10-Q

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2017.

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number 000-19709

BIOLARGO, INC.

(Exact name of registrant as specified in its charter)

Delaware	65-0159115
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

14921 Chestnut St.

Westminster, CA 92683

(Address, including zip code, of principal executive offices)

(949) 643-9540

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  ☒ No      ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer     ☐	Accelerated filer ☐
Non-accelerated filer       ☐	Smaller reporting company ☒
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

The number of shares of the Registrant’s Common Stock outstanding as of May 15, 2017 was 99,040,328 shares.

BIOLARGO, INC.

FORM 10-Q

INDEX

PART I
Item 1	Financial Statements	1
Item 2	Management's Discussion and Analysis and Financial Condition and Results of Operations	18
Item 4	Controls and Procedures	27
PART II
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 6	Exhibits	28
	Signatures	29
	Exhibit Index	30

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Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

BIOLARGO, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2016 AND MARCH 31, 2017

	DECEMBER 31,  2016			MARCH 31, 2017 (Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	1,910,153		$	1,175,525
Accounts receivable, net of allowance of $0 and $15,000		67,994			62,436
Inventories		34,446			24,628
Prepaid expenses and other current assets		4,089			147,382
Total current assets		2,016,682			1,409,971
Equipment, net of depreciation		59,315			54,121
Other non-current assets, net of amortization		36,729			33,999
Total assets	$	2,112,726		$	1,498,091
Liabilities and stockholders’ deficit
Current liabilities:
Accounts payable and accrued expenses	$	200,103		$	236,699
Accrued officer bonus		80,000			—
Convertible notes payable		560,000			280,000
Discount on convertible notes payable, net of amortization		(398,910	)		(267,860	)
Derivative warrant liability		663,560			397,960
Line of credit		50,000			50,000
Total current liabilities		1,154,753			696,799
Long-term liabilities:
Convertible notes payable		5,250,668			5,255,668
Discount on convertible notes payable and line of credit, net of amortization		(3,522,497	)		(3,007,423	)
Line of Credit		—			175,000
Total liabilities		2,882,924			3,120,044
COMMITMENTS, CONTINGENCIES (Note 9)
STOCKHOLDERS’ DEFICIT:
Convertible Preferred Series A, $.00067 Par Value, 50,000,000 Shares Authorized, - no Shares Issued and Outstanding, at December 31, 2016 and March 31, 2017		—			—
Common stock, $.00067 Par Value, 200,000,000 Shares Authorized, 92,975,970 and 94,988,597 Shares Issued, at December 31, 2016 and March 31, 2017		62,179			63,536
Additional paid-in capital		90,609,774			91,828,114
Accumulated deficit		(91,915,426	)		(93,912,246	)
Accumulated other comprehensive loss		(81,694	)		(93,070	)
Total Biolargo, Inc. and Subsidiaries stockholders’ deficit		(1,325,167	)		(2,113,666	)
Non-controlling interest (Note 8)		554,969			491,713
Total stockholders’ deficit		(770,198	)		(1,621,953	)
Total liabilities and stockholders’ deficit	$	2,112,726		$	1,498,091

See accompanying notes to unaudited consolidated financial statements.

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Table of Contents

BIOLARGO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE LOSS

FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2017

(UNAUDITED)

	MARCH 31, 2016			MARCH 31, 2017
Revenues	$	13,942		$	46,017
Cost of revenues		(6,081	)		(22,530	)
Gross profit		7,861			23,487
Selling, general and administrative expenses		930,907			1,055,055
Research and development		351,050			391,336
Amortization		2,730			7,924
Total operating expenses		1,284,687			1,454,315
Operating loss		(1,276,826	)		(1,430,828	)
Other (expense) income:
Interest expense		(406,325	)		(953,636	)
Change in fair value of derivative warrant liability		—			265,600
Grant income		38,758			58,788
Total other expense:		(367,567	)		(629,248	)
Net loss		(1,644,393	)		(2,060,076	)
Net loss attributable to noncontrolling interest		(66,972	)		(63,256	)
Net loss attributable to common shareholders	$	(1,577,421	)	$	(1,996,820	)
Net loss per share attributable to common shareholders:
Loss per share attributable to shareholders – basic and diluted	$	(0.02	)	$	(0.02	)
Weighted average number of common shares outstanding:		85,847,219			94,444,945
Comprehensive loss:
Net loss	$	(1,644,393	)	$	(2,060,076	)
Foreign currency translation		(9,318	)		(11,376	)
Comprehensive loss		(1,653,711	)		(2,071,452	)
Comprehensive loss attributable to noncontrolling interest		(66,972	)		(63,256	)
Comprehensive loss attributable to common shareholders	$	(1,586,739	)	$	(2,008,196	)

See accompanying notes to unaudited consolidated financial statements.

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BIOLARGO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 2017

(UNAUDITED)

	Common stock				Additional paid-in		Accumulated			Accumulated other comprehensive			Non- controlling
	Shares		Amount		capital		deficit			loss			interest			Total
Balance, December 31, 2016		92,975,970	$	62,179	$	90,609,774	$	(91,915,426	)	$	(81,694	)	$	554,969		$	(770,198	)
Conversion of notes		1,047,678		703		399,297		—			—			—			400,000
Vendors and Interest		454,949		311		261,098		—			—			—			261,409
Exercise of Warrants		510,000		343		152,657		—			—			—			153,000
Stock option compensation expense		—		—		280,288		—			—			—			280,288
Fair value of warrants and conversion feature issued as discount on convertible notes payable		—		—		125,000		—			—			—			125,000
Net loss		—		—		—		(1,996,820	)		—			(63,256	)		(2,060,076	)
Foreign currency translation		—		—		—		—			(11,376	)		—			(11,376	)
Balance, March 31, 2017		94,988,597	$	63,536	$	91,828,114	$	(93,912,246	)	$	(93,070	)	$	491,713		$	(1,621,953	)

See accompanying notes to unaudited consolidated financial statements.

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BIOLARGO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2017

(UNAUDITED)

	March 31,  2016			March 31, 2017
Cash flows from operating activities
Net loss	$	(1,644,393	)	$	(2,060,076	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock option compensation expense		301,839			280,288
Common stock issued for interest and fees for services from consultants		173,150			261,409
Interest expense related to amortization of the discount on convertible notes payable		298,771			771,124
Bad debt expense		—			15,000
Change in derivative liability		—			(265,600	)
Amortization expense		2,730			7,924
Changes in assets and liabilities:
Accounts receivable		14,382			(9,442	)
Inventories		5,462			9,818
Prepaid expenses and other current assets		(43,366	)		(143,293	)
Deposits		(35,000	)		—
Accounts payable and accrued expenses		(60,081	)		36,596
Officer bonus		—			(80,000	)
Net cash used in operating activities		(986,506	)		(1,176,252	)
Cash flows from financing activities
Proceeds from convertible notes		255,000			125,000
Proceeds from line of credit		—			175,000
Proceeds from exercise of warrants		—			153,000
Net cash provided by financing activities		255,000			453,000
Effect of foreign currency translation		(9,318	)		(11,376	)
Net change in cash and cash equivalents	$	(740,824	)	$	(734,628	)
Cash and cash equivalents at beginning of period	$	1,763,114		$	1,910,153
Cash and equivalents at end of period	$	1,022,290		$	1,175,525
Supplemental disclosures of cash flow information
Cash paid during the period for:
Income taxes	$	4,000		$	5,350
Non-cash investing and financing activities:
Conversion of accounts payable into stock options	$	206,934		$	141,763
Fair value of warrants issued in conjunction with convertible notes payable	$	255,000		$	125,000
Settlement of accounts payable and interest in shares of common stock	$	173,150		$	261,409
Convertible notes into shares of common stock	$	—		$	400,000

See accompanying notes to unaudited consolidated financial statements

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BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1. Business and Organization

Outlook

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of our business. As reflected in the accompanying financial statements, for the three months ended March 31, 2017 we had a net loss of $2,060,076, and used $1,176,252 cash in operations, and at March 31, 2017, had working capital of $713,172, current assets of $1,409,971, and an accumulated stockholders’ deficit of $93,912,246. The foregoing factors raise substantial doubt about our ability to continue as a going concern. Ultimately, our ability to continue as a going concern is dependent upon our ability to attract significant new sources of capital, attain a reasonable threshold of operating efficiencies and achieve profitable operations by licensing or otherwise commercializing products incorporating our technologies. The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

We have been, and anticipate that we will continue to be, limited in terms of our capital resources. Our total cash balance was $1,175,525 at March 31, 2017. We had revenues of $46,017 in the three months ended March 31, 2017, which amount was not sufficient to fund our operations. At times in the past we have not had enough cash or sources of capital to pay our accounts payable and expenses as they arise, and have relied on the issuance of stock options and common stock, as well as extended payment terms with our vendors, to continue to operate. Although our cash position at the moment is stronger than in the past, our total cash decreased by over $700,000 from December 31, 2016 to March 31, 2017. We will be required to raise substantial additional capital to expand our operations, including without limitation, hiring additional personnel, additional scientific and third-party testing, costs associated with obtaining regulatory approvals and filing additional patent applications to protect our intellectual property, and possible strategic acquisitions or alliances, as well as to meet our liabilities as they become due for the next 12 months.

As of March 31, 2017, we had $5,760,668 in principal amounts due on various debt obligations (see Note 4). Of that amount, $5,430,668 are long-term liabilities and convertible at our option into common stock at maturity. Interest continues to accrue on each of these notes. Additionally, we had $236,699 of accounts payable and accrued expenses (see Note 7).

The unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to Rule 8-03 of Regulation S-X under the Securities Act of 1933, as amended. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for annual financial statements.  In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. For some of our activities, we are still operating in the early stages of the sales and distribution process, and therefore our operating results for the three months ended March 31, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017, or for any other period. These unaudited consolidated financial statements and notes should be read in conjunction with the Company’s audited financial statements and accompanying notes included in the Annual Report on Form 10-K for the year ended December 31, 2016 filed with the Securities and Exchange Commission (the “SEC”) on March 30, 2017.

Note 2. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its majority owned subsidiaries. All intercompany accounts and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the period reported. Actual results could differ from those estimates. Estimates are used when accounting for stock-based compensation and financing transactions, uncollectible accounts receivable, asset impairment and amortization, and taxes, among others.

The methods, estimates and judgments we use in applying these most critical accounting policies have a significant impact on the results of our financial statements.  

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BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Share-based Payments

All share-based payments to employees, including grants of employee stock options, are recognized in the financial statements based on their fair values.

For stock issued to consultants and other non-employees for services, we record the expense based on the fair market value of the securities as of the date of the stock issuance. The issuance of fully vested stock warrants or options to non-employees are valued at the time of issuance utilizing the Black Scholes calculation and the amount is charged to expense. The issuance of stock warrants or options to non-employees that vest over time are revalued each reporting period until vested to determine the amount to be recorded as an expense in the respective period. As the warrants or options vest, they are valued on each vesting date and an adjustment is recorded for the difference between the value already recorded and the then current value on the date of vesting.

Warrants

The Unit Offerings of our 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 date (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.

Non-Cash Transactions

We have established a policy relative to the methodology to determine the value assigned to each intangible we acquire, and/or services or products received for non-cash consideration of our common stock. The value is based on the market price of our common stock issued as consideration, at the date of the agreement of each transaction or when the service is rendered or product is received.

Foreign Currency

The Company has designated the functional currency of Biolargo Water, Inc., our Canadian subsidiary, to be the Canadian dollar. Therefore, translation gains and losses resulting from differences in exchange rates are recorded in accumulated other comprehensive income.

Revenue Recognition

Revenues are recognized as risk and title to products transfers to the customer (which generally occurs at the time shipment is made), the sales price is fixed or determinable, and collectability is reasonably assured. We also may generate revenues from royalties and license fees from our intellectual property. In the event we do so, we anticipate a licensee would pay a license fee in one or more installments and ongoing royalties based on their sales of products incorporating or using our licensed intellectual property. We would recognize license fees over the estimated period of future benefit to the licensee.

Government Grants

We have been awarded grants from the Canadian National Research Institute – Industrial Research Assistance Program (NRC-IRAP) and the National Science and Engineering Research Council of Canada (NSERC). The government grants received are considered other income and are included in our consolidated statements of operations. Some of the funds from these grants are given directly to third parties (such as the University of Alberta) to support research on our technology. The grants have terms generally ranging between six and eighteen months and support a majority, but not all, of the related research budget costs.

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BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The grants typically provide for either (i) recurring monthly amounts, (ii) reimbursement of payroll costs for researchers for which we invoice to request payment, or (iii) ancillary cost reimbursement for research projects, including travel related costs. All awarded grants have specific requirements on how the money is spent, typically to employ researchers. None of the funds may be used for general administrative expenses or overhead in the United States.

Earnings (Loss) Per Share

We report basic and diluted earnings (loss) per share (“EPS”) for common and common share equivalents. Basic EPS is computed by dividing reported earnings by the weighted average shares outstanding. Diluted EPS is computed by adding to the weighted average shares the dilutive effect if stock options and warrants were exercised into common stock. For the three months ended March 31, 2016 and 2017, the denominator in the diluted EPS computation is the same as the denominator for basic EPS due to the anti-dilutive effect of the warrants and stock options on the Company’s net loss.

Concentrations of Credit Risk

All highly liquid investments with original maturities of three months or less or money market accounts held at financial institutions are considered to be cash. Substantially all of the cash is placed with one financial institution. From time to time during the year the cash accounts are exposed to credit loss for amounts in excess of insured limits of $250,000 in the event of non-performance by the institution, however, it is not anticipated that there will be non-performance. At March 31, 2017 and December 31, 2016, the Company had cash balances in excess of federally insured limits in the amount of approximately $925,525 and $1,660,153, respectively.

Allowance for Uncollectible Receivables

Management evaluates credit quality by evaluating the exposure to individual counterparties, and, where warranted, management also considers the credit rating or financial position, operating results and/or payment history of the counterparty. Management establishes an allowance for amounts for which collection is considered doubtful. Adjustments to previous assessments are recognized in income in the period in which they are determined. At March 31, 2017, the allowance for uncollected receivables was $15,000.

Recent Accounting Pronouncements

In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing”. The amendments in this Update affect the guidance in Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606), which we are required to apply for annual periods beginning after December 15, 2017. Although management is still evaluating the potential impact of the adoption of this standard, its preliminary analysis is that the new guidelines currently will not substantially impact our revenue presentation.

In March 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-09, “Improvements to Employee Share-Based Payment Accounting,” which simplifies several aspects of the accounting for share-based award transactions and adds two practical expedients for nonpublic entities. The new standards are effective for annual periods beginning after December 15, 2017. An entity that elects early adoption must adopt all the amendments in the same period. The Company is currently evaluating the impact of the pending adoption of the ASU on our consolidated financial statements.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, “Leases”. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. Although management is still evaluating the potential impact of the adoption of this standard, its preliminary analysis is that the new guidelines currently will not substantially impact our revenue presentation.

Note 3. Prepaid Expenses

Our payment system for vendors and employees requires we initiate payments a few business days prior to payment due dates. As such, we recorded $125,910 as prepaid expense to employees and vendors in advance for April 2017 services. The remaining $21,472 of prepaid expense as of March 31, 2017 relates to advertising services that will amortize monthly through September 30, 2017.

