Note 5. Stockholders’ Equity

Preferred Stock

Our certificate of incorporation authorizes our Board of Directors to issue preferred stock, from time to time, on such terms and conditions as they shall determine. As of December 31, 2015 and March 31, 2016 there were no outstanding shares of our preferred stock.

Common Stock

During the three-months ended March 31, 2015 and 2016, we issued 312,739 and 338,262 shares of common stock in lieu of salary to officers and fees for service provided by consultants, resulting in a weighted-average fair value of $110,827 and $73,658, respectively, and recorded in selling general and administrative expense

During the three-months ended March 31, 2016, we issued 282,240 shares of common stock resulting in a grant date fair value of $99,492, to settle our accrued interest liability, which is

recorded as interest expense in our consolidated statement of operations. There were no shares issued for interest during the three-months ended March 31, 2015.

Share-Based Compensation

During the three-months ended March 31, 2015 and 2016, we recorded an aggregate $255,625 and $301,839 in selling general and administrative expense related to the issuance of stock options. We issued options through our 2007 Equity Incentive Plan and outside of our 2007 Equity Incentive Plan.

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 Board’s 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 March 21, 2016, our Board of Directors extended by five years the expiration of options to purchase 307,777 shares of our common stock issued to our Board of Directors and vendors in March 2011. The options were originally issued in exchange for unpaid obligations and now expire on March 21, 2021. The weighted-average fair value of the options resulted in additional $119,971 of selling, general and administrative expenses.

Activity for our stock options under the 2007 Plan for the three-months ended March 31, 2015 and 2016 is as follows:

									Weighted
Balance, March 31, 2015:									Average
	Options			Shares		Exercise			Price per
	Outstanding			Available		Price per share			share
Balances as of December 31, 2014		8,601,086			3,398,914	$0.23	–	1.89	$	0.44
Granted		—			—		—			—
Expired		(200,000	)		200,000		0.58			0.58
Balance, March 31, 2015		8,401,086			3,598,914	$0.23	–	1.89	$	0.43

								Weighted
								Average
Balance, March 31, 2016:	Options		Shares		Exercise			Price per
	Outstanding		Available		Price per share			share
Balances as of December 31, 2015		10,241,086		1,758,914	$0.22	–	1.89	$	0.44
Granted		—		—		—			—
Expired		—		—		—			—
Balance, March 31, 2016		10,241,086		1,758,914	$0.22	–	1.89	$	0.44

Options issued Outside of the 2007 Equity Incentive Plan

On March 31, 2016, we issued options to purchase 263,523 shares of our common stock at an exercise price of $0.33 per share to our board of directors, in lieu of $67,500 in fees and to a vendor in lieu or accrued and unpaid fees $12,975. The weighted-average fair value of these options totaled $86,963 and is recorded as selling, general and administrative expenses.

On March 31, 2015, we issued options to purchase 577,818 shares of our common stock at an exercise price of $0.36 per share to two vendors and to our members of our board of directors, in lieu of $136,750 in accrued and unpaid fees. The weighted-average fair value of these options totaled $206,076 and is recorded as selling, general and administrative expenses.

The grant-date fair value of the previously issued options that vested during the three-months ended March 31, 2105 and 2016 was $49,549 and $94,905, respectively.

Activity of our stock options issued outside of the 2007 Plan for the three-months ended March 31, 2015 and 2016 is as follows:

						Weighted
Balance, March 31, 2015:						Average
	Options		Exercise			Price per
	Outstanding		Price per share			share
Balance, December 31, 2014		17,965,291	$0.18	–	1.00	$	0.40
Granted		577,818		0.36			0.36
Expired		—		—			—
Balance, March 31, 2015		18,543,109	$0.18	–	1.00	$	0.40

						Weighted
						Average
Balance, March 31, 2016:	Options		Exercise			Price per
	Outstanding		Price per share			share
Balance, December 31, 2015		19,394,975	$0.18	–	1.00	$	0.40
Granted		263,523		$0.33		$	0.33
Expired		—		—			—
Balance, March 31, 2016		19,658,498	$0.18	–	1.00	$	0.40

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-months ended March 31:

	2015					2016

	Non Plan			2007 Plan		Non Plan			2007 Plan
Risk free interest rate		1.97	%		—		1.91	%		1.36	%
Expected volatility		821	%		—		645	%		315	%
Expected dividend yield		—			—		—			—
Forfeiture rate		—			—		—			—
Expected life in years		7			—		7			5

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.

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.