Note

Debt Obligations

The following table summarizes our debt obligations outstanding as of the dates indicated:

	DECEMBER 31, 2015		DECEMBER 31, 2016

Convertible notes, mature June 1, 2018	$	3,245,972	$	4,800,097
Convertible notes, mature September 17, 2019		—		283,571
Convertible notes, mature July 8, 2017		—		280,000
Convertible notes, mature December 30, 2017		—		280,000
Convertible notes, mature December 31, 2019		—		167,000
Line of credit, matures December 1, 2017		—		50,000
Total	$	3,245,972	$	5,860,668

The Unit Offerings of a convertible promissory note and a Series A stock purchase warrant are accounted for under the fair value and relative fair value method.

The warrant is

first

analyzed per its terms as to whether it has derivative features or not. If the warrant is determined to be a derivative, then it is measured at fair value using the Black Scholes Option Model, and recorded as a liability on the balance sheet. The warrant is measured again at its then current fair value at each subsequent reporting dates (it is “marked-to-market”).

If the warrant is determined to not have derivative features, it is recorded into equity at its fair value using the Black Scholes option model, however, limited to a relative fair value based upon the percentage of its fair value to the total fair value including the fair value of the convertible note.

The convertible note is recorded at its fair value, limited to a relative fair value based upon the percentage of its fair value to the total fair value including the fair value of the warrant. Further, the convertible promissory note is examined for any intrinsic beneficial conversion feature (“BCF”) of which the convertible price of the note is less than the closing stock price on date of issuance. If the relative fair value method is used to value the convertible promissory note and there is an intrinsic BCF, a further analysis is undertaken of the BCF using an effective conversion price which assumes the conversion price is the relative fair value divided by the number of shares the convertible debt is converted into by its terms. The adjusted BCF value is accounted for as equity.

The warrant and BCF fair values are also recorded as a discount to the convertible promissory notes. As present, these equity features of the convertible promissory notes have recorded a discount to the convertible notes that is substantially equal to the proceeds received.

For the years ended

December

31,

2015

and

2016

we recorded

$994,671

and

$3,129,104

of interest expense related to the amortization of the discount on our convertible notes payable, and interest expense related to our outstanding convertible promissory notes and line of credit.

Convertible Notes, mature

June

2018

2015

Unit Offering

January

15,

2015,

we commenced a private securities offering of “units”, each Unit consisting of a convertible promissory note and Series A stock purchase warrant

(“2015

Unit Offering”), which was closed on

September

16,

2016.

The price and availability of the Units were set forth in

five

“Pricing Supplements” issued from time-to-time. Each note issued is convertible into the Company’s common stock at the Unit price set forth in the particular pricing supplement, and matures

June

2018.

Because more than

$3,000,000

was invested, we are obligated to register the common shares underlying the notes and warrants (“Shares”) with the Securities and Exchange Commission.

Interest due will be paid quarterly in arrears in cash or shares of common stock; all interest due thus far has been paid in shares of common stock. If paid by the issuance of common stock, interest is paid at a conversion price equal to the average closing price of the Company’s common stock over the

trading days prior to the interest payment due date. The principal amount of the note

may

be paid by the issuance of shares of common stock, or cash, upon maturity at the Company’s election. When paid in shares, the number of shares to be issued shall be calculated by dividing the principal amount invested by the Unit price, as it is established at the time of the original investment by the applicable Pricing Supplement. The notes

may

be converted at any time by the investor, at maturity by the Company, or by the Company prior to maturity, so long as all of the following conditions are met: (i) the Shares issued as payment are registered with the SEC, (ii) the Company’s common stock closes for

ten

consecutive trading days at or above

three

times the Unit price.

Each investor, for no additional consideration, received a Series A stock purchase warrant. (See Note

6).

Each Series A warrant allows for the purchase of the number of common shares equal to the investment amount divided by the Unit price, (e.g.,

one

warrant share for each share of common stock which the investor is eligible to receive through conversion of his original convertible note) and, the warrant will have an exercise price as set forth in the Pricing Supplement. Each Series A warrant expires

June

2020.

The Company

may

“call” the Series A warrant, requiring the investor to exercise the warrant within

days or forever lose the rights to do so, only if the following conditions have been met: (i) the underlying Shares are registered with the SEC, and (ii) the Company’s common stock closes for

ten

consecutive trading days at or above

two

times the exercise price.