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BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 4. Convertible Notes Payable and Lines of Credit

	DECEMBER 31,  2016		MARCH 31,  2017
Current liabilities:
Convertible notes, mature July 8, 2017	$	280,000	$	—
Line of credit, matures December 1, 2017		50,000		50,000
Convertible notes, mature December 30, 2017		280,000		280,000
Subtotal:	$	610,000	$	330,000
Long-term liabilities:
Convertible notes, mature June 1, 2018		4,800,097		4,680,097
Line of credit, matures March 31, 2019		—		175,000
Convertible notes, mature September 17, 2019		283,571		283,571
Convertible notes, mature December 31, 2019		167,000		292,000
Subtotal:	$	5,250,668	$	5,430,668
Total:	$	5,860,668	$	5,760,668

For the three months ended March 31, 2016 and 2017, we recorded $406,325 and $953,636 of interest expense related to the amortization of our discount on our convertible notes payable and interest from our convertible notes, note payable and line of credit.

Convertible notes, mature July 8, 2017

On July 8, 2016, we received $250,000 and issued convertible promissory notes (convertible at $0.45 per share) with a maturity date of July 8, 2017 to two accredited investors’ in the aggregate principal amount of $280,000. Interest is charged upon issuance at 3% 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. (See Note 6.)

On January 13, 2017, the holders of these notes exercised their right to convert their notes in aggregate principal amount of $280,000 into 640,889 shares of our common stock.

Line of Credit, matures December 1, 2017

On June 6, 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 1, 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).

On 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, and March 31, 2017, $50,000 remains outstanding on this line of credit.

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BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Convertible Notes, mature December 30, 2017

On 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 to two accredited investors, in the aggregate principal amount of $280,000. Interest is charged upon issuance at 3% 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. (See Note 6).

Convertible Notes, mature June 1, 2018

On 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 1, 2018.

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 20 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).

As of March 31, 2017, the outstanding balance for notes issued in the 2015 Unit Offering, maturing June 1, 2018 is as follows:

Unit/Conversion Price		Warrant Exercise Price		Aggregate Outstanding
$	0.25	$	0.40	$	1,652,384
$	0.35	$	0.45		1,881,046
$	0.55	$	0.70		1,146,667
				$	4,680,097

During the three months ended March 31, 2017, investors elected to convert an aggregate $120,000 principal amount promissory notes issued in our 2015 Unit Offering and accrued interest into 406,789 shares of our common stock.

During the three months ended March 31, 2016, we received $255,000, and issued unsecured convertible promissory notes with maturity dates of June 1, 2018, which accrue interest at the rate of 12% per annum.

Line of Credit, matures March 31, 2019

On March 31, 2017, our subsidiary Clyra Medical Technologies, Inc., of which we hold 54% of the outstanding stock, obtained a $250,000 unsecured line of credit from Sanatio Capital LLC (see Note 8). On March 31, 2017, Clyra received $175,000 pursuant to this line of credit, accruing interest at a rate of 10% per annum and a 5% original issue discount. Sanatio may call the line of credit at any time on or after March 31, 2019, with 60 days’ written notice, at which time all principal and unpaid interest shall become due and payable. Subsequent to March 31, 2017, Clyra received the remaining $75,000 pursuant to the line of credit.

Convertible Notes, mature September 17, 2019

On September 17, 2016, investors in the line of credit (see “Line of Credit, matures December 1, 2017,” above), converted principal amount of $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 1, 2018. On the date of conversion, our common stock closed at $0.70. 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.)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Convertible Notes, mature December 31, 2019

On 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, a discount to the market price of our stock on that date of $0.86, 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 20 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 (see Note 6). The Company may “call” the warrants, requiring the investor to exercise their warrants within 30 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 10 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-1 filed January 24, 2017.

The offering terminated on January 13, 2017. During the three months ended March 31, 2017, we received $125,000 in investments from three accredited investors, and issued warrants to purchase 219,298 shares of our common stock. From inception of the offering through its closing, we received $292,000 from six investors, issued convertible notes in the aggregate of $292,000, and issued warrants to purchase 512,281 shares of our common stock.

Note 5. Share-Based Compensation

During the three-month periods ended March 31, 2016 and 2017, we recorded an aggregate $301,839 and $280,288 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 February 10, 2017, we extended the engagement agreement with our Chief Financial Officer, retroactive to October 1, 2016. The sole consideration for the one-year extension was the issuance of an option to purchase 300,000 shares of our common stock, at an exercise price of $0.69 per share which was equal to the closing price of our common stock on the date of grant. The option expires February 10, 2027, and vests over the term of the engagement with 125,000 shares having vested as of February 10, 2017, and the remaining shares to vest 25,000 shares monthly beginning March 1, 2017, and each month thereafter, so long as his agreement is in full force and effect. The fair value of the option totaled $207,000, during the three months ended March 31, 2017, $103,500 is recorded as selling, general and administrative expense on our statement of operations. The balance will vest monthly through September 30, 2017.

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.

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BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Activity for our stock options under the 2007 Plan for the three months ended March 31, 2016 and 2017 is as follows:

								Weighted
								Average
As of March 31, 2016:	Options		Options		Exercise			Price per
	Outstanding		Available		Price per share			share
Balance, December 31, 2015		10,241,086		1,758,914	$0.23	–	1.89	$	0.44
Granted		—		—		—			—
Expired		—		—		—			—
Balance, March 31, 2016		10,241,086		1,758,914	$0.23	–	1.89	$	0.44

									Weighted
									Average
As of March 31, 2017:	Options		Options			Exercise			Price per
	Outstanding		Available			Price per share			share
Balance, December 31, 2016		9,916,586		1,981,414		$0.23	–	1.89	$	0.44
Granted		300,000		(300,000	)		0.69			0.69
Expired		—		—			—			—
Balance, March 31, 2017		10,216,586		1,681,414		$0.23	–	1.89	$	0.47

Options issued Outside of the 2007 Equity Incentive Plan

On February 1, 2017, as part of an agreement we executed with a strategic advisor, we issued an option to purchase 300,000 shares of our common stock with an exercise price of $0.67, the stock price on grant date. The option expires ten years from the date of issuance and the option vests in 12,500 equal amounts over 24 months. The agreement also calls for the strategic advisor to provide deliverables focused in the water industry such as business plans and strategic initiatives for the Company. During the three months ended March 31, 2017, 25,000 options vested resulting in a fair value of $15,000 recorded as selling, general and administrative expense on our statement of operations.

On March 31, 2017, we issued options to purchase 283,526 shares of our common stock at an exercise price of $0.50 per share to our board of directors, in lieu of $65,000 in fees and to vendors in lieu or accrued and unpaid fees $56,671. The weighted-average fair value of these options totaled $141,763 and an additional $20,092 was recorded as selling, general and administrative expenses.

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.

The grant-date fair value of the previously issued options that vested during the three months ended March 31, 2016 and 2017 was $94,905 and $20,025, respectively.

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BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) 

Activity of our stock options issued outside of the 2007 Plan for the three months ended March 31, 2016 and 2017 is as follows:

						Weighted
						Average
As of 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

						Weighted
						Average
As of March 31, 2017:	Options		Exercise			Price per
	Outstanding		Price per share			share
Balance, December 31, 2016		20,148,766	$0.18	–	1.00	$	0.40
Granted		583,526	0.50	–	0.67		0.59
Expired		—		—			—
Balance, March 31, 2017		20,732,292	$0.18	–	1.00	$	0.41

For employees, 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:

	2016						2017
	Non Plan			2007 Plan			Non Plan			2007 Plan
Risk free interest rate		1.91	%		1.36	%		2.40	%		2.40	%
Expected volatility		645	%		315	%		601	%		601	%
Expected dividend yield		—			—			—			—
Forfeiture rate		—			—			—			—
Expected life in years		7			5			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.

Historically, we have not had significant forfeitures of unvested stock options. 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.

Note 6. Warrants

Warrants Issued Concurrently with Winter 2016 Unit Offering

During the three months ended March 31, 2017, pursuant to the terms of our Winter 2016 Unit Offering (see Note 4), we issued warrants to purchase up to an aggregate 219,298 shares of our common stock at an exercise price of $0.70 per share. These warrants expire December 31, 2021. The relative fair value of these warrants and the intrinsic value of the beneficial conversion feature resulted in $125,000 recorded as a discount on our convertible notes on our consolidated balance sheet in the period issued.

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BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The Winter 2016 Unit Offering closed January 13, 2017, and in total we issued warrants to purchase up to an aggregate 512,281 shares of our common stock at an exercise price of $0.70 per share. 

Warrants Issued Concurrently with One Year Convertible Notes

On July 8, 2016, we issued warrants to purchase an aggregate 400,000 shares of our common stock. These warrants are initially exercisable at $0.65 per share and expire July 8, 2021. The fair value of warrants issued resulted in $160,000 discount on the one year convertible note. 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 (and, pursuant to a letter agreement dated December 30, 2016, through our Winter 2016 Unit Offering and the December 30, 2016 investment detailed in next paragraph). The warrant does not qualify for equity classification, therefore we have recognized the warrant as a derivative liability. As a result, we are required to calculate the fair value at each reporting period and record the change.

On December 30, 2016 we issued warrants to purchase an aggregate 400,000 shares of our common stock. These warrants are initially exercisable at $0.75 per share and expire December 30, 2021. The stock price on the date of grant was $0.83. The fair value of warrants issued resulted in $280,000 discount on the one year convertible note. 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 Winter 2016 Unit Offering or to persons providing services to our company. The warrant does not qualify for equity classification, therefore we have recognized the warrant as a derivative liability. As a result, we are required to calculate the fair value at each reporting period and record the change.

The fair value of these warrants on March 31, 2017, totaled $397,960 and is recorded as a derivative liability on our balance sheet. The change in fair value for the three months ended March 31, 2017, resulted in other income of $265,600 recorded on our statement of operations.

Series A Warrants

During the three months ended March 31, 2016, pursuant to the terms of our 2015 Unit Offering (see Note 4), we issued warrants to purchase up to an aggregate 728,571 shares of our common stock at an exercise price of $0.45 per share. These warrants were issued to investors and as commissions, and are set to expire June 1, 2020. The intrinsic and relative fair value of these warrants resulted in $255,000 recorded as a discount on our convertible notes on our consolidated balance sheet in the period issued.

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 1, 2020. The Company may “call” the Series A warrant, requiring the investor to exercise the warrant within 30 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.

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BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Exercise of Warrants

During the three months ended March 31, 2017, we issued 510,000 shares of our common stock and in exchange we received proceeds totaling $153,000 from the exercise of our outstanding stock purchase warrants. Of the warrants exercised, 370,000 shares were exercised at $0.30 per share and 140,000 shares were exercised at $0.25 per share. No warrants were exercised in the three months ended March 31, 2016.

We have certain warrants outstanding to purchase our common stock, at various prices, as summarized in the following tables:

As of March 31, 2016	Number of
	Shares		Price Range
Balance, December 31, 2015		13,779,438	$0.125	–	1.00
Issued		728,571		0.45
Expired		—		—
Balance, March 31, 2016		14,508,009	$0.125	–	1.00

As of March 31, 2017	Number of
	Shares			Price Range
Balance, December 31, 2016		20,035,114		$0.125	–	1.00
Issued		219,298			0.70
Exercised		(510,000	)	0.25	–	0.30
Balance, March 31, 2017		19,744,412		$0.125	–	1.00

The fair value of each award grant is estimated on the date of grant using the Black-Scholes option-pricing model. The determination of expense of warrants issued for services or settlement also uses the option-pricing model. The principal assumptions we used in applying this model were as follows for the three months ended March 31:

	2016			2017
Risk free interest rate		1.36	%		1.93	%
Expected volatility		315	%		297	%
Expected dividend yield		—			—
Forfeiture rate		—			—
Expected life in years		5			5

The risk-free interest rate is based on U.S Treasury yields in effect at the time of grant. Expected volatilities are based on historical volatility of our common stock.

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BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 7. Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses included the following:

	December 31,		March 31,
	2016		2017
Accounts payable and accrued expenses	$	22,231	$	57,363
Payroll tax liability		137,500		137,500
Officer bonus		80,000		—
Accrued interest		40,372		41,836
Total accounts payable and accrued expenses	$	280,103	$	236,699

The payroll tax liability is our estimate of payroll taxes due on the past services of independent contractors. We are currently attempting to reduce the liability to approximately $5,000 through the IRS Voluntary Classification Settlement Program.

On September 27, 2016, the board approved a $60,000 bonus for each of our Chief Executive and Chief Science Officers, $20,000 of which was paid to each immediately. In January 2017, the remaining $40,000 was paid to each.

During the three months ended March 31, 2016 and 2017, we issued 192,214 and 144,545 shares of common stock in lieu of fees for service provided by consultants, resulting in a grant date fair value of $73,658 and $82,480, respectively, and recorded in selling general and administrative expense.

During the three months ended March 31, 2016 and 2017 we issued 282,240 and 310,404 shares of common stock resulting in a grant date fair value of $99,492 and $178,929, respectively. The shares were issued to settle our accrued interest liability, which is recorded as interest expense in our consolidated statement of operations.

Note 8. Noncontrolling Interest

In May 2012, we formed a subsidiary for the purpose of marketing and selling medical products containing our technology, Clyra Medical Technology, Inc. (“Clyra”). Until December 17, 2012, this subsidiary was wholly-owned, with 7,500 shares issued to BioLargo, Inc. On December 17, 2012, Clyra issued 1,500 shares of Clyra common stock to a three-member management team, one-third of which vested immediately, and the remaining over time. The shares granted to the three executives are restricted from transfer until a sale of the company, whether by means of a sale of its stock or substantially all of its assets, or otherwise by agreement of Clyra, BioLargo and the executives.

On December 30, 2015, Clyra sold 9,830 shares of its Series A Preferred Stock (“Preferred Shares”) to Sanatio Capital, LLC (“Sanatio”) for $750,000. This sale was made in reliance on the exemption from registration contained in Section 4(2) of the Securities Exchange Act and Regulation D promulgated thereunder as not involving a public offering of securities. As a result of the sale, Sanatio owns 40% of Clyra’s issued and outstanding shares, BioLargo owns 54%, and the remainder is owned by management.

As set forth in Clyra’s Amended and Restated Articles of Incorporation, Preferred Shares accrue an annual dividend of 8% for a period of five years. Although the dividends begin to accrue immediately, Clyra has no obligation to declare a dividend until a product of the company has received a premarket approval by the United States Federal Drug Administration (“FDA”), or for which a premarket notification pursuant to form 510(k) has been submitted and for which the FDA has given written clearance to market the product in the United States (either, “FDA Approval”). After FDA Approval, annually on December 20, and unless prohibited by California law governing distributions to shareholders, Clyra is required to declare and pay any accruing dividends to holders of Preferred Shares then accrued but unpaid. Management classifies the Preferred Shares dividend as a medium probability of occurring and as of March 31, 2017 the Preferred Shares dividend has an accrued and undeclared balance of $75,000.

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BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) 

Holders of Preferred Shares are entitled to preferential payments in the event of a liquidation, dissolution or winding up of the company, in an amount equal to any accrued and unpaid dividends. After such preference, any remaining assets are distributed pro-rata between holders of Clyra common stock and Preferred Shares as if the Preferred Shares had converted to Clyra common stock. Holders of Preferred Shares may convert the shares to Clyra common stock initially on a one-to-one basis. The conversion formula is subject to change in the event Clyra sells stock at a lower price than the price paid by Sanatio.

