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

9 Months Ended

Sep. 30, 2013

Disclosure Text Block Supplement [Abstract]

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 nine-month period ended September 30, 2013, we recorded the issuance of an option to purchase an aggregate 40,000 shares of our common stock to our members of our Board of Directors, pursuant to the terms of the 2007 Equity Plan which calls for an annual automatic issuance. Each board member received an option to purchase 10,000 shares of our common stock, 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 $0.28 per share, the price of our common stock on the grant date. The fair value of this option totaled $11,200 and was recorded as selling, general and administrative expense.

During the nine-month period ended September 30, 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.

On April 27, 2009, in an effort to preserve the Company’s cash and reduce outstanding payables, the Board offered to third parties, officers and board members an option (“Option”) to purchase common stock in lieu of cash payment to reduce amounts owed by the Company. The Options were issued pursuant to the Company’s 2007 Equity Incentive Plan with an exercise price of $0.50 cents a share, an amount which was $0.20 per share above the $0.30 per share closing price of the Company’s common stock on April 27, 2009, and an expiration date of April 27, 2012. The Options issued to Board members Dennis P. Calvert and Kenneth R. Code were issued at an exercise price of $0.55 per share. In consideration of the circumstances in which the Options were issued, and the fact that the price of the Company’s common stock is less than the strike price of the Options, the Board extended the expiration date of the Options by a period of seven years, to expire on April 27, 2019.  The Option allowed for the purchase of 742,135 shares of our common stock and the fair value of the Option totaled $352,739 and was recorded as selling, general and administrative expense in 2012

During the nine-month period ended September 30, 2012, a portion of an option to purchase 300,000 shares of common stock issued to our Chief Financial Officer in exchange for his services pursuant to the April 2012 extension of his engagement agreement vested, resulting in $43,201 of selling, general and administrative expense.

During the nine-month period ended September 30, 2012, a portion of the unvested options issued to consultants vested, resulting in $71,000 of selling, general and administrative expense.

On July 5, 2012, our independent board members were issued options to purchase an aggregate 435,161 shares of our common stock at $0.36 per share in exchange for a reduction of $104,439 in accrued and unpaid obligations for their services on the board of directors. The share price of our common stock on July 5, 2012 was $0.32 per share. These options are fully vested and expire ten years from the date of issuance, July 5, 2022. The fair value of the options was an aggregate $152,585, resulting in additional $48,146 of selling, general and administrative expense in the year ended December 31, 2012.

Activity for our stock options under the 2007 Plan for the nine-month period ended September 30, 2012 and 2013 is as follows:  

As of September 30, 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		0.25	–	1.89	$	0.45
Granted		981,828		(981,828	)	0.34	–	0.35		0.35
Exercised		—		—			—			—
Canceled		—		—			—			—
Balances as of September 30, 2012		8,721,086		3,278,914		0.25	–	1.89	$	0.45

As of September 30, 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		40,000		(40,000	)		0.28			0.28
Exercised		—		—			—			—
Canceled		—		—			—			—
Balances as of September 30, 2013		8,561,086		4,420,742		0.23	–	1.89	$	0.44

Options issued Outside of the 2007 Equity Incentive Plan

On September 27, 2013, in an effort to preserve our cash and reduce outstanding payables, pursuant to a plan previously adopted by our Board, we offered to employees, board members, consultants and vendors the opportunity to convert outstanding payable amounts into either (i) an option to purchase common stock in lieu of cash payment at $0.30 cents a share, expiring ten years from the date of issuance, and containing “cashless” exercise provisions (each, an “Option”), or (ii) our common stock at $0.30 per share.

On September 30, 2013, we issued Options to purchase 1,033,825 shares of our common stock at an exercise price of $0.30 per share to certain vendors and consultants, in lieu of $206,765 in accrued and unpaid fees. The fair value of the Options totaled $289,471, resulting in $82,706 of additional selling, general and administrative expenses.

On September 30, 2013, we issued Options to purchase 675,000 share of our common stock at an exercise price of $0.30 per share to certain non-employee members of our board of directors, in lieu of $135,000 in accrued and unpaid fees due for services on our board of directors. The fair value of the Options totaled $189,000, resulting in $54,000 of additional selling, general and administrative expenses.

During the nine-month period ended September 30, 2013, a portion of the option to purchase 300,000 shares of common stock issued to our Chief Financial Officer in exchange for his services pursuant to the July 2013 extension of his engagement agreement vested, resulting in $52,500 of selling, general and administrative expense.

During the nine-month periods ended September 30, 2012 and 2013, a portion of the option to purchase 800,000 shares of common stock issued to a consultant in exchange for his services pursuant to the August 2011 engagement agreement vested, resulting in $57,000 of selling, general and administrative expense.

On April 27, 2009, in an effort to preserve the Company’s cash and reduce outstanding payables, the Board offered to a related party an option (“Option”) to purchase 691,975 shares of our common stock in lieu of cash payment to reduce amounts owed by the Company. The Option was issued to New Millennium, Inc. a Company controlled by Dennis P. Calvert were issued at an exercise price of $0.55 per share. In consideration of the circumstances in which the Options were issued, and the fact that the price of the Company’s common stock was less than the strike price of the Options. On April 27, 2012 the Board extended the expiration date of the Options by a period of seven years, to expire on April 27, 2019. The fair value of the Option totaled $228,352 and was recorded as selling, general and administrative expense.

Activity of our stock options issued outside of the 2007 Plan for the nine-month period ended September 30, 2012 and 2013 is as follows:

As of September 30, 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		691,975		.30			.30
Exercised		—		—			—
Canceled		—		—			—
Balances as of September 30, 2012		12,363,459	0.25	–	1.89	$	0.43

As of September 30, 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		2,008,825		.30			.30
Exercised		—		—			—
Canceled		—		—			—
Balances as of September 30, 2013		15,347,045	0.18	–	1.00	$	0.36

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 nine-month period ended September 30:

	2012					2013
	Non Plan		2007 Plan			Non Plan			2007 Plan
Risk free interest rate		—		1.45	%	2.64 – 2.66%				2.19	%
Expected volatility		—		951	%		928	%		928	%
Expected dividend yield		—		—			—			—
Forfeiture rate		—		—			—			—
Expected life in years		—		7			7			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.