In total, we issued

five

pricing supplements setting forth the conversion price of the note, as well as the warrant price, as follows (numbers in table reflect total investments for each pricing supplement since inception of offering through the termination of the offering):

Pricing Supplement	Conversion Price		Warrant Exercise Price		Aggregate Investments
No. 1	$	0.25	$	0.40	$	460,000
No. 2	$	0.25	$	0.40		1,100,000
No. 3	$	0.35	$	0.45		1,546,713
No. 4	$	0.35	$	0.45		550,000
No. 5	$	0.55	$	0.70		1,155,000
					$	4,811,713

The closing stock price on

December

30,

2016

(the last trading day of the year) was

$0.83

per share.

During the year ended

December

31,

2016,

we received

$2,140,000

and issued unsecured convertible promissory notes with maturity dates of

June

2018,

which accrue interest at a rate of

12%

per annum, and are convertible at the Unit price set forth in the investor’s subscription agreement. Of this amount, notes in the face amount of

$985,000

were issued at a Unit price of

$0.35,

and

$1,155,000

at a Unit price of

$0.55.

Each investor, for no additional consideration, received a Series A stock purchase warrant. (See Note

6.)

During the year ended

December

31,

2015,

we received

$2,671,713

and issued unsecured convertible promissory notes with maturity dates of

June

2018,

which accrue interest at a rate of

12%

per annum, and are convertible at the Unit price set forth in the investor’s subscription agreement. Of this amount, notes in the face amount of

$1,535,000

were issued at a Unit price of

$0.25,

and

$1,136,713

at a Unit price of

$0.35.

Each investor, for no additional consideration, received a Series A stock purchase warrant. (See Note

6.)

During the year ended

December

31,

2016,

investors elected to convert an aggregate

$589,371

principal amount promissory notes issued in our

2015

Unit Offering into

2,167,420

shares of our common stock (see Note

“Common Stock”). As of

December

31,

2016,

$4,140,213

of these notes remain outstanding.

December/January Notes

January

2015,

we received

$133,000

and issued unsecured convertible promissory notes each with a

one

-year maturity date, which accrue interest at a rate of

12%

per annum. Each noteholder, for no additional consideration, received a stock purchase warrant exercisable at

$0.30

per share, which expires

January

2018.

(See Note

6).

The funds received as part of our December/January Notes totaled

$333,000.

During the year ended

December

31,

2015,

these investors converted their investments, including principal and interest in the aggregate amount of

$383,913,

into convertible promissory notes on the same terms and notes issued in the

2015

Unit Offering, convertible at

$0.25

per share, maturing

June

2018.

Additionally, the investors received a Series A stock purchase warrant to purchase

1,909,301

shares of our common stock at an exercise price of

$0.40

per share. (See Note

6).

Summer

2014

Offering Conversions

During

2015,

investors included in our Summer

2014

Offering exercised their right to convert their equity investment into the

2015

Unit Offering. In exchange for a note and warrant on the terms offered in our

2015

Unit Offering (see above), we agreed to cancel

530,000

shares of our common stock issued as part of the Summer

2014

Offering, such that the original equity investment

$212,000

was cancelled and we issued new convertible promissory notes totaling

$212,000

with an expiration date of

June

2018.

$50,000

Line of Credit

November

19,

2013,

we received

$50,000

pursuant to a line of credit which accrues interest at a rate of

24%.

We have pledged our inventory and accounts receivable as collateral. The maturity date of the line of credit was

May

15,

2016.

September

2015,

this line of credit, plus outstanding interest, was converted to a convertible promissory note in the principal amount of

$58,530,

and a Series A stock purchase warrant on the same terms as our

2015

Unit Offering, such that the note matures on

June

2018,

and converts at a price of

$0.25

per share, and the warrant allows the purchase of up to

234,120

shares at

$0.40

per share.

One-Year Convertible Notes, mature

July

2017

and

December

30,

2017

December

30,

2016,

we received

$250,000

and issued convertible promissory notes (convertible at

$0.57

per share) with a maturity date of

December

30,

2017

two

accredited investors, in the aggregate principal amount of

$280,000.

Interest is charged upon issuance at

per annum. We issued these investors stock purchase warrants to purchase an aggregate

400,000

shares of our common stock exercisable at

$0.75

per share, which expire

five

years from the date of grant. We are required to include the shares underlying the warrants in any registration statement (piggy back registration rights) subsequent to the Form S-

filed

January

24,

2017.

Additionally, the exercise price of the stock purchase warrant

may

be adjusted downward in the event we sell our common stock or issue warrants at a lower price.

Thus, the warrants are presented as a derivative liability on our balance sheet. The fair value of these warrants was

$331,760

at issuance, and this amount was recorded as a derivative liability. The remaining

$280,000

was recorded as a debt discount.

July

2016,

we received

$250,000

and issued convertible promissory notes (convertible at

$0.45

per share) with a maturity date of

July

2017

two

accredited investors’ in the aggregate principal amount of

$280,000.