In addition to the foregoing, Clyra entered into a consulting agreement with Beach House Consulting, LLC, through which Jack B. Strommen will be providing consulting services to the company. Mr. Strommen is the founder of Beach House Consulting, LLC. Mr. Strommen will be assisting the company in its sales and marketing activities once it has FDA Approval on a product, at which point the agreement provides that Mr. Strommen is to receive $23,438 per month for a period of four years. As of March 31, 2017, the Company has not presented any products to the FDA for FDA approval.

From inception, Clyra has generated no revenues and the financial impact of Clyra’s operations for the three months ended March 31, 2017, resulted in a net loss of $137,082.

Note 9. Commitments and Contingencies.

The office lease for our corporate office in Westminster California has a four-year term that commenced September 1, 2016. As of May 15, 2017, there remains 39 months on the lease, and a total obligation over the remainder of $326,781.

The office lease for our research offices and laboratory at the University of Alberta Agri-Food Discovery Place commenced July 1, 2015. It currently expires June 30, 2018. As of May 15, 2017, there remains 13 months on the lease, and a total obligation over the remainder of $66,690 Canadian dollars (plus the Canadian “goods and services” tax).

Note 10. Subsequent Events.

Management has evaluated subsequent events through the date of the filing of this Quarterly Report and management noted the following for disclosure.

Calvert Employment Agreement

On May 2, 2017, BioLargo, Inc. (the “Company”) and its President and Chief Executive Officer Dennis P. Calvert entered into an employment agreement (the “Calvert Employment Agreement”), replacing in its entirety the previous employment agreement with Mr. Calvert dated April 30, 2007.

The Calvert Employment Agreement provides that Mr. Calvert will continue to serve as the President and Chief Executive Officer of the Company and receive base compensation equal to his current rate of pay of $288,603 annually. In addition to this base compensation, the agreement provides that he is eligible to participate in incentive plans, stock option plans, and similar arrangements as determined by the Company’s Board of Directors, health insurance premium payments for himself and his immediate family, a car allowance of $800 per month, paid vacation of four weeks per year, and bonuses in such amount as the Compensation Committee may determine from time to time.

The Calvert Employment Agreement provides that Mr. Calvert will be granted an option (the “Option”) to purchase 3,731,322 shares of the Company’s common stock. The Option shall be a non-qualified stock option, exercisable at $0.45 per share, which represents the market price of the Company’s common stock as of the date of the agreement, exercisable for ten years from the date of grant and vesting in equal increments over five years. Notwithstanding the foregoing, any portion of the Option which has not yet vested shall be immediately vested in the event of, and prior to, a change of control, as defined in the Calvert Employment Agreement. The agreement also provides for a grant of 1,500,000 shares of common stock, subject to the execution of a “lock-up agreement” whereby the shares remain unvested unless and until the earlier of (i) a sale of the Company, (ii) the successful commercialization of the Company’s products or technologies as demonstrated by its receipt of at least $3,000,000 in cash, or the recognition of $3,000,000 in revenue, over a 12-month period from the sale of products and/or the license of technology, and (iii) the Company’s breach of the employment agreement resulting in his termination. The Option contains the other terms standard in option agreements issued by the Company, including provisions for a cashless exercise.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) 

The Calvert Employment Agreement has a term of five years, unless earlier terminated in accordance with its terms. The Calvert Employment Agreement provides that Mr. Calvert’s employment may be terminated by the Company due to his death or disability, for cause, or upon a merger, acquisition, bankruptcy or dissolution of the Company. “Disability” as used in the Calvert Employment Agreement means physical or mental incapacity or illness rendering Mr. Calvert unable to perform his duties on a long-term basis (i) as evidenced by his failure or inability to perform his duties for a total of 120 days in any 360-day period, or (ii) as determined by an independent and licensed physician whom Company selects, or (iii) as determined without recourse by the Company’s disability insurance carrier. “Cause” means that Mr. Calvert has (i) engaged in willful misconduct in connection with the Company’s business; or (ii) been convicted of, or plead guilty or nolo contendre in connection with, fraud or any crime that constitutes a felony or that involves moral turpitude or theft. If Mr. Calvert’s employment is terminated due to merger or acquisition, then he will be eligible to receive the greater of (i) one year’s compensation plus an additional one half year for each year of service since the effective date of the employment agreement or (ii) one year’s compensation plus an additional one half year for each year remaining in the term of the agreement. Otherwise, he is only entitled to receive compensation due through the date of termination.

The Calvert Employment Agreement requires Mr. Calvert to keep certain information confidential, not to solicit customers or employees of the Company or interfere with any business relationship of the Company, and to assign all inventions made or created during the term of the Calvert Employment Agreement as “work made for hire”.

Exercise of 2007 Stock Option 

On April 30, 2017, Mr. Calvert delivered a notice of exercise of 3,866,630 shares pursuant to his stock option agreement dated April 30, 2007. The exercise price was $0.18 per share, and the Company issued 2,501,937 shares, calculated by multiplying the difference between the market price of $0.51 and the exercise price of $0.18 with the number of shares exercised, and dividing that amount by the market price. No cash consideration was tendered with respect to the exercise. The remaining 3,866,629 shares available for purchase under the option agreement expired unexercised.

Pursuant to a “lock-up agreement” dated April 30, 2017, Mr. Calvert agreed to restrict the sales of the shares received until the earlier of (i) the consummation of a sale (in a single transaction or in a series of related transactions) of the Company by means of a sale of (a) a majority of the then outstanding common stock (whether by merger, consolidation, sale or transfer of common stock, reorganization, recapitalization or otherwise) or (b) all or substantially all of its assets; and (ii) the successful commercialization of the Company’s products or technologies as demonstrated by its receipt of at least $3,000,000 in cash, or the recognition of $3,000,000 in revenue, over a 12-month period from the sale of products and/or the license of technology; and (iii) the Company’s breach of the employment agreement between the Company and Calvert dated May 2, 2017 and resulting in Calvert’s termination.

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Item 2.          Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q of BioLargo, Inc. (the “Company”) contains forward-looking statements. These forward-looking statements include predictions regarding, among other things:

● our business plan;

● the commercial viability of our technologies and products incorporating our technologies;

● the effects of competitive factors on our technologies and products incorporating our technologies;

● expenses we will incur in operating our business;

● our ability to end persistent operating losses and generate positive cash flow and operating income;

● our ability to identify potential applications of our technologies in industries other than the animal health industry and to bring viable products to market in such industries;

● the application of our technologies in the food and beverage industry;

● the willingness of other companies to incorporate our technologies into new or existing products or services and provide continued support for such products or services;

● the ability of our licensees to successfully produce, advertise and market products incorporating our technologies;

● the continued success and viability of our licensees holding the exclusive right to exploit our technologies in particular fields;

● the sufficiency of our liquidity and working capital;

● our ability to finance product field testing, hiring of personnel, required regulatory approvals, and needed patent applications;

● continued availability and affordability of resources used in our technologies and the production of our products and services; and

● whether we are able to complete additional capital or debt financings in order to continue to fund operations and continue as a going concern.

 You can identify these and other forward-looking statements by the use of words such as “may”, “will”, “expects”, “anticipates”, “believes”, “estimates”, “continues”, or the negative of such terms, or other comparable terminology. Forward-looking statements also include the assumptions underlying or relating to any of the foregoing statements.

Such statements, which include statements concerning future revenue sources and concentrations, selling, general and administrative expenses, research and development expenses, capital resources, additional financings and additional losses, are subject to risks and uncertainties, including, but not limited to, those discussed elsewhere in this Form 10-Q, that could cause actual results to differ materially from those projected.

Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016. Unless otherwise expressly stated herein, all statements, including forward-looking statements, set forth in this Form 10-Q are as of March 31, 2017, unless expressly stated otherwise, and we undertake no duty to update this information.

As used in this Report, the term Company refers to BioLargo, Inc., a Delaware corporation, and its wholly-owned subsidiaries, BioLargo Life Technologies, Inc., a California corporation, Odor-No-More, Inc., a California corporation, BioLargo Water USA, Inc., a California corporation, BioLargo Development Corp., a California corporation, BioLargo Maritime Solutions, Inc., a California corporation, a Canadian subsidiary BioLargo Water, Inc., and its majority owned subsidiary Clyra Medical Technologies, Inc. (“Clyra”).

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The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and the related notes to the consolidated financial statements included elsewhere in this report.

Our Business

Our goal is to make life better by delivering sustainable technology-based products that help solve some of the most widespread problems threatening the world's supply of water, food, agriculture, healthcare and energy. We create and refine intellectual property that forms a foundation from which to build and create break-through products and technology for licensure to commercial partners. Our products harness the power of iodine – “Nature’s Best Solution” – to eliminate contaminants that threaten our water, our health and our quality of life.

We invent, patent, prove and partner – to create best-of-class products and technology for commercialization as we build value for our stockholders and deliver benefits to our world.

Invent – Three Platform Technologies

We feature three patent protected platform technologies with diverse product opportunities across multiple industries – the AOS (Advanced Oxidation System), CupriDyne, and Isan. Each features the use of the all-natural iodine molecule. While they all use iodine, they are quite different in terms of the methods by which they exploit the use of iodine, the form and composition of iodine used, and therefore their function and value proposition can be quite different for each commercial application.

AOS

The AOS is our invention that combines iodine, water filter materials and electricity within a water treatment device. Our AOS generates extremely high oxidation potential within the device to achieve extremely high rates of disinfection to eliminate infectious biological pathogens like Salmonella enterica, Listeria monocytogenes and Escherichia coli, as well as a model virus Bacteriophage T4. It is also able to oxidize and break-down, or otherwise eliminate, soluble organic contaminants like acids, solvents, sulfur compounds, oil and gas by-products, and pharmaceutical by-products commonly found in a wide variety of contaminated water sources. The AOS’ extremely high oxidation potential, generated using extremely low levels of energy, is the key.

The term “oxidation potential” refers to the measure of the performance by which an oxidant is able to “break down” a material through removing electrons, and sometimes by the addition of oxygen. Two commonly understood examples of oxidation are: the rusting of a shipyard anchor by salty air, and the breakdown and conversion of wood into ash by fire and oxygen. The key to our AOS is its ability to generate extremely high oxidation potential in a continuous flow device that attacks contaminants in water flowing through it. Aside from its measurably superior disinfection rates, the AOS also boasts substantially lower power consumption rates than competing advanced water treatment technologies such as UV, electro-chlorination, or ozonation. For some applications, it is this value proposition that sets the AOS technology above other water treatment options, as the AOS may allow safe and reliable water treatment for a fraction of the cost of its competitors, and may even enable advanced water treatment in applications where it would have otherwise been prohibitively costly. Our AOS embodies a break-through in science which led to BioLargo’s co-founding of multi-year research chair whose goal was to solve the contaminated water issues associated with the Canadian Oil Sands at the University of Alberta Department of Engineering in conjunction with the top five oil companies in Canada, the regional water district, and various environmental agencies of the Canadian government. This project concluded in 2016. We believe at such time as the industry moves forward to solve these issues, the opportunity for our participation will present itself. Our work is continually expanding into a number of commercial applications with a key focus on waste-water treatment, food processing, agriculture, and oil and gas. We are also at the early stages of evaluating opportunities in the maritime industry, storm drain recapture / recycling, and drinking water. Our AOS is an award-winning invention that is supported by science and engineering financial support and grants from various federal and provincial funding agencies in Canada. Financial support is expanding concurrently with ongoing work to commercially develop the latest AOS designs. We believe the AOS has an important and substantial commercial opportunity in every segment of the water treatment industry and we believe it should find early market adoption in helping manage waste-water.

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Following extensive validation testing and refinement of the basic operating system, we have begun a commercial prototype development project that includes important third party validation studies and the design of tis computer automation system. These next steps lead us to a product ready for commercial markets. The project is being executed in collaboration with technical personnel at the Northern Alberta Institute of Technology (“NAIT”)'s Center for Sensors and Systems Integration and with NAIT's Applied Bio/Nanotechnology Industrial Research Chair. Bolstered by financial support provided by the Alberta Innovates nanoPDP program, this project is focused on the development of a first-generation prototype system that incorporates a sensor platform to monitor various water parameters through online real-time data acquisition. The first “Alpha” prototype of the AOS was delivered at our annual technical symposium this past August. This Alpha AOS system enables further scale up and testing in industrial settings and work has commenced to develop a “Beta” unit for first stage commercial trials. Once this Beta prototype development phase is complete, we intend to focus on producing multiple commercial ready pilot units for testing with various interested industrial clients and on securing regulatory approvals where required. We are in the process of refining our strategic plan to more narrowly focus our efforts on markets where we believe we can make an important contribution, faster adoption rates, and meaningful economic inroads.

Our AOS is being developed as a flexible modular system to allow for a wide variety of sizes, configurations and functional uses to be deployed to meet a wide variety of unique and special requirements of customers across a wide range of industries.

In February 2017 Mark Lambert joined our team as a “strategic advisor” to help develop and refine our commercialization plan for AOS. Mr. Lambert has over 25 years of experience as a senior level executive with extensive experience in the water, renewable energy and environmental services industries.

We are currently engaged in three commercial bench-scale pilot studies to validate performance of the AOS with industry-provided water. Two of these studies are being supervised and audited by a commercial engineering firm. The outcome of the studies will evaluate disinfection, destruction and removal of soluble organics in a potential client’s actual waste stream.

CupriDyne® Technology

Our CupriDyne technology is used to efficiently deliver iodine in various products. It can be delivered in any physical form and can be combined with other ingredients, such as fragrances in our odor control products, and surfactants in our stain removal and odor control products. Additional ingredients can often be added without sacrificing its practical and safe functions as well its oxidation potential. Our product designs include liquids, sprays, gels, powders, coatings and absorbents.

Safety and efficacy are key for CupriDyne. Each of our product designs delivers iodine safely, and precisely, to achieve effective odor control, stain-removal, or surface washing, and in some applications at high doses, broad-spectrum disinfection. CupriDyne’s primary ingredients, as well as reaction by-products, are “generally recognized as safe” (“G.R.A.S”) by the U.S. Food and Drug Administration as food additives in their basic forms. CupriDyne’s commercial product opportunities are diverse and we have an extensive menu of product designs in various stages of commercialization and licensure development, discussed in detail below in the “Commercial, Household and Personal Care Products” and “CupriDyne Clean – Industrial Odor Control” sections.

We believe CupriDyne is unique. The iodine most of us are familiar with, sold in pharmacies and used by hospitals, has severe limitations – it is considered toxic, causes staining, and contains a limited dose of the active oxidizing ingredient. Our CupriDyne technology, on the other hand, directly addresses many of these shortcomings – it delivers iodine’s oxidizing ingredient (“free iodine”) with precision, ranging from very small doses up to very large doses with more than 30 times the performance of chlorine. We can deliver iodine that is both non-toxic and non-staining, thus extending its usefulness well beyond historical product applications.

Our CupriDyne technology is flexible, allowing product designs to incorporate varying dosing levels. Some product designs focus on odor, and do not act as “disinfectants.” Some product designs do, and would require regulatory approval to make such claims.

