calls for an automatic issuance of an option to any new independent director. The option vests after a period of one year from the date of grant, expires ten years from the date of issuance, and is exercisable at $0.34 per share, the price of our common stock on the grant date. The fair value of this option totaled $2,267 and was recorded as selling, general and administrative expense.

Activity for our stock options under the 2007 Plan for the three-month periods ended March 31, 2012 and 2013 is as follows:

As of March 31, 2012:	Options Outstanding	Shares Available		Price per share			Weighted Average Price per share
Balances as of December 31, 2011	7,739,258	4,260,742		$0.23	—	1.89	$	0.42
Granted	6,667	(6,667	)		0.34			0.34
Exercised	—	—			—			—
Canceled	—	—			—			—
Balances as of March 31, 2012	7,745,925	4,254,075		$0.23	—	1.89	$	0.46

As of March 31, 2013:	Options Outstanding	Shares Available	Price per share			Weighted Average Price per share
Balances as of December 31, 2012	8,521,086	4,460,742	$0.23	—	1.89	$	0.44
Granted	—	—		—			—
Exercised	—	—		—			—
Canceled	—	—		—			—
Balances as of March 31, 2013	8,521,086	4,460,742	$0.23	—	1.89	$	0.44

Options issued Outside of the 2007 Equity Incentive Plan

During the three-month periods ended March 31, 2012 and 2013 we recorded an aggregate $19,000 in selling general and administrative expense related to options issued outside of the 2007 Plan.

Activity of our stock options issued outside of the 2007 Plan for the three-month periods ended March 31, 2012 and 2013 is as follows:

As of March 31, 2012:	Options Outstanding	Price per share			Weighted Average Price per share
Balances as of December 31, 2011	11,671,484	$0.25	—	1.89	$	0.43
Granted	—		—			—
Exercised	—		—			—
Canceled	—		—			—
Balances as of March 31, 2012	11,671,484	$0.25	—	1.89	$	0.43

As of March 31, 2013:	Options Outstanding	Price per share			Weighted Average Price per share
Balances as of December 31, 2012	13,338,220	$0.18	—	1.00	$	0.41
Granted	—		—			—
Exercised	—		—			—
Canceled	—		—			—
Balances as of March 31, 2013	13,338,220	$0.18	—	1.00	$	0.41

We recognize compensation expense for stock option awards on a straight-line basis over the applicable service period of the award, which is the vesting period. Share-based compensation expense is based on the grant date fair value estimated using the Black-Scholes Option Pricing Model. The following methodology and assumptions were used to calculate share based compensation for the three-month period ended March 31:

	2012			2013
	Non Plan	2007 Plan		Non Plan	2007 Plan
Risk free interest rate	—	1.81	%	—	—
Expected volatility	—	906	%	—	—
Expected dividend yield	—	—		—	—
Forfeiture rate	—	—		—	—
Expected life in years	—	7		—	—

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

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

We recognize compensation expense for stock option awards on a straight-line basis over the applicable service period of the award, which is the vesting period. Share-based compensation expense is based on the grant date fair value estimated using the Black-Scholes Option Pricing Model.  Historically, we have not had significant forfeitures of unvested stock options granted to employees and Directors. A significant number of our stock option grants are fully vested at issuance or have short vesting provisions. Therefore, we have estimated the forfeiture rate of our outstanding stock options as zero.