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

12 Months Ended

Dec. 31, 2013

Disclosure Text Block Supplement [Abstract]

Compensation and Employee Benefit Plans [Text Block]

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

Stock Based Compensation

Pursuant to the recommendations from our Compensation Committee, on December 28, 2012 we issued 1,000,000 shares of common stock to three of our executive officers for their continued service at $0.25 per share and recorded $250,000 of selling, general and administrative expense upon issuance.

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.

On June 17, 2013, we issued an option to purchase 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 year ended December 31, 2012 we issued options pursuant to the terms of the 2007 Plan to third-party consultants and our officers and members of our board of directors, as reflected in the following tables.

Third-party consultants:

2007 Plan		Exercise Price		Stock Price		Shares Purchasable		Fair Value		Vested
Conversion of accounts payable	⁽¹⁾	$	0.50	$	0.45		257,035	$	115,666	$	115,666
Pursuant to an agreement	⁽²⁾	$	0.36	$	0.28		200,000		56,000		14,000
Total							457,035	$	171,666	$	129,666

⁽¹⁾

On April 27, 2009, in an effort to preserve the Company’s cash and reduce outstanding payables, the Board offered to third parties an option (“Option”) to purchase 257,035shares of our 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 had an expiration date of April 27, 2012. 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, 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 $115,666 and was recorded as selling, general and administrative expense during the year-ended December 31, 2013.

⁽²⁾

On July 18, 2012, an option was issued to a consultant, in accordance with the service agreement, to purchase an aggregate 200,000 shares of our common stock. Of this amount 50,000 vested upon issuance exercisable at $0.50 per share; 50,000 vest January 18, 2013 at an exercise price of $0.75 per share; 50,000 vest July 18, 2013 at an exercise price of $1.00 per share; and the remaining 50,000 vest January 18, 2014 at an exercise price of $1.25 per share. The share price of our common stock on the date of issuance was $0.28 per share and resulted in a fair value of $56,000, of which $14,000 was recorded as selling, general and administrative expense during the year ended December 31, 2013, and the remaining will be expensed ratably per the vesting schedule. These options expire ten years from the date of issuance, July 18, 2022.

Officers and board of directors:

2007 Plan		Exercise Price			Stock Price			Shares Purchasable		Fair Value		Vested
Conversion of accounts payable	⁽³⁾	$0.40	-	$0.55	$0.32	-	$0.45		920,261	$	357,457	$	357,457
Pursuant to an agreement	⁽⁴⁾	$0.32	-	$0.35	$0.34	-	$0.40		346,667		120,067		120,067
									1,266,928	$	341,280	$	477,614

	⁽³⁾	On April 27, 2009, in an effort to preserve the Company’s cash and reduce outstanding payables, the Board offered to officers and board members an option (“Option”) to purchase 485,100 shares of our 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 April27, 2009, and had 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 was 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 fair value of the Option totaled $218,295 and was recorded as 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, 2013.

	⁽⁴⁾	On April 9, 2012, we issued an option to purchase 300,000 shares of common stock to our Chief Financial Officer in exchange for his services pursuant to the April 2012 extension of his engagement agreement with an exercise price of $0.35 per share, resulting in $105,000 in selling, general and administrative expense. The option expires April 9, 2022.

		On July 1, 2012, we recorded the issuance of an option to purchase an aggregate 46,667 shares of our common stock to the independent members of our Board of Directors, pursuant to the terms of the 2007 Equity Plan which calls for an automatic issuance of an option to a new board of director and concurrently with the annual stockholders meeting to our returning board of directors. The options vest after a period of one year from the date of grant, expires ten years from the date of issuance, and 6,667 is exercisable at $0.34 per share and 40,000 shares is exercisable at $0.40 per share, the price of our common stock on the grant date. The fair value of these options totaled $15,067 and was recorded as selling, general and administrative expense.

Activity for our stock options under the 2007 Plan for the years ended December 31, 2012 and 2013 is as follows:

	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		981,828			(981,828	)	$0.34	–	$0.40		0.38
Exercised		—			—			—			—
Expired		(200,000	)		200,000			$1.03			—
Balances as of December 31, 2012		8,521,086			4,460,742		$0.25	–	$1.89		0.44
Granted		40,000			(40,000	)		$0.28			0.28
Exercised		—			—			—			—
Expired		—			—			—			—
Balances as of December 31, 2013		8,561,086			4,420,742		$0.25	–	$1.89		0.44

The following table summarizes the stock options issued under the 2007 Equity Plan outstanding at December 31, 2013.

									Currently Exercisable
Options Outstanding at December 31, 2013	Exercise Price			Weighted Average Remaining Contractual Life		Weighted Average Exercise Price			Number Of Shares December 31, 2013		Weighted Average Exercise Price
200,000		$0.58			1		$0.58			200,000		$0.58
2,116,943	$0.30	-	$0.48		2	$0.30	-	$0.48		2,116,943	$0.30	-	$0.48
525,000	$0.40	-	$1.89		4	$0.40	-	$1.89		525,000	$0.40	-	$1.89
892,135	$0.28	-	$0.99		5	$0.28	-	$0.99		892,135	$0.28	-	$0.99
810,000	$0.31	-	$0.70		6	$0.31	-	$0.70		810,000	$0.31	-	$0.70
1,312,507	$0.22	-	$0.50		7	$0.22	-	$0.50		1,312,507	$0.22	-	$0.50
1,989,340	$0.34	-	$0.51		8	$0.34	-	$0.51		1,989,340	$0.34	-	$0.51
715,161	$0.28	-	$0.40		9	$0.28	-	$0.40		665,161	$0.28	-	$0.40
8,561,086	$0.22	-	$1.89	$	6		$0.44			8,511,086		$0.44

Options issued Outside of the 2007 Equity Incentive Plan

On December 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 $0.25 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 $0.25 per share.