Isan System

The Isan System is a reliable and efficient automated iodine dosing system. It is the winner of a Top 50 Water Technology Award by the Artemis Project and a Dupont Innovation Award. Its precise dosing combined with a straight-forward “set-it-and-forget-it” automated computer controlled system are the keys to its success. The system features controlled measuring, flow rate, dosing and iodine extraction/removal technology as well as an automatic tracking system that precisely delivers iodine in calibrated doses into a water steam or container of water. The Isan system has been proven to substantially reduce the incidence of fungal growth, spoilage, microorganisms and pathogens in water and on food. The system is capable of functioning at the high flow rates commensurate with industrial disinfection needs.

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First developed in Australia, the Isan system was initially registered with the Australian Pesticides and Veterinary Medicines Authority (“APVMA”) and Food Standards Australia and New Zealand (“FSANZ”) in Australia and New Zealand. The system has meaningful applications and commercial value in any industry that can benefit from precise and effecting dosing of iodine in water, such as: agriculture, food production and processing, manufacturing, industrial water processes and irrigation supply. See “Clarion Water” below for information on our efforts of our licensee to commercialize the Isan system.

Patent - an Expanding Intellectual Property Estate

We have 16 patents issued and multiple pending. We believe these patents provide a foundation from which to continue building our patent portfolio and we have reasonable basis upon which to rely on our patent protections in the field of art in which we practice. We also rely on trade secrets and technical know-how to establish and maintain additional protection of our intellectual property. As our capital resources permit, we expect to expand our patent protection as we continue to refine our inventions as well as make new discoveries.

We recently filed two patent applications related to the medical products developed by our subsidiary Clyra. See “Advanced Wound Care – Clyra Medical Technologies Subsidiary” below.

Prove - a Continual Process

We have invested time and money in a wide array of third party testing, side-by-side comparisons and third party verifications to support our most important technical claims. The basic attributes of iodine are well understood by science and industry. We have evidence and experience to substantiate the following bold claims:

o AOS- when we internally compared it to the best of class competition it appears that we are:

■ more effective

■ less costly

■ faster

o CupriDyne

■ Oxidizes Volatile Organic Compounds like H2S, Sulfur Compounds, Ammonia, Fatty Acids, Mercaptans, Polyaromatic Compounds

■ Total odor elimination

■ Non-toxic and gentle

■ Generally Accepted As Safe (G.R.A.S.) – ingredients and by products are GRAS according to the FDA.

■ Broad spectrum efficacy

■ Potent (less than 1/20^th the dose of comparable disinfectant [like chlorine] to achieve similar results)

■ Increases holding power of absorbents by up to six times

■ Promotes healing (animal care products)

■ Enhanced flocculation

■ Nutritive

o Isan System

■ Precise iodine dosing

■ Anti-bacterial, anti-fungal, anti-viral

■ Effective against top five plant pathogens

■ Promotes extended shelf-life

■ Enhances root growth and foliage growth for healthier plants

Partner – a Smart Strategic Decision

We seek to develop commercial partnerships with other companies who will partner with us and pay us for a negotiated contractual right to use our intellectual property (patents, formulas, designs, claims, know-how, secrets), in order to expand their business for their own commercial purposes. In those instances, we seek a reasonable deposit, a minimum commitment to volume, some territorial rights, and a percentage of sales for a mutually agreeable term and territory. We believe this licensing model will prove successful and meaningful for our company.

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We choose to pursue a licensing strategy for its obvious and well-understood high margins, potential for explosive revenue potential and capital conserving features. While this business model can also be highly dependent upon macro-economic factors like the relative stability of the national and international economy as well as the cyclical nature of business, politics and climate for innovation and competing technical advances, we believe this is an appropriate strategy for our company.

We have a number of examples of strategic alliance or partnering initiatives whereby we are advancing both our science, our patents, our proof of claims, field trials and our commercial opportunities. There are a number of noteworthy examples:

The University of Alberta

We are engaged in a cooperative research relationship with the University of Alberta and its researchers in Edmonton, Canada. The offices and lab of our Canadian subsidiary, BioLargo Water, Inc., and our staff researchers, are located within the University of Alberta research center at Agri-Food Discovery Place. We are able to utilize the extensive resources of the University and its researchers on a contract for hire basis as needed. We work closely with the Department of Agricultural, Food and Nutritional Science at the University of Alberta and its Department of Engineering, and partner with University professors on government and industry sponsored financial awards and grants to support our ongoing research and development as we refine the AOS in preparation of commercial pilots and commercial designs. We have received over 30 grants thus far. Generally, the financial awards take on two common themes: first, science and engineering grants in which the University of Alberta is the primary recipient and contracting party with the grant agency to support work on and around our technology; and second, direct grants in which our Canadian subsidiary is the contracting party to support ongoing science and engineering to advance our AOS towards commercialization, sometimes supporting the work of PhD students at the University. In both cases, the financial awards support much, but not all, of the research budget and related costs. Our research arrangement with the University has three high value propositions for BioLargo: (i) a depth of resources and talent to accomplish highly skilled work, (ii) financial aid to support research and development costs and (iii) independent and credible validation of our technical claims.

Clarion Water

On August 18, 2014, we entered into a manufacturing and distribution license agreement for our Isan® system with Clarion Water, a new operating division of InsulTech Manufacturing, LLC (www.insultech.com), the latter of which has over 20 years of commercial success around the globe representing hundreds of millions in sales of technical products to Fortune 100 companies.

Co-owned with Peter Holdings, Ltd. through a joint venture agreement, the Isan system leverages the power of iodine to provide the world’s most effective disinfection dosing systems. It has been referred to as one of the most important technical advancements in food safety in the past 20 years. It won a ‘top 50 water company award’ by the Artemis Project in 2010 and a DuPont Innovation Award for its excellence in science and innovation in 2004.

Per the terms of our license agreement, Clarion is obligated to pay royalties on revenue equal to 10%. As we jointly own the Isan System with Peter Holdings, Ltd., all royalties are to be shared equally with Peter Holdings. The intellectual property subject to the license agreement includes all intellectual property related to the Isan System, including all patents, trademarks, proprietary knowledge, and other similar know-how or rights relating to or arising out of the Isan System or the patents related to the Isan System. The agreement contains other terms and conditions typically found in intellectual property license agreements.

Since licensing the technology, Clarion completed a comprehensive technical and engineering update to the Isan System, featuring a new automated touch screen user interface, enhanced security, enhanced control features for increased monitoring and sensing, and adding automated functionality providing users unmatched flexibility, reliability and control over this state-of-the-art disinfectant delivery system, and begun commercial trials. In 2016, it received approval from the U.S. Environmental Protection Agency for use of Isan generated iodine, “IoMax,” as it is delivered in poultry drinking water. Clarion recently received approval for expanded uses of its IoMax iodine, including for the sanitizing livestock drinking water, livestock barns and vehicles, milking and dairy related equipment, food grade egg shells, retort cooling water, HVAC units, and general farm premises.

Downeast Logistics

In late 2013, we entered into a cooperative selling and distribution agreement with Downeast Logistics, a certified “Service-Disabled Veteran-Owned Small Business” (SDVOSB), as our distribution partner to facilitate our first order to the US Government. Downeast has been instrumental in developing ongoing sales to the United States Military. We have six products with National Stocking Numbers.

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In March 2016 two of our product lines (consisting of 9 SKUs) of Nature’s Best Science products were awarded a five-year U.S. General Services Administration (GSA) supply contract, under schedule 65IIA for medical equipment and supplies. The award opens up access to these products through “GSA Advantage”, the online shopping and ordering system that provides government agencies access to thousands of contractors and millions of supplies (products) and services. We intend to apply for inclusion of additional existing and future products into GSA Advantage, including our industrial odor control product, CupriDyne Clean. In December of 2016 these same product lines as well as our CupriDyne Clean Industrial Odor Eliminator were accepted to the DOD eMALL which is another purchasing portal for the Defense Department and other State and Federal agencies. As of this date our products are approved for sale and available to all branches of government at the federal, state and local levels through five different purchasing portals.

Downeast Logistics has operated for more than thirteen years, and will continue to offer our products through multiple channels of the US Government. Its designation as a SDVOSB places Downeast Logistics within a group of highly sought after vendors to the US government. Odor-No-More has registered, and is in the process of registering, itself as well as its products with several procurement agencies of the US Government. (See “Results of Operations” below.)

Independent Sales Representatives

We are working with independent representatives developing selling channels for our odor control products. We are in customer trials for our smoke-odor eliminating products. The response from customers has been excellent and we have received the highest marks for performance that is superior to the competing products. We continue to support these selling efforts with samples, training, selling materials and competitive bulk pricing. While we cannot predict the timing or outcome of these efforts, we are confident in our products’ ability to outperform the competition. As our sales within the waste handling industry expand, we will narrow this activity to more carefully identify the high-volume producers and support their efforts to build sales. While we have not experienced meaningful results in this area, we do believe that as our products find commercial traction, this strategy will prove valuable.

Industrial Odor Control - CupriDyne Clean

Our CupriDyne Clean industrial products are designed to tackle tough odors in various industrial settings, such as waste processing and recycling operations, waste-water treatment facilities, waste to energy conversion operations, materials recovery facilities, food processing operations, and livestock production facilities with CupriDyne Clean. We have been told by prospective customers and experts from these markets that effective odor control for these prospective customer groups is in among the top on a list of priorities in their daily operations and their commitment to serve their local communities where they operate. We believe our product is unique and offers competitive advantages in many markets. At waste processing facilities, for example, many operators use fragrances to mask odors produced from processing and recycling waste. In contrast, our product eliminates odors on contact without fragrances, and at a lower price. Based on our test marketing and trials, we believe that many industries that must contend with odors that include, ammonia, fatty acids, sulfur, or mercaptans are dissatisfied with the current competing odor control products, place a high value on odor control solutions that actually work and are willing, with good evidence and testimonials to support our claims, to test and trial new products like our CupriDyne Clean as they search for a solution to these common and troublesome odor problems.

Our product web site can be seen at www.cupridyne.com. We have had some initial success selling CupriDyne Clean to solid waste and recycling companies and wastewater treatment companies that encourages us to continue our marketing and sales efforts in these areas. The operations of the companies in the waste handling industry segment often include transfer stations and landfill facilities. There are many large companies that dominate that marketplace. A leading information source for the waste handling industry named Waste 360 reports the revenues of the top 100 firms within the waste and recycling industry at roughly $46 billion in annual revenues based on 2015 figures. These companies often have layers of staff that participate in decision making related to using a new product like ours. They all deploy a menu of odor abatement strategies, systems, products and processes that are already in place. Often, as we present our new product and its claims, we are met with disbelief. So, while they all face an odor challenge by the very nature of their operations, they frequently are unable to believe that there is a product like ours that actually works and is safe and affordable. As a result, it has taken us more time, more work, and more money to assemble the track record, the data, and the third-party testimonials to begin breaking through to adoption in this industry. Recently, we broke through these barriers and signed “national purchasing agreements” with two top companies in the waste management industry. These agreements provide us “official” vendor status and authorize us to sell product to the customers’ local operations. Although there’s no obligation on the customer’s part to purchase a minimum amount or even any product, becoming an approved vendor is a major hurdle for a new vendor like us to overcome. We have sold product to facilities within these systems and we intend to focus our ongoing sales efforts to expand as rapidly as possible within these and other national accounts as they may develop. While the success of these efforts cannot be assured, we are confident and highly encouraged to focus and invest time, energy, staff and capital in this area as resources permit.

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Multinationals and Mid-Level Industry Participants for our AOS

We believe there are a number of potential partners interested in working with us to exploit the commercial opportunities associated with the AOS technology. These opportunities are limited by common and obvious limitations, capital, the relative state of development and market readiness, and adoption rates in the marketplace. Given the significant value offerings, namely enhanced performance and lower cost, we believe we will be able to find industry partners to assist in commercialization of the AOS and are committed to pursue success in these markets. We are pursuing discussions with potential partners that can assist us in engineering the full-scale commercial model for the AOS as it would be deployed in a treatment train to decontaminate water in an industrial setting. To this end, we recently engaged a leading executive from the water industry, Mark Lambert, to facilitate a refinement of our focus and assist in finding and engaging companies to partner with us.

Strategic Alliances and Engineering Support  

In October 2016 we engaged Chicago Bridge & Iron (CB&I) to support implementation of our AOS and provide independent performance verification. In February of 2017 CB&I announced that they would be selling the business unit with whom we are working to Veritas Capital. This transition is likely to delay our work. We maintain regular communication with the team, and intend to re-engage as soon as their corporate restructuring is complete.

In late 2016 we established a relationship with Carollo Engineering, one of the largest engineering firms in the United States dedicated solely to water related engineering. We are working with Carollo to provide independent third party oversight of some initial demonstration testing of AOS for potential municipal and food industry clients.

Commercial, Household and Personal Care Products

CHAPP includes broad product categories and many opportunities for the application of our technologies. It is defined by the ability to utilize similar, if not identical, consumption products in multiple market segments. Detergents, single use absorbents, wipes, products that provide odor or infection control and stain removal all fall within this category. Packaging ranges from consumer sizes of a few ounces to bulk packaging for commercial or industrial use. We are currently marketing products in this category under four brands – Odor-No-More, Nature’s Best Solution, Deodorall and NBS. Our primary product offerings include an animal-bedding additive that controls odor and moisture. We also sell liquid odor control products to private label (aka ‘White Label’) customers who then in turn sell product to consumers and industrial clients.

We are continuing our efforts to generate additional “private label” clients. We have fulfilled some small orders for products that we produced under a third party’s private brand. We continue to meet with new potential customers for private label opportunities. We also have relationships and remain in discussions with potential strategic partners to provide large scale manufacturing and distribution should we secure orders for the private label business opportunities or experience a rapid increase in any product whereby we need to supplement manufacturing to meet client delivery needs. Success in these markets is highly dependent upon the willingness of the potential partners to invest in product support to continue marketing and expanding customer awareness.

Our sales in the CHAPP product category are nominal. Product development, sales and marketing require significant financial resources that we currently have elected to invest elsewhere while, also, limiting our risk in these highly competitive and commodity markets. As such, our progress in this area has been slower than we had hoped. As opportunities present themselves, we market our technology for licensure to established companies in this industry segment. We rely upon independent agents and key industry contacts for this activity and it is not a top priority. We continue to expand our proof of claims and product designs for various odor and moisture control applications. We believe this segment will enjoy commercial success only after we prove the market viability for our CupriDyne Clean product. Therefore, we are more narrowly focused on the business to business sales and marketing activity to help gain exposure and build credibility for our consumer product designs and technology.

BioLargo Maritime Solutions, Inc.

We formed BioLargo Maritime Solutions, Inc. to organize and evaluate business opportunities in and around the maritime industry for our technologies, including our AOS. We intend to move forward as we are actively developing key relationships with people, service organizations, suppliers and trade groups that serve this industry. We believe the various opportunities in this market would require the services and support from a company like Chicago Bridge & Iron, with whom we have an existing agreement through which CB&I could provide future support to this venture. We will need to organize a strategy and additional resources, including capital and proper staffing, to pursue business opportunities. This subsidiary is not yet operational.