Interest is charged upon issuance at

per annum. We issued these investors

stock purchase warrants to purchase an aggregate

400,000

shares of our common stock

exercisable at

$0.65

per share, which expire

five

years from the date of grant. We are required to include the shares underlying the warrants in any subsequent registration statement (piggy back registration rights). Additionally, the exercise price of the stock purchase warrant

may

be adjusted downward in the event we sell our common stock or issue warrants at a lower price, other than through our

2015

Unit Offering. Thus, the warrants are presented as a derivative liability on our balance sheet. The fair value of these warrants was

$160,000

at issuance, and this amount was recorded as a derivative liability. The remaining

$120,000

was recorded as a debt discount for the beneficial conversion feature embedded in the debt instrument. On

December

31,

2016

we again calculated the fair value of the warrants, resulting in a change in the derivative liability of

$171,800

and a total derivative liability of

$331,800.

Line of Credit, matures

December

2017

June

2016,

we received

$300,000

pursuant to a line of credit, accruing interest at a rate of

18%

per annum, for which we have pledged our inventory and accounts receivable as collateral. The line of credit

may

be repaid following

nine

-months from the date of issuance or at the maturity date

December

2017.

Each investor, for no additional consideration, received a warrant to purchase our common stock. (See Note

6).

The warrant allows for the purchase of the number of common shares equal to the investment amount (e.g.,

one

warrant share for each dollar invested).

September

17,

2016,

investors holding

$250,000

of the line of credit converted their line of credit into convertible promissory notes and stock purchase warrants on the same terms and notes issued in the

2015

Unit Offering (see section immediately below). As of

December

31,

2016,

$50,000

remains outstanding on this line of credit.

Convertible Notes, mature

September

17,

2019

September

17,

2016,

investors in the line of credit (see “Line of Credit, matures

December

2017,

above) converted

$250,000

plus accrued interest of

$33,571

into convertible promissory notes totaling

$283,571

on the same terms and notes issued in the

2015

Unit Offering, convertible at

$0.55

per share, with the exception that these notes mature

September

17,

2019,

rather than

June

2018.

Additionally, the investors received a Series A stock purchase warrant to purchase

515,583

shares of our common stock at an exercise price of

$0.70

per share. (See Note

6).

Convertible Notes, mature

December

31,

2019

– Winter

2016

Unit Offering

December

27,

2016,

we commenced a private securities offering (titled the “Winter

2016

Unit Offering”) which offered the sale of

$600,000

of “Units,” each Unit consisting of a convertible promissory note and stock purchase warrant. The promissory notes issued to investors were convertible at

$0.57

cents per share, mature

December

31,

2019,

and bear interest at the rate of

12%

per annum on the amount invested. Any interest due will be paid quarterly in arrears in cash or shares of common stock. If paid by the issuance of common stock, interest is paid at a conversion price equal to the average closing price of the Company’s common stock over the

trading days prior to the interest payment due date. The principal amount of the note

may

be paid by the issuance of shares of common stock, or cash, upon maturity at the Company’s election.

When paid in shares, the number of shares to be issued shall be calculated by dividing the principal amount invested by the

$0.57

conversion price. Promissory notes

may

be converted at any time by the investor, at maturity by the Company, or by the Company prior to maturity, so long as the following conditions are met: (i) the Shares issued as payment are registered with the SEC; and (ii) the Company’s common stock closes for

ten

consecutive trading days at or above

three

times the Unit price. In addition to the convertible promissory note, each investor received a warrant allowing for the purchase of the number of shares of BioLargo common stock equal to the investment amount divided by

$0.57

(e.g.,

one

warrant share for each share of common stock which the investor is eligible to receive through conversion of his original convertible note). The exercise price of the warrant is

$0.70

per share of common stock and expire on

December

31,

2021.

The Company

may

“call” the warrants, requiring the investor to exercise their warrants within

days or forever lose the rights to do so, only if the following conditions have been met: (i) the underlying Shares are registered with the SEC and (ii) the Company’s common stock closes for

consecutive trading days at or above

two

times the exercise price. The shares underlying the warrants contain “piggy back” registration rights for any registrations subsequent to the Form S-

filed

January

24,

2017.

The offering terminated on

January

13,

2017

(see Note

10).

We received

$167,000

in investments from

three

accredited investors, and issued warrants to purchase

292,983

shares of our common stock. (See Note

6.)

All of these offerings and sales were made in reliance on the exemption from registration contained in Section

4(2)

of the Securities Exchange Act and/or Regulation D promulgated thereunder as not involving a public offering of securities.