On December 31, 2013, we issued Options to purchase 1,051,350 shares of our common stock at an exercise price of $0.25 per share to certain vendors and consultants, in lieu of $176,813 in accrued and unpaid fees. The fair value of the Options totaled $262,838, resulting in $87,613 of additional selling, general and administrative expenses.

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.

On July 17, 2013, our Chief Financial Officer agreed to extend the engagement agreement dated February 1, 2008 (the “Engagement Agreement”, which had been extended annually since inception). The Engagement Extension Agreement dated as of July 17, 2013 (the “Engagement Extension Agreement”) provides for an additional term to expire January 31, 2014 (the “Extended Term”), and is retroactively effective to February 1, 2013. Compensation during the Extended Term consists of the issuance of an option to purchase 300,000 shares of the Company’s common stock, at a strike price of $0.30 per share, to expire July 17, 2023, and to vest over the term of the engagement with 125,000 shares vested as of July 17, 2013, and the remaining shares to vest 25,000 monthly, provided that the Engagement Extension Agreement has not been terminated prior to each vesting date. The fair value of the option totaled $90,000 and through the year ended December 31, 2013 we have recorded $75,000 in selling, general and administrative expenses. The remaining $15,000 will expense ratably in 2014.

On December 27, 2012, we issued options to purchase 635,000 shares of common stock at a strike price of $0.30 cents per share, a 20 percent premium of the closing price of our common stock on the date of issuance, in lieu of $127,000 in accrued and unpaid fees to members of board of directors and an officer for services performed. The fair value of these options totaled $172,000, resulting in an additional $35,000 of selling, general and administrative expense.

On December 27, 2012, we issued options to purchase 862,986 shares of common stock at a strike price of $0.30 cents per share, in lieu of $172,597 in accrued and unpaid accounts payable and accrued expenses to certain of our vendors and consultants. The fair value of these options totaled $215,717, resulting in an additional $43,150 of selling, general and administrative expense.

On December 27, 2012, our Board extended by five years the expiration date of options issued to two consultants in January 2008. Each option entitles the consultant to purchase 1,200,000 shares of our common stock at $0.99 per share, fully vested over a four year period, and was set to expire on January 10, 2013. The Board amended the expiration date such that the options now expire January 10, 2018. The fair value of the extension of these options totaled $600,000 and it was recorded as selling, general and administrative expenses.

On October 2, 2012, we issued options to purchase 168,750 shares of common stock at a strike price of $0.40 cents per share, a 30 percent premium of the closing price of our common stock on the date of issuance, in lieu of $45,000 in accrued and unpaid fees to members of board of directors for service on our board of directors. The fair value of these options totaled $47,250, resulting in an additional $2,250 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.

On August 12, 2011, we entered into an agreement with Steven V. Harrison whereby we retained Mr. Harrison to serve as our Director of International Ventures and Business Development. Mr. Harrison is formerly a member of our Board of Directors. In addition to salary, Mr. Harrison will receive an option to purchase 800,000 shares of common stock for $1.00 per share, which shares will vest on a monthly basis over a period of four years and expire 10 years from the issue date. Should Mr. Harrison’s agreement terminate, no further shares will vest. The fair value of this option totaled $304,000 and through the years ended December 31, 2012 and December 31, 2013 we recorded $76,000 as selling, general and administrative expense. The remaining fair value of $126,667 will be expensed ratably through August 31, 2015.

Activity for our stock options issued outside of the 2007 Plan for the years ended December 31, 2012 and 2013 is as follows:

	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		1,666,736	$0.30	–	$0.99	$	0.41
Exercised		—		—			—
Canceled		—		—			—
Balances as of December 31, 2012		13,338,220	$0.18	–	$1.00	$	0.41
Granted		3,060,175	$0.25	–	$0.30	$	0.28
Exercised		—		—			—
Canceled		—		—			—
Balances as of December 31, 2013		16,398,395	$0.18	–	$1.00	$	0.39

The following table summarizes the stock options issued outside of the 2007 Equity Incentive Plan outstanding at December 31, 2013.

				Weighted			Currently Exercisable
Options Outstanding at December 31, 2013	Exercise Price			Average Remaining Contractual Life		Weighted Average Exercise Price	Number of Shares at December 31, 2013		Weighted Average Exercise Price
46,250		$0.30		2	$	0.30	46,250	$	0.30
7,733,259		$0.18		3	$	0.18	7,733,259	$	0.18
2,400,000		$0.99		3	$	0.99	2,400,000	$	0.99
691,975		$0.55		6	$	0.55	691,975	$	0.55
800,000		$1.00		8	$	1.00	483,333	$	1.00
168,750		$0.40		9	$	0.40	168,750	$	0.40
1,497,986		$0.30		9	$	0.30	1,497,986	$	0.30
3,060,175	$0.25	–	$0.30	10	$	0.28	3,060,175	$	0.28
16,398,395	$0.18	–	$1.00	9	$	0.39	16,081,728	$	0.37

	2012						2013
	Non Plan			2007 Plan			Non Plan			2007 Plan
Risk free interest rate	0.89%	–	1.73%	1.50%	–	2.06%	2.66%	–	3.04%		2.19	%
Expected volatility	483%	–	949%	520%	–	951%	928%	–	951%		928	%
Expected dividend yield		—			—			—			—
Forfeiture rate		—			—			—			—
Expected life in years	4	–	10	7	-	10		10			10

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.