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Advanced Wound Care – Clyra Medical Technologies Subsidiary

In 2012 we formed Clyra Medical Technologies, Inc. (“Clyra”) to commercialize our technology in the medical products industry, with an initial focus on advanced wound care. Our advanced wound care products combine broad-spectrum antimicrobial capabilities with iodine’s natural and well-understood metabolic pathway to promote healing. Our products are highly differentiated by the gentle nature in which they can perform. We believe these benefits, along with its non-staining feature and reduced product costs as compared with other antimicrobials, give our products a competitive advantage in the marketplace.

With new funding in place, in 2016 Clyra re-initiated product development and testing with experts and well established contract manufacturing companies from industry. It has concluded development on two products and has retained a leading company to prepare documentation for pre-market notification to the FDA under Section 510(k) of the Food, Drugs and Cosmetics Act. It believes application will be made in the next 90 days, and that it will have product available for sale by year’s end. While no assurances can be made about the ultimate success any FDA applications once filed, given the forward-looking nature of such events, Clyra has retained and engaged a team of experts in the area to guide it through the process. In the interim, Clyra is working with “key opinion leaders” and conducting clinical trials to further develop product claims, and their roll out, marketing, and distribution plans. Applications for U.S. patents were recently filed for these products under development and we intend to continue expanding patent coverage as we refine our products, as available. Clyra is also evaluating potential product designs where our current product designs can be used or slightly modified/enhanced to create new products for new medial related markets like dental, veterinary medicine, over the counter applications and the like.

Results of Operations—Comparison of the three months ended March 31, 2017 and 2016

Revenue

Our revenue from product sales increased to $46,017 for the three months ended March 31, 2017, compared with $13,942 for the three months ended March 31, 2016. The increase is due to an increase in the volume of sales of our CupriDyne Clean Industrial Odor Control product to landfills and waste processing operations, and of our Specimen Transport Solidifier pouches to the U.S. military.

Approximately one-third of our product sales were to the US military, primarily through our distributor Downeast Logistics. The vast majority of these sales are made through a bid process in response to a request for bids to which any qualified vendor can respond. We cannot know in advance the frequency or size of such requests, or whether our bids will be successful and as such we are uncertain as to whether our revenue for these products in any quarterly period in 2017, or 2017 in the aggregate, will be less than, equal to, or more than that in 2016. With respect to our CupriDyne Clean Industrial Odor Control product, we do not have a long enough sales history to identify trends or uncertainties related to that product, although it appears generally odors are less noticeable at waste processing facilities in colder climates and thus there appears to be less of a demand for odor control products in winter months.

Other Income

Our wholly owned Canadian subsidiary has been awarded more than 30 research grants from various Canadian public and private agencies, including the Canadian National Research Institute – Industrial Research Assistance Program (NRC-IRAP) and the National Science and Engineering Research Council of Canada (NSERC). The grants received are considered reimbursement grants related to costs we incur and therefore are included as Other Income on our income statement. The majority of grant funds awarded are paid directly to third parties. Amounts paid directly to third parties are not included as other income in our financial statements. We anticipate the receipt of approximately $80,000 in grant income for the remainder of 2017.

Although we are continuing to apply for government and industry grants, and have been successful in so applying in the past, we cannot be certain of continuing those successes in the future.

Cost of Goods Sold

Our cost of goods sold includes costs of raw materials, contract manufacturing, and proportions of salaries and expenses related to the sales and marketing efforts of our products. Because we have not achieved a meaningful product revenue base, and our number of products is increasing, the inclusion of the fixed costs related to the product development and manufacturing increases our cost of goods disproportionately, resulting in high percentage fluctuations.

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Selling, General and Administrative Expense

Our Selling, General and Administrative (“SG&A”) expenses include both cash and non-cash expenses. Our total SG&A increased $124,148 (13%) in the three months ended March 31, 2017 compared to the same period in 2016. The largest components of our selling, general and administrative expenses for the three months ended March 31, 2017 and 2016 included:

	2017		2016		% change
Salaries and payroll-related expenses	$	325,526	$	217,758	$	49	%
Consulting expense		197,330		272,301		(28	%)
Professional fees		187,043		144,253		30	%
Investor relations		40,086		36,737		9	%

Our salaries and payroll related expenses increased in 2017 primarily due to the option issuance to our Chief Financial Officer. Additionally, some vendors that were consultants were hired on as employees and thus their expenses are classified as salaries in 2016; this accounts for a portion of the decrease in consulting expenses.  

With respect to our professional fees, this increase was a result of increased legal work for patent application and prosecutions and audit and legal work needed with respect to the Form S-1 filed on January 25, 2017.

Our investor relations fees increased due to our efforts and activities at various conferences and with consultants promoting the BioLargo brand.

Research and Development

Research and development expenses increased $40,286 (11%) for the three months ended March 31, 2017, as compared to the same period in 2016. The increase in research and development expenses is due to the increase of work associated with development of medical products at our subsidiary Clyra and research on our AOS technology by our Canadian subsidiary BioLargo Water.

Interest expense

Interest expense increased $547,314 (135%) for the three months ended March 31, 2017, as compared to the same period in 2016. Our interest expense increased significantly because of the increase in principal amount of outstanding convertible promissory notes and the amortization of the discount on the warrants issued in our 2015 Unit Offering and our Winter 2016 Unit Offering. From March 31, 2016, through March 31, 2017, we increased our debt balance by approximately $3,000,000 and now totals over $5,700,000 on which we are paying interest.

Net Loss

Net loss increased $415,686 (25%), a loss of $0.02 per share, for the three months ended March 31, 2017, as compared to the same period in 2016. The net loss increased mainly due to the increased interest expense and to increased compensation expense offset somewhat by the gain from the change in the value of the derivative liability. The net loss per share did not change as the increase in net loss was offset by the increase in common shares outstanding. We do not expect to generate revenues in amount significant enough for us to generate a profit in the foreseeable future. (See Part I, Item II, “Our Business”, above.)

Liquidity and Capital Resources

We have been, and anticipate that we will continue to be, limited in terms of our capital resources. As reflected in the accompanying financial statements, we had a net loss of $2,060,076 for the three months ended March 31, 2017, and an accumulated stockholders’ deficit of $93,912,246 as of March 31, 2017. Our total cash balance was $1,175,525 at March 31, 2017, a decrease of $734,628 since December 31, 2016. We had revenues of only $46,017 during the period. Our working capital at March 31, 2017 was $713,172. The short-term demands on our liquidity consist of our obligations to pay our 19 employees, multiple consultants, and for other ongoing operational obligations, including research and development activities in Canada and in our medical subsidiary. In the past, because we had limited capital available, we have paid only a portion of these obligations in cash, and the remainder by the issuance of common stock or options pursuant to the accounts payable conversion plan approved by our board of directors.

As of March 31, 2017, we had $5,760,668 in principal amounts due on various debt obligations (see Note 4). Of that amount, $4,680,097 is due on notes convertible into shares of our common stock at our option on their maturity dates on June 1, 2018, $283,571 is convertible into shares of our common stock at our option on their maturity dates on September 17, 2019, $292,000 is convertible into shares of our common stock at our option on their maturity, and $280,000, maturing December 30, 2017, is convertible by the holder at any time. We also had $50,000 principal amount outstanding due on a line of credit that is payable December 1, 2017, and our subsidiary Clyra had $175,000 principal amount outstanding due on a line of credit that is payable January 1, 2019. Interest continues to accrue on each. Additionally, we had $236,699 of accounts payable and accrued expenses (see Note 7).

We will be required to raise substantial additional capital to continue our current level of operations, including without limitation, hiring additional personnel, additional scientific and third-party testing, costs associated with obtaining regulatory approvals and filing additional patent applications to protect our intellectual property, and possible strategic acquisitions or alliances, as well as to meet our liabilities as they become due for the next 12 months. We have been, and will continue to be, required to financially support the operations our subsidiaries, none of which are operating at a positive cash flow. Only one subsidiary, Clyra, has financing in place to fund operations for the remainder of the year.

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The foregoing factors raise substantial doubt about our ability to continue as a going concern. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of our business. Ultimately, our ability to continue as a going concern is dependent upon our ability to attract significant new sources of capital, attain a reasonable threshold of operating efficiencies and achieve profitable operations by licensing or otherwise commercializing products incorporating our technologies. The accompanying consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

We are continuing to explore numerous alternatives for our current and longer-term financial requirements, including additional raises of capital from investors in the form of convertible debt or equity. There can be no assurance that we will be able to raise any additional capital. No commitments are in place as of the date of the filing of this report for any such additional financings.

It is also unlikely that we will be able to qualify for bank or other financial institutional debt financing until such time as our operations are considerably more advanced and we are able to demonstrate the financial strength to provide confidence for a lender, which we do not currently believe is likely to occur for at least the next 12 months or more.

If we are unable to raise sufficient capital, we may be required to curtail some of our operations, including efforts to develop, test, market, evaluate and license our BioLargo technology. If we were forced to curtail aspects of our operations, there could be a material adverse impact on our financial condition and results of operations.

Critical Accounting Policies  

Our unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. Preparation of these statements requires management to make judgments and estimates. Some accounting policies have a significant impact on amounts reported in these financial statements. A summary of significant accounting policies and a description of accounting policies that are considered critical may be found in our Annual Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on March 30, 2017, in the Notes to the Consolidated Financial Statements and the Critical Accounting Estimates sections. In addition, refer to Note 2 to the consolidated interim financial statements included in Part I, Item 1 of this report.

The methods, estimates and judgments the Company uses in applying these most critical accounting policies have a significant impact on the results of the Company reports in its financial statements.

It the Company’s policy to expense share based payments as of the date of grant in accordance with Auditing Standard Codification Topic 718 “Share-Based Payment.” Application of this pronouncement requires significant judgment regarding the assumptions used in the selected option pricing model, including stock price volatility and employee exercise behavior. Most of these inputs are either highly dependent on the current economic environment at the date of grant or forward-looking expectations projected over the expected term of the award. As a result, the actual impact of adoption on future earnings could differ significantly from our current estimate.

Recent Accounting Pronouncements

See Note 2, “Recent Accounting Pronouncements”, to the Consolidated Financial Statements.

Item 4. Controls and Procedures

We conducted an evaluation, under the supervision and with the participation of management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Report.

Our procedures have been designed to ensure that the information relating to our company, including our consolidated subsidiaries, required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow for timely decisions regarding required disclosure. Based on this evaluation, our chief executive officer and chief financial officer concluded that as of the evaluation date our disclosure controls and procedures are effective.

It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

There was no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

27

Table of Contents

PART II

OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Stock Issued for Services

During the three months ended March 31, 2016 and 2017, we issued 192,124 and 144,545 shares of common stock in lieu of fees for service provided by consultants, resulting in a grant date fair value of $73,658 and $82,480, respectively, and recorded in selling general and administrative expense.

During the three months ended March 31, 2016 and 2017 we issued 282,240 and 310,404 shares of common stock resulting in a grant date fair value of $99,492 and $178,929, respectively. The shares were issued to settle our accrued interest liability, which is recorded as interest expense in our consolidated statement of operations.

Issuance of Stock Options in exchange for payment of payables

On February 1, 2017, as part of an agreement we executed with a strategic advisor, we issued an option to purchase 300,000 shares of our common stock with an exercise price of $0.67, the stock price on grant date. The option expires ten years from the date of issuance and the option vests in 12,500 equal amounts over 24 months. The agreement also calls for the strategic advisor to provide deliverables focused in the water industry such as business plans, strategic initiatives for the Company. During the three-months ended March 31, 2017, 25,000 options vested resulting in a fair value of $15,000 recorded as selling, general and administrative expense on our statement of operations.

On March 31, 2017, we issued options to purchase 283,526 shares of our common stock at an exercise price of $0.50 per share to our board of directors, in lieu of $65,000 in fees and to vendors in lieu or accrued and unpaid fees $56,671. The weighted-average fair value of these options totaled $141,763 and an additional $20,092 was recorded as selling, general and administrative expenses.

Winter 2016 Unit Offering

On 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 20 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 30 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 10 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-1 filed January 24, 2017. The offering terminated on January 13, 2017. During the three-month period ended March 31, 2017, we received $125,000 in investments from three accredited investors, and issued warrants to purchase 219,298 shares of our common stock.

In this offering we received a total of $292,000 from six investors and issued warrants to purchase 512,281 shares of our common stock. (See Note 6.)

Exercise of Warrants

During the three-months ended March 31, 2017, we issued 510,000 shares of our common stock and in exchange we received proceeds totaling $153,000 from the exercise of stock purchase warrants. Of the warrants exercised, 370,000 shares were exercised at $0.30 per share and 140,000 shares were exercised at $0.25 per share.

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.

Item 6. Exhibits

The exhibits listed in the Exhibit Index following the signature pages of this Quarterly Report on Form 10-Q are filed with, or furnished with, or incorporated by reference in, this Quarterly Report on Form 10-Q.

28

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: May 17, 2017	BIOLARGO, INC. By: /s/ DENNIS P. CALVERT
	Dennis P. Calvert Chief Executive Officer
Date: May 17, 2017	By: /s/ CHARLES K. DARGAN, II
	Chief Financial Officer

29

Table of Contents

EXHIBIT INDEX

EXHIBIT INDEX

		Incorporated by Reference Herein
Exhibit Number	Exhibit Description	Form	File Date
4.1	BioLargo, Inc. 2007 Equity Incentive Plan	Form 10-QSB	11/19/2007
4.2	Amendment No. 1 to BioLargo 2007 Equity Incentive Plan	Def 14C (Exhibit A)	5/2/2011

4.3	Form of Convertible Promissory Note issued in 2015 Unit Offering	Form 10-K	3/31/2015
4.4	Form of Series A Stock Purchase Warrant issued in 2015 Unit Offering	Form 10-K	3/31/2015
4.5	Form of Stock Options issued in exchange for reduction in accounts payable.	Form 10-K	3/31/2015
4.6	$300,000 Line of Credit issued June 2016	Form 10-K	3/30/2017
4.7	Stock purchase warrant issued with Line of Credit in June 2016	Form 10-Q	8/15/2016

4.8	Securities Purchase Agreement dated July 8, 2016	Form 10-Q	11/14/2016
4.9	Form of Note issued to One Year Note holder in July 2016	Form 10-Q	8/15/2016
4.10	Form of Warrant issued to One Year Note holder in July 2016	Form 10-Q	8/15/2016
4.11	Form of Note Issued in Winter 2016 Unit Offering	Form S-1	1/25/2017
4.12	Form of Warrant Issued in Winter 2016 Unit Offering	Form S-1	1/25/2017
4.13	Form of Note issued to One Year Note holder dated December 30, 2016	Form S-1	1/25/2017
4.14	Form of Warrant issued to One Year Note holder dated December 30, 2016	Form S-1	1/25/2017
4.15	Stock Option dated February 10, 2017 issued to Chief Financial Officer Charles K. Dargan II.	Form 8-K	2/14/2017
4.16	Option to purchase common stock issued to Dennis P. Calvert dated May 2, 2017	Form 8-K	5/4/2017
10.1†	Engagement Agreement dated February 1, 2008 between BioLargo, Inc. and Charles K. Dargan, II	Form 8-K	2/4/2008
10.2†	February 10, 2017 extension to Engagement Extension Agreement with Charles K. Dargan, II.	Form 8-K	2/14/2017
10.3†	Employment Agreement with Dennis P. Calvert dated May 2, 2017.	Form 8-K	5/4/2017
10.4	Lock-Up Agreement with Dennis P. Calvert dated April 30, 2017	Form 8-K	5/4/2017
10.5	Lock-Up Agreement with Dennis P. Calvert dated May 2, 2017.	Form 8-K	5/4/2017
31.1*	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Rules 13(a)-14 and 15(d)-14 under the Securities Exchange Act of 1934
31.2*	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Rules 13(a)-14 and 15(d)-14 under the Securities Exchange Act of 1934
32.1*	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.

101.INS**	XBRL Instance
101.SCH**	XBRL Taxonomy Extension Schema
101.CAL**	XBRL Taxonomy Extension Calculation
101.DEF**	XBRL Taxonomy Extension Definition
101.LAB**	XBRL Taxonomy Extension Labels
101.PRE**	XBRL Taxonomy Extension Presentation

* Filed herewith

** Furnished herewith

† Management contract or compensatory plan, contract or arrangement

 30

EX-31.1

EXHIBIT 31.1

Certification of Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Dennis P. Calvert, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of BioLargo, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 17, 2017	By:	/s/ DENNIS P. CALVERT
		Dennis P. Calvert
		Chief Executive Officer

EX-31.2

EXHIBIT 31.2

Certification of Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Charles K. Dargan II, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of BioLargo, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 17, 2017	By:	/s/ CHARLES K. DARGAN II
		Charles K. Dargan II
		Chief Financial Officer

EX-32.1

EXHIBIT 32.1 

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

AND CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Dennis P. Calvert, Chief Executive Officer of BioLargo, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that the Quarterly Report of BioLargo, Inc. on Form 10-Q for the quarter ended March 31, 2017 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of BioLargo, Inc.

Dated: May 17, 2017	By:	/s/ DENNIS P. CALVERT
		Dennis P. Calvert
		President and Chief Executive Officer

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to BioLargo, Inc. and will be retained by BioLargo, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

I, Charles K. Dargan II, Chief Financial Officer of BioLargo, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge that the Quarterly Report of BioLargo, Inc. on Form 10-Q for the quarter ended March 31, 2017 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of BioLargo, Inc.

Dated: May 17, 2017	By:	/s/ CHARLES K. DARGAN II
		Charles K. Dargan II
		Chief Financial Officer

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to BioLargo, Inc. and will be retained by BioLargo, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document And Entity Information - shares	3 Months Ended
	Mar. 31, 2017	May 15, 2017
Document Information [Line Items]
Entity Registrant Name	BIOLARGO, INC.
Entity Central Index Key	0000880242
Trading Symbol	blgo
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Common Stock, Shares Outstanding (in shares)		99,040,328
Document Type	10-Q
Document Period End Date	Mar. 31, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q1
Amendment Flag	false

XML

Consolidated Balance Sheets (Current Period Unaudited) - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Current assets:
Cash and cash equivalents	$ 1,175,525	$ 1,910,153
Accounts receivable, net of allowance of $0 and $15,000	62,436	67,994
Inventories	24,628	34,446
Prepaid expenses and other current assets	147,382	4,089
Total current assets	1,409,971	2,016,682
Equipment, net of depreciation	54,121	59,315
Other non-current assets, net of amortization	33,999	36,729
Total assets	1,498,091	2,112,726
Current liabilities:
Accounts payable and accrued expenses	236,699	200,103
Accrued Bonuses, Current		80,000
Convertible notes payable	280,000	560,000
Discount on convertible notes payable, net of amortization	(267,860)	(398,910)
Derivative warrant liability	397,960	663,560
Line of credit	50,000	50,000
Total current liabilities	696,799	1,154,753
Long-term liabilities:
Convertible notes payable	5,255,668	5,250,668
Discount on convertible notes payable and line of credit, net of amortization	(3,007,423)	(3,522,497)
Line of Credit	175,000
Total liabilities	3,120,044	2,882,924
COMMITMENTS, CONTINGENCIES (Note 9)
STOCKHOLDERS’ DEFICIT:
Convertible Preferred Series A, $.00067 Par Value, 50,000,000 Shares Authorized, - no Shares Issued and Outstanding, at December 31, 2016 and March 31, 2017
Common stock, $.00067 Par Value, 200,000,000 Shares Authorized, 92,975,970 and 94,988,597 Shares Issued, at December 31, 2016 and March 31, 2017	63,536	62,179
Additional paid-in capital	91,828,114	90,609,774
Accumulated deficit	(93,912,246)	(91,915,426)
Accumulated other comprehensive loss	(93,070)	(81,694)
Total Biolargo, Inc. and Subsidiaries stockholders’ deficit	(2,113,666)	(1,325,167)
Non-controlling interest (Note 8)	491,713	554,969
Total stockholders’ deficit	(1,621,953)	(770,198)
Total liabilities and stockholders’ deficit	$ 1,498,091	$ 2,112,726

XML

Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Accounts receivable, allowance	$ 15,000	$ 0
Convertible Preferred Stock, Par Value (in dollars per share)	$ 0.00067	$ 0.00067
Convertible Preferred Stock, Shares Authorized (in shares)	50,000,000	50,000,000
Convertible Preferred Stock, Shares Issued (in shares)	0	0
Convertible Preferred Stock, Shares Outstanding (in shares)	0	0
Common Stock, Par Value (in dollars per share)	$ 0.00067	$ 0.00067
Common Stock, Shares Authorized (in shares)	200,000,000	200,000,000
Common Stock, Shares Issued (in shares)	94,988,597	92,975,970

XML

Consolidated Statements of Operations and Comprehensive Loss (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Revenues	$ 46,017	$ 13,942
Cost of revenues	(22,530)	(6,081)
Gross profit	23,487	7,861
Selling, general and administrative expenses	1,055,055	930,907
Research and development	391,336	351,050
Amortization	7,924	2,730
Total operating expenses	1,454,315	1,284,687
Operating loss	(1,430,828)	(1,276,826)
Other (expense) income:
Interest expense	(953,636)	(406,325)
Change in fair value of derivative warrant liability	265,600
Grant income	58,788	38,758
Total other expense:	(629,248)	(367,567)
Net loss	(2,060,076)	(1,644,393)
Net loss attributable to noncontrolling interest	(63,256)	(66,972)
Net loss attributable to common shareholders	$ (1,996,820)	$ (1,577,421)
Loss per share attributable to shareholders – basic and diluted (in dollars per share)	$ (0.02)	$ (0.02)
Weighted average number of common shares outstanding: (in shares)	94,444,945	85,847,219
Foreign currency translation	$ (11,376)	$ (9,318)
Comprehensive loss	(2,071,452)	(1,653,711)
Comprehensive loss attributable to noncontrolling interest	(63,256)	(66,972)
Comprehensive loss attributable to common shareholders	$ (2,008,196)	$ (1,586,739)

XML

Consolidated Statement of Stockholders' Deficit (Unaudited) - 3 months ended Mar. 31, 2017 - USD ($)	Warrant and Conversion Feature of Convertible Notes [Member] Common Stock [Member]	Warrant and Conversion Feature of Convertible Notes [Member] Additional Paid-in Capital [Member]	Warrant and Conversion Feature of Convertible Notes [Member] Retained Earnings [Member]	Warrant and Conversion Feature of Convertible Notes [Member] AOCI Attributable to Parent [Member]	Warrant and Conversion Feature of Convertible Notes [Member] Noncontrolling Interest [Member]	Warrant and Conversion Feature of Convertible Notes [Member]	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Noncontrolling Interest [Member]	Total
Balance (in shares) at Dec. 31, 2016							92,975,970
Balance at Dec. 31, 2016							$ 62,179	$ 90,609,774	$ (91,915,426)	$ (81,694)	$ 554,969	$ (770,198)
Conversion of notes (in shares)							1,047,678
Conversion of notes							$ 703	399,297				400,000
Vendors and Interest (in shares)							454,949
Common stock issued for interest and fees for services from consultants							$ 311	261,098				$ 261,409
Exercise of Warrants (in shares)							510,000					510,000
Exercise of Warrants							$ 343	152,657				$ 153,000
Stock option compensation expense								280,288				280,288
Fair value of warrants and conversion feature issued as discount on convertible notes payable		$ 125,000				$ 125,000
Net loss									(1,996,820)		(63,256)	(2,060,076)
Foreign currency translation										(11,376)		(11,376)
Balance (in shares) at Mar. 31, 2017							94,988,597
Balance at Mar. 31, 2017							$ 63,536	$ 91,828,114	$ (93,912,246)	$ (93,070)	$ 491,713	$ (1,621,953)

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Cash flows from operating activities
Net loss	$ (2,060,076)	$ (1,644,393)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock option compensation expense	280,288	301,839
Common stock issued for interest and fees for services from consultants	261,409	173,150
Interest expense related to amortization of the discount on convertible notes payable	771,124	298,771
Bad debt expense	15,000
Change in derivative liability	(265,600)
Amortization expense	7,924	2,730
Changes in assets and liabilities:
Accounts receivable	(9,442)	14,382
Inventories	9,818	5,462
Prepaid expenses and other current assets	(143,293)	(43,366)
Deposits		(35,000)
Accounts payable and accrued expenses	36,596	(60,081)
Officer bonus	(80,000)
Net cash used in operating activities	(1,176,252)	(986,506)
Cash flows from financing activities
Proceeds from convertible notes	125,000	255,000
Proceeds from line of credit	175,000
Proceeds from exercise of warrants	153,000
Net cash provided by financing activities	453,000	255,000
Effect of foreign currency translation	(11,376)	(9,318)
Net change in cash and cash equivalents	(734,628)	(740,824)
Cash and cash equivalents at beginning of period	1,910,153	1,763,114
Cash and equivalents at end of period	1,175,525	1,022,290
Supplemental disclosures of cash flow information
Income taxes	5,350	4,000
Non-cash investing and financing activities:
Conversion of accounts payable into stock options	141,763	206,934
Fair value of warrants issued in conjunction with convertible notes payable	125,000	255,000
Settlement of accounts payable and interest in shares of common stock	261,409	173,150
Convertible notes into shares of common stock	$ 400,000

XML

Note 1 - Business and Organization

3 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

Note

1.

Business and Organization

Outlook

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of our business. As reflected in the accompanying financial statements, for the

three

months ended

March

31,

2017

we had a net loss of

$2,060,076,

and used

$1,176,252

cash in operations, and at

March

31,

2017,

had working capital of

$713,172,

current assets of

$1,409,971,

and an accumulated stockholders’ deficit of

$93,912,246.

The foregoing factors raise substantial doubt about our ability to continue as a going concern. Ultimately, our ability to continue as a going concern is dependent upon our ability to attract significant new sources of capital, attain a reasonable threshold of operating efficiencies and achieve profitable operations by licensing or otherwise commercializing products incorporating our technologies. The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

We have been, and anticipate that we will continue to be, limited in terms of our capital resources. Our total cash balance was

$1,175,525

at

March

31,

2017.

We had revenues of

$46,017

in the

three

months ended

March

 

31,

 

2017,

which amount was not sufficient to fund our operations. At times in the past we have not had enough cash or sources of capital to pay our accounts payable and expenses as they arise, and have relied on the issuance of stock options and common stock, as well as extended payment terms with our vendors, to continue to operate. Although our cash position at the moment is stronger than in the past, our total cash decreased by over

$700,000

from

December

31,

2016

to

March

31,

2017.

We will be required to raise substantial additional capital to expand our operations, including without limitation, hiring additional personnel, additional scientific and

third

-party testing, costs associated with obtaining regulatory approvals and filing additional patent applications to protect our intellectual property, and possible strategic acquisitions or alliances, as well as to meet our liabilities as they become due for the next

12

 months.

As of

March

31,

2017,

we had

$5,760,668

in principal amounts due on various debt obligations (see Note

4).

Of that amount,

$5,430,668

are long-term liabilities and convertible at our option into common stock at maturity. Interest continues to accrue on each of these notes. Additionally, we had

$236,699

of accounts payable and accrued expenses (see Note

7).

The unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to Rule

8

-

03

of Regulation S-X under the Securities Act of

1933,

as amended. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for annual financial statements.  In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. For some of our activities, we are still operating in the early stages of the sales and distribution process, and therefore our operating results for the

three

months ended

March

31,

2017

are not necessarily indicative of the results that

may

be expected for the year ending

December

 

31,

 

2017,

or for any other period. These unaudited consolidated financial statements and notes should be read in conjunction with the Company’s audited financial statements and accompanying notes included in the Annual Report on

Form

10

-K for the year ended

December

31,

2016

filed with the Securities and Exchange Commission (the “SEC”) on

March

30,

2017.

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Note 2 - Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Significant Accounting Policies [Text Block]

Note

2.

Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its majority owned subsidiaries. All intercompany accounts and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the period reported. Actual results could differ from those estimates. Estimates are used when accounting for stock-based compensation and financing transactions, uncollectible accounts receivable, asset impairment and amortization, and taxes, among others.

The methods, estimates and judgments we use in applying these most critical accounting policies have a significant impact on the results of our financial statements.  

Share-based Payments

All share-based payments to employees, including grants of employee stock options, are recognized in the financial statements based on their fair values.

For stock issued to consultants and other non-employees for services, we record the expense based on the fair market value of the securities as of the date of the stock issuance. The issuance of fully vested stock warrants or options to non-employees are valued at the time of issuance utilizing the Black Scholes calculation and the amount is charged to expense. The issuance of stock warrants or options to non-employees that vest over time are revalued each reporting period until vested to determine the amount to be recorded as an expense in the respective period. As the warrants or options vest, they are valued on each vesting date and an adjustment is recorded for the difference between the value already recorded and the then current value on the date of vesting.

Warrants

The Unit Offerings of our 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 date (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.

Non-Cash Transactions

We have established a policy relative to the methodology to determine the value assigned to each intangible we acquire, and/or services or products received for non-cash consideration of our common stock. The value is based on the market price of our common stock issued as consideration, at the date of the agreement of each transaction or when the service is rendered or product is received.

Foreign Currency

The Company has designated the functional currency of Biolargo Water, Inc., our Canadian subsidiary, to be the Canadian dollar. Therefore, translation gains and losses resulting from differences in exchange rates are recorded in accumulated other comprehensive income.

Revenue Recognition

Revenues are recognized as risk and title to products transfers to the customer (which generally occurs at the time shipment is made), the sales price is fixed or determinable, and collectability is reasonably assured. We also

may

generate revenues from royalties and license fees from our intellectual property. In the event we do so, we anticipate a licensee would pay a license fee in

one

or more installments and ongoing royalties based on their sales of products incorporating or using our licensed intellectual property. We would recognize license fees over the estimated period of future benefit to the licensee.

Government Grants

We have been awarded grants from the Canadian National Research Institute – Industrial Research Assistance Program (NRC-IRAP) and the National Science and Engineering Research Council of Canada (NSERC). The government grants received are considered other income and are included in our consolidated statements of operations. Some of the funds from these grants are given directly to

third

parties (such as the University of Alberta) to support research on our technology. The grants have terms generally ranging between

six

and

eighteen

months and support a majority, but not all, of the related research budget costs.

The grants typically provide for either (i) recurring monthly amounts, (ii) reimbursement of payroll costs for researchers for which we invoice to request payment, or (iii) ancillary cost reimbursement for research projects, including travel related costs. All awarded grants have specific requirements on how the money is spent, typically to employ researchers. None of the funds

may

be used for general administrative expenses or overhead in the United States.

Earnings (Loss) Per Share

We report basic and diluted earnings (loss) per share (“EPS”) for common and common share equivalents. Basic EPS is computed by dividing reported earnings by the weighted average shares outstanding. Diluted EPS is computed by adding to the weighted average shares the dilutive effect if stock options and warrants were exercised into common stock. For the

three

months ended

March

31,

2016

and

2017,

the denominator in the diluted EPS computation is the same as the denominator for basic EPS due to the anti-dilutive effect of the warrants and stock options on the Company’s net loss.

Concentrations of Credit Risk

All highly liquid investments with original maturities of

three

months or less or money market accounts held at financial institutions are considered to be cash. Substantially all of the cash is placed with

one

financial institution. From time to time during the year the cash accounts are exposed to credit loss for amounts in excess of insured limits of

$250,000

in the event of non-performance by the institution, however, it is not anticipated that there will be non-performance. At

March

31,

2017

and

December

31,

2016,

the Company had cash balances in excess of federally insured limits in the amount of approximately

$925,525

and

$1,660,153,

respectively.

Allowance for Uncollectible Receivables

Management evaluates credit quality by evaluating the exposure to individual counterparties, and, where warranted, management also considers the credit rating or financial position, operating results and/or payment history of the counterparty. Management establishes an allowance for amounts for which collection is considered doubtful. Adjustments to previous assessments are recognized in income in the period in which they are determined. At

March

31,

2017,

the allowance for uncollected receivables was

$15,000.

Recent Accounting Pronouncements

In

April

2016,

the FASB issued ASU

2016

-

10,

“Revenue from Contracts with Customers (Topic

606):

Identifying Performance Obligations and Licensing”. The amendments in this Update affect the guidance in Accounting Standards Update

2014

-

09,

 Revenue from Contracts with Customers (Topic

606),

 which we are required to apply for annual periods beginning after

December

15,

2017.

Although management is still evaluating the potential impact of the adoption of this standard, its preliminary analysis is that the new guidelines currently will not substantially impact our revenue presentation.

In

March

2016,

the FASB issued Accounting Standards Update (ASU) No.

2016

-

09,

“Improvements to Employee Share-Based Payment Accounting,” which simplifies several aspects of the accounting for share-based award transactions and adds

two

practical expedients for nonpublic entities. The new standards are effective for annual periods beginning after

December

15,

2017.

An entity that elects early adoption must adopt all the amendments in the same period. The Company is currently evaluating the impact of the pending adoption of the ASU on our consolidated financial statements.

In

February

2016,

the FASB issued Accounting Standards Update No.

2016

-

02,

“Leases”. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than

12

months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after

December

15,

2018,

including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. Although management is still evaluating the potential impact of the adoption of this standard, its preliminary analysis is that the new guidelines currently will not substantially impact our revenue presentation.

XML

Note 3 - Prepaid Expenses

3 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Prepaid Expenses Disclosure [Text Block]

Note

3.

Prepaid Expenses

Our payment system for vendors and employees requires we initiate payments a few business days prior to payment due dates. As such, we recorded

$125,910

as prepaid expense to employees and vendors in advance for

April

2017

services. The remaining

$21,472

of prepaid expense as of

March

31,

2017

relates to advertising services that will amortize monthly through

September

30,

2017.

XML

Note 4 - Convertible Notes Payable and Line of Credit

3 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Debt Disclosure [Text Block]

Note

4.

 Convertible Notes Payable and Lines of Credit

	DECEMBER 31,  201 6		MARCH 3 1 ,  201 7
Current liabilities:
Convertible notes, mature July 8, 2017	$	280,000	$	—
Line of credit, matures December 1, 2017		50,000		50,000
Convertible notes, mature December 30, 2017		280,000		280,000
Subtotal:	$	610,000	$	330,000
Long-term liabilities:
Convertible notes, mature June 1, 2018		4,800,097		4,680,097
Line of credit, matures March 31, 2019		—		175,000
Convertible notes, mature September 17, 2019		283,571		283,571
Convertible notes, mature December 31, 2019		167,000		292,000
Subtotal:	$	5,250,668	$	5,430,668
Total:	$	5,860,668	$	5,760,668

For the

three

months ended

March

31,

2016

and

2017,

we recorded

$406,325

and

$953,636

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

Convertible notes, mature

July

8,

2017

On

July

8,

2016,

we received

$250,000

and issued convertible promissory notes (convertible at

$0.45

per share) with a maturity date of

July

8,

2017

to

two

accredited investors’ in the aggregate principal amount of

$280,000.

Interest is charged upon issuance at

3%

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. (See Note

6.)

On

January

13,

2017,

the holders of these notes exercised their right to convert their notes in aggregate principal amount of

$280,000

into

640,889

shares of our common stock.

Line of Credit, matures

December

1,

2017

On

June

6,

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

1,

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).

On

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,

and

March

31,

2017,

$50,000

remains outstanding on this line of credit.

Convertible Notes, mature

December

30,

2017

On

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

to

two

accredited investors, in the aggregate principal amount of

$280,000.

Interest is charged upon issuance at

3%

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. (See Note

6).

Convertible Notes, mature

June

1,

2018

On

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

1,

2018.

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

20

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).

As of

March

31,

2017,

the outstanding balance for notes issued in the

2015

Unit Offering, maturing

June

1,

2018

is as follows:

Unit/ Conversion Price		Warrant Exercise Price		Aggregate Outstanding
$	0.25	$	0.40	$	1,652,384
$	0.35	$	0.45		1,881,046
$	0.55	$	0.70		1,146,667
				$	4,680,097

During the

three

months ended

March

31,

2017,

investors elected to convert an aggregate

$120,000

principal amount promissory notes issued in our

2015

Unit Offering and accrued interest into

406,789

shares of our common stock.

During the

three

months ended

March

31,

2016,

we received

$255,000,

and issued unsecured convertible promissory notes with maturity dates of

June

 

1,

 

2018,

which accrue interest at the rate of

12%

per annum.

Line of Credit, matures

March

31,

2019

On

March

31,

2017,

our subsidiary Clyra Medical Technologies, Inc., of which we hold

54%

of the outstanding stock, obtained a

$250,000

unsecured line of credit from Sanatio Capital LLC (see Note

8).

On

March

31,

2017,

Clyra received

$175,000

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

10%

per annum and a

5%

original issue discount. Sanatio

may

call the line of credit at any time on or after

March

31,

2019,

with

60

days’ written notice, at which time all principal and unpaid interest shall become due and payable. Subsequent to

March

31,

2017,

Clyra received the remaining

$75,000

pursuant to the line of credit.

Convertible Notes, mature

September

17,

2019

On

September

17,

2016,

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

December

1,

2017,”

above), converted principal amount of

$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

1,

2018.

On the date of conversion, our common stock closed at

$0.70.

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

On

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, a discount to the market price of our stock on that date of

$0.86,

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

20

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

(see Note

6).

 The Company

may

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

30

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

10

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-

1

filed

January

24,

2017.

The offering terminated on

January

13,

2017.

During the

three

months ended

March

31,

2017,

we received

$125,000

in investments from

three

accredited investors, and issued warrants to purchase

219,298

shares of our common stock. From inception of the offering through its closing, we received

$292,000

from

six

investors, issued convertible notes in the aggregate of

$292,000,

and issued warrants to purchase

512,281

shares of our common stock.

XML

Note 5 - Share-based Compensation

3 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Compensation and Employee Benefit Plans [Text Block]

Note

5.

Share-Based Compensation

During the

three

-month periods ended

March

31,

2016

and

2017,

we recorded an aggregate

$301,839

and

$280,288

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

February

10,

2017,

we extended the engagement agreement with our Chief Financial Officer, retroactive to

October

1,

2016.

The sole consideration for the

one

-year extension was the issuance of an option to purchase

300,000

shares of our common stock, at an exercise price of

$0.69

per share which was equal to the closing price of our common stock on the date of grant. The option expires

February

10,

2027,

and vests over the term of the engagement with

125,000

shares having vested as of

February

10,

2017,

and the remaining shares to vest

25,000

shares monthly beginning

March

1,

2017,

and each month thereafter, so long as his agreement is in full force and effect. The fair value of the option totaled

$207,000,

during the

three

months ended

March

31,

2017,

$103,500

is recorded as selling, general and administrative expense on our statement of operations. The balance will vest monthly through

September

 

30,

2017.

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,

2016

and

2017

is as follows:

								Weighted
								Average
As of March 31, 2016:	Options		Options		Exercise			Price per
	Outstanding		Available		Price per share			share
Balance, December 31, 2015		10,241,086		1,758,914	$0.23	–	1.89	$	0.44
Granted		—		—		—			—
Expired		—		—		—			—
Balance, March 31, 2016		10,241,086		1,758,914	$0.23	–	1.89	$	0.44

									Weighted
									Average
As of March 31, 2017:	Options		Options			Exercise			Price per
	Outstanding		Available			Price per share			share
Balance, December 31, 2016		9,916,586		1,981,414		$0.23	–	1.89	$	0.44
Granted		300,000		(300,000	)		0.69			0.69
Expired		—		—			—			—
Balance, March 31, 2017		10,216,586		1,681,414		$0.23	–	1.89	$	0.47

Options issued Outside of the

2007

Equity Incentive Plan

On

February

1,

2017,

as part of an agreement we executed with a strategic advisor, we issued an option to purchase

300,000

shares of our common stock with an exercise price of

$0.67,

the stock price on grant date. The option expires

ten

years from the date of issuance and the option vests in

12,500

equal amounts over

24

months. The agreement also calls for the strategic advisor to provide deliverables focused in the water industry such as business plans and strategic initiatives for the Company. During the

three

months ended

March

31,

2017,

25,000

options vested resulting in a fair value of

$15,000

recorded as selling, general and administrative expense on our statement of operations.

On

March

31,

2017,

we issued options to purchase

283,526

shares of our common stock at an exercise price of

$0.50

per share to our board of directors, in lieu of

$65,000

in fees and to vendors in lieu or accrued and unpaid fees

$56,671.

The weighted-average fair value of these options totaled

$141,763

and an additional

$20,092

was recorded as selling, general and administrative expenses.

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.

The grant-date fair value of the previously issued options that vested during the

three

months ended

March

 

31,

2016

and

2017

was

$94,905

and

$20,025,

respectively.

Activity of our stock options issued outside of the

2007

Plan for the

three

months ended

March

31,

2016

and

2017

is as follows:

						Weighted
						Average
As of 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

						Weighted
						Average
As of March 31, 2017:	Options		Exercise			Price per
	Outstanding		Price per share			share
Balance, December 31, 2016		20,148,766	$0.18	–	1.00	$	0.40
Granted		583,526	0.50	–	0.67		0.59
Expired		—		—			—
Balance, March 31, 2017		20,732,292	$0.18	–	1.00	$	0.41

For employees, 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:

	2016						2017
	Non Plan			2007 Plan			Non Plan			2007 Plan
Risk free interest rate		1.91	%		1.36	%		2.40	%		2.40	%
Expected volatility		645	%		315	%		601	%		601	%
Expected dividend yield		—			—			—			—
Forfeiture rate		—			—			—			—
Expected life in years		7			5			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.

Historically, we have not had significant forfeitures of unvested stock options. 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.

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Note 6 - Warrants

3 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Warrants [Text Block]

Note

6.

Warrants

Warrants Issued Concurrently with Winter

2016

Unit Offering

During the

three

months ended

March

31,

2017,

pursuant to the terms of our Winter

2016

Unit Offering (see Note

4),

we issued warrants to purchase up to an aggregate

219,298

shares of our common stock at an exercise price of

$0.70

per share. These warrants expire

December

31,

2021.

The relative fair value of these warrants and the intrinsic value of the beneficial conversion feature resulted in

$125,000

recorded as a discount on our convertible notes on our consolidated balance sheet in the period issued.

The Winter

2016

Unit Offering closed

January

13,

2017,

and in total we issued warrants to purchase up to an aggregate

512,281

shares of our common stock at an exercise price of

$0.70

per share. 

Warrants Issued Concurrently with One Year Convertible Notes

On

July

8,

2016,

we issued warrants to purchase an aggregate

400,000

shares of our common stock. These warrants are initially exercisable at

$0.65

per share and expire

July

8,

2021.

The fair value of warrants issued resulted in

$160,000

discount on the

one

year convertible note. 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 (and, pursuant to a letter agreement dated

December

30,

2016,

through our Winter

2016

Unit Offering and the

December

30,

2016

investment detailed in next paragraph). The warrant does not qualify for equity classification, therefore we have recognized the warrant as a derivative liability. As a result, we are required to calculate the fair value at each reporting period and record the change.

On

December

30,

2016

we issued warrants to purchase an aggregate

400,000

shares of our common stock. These warrants are initially exercisable at

$0.75

per share and expire

December

30,

2021.

The stock price on the date of grant was

$0.83.

The fair value of warrants issued resulted in

$280,000

discount on the

one

year convertible note. 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 Winter

2016

Unit Offering or to persons providing services to our company. The warrant does not qualify for equity classification, therefore we have recognized the warrant as a derivative liability. As a result, we are required to calculate the fair value at each reporting period and record the change.

The fair value of these warrants on

March

31,

2017,

totaled

$397,960

and is recorded as a derivative liability on our balance sheet. The change in fair value for the

three

months ended

March

31,

2017,

resulted in other income of

$265,600

recorded on our statement of operations.

Series A Warrants

During the

three

months ended

March

31,

2016,

pursuant to the terms of our

2015

Unit Offering (see Note

4),

we issued warrants to purchase up to an aggregate

728,571

shares of our common stock at an exercise price of

$0.45

per share. These warrants were issued to investors and as commissions, and are set to expire

June

1,

2020.

The intrinsic and relative fair value of these warrants resulted in

$255,000

recorded as a discount on our convertible notes on our consolidated balance sheet in the period issued.

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

1,

2020.

The Company

may

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

30

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.

Exercise of Warrants

During the

three

months ended

March

31,

2017,

we issued

510,000

shares of our common stock and in exchange we received proceeds totaling

$153,000

from the exercise of our outstanding stock purchase warrants. Of the warrants exercised,

370,000

shares were exercised at

$0.30

per share and

140,000

shares were exercised at

$0.25

per share. No warrants were exercised in the

three

months ended

March

31,

2016.

We have certain warrants outstanding to purchase our common stock, at various prices, as summarized in the following tables:

As of March 31, 2016	Number of
	Shares		Price Range
Balance, December 31, 2015		13,779,438	$0.125	–	1.00
Issued		728,571		0.45
Expired		—		—
Balance, March 31, 2016		14,508,009	$0.125	–	1.00

As of March 31, 2017	Number of
	Shares			Price Range
Balance, December 31, 2016		20,035,114		$0.125	–	1.00
Issued		219,298			0.70
Exercised		(510,000	)	0.25	–	0.30
Balance, March 31, 2017		19,744,412		$0.125	–	1.00

The fair value of each award grant is estimated on the date of grant using the Black-Scholes option-pricing model. The determination of expense of warrants issued for services or settlement also uses the option-pricing model. The principal assumptions we used in applying this model were as follows for the

three

months ended

March

31:

	2016			2017
Risk free interest rate		1.36	%		1.93	%
Expected volatility		315	%		297	%
Expected dividend yield		—			—
Forfeiture rate		—			—
Expected life in years		5			5

The risk-free interest rate is based on U.S Treasury yields in effect at the time of grant. Expected volatilities are based on historical volatility of our common stock.

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Note 7 - Accounts Payable and Accrued Expenses

3 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Accounts Payable and Accrued Liabilities Disclosure [Text Block]

Note

7.

Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses included the following:

	December 31,		March 31 ,
	2016		2017
Accounts payable and accrued expenses	$	22,231	$	57,363
Payroll tax liability		137,500		137,500
Officer bonus		80,000		—
Accrued interest		40,372		41,836
Total accounts payable and accrued expenses	$	280,103	$	236,699

The payroll tax liability is our estimate of payroll taxes due on the past services of independent contractors. We are currently attempting to reduce the liability to approximately

$5,000

through the IRS Voluntary Classification Settlement Program.

On

September

27,

2016,

the board approved a

$60,000

bonus for each of our Chief Executive and Chief Science Officers,

$20,000

of which was paid to each immediately. In

January

2017,

the remaining

$40,000

was paid to each.

During the

three

months ended

March

31,

2016

and

2017,

we issued

192,214

and

144,545

shares of common stock in lieu of fees for service provided by consultants, resulting in a grant date fair value of

$73,658

and

$82,480,

respectively, and recorded in selling general and administrative expense

.

During the

three

months ended

March

31,

2016

and

2017

we issued

282,240

and

310,404

shares of common stock resulting in a grant date fair value of

$99,492

and

$178,929,

respectively. The shares were issued to settle our accrued interest liability, which is

recorded as interest expense in our consolidated statement of operations.

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Note 8 - Noncontrolling Interest

3 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Noncontrolling Interest Disclosure [Text Block]

Note

8.

Noncontrolling Interest

In

May

2012,

we formed a subsidiary for the purpose of marketing and selling medical products containing our technology, Clyra Medical Technology, Inc. (“Clyra”). Until

December

17,

2012,

this subsidiary was wholly-owned, with

7,500

shares issued to BioLargo, Inc. On

December

17,

2012,

Clyra issued

1,500

shares of Clyra common stock to a

three

-member management team,

one

-

third

of which vested immediately, and the remaining over time. The shares granted to the

three

executives are restricted from transfer until a sale of the company, whether by means of a sale of its stock or substantially all of its assets, or otherwise by agreement of Clyra, BioLargo and the executives.

On

December

30,

2015,

Clyra sold

9,830

shares of its Series A Preferred Stock (“Preferred Shares”) to Sanatio Capital, LLC (“Sanatio”) for

$750,000.

This sale was made in reliance on the exemption from registration contained in Section 

4(2)

of the Securities Exchange Act and Regulation D promulgated thereunder as not involving a public offering of securities. As a result of the sale, Sanatio owns

40%

of Clyra’s issued and outstanding shares, BioLargo owns

54%,

and the remainder is owned by management.

As set forth in Clyra’s Amended and Restated Articles of Incorporation, Preferred Shares accrue an annual dividend of

8%

for a period of

five

years. Although the dividends begin to accrue immediately, Clyra has no obligation to declare a dividend until a product of the company has received a premarket approval by the United States Federal Drug Administration (“FDA”), or for which a premarket notification pursuant to form

510(k)

has been submitted and for which the FDA has given written clearance to market the product in the United States (either, “FDA Approval”). After FDA Approval, annually on

December

20,

and unless prohibited by California law governing distributions to shareholders, Clyra is required to declare and pay any accruing dividends to holders of Preferred Shares then accrued but unpaid. Management classifies the Preferred Shares dividend as a medium probability of occurring and as of

March

31,

2017

the Preferred Shares dividend has an accrued and undeclared balance of

$75,000.

Holders of Preferred Shares are entitled to preferential payments in the event of a liquidation, dissolution or winding up of the company, in an amount equal to any accrued and unpaid dividends. After such preference, any remaining assets are distributed pro-rata between holders of Clyra common stock and Preferred Shares as if the Preferred Shares had converted to Clyra common stock. Holders of Preferred Shares

may

convert the shares to Clyra common stock initially on a

one

-to-

one

basis. The conversion formula is subject to change in the event Clyra sells stock at a lower price than the price paid by Sanatio.

In addition to the foregoing, Clyra entered into a consulting agreement with Beach House Consulting, LLC, through which Jack B. Strommen will be providing consulting services to the company. Mr. Strommen is the founder of Beach House Consulting, LLC. Mr. Strommen will be assisting the company in its sales and marketing activities once it has FDA Approval on a product, at which point the agreement provides that Mr. Strommen is to receive

$23,438

per month for a period of

four

years. As of

March

31,

2017,

the Company has not presented any products to the FDA for FDA approval.

From inception, Clyra has generated

no

revenues and the financial impact of Clyra’s operations for the

three

months ended

March

31,

2017,

resulted in a net loss of

$137,082.

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Note 9 - Commitments and Contingencies

3 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

Note

9.

Commitments and Contingencies.

The office lease for our corporate office in Westminster California has a

four

-year term that commenced

September

1,

2016.

As of

May

15,

2017,

there remains

39

months on the lease, and a total obligation over the remainder of

$326,781.

The office lease for our research offices and laboratory at the University of Alberta Agri-Food Discovery Place commenced

July

1,

2015.

It currently expires

June

30,

2018.

As of

May

15,

2017,

there remains

13

months on the lease, and a total obligation over the remainder of

$66,690

Canadian dollars (plus the Canadian “goods and services” tax).

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Note 10 - Subsequent Events

3 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Subsequent Events [Text Block]

Note

10.

Subsequent Events.

Management has evaluated subsequent events through the date of the filing of this Quarterly Report and management noted the following for disclosure.

Calvert Employment Agreement

On

May

2,

2017,

BioLargo, Inc. (the “Company”) and its President and Chief Executive Officer Dennis P. Calvert entered into an employment agreement (the “Calvert Employment Agreement”), replacing in its entirety the previous employment agreement with Mr. Calvert dated

April

30,

2007.

The Calvert Employment Agreement provides that Mr. Calvert will continue to serve as the President and Chief Executive Officer of the Company and receive base compensation equal to his current rate of pay of

$288,603

annually. In addition to this base compensation, the agreement provides that he is eligible to participate in incentive plans, stock option plans, and similar arrangements as determined by the Company’s Board of Directors, health insurance premium payments for himself and his immediate family, a car allowance of

$800

per month, paid vacation of

four

weeks per year, and bonuses in such amount as the Compensation Committee

may

determine from time to time.

The Calvert Employment Agreement provides that Mr. Calvert will be granted an option (the “Option”) to purchase

3,731,322

shares of the Company’s common stock. The Option shall be a non-qualified stock option, exercisable at

$0.45

per share, which represents the market price of the Company’s common stock as of the date of the agreement, exercisable for

ten

years from the date of grant and vesting in equal increments over

five

years. Notwithstanding the foregoing, any portion of the Option which has not yet vested shall be immediately vested in the event of, and prior to, a change of control, as defined in the Calvert Employment Agreement. The agreement also provides for a grant of

1,500,000

shares of common stock, subject to the execution of a “lock-up agreement” whereby the shares remain unvested unless and until the earlier of (i) a sale of the Company, (ii) the successful commercialization of the Company’s products or technologies as demonstrated by its receipt of at least

$3,000,000

in cash, or the recognition of

$3,000,000

in revenue, over a

12

-month period from the sale of products and/or the license of technology, and (iii) the Company’s breach of the employment agreement resulting in his termination. The Option contains the other terms standard in option agreements issued by the Company, including provisions for a cashless exercise.

The Calvert Employment Agreement has a term of

five

years, unless earlier terminated in accordance with its terms. The Calvert Employment Agreement provides that Mr. Calvert’s employment

may

be terminated by the Company due to his death or disability, for cause, or upon a merger, acquisition, bankruptcy or dissolution of the Company. “Disability” as used in the Calvert Employment Agreement means physical or mental incapacity or illness rendering Mr. Calvert unable to perform his duties on a long-term basis (i) as evidenced by his failure or inability to perform his duties for a total of

120

days in any

360

-day period, or (ii) as determined by an independent and licensed physician whom Company selects, or (iii) as determined without recourse by the Company’s disability insurance carrier. “Cause” means that Mr. Calvert has (i) engaged in willful misconduct in connection with the Company’s business; or (ii) been convicted of, or plead guilty or 

nolo contendre

 in connection with, fraud or any crime that constitutes a felony or that involves moral turpitude or theft. If Mr. Calvert’s employment is terminated due to merger or acquisition, then he will be eligible to receive the greater of (i) 

one

year’s compensation plus an additional

one

half year for each year of service since the effective date of the employment agreement or (ii) 

one

year’s compensation plus an additional

one

half year for each year remaining in the term of the agreement. Otherwise, he is only entitled to receive compensation due through the date of termination.

The Calvert Employment Agreement requires Mr. Calvert to keep certain information confidential, not to solicit customers or employees of the Company or interfere with any business relationship of the Company, and to assign all inventions made or created during the term of the Calvert Employment Agreement as “work made for hire”.

Exercise of

2007

Stock Option

 

On

April

30,

2017,

Mr. Calvert delivered a notice of exercise of

3,866,630

shares pursuant to his stock option agreement dated

April

30,

2007.

The exercise price was

$0.18

per share, and the Company issued

2,501,937

shares, calculated by multiplying the difference between the market price of

$0.51

and the exercise price of

$0.18

with the number of shares exercised, and dividing that amount by the market price. No cash consideration was

tendered

with respect to the exercise. The remaining

3,866,629

shares available for purchase under the option agreement expired unexercised.

Pursuant to a “lock-up agreement” dated

April

30,

2017,

Mr. Calvert agreed to restrict the sales of the shares received until the earlier of (i) the consummation of a sale (in a single transaction or in a series of related transactions) of the Company by means of a sale of (a) a majority of the then outstanding common stock (whether by merger, consolidation, sale or transfer of common stock, reorganization, recapitalization or otherwise) or (b) all or substantially all of its assets; and (ii) the successful commercialization of the Company’s products or technologies as demonstrated by its receipt of at least

$3,000,000

in cash, or the recognition of

$3,000,000

in revenue, over a

12

-month period from the sale of products and/or the license of technology; and (iii) the Company’s breach of the employment agreement between the Company and Calvert dated

May

2,

2017

and resulting in Calvert’s termination.

XML

Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2017

Accounting Policies [Abstract]

Consolidation, Policy [Policy Text Block]

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its majority owned subsidiaries. All intercompany accounts and transactions have been eliminated.

Use of Estimates, Policy [Policy Text Block]

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the period reported. Actual results could differ from those estimates. Estimates are used when accounting for stock-based compensation and financing transactions, uncollectible accounts receivable, asset impairment and amortization, and taxes, among others.

The methods, estimates and judgments we use in applying these most critical accounting policies have a significant impact on the results of our financial statements.  

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

Share-based Payments

All share-based payments to employees, including grants of employee stock options, are recognized in the financial statements based on their fair values.

For stock issued to consultants and other non-employees for services, we record the expense based on the fair market value of the securities as of the date of the stock issuance. The issuance of fully vested stock warrants or options to non-employees are valued at the time of issuance utilizing the Black Scholes calculation and the amount is charged to expense. The issuance of stock warrants or options to non-employees that vest over time are revalued each reporting period until vested to determine the amount to be recorded as an expense in the respective period. As the warrants or options vest, they are valued on each vesting date and an adjustment is recorded for the difference between the value already recorded and the then current value on the date of vesting.

Warrant Policy [Policy Text Block]

Warrants

The Unit Offerings of our 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 date (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.

Non Cash Transactions [Policy Text Block]

Non-Cash Transactions

We have established a policy relative to the methodology to determine the value assigned to each intangible we acquire, and/or services or products received for non-cash consideration of our common stock. The value is based on the market price of our common stock issued as consideration, at the date of the agreement of each transaction or when the service is rendered or product is received.

Foreign Currency Transactions and Translations Policy [Policy Text Block]

Foreign Currency

The Company has designated the functional currency of Biolargo Water, Inc., our Canadian subsidiary, to be the Canadian dollar. Therefore, translation gains and losses resulting from differences in exchange rates are recorded in accumulated other comprehensive income.

Revenue Recognition, Policy [Policy Text Block]

Revenue Recognition

Revenues are recognized as risk and title to products transfers to the customer (which generally occurs at the time shipment is made), the sales price is fixed or determinable, and collectability is reasonably assured. We also

may

generate revenues from royalties and license fees from our intellectual property. In the event we do so, we anticipate a licensee would pay a license fee in

one

or more installments and ongoing royalties based on their sales of products incorporating or using our licensed intellectual property. We would recognize license fees over the estimated period of future benefit to the licensee.

Government Grants [Policy Text Block]

Government Grants

We have been awarded grants from the Canadian National Research Institute – Industrial Research Assistance Program (NRC-IRAP) and the National Science and Engineering Research Council of Canada (NSERC). The government grants received are considered other income and are included in our consolidated statements of operations. Some of the funds from these grants are given directly to

third

parties (such as the University of Alberta) to support research on our technology. The grants have terms generally ranging between

six

and

eighteen

months and support a majority, but not all, of the related research budget costs.

The grants typically provide for either (i) recurring monthly amounts, (ii) reimbursement of payroll costs for researchers for which we invoice to request payment, or (iii) ancillary cost reimbursement for research projects, including travel related costs. All awarded grants have specific requirements on how the money is spent, typically to employ researchers. None of the funds

may

be used for general administrative expenses or overhead in the United States.

Earnings Per Share, Policy [Policy Text Block]

Earnings (Loss) Per Share

We report basic and diluted earnings (loss) per share (“EPS”) for common and common share equivalents. Basic EPS is computed by dividing reported earnings by the weighted average shares outstanding. Diluted EPS is computed by adding to the weighted average shares the dilutive effect if stock options and warrants were exercised into common stock. For the

three

months ended

March

31,

2016

and

2017,

the denominator in the diluted EPS computation is the same as the denominator for basic EPS due to the anti-dilutive effect of the warrants and stock options on the Company’s net loss.

Concentration Risk, Credit Risk, Policy [Policy Text Block]

Concentrations of Credit Risk

All highly liquid investments with original maturities of

three

months or less or money market accounts held at financial institutions are considered to be cash. Substantially all of the cash is placed with

one

financial institution. From time to time during the year the cash accounts are exposed to credit loss for amounts in excess of insured limits of

$250,000

in the event of non-performance by the institution, however, it is not anticipated that there will be non-performance. At

March

31,

2017

and

December

31,

2016,

the Company had cash balances in excess of federally insured limits in the amount of approximately

$925,525

and

$1,660,153,

respectively.

Receivables, Trade and Other Accounts Receivable, Allowance for Doubtful Accounts, Policy [Policy Text Block]

Allowance for Uncollectible Receivables

Management evaluates credit quality by evaluating the exposure to individual counterparties, and, where warranted, management also considers the credit rating or financial position, operating results and/or payment history of the counterparty. Management establishes an allowance for amounts for which collection is considered doubtful. Adjustments to previous assessments are recognized in income in the period in which they are determined. At

March

31,

2017,

the allowance for uncollected receivables was

$15,000.

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements

In

April

2016,

the FASB issued ASU

2016

-

10,

“Revenue from Contracts with Customers (Topic

606):

Identifying Performance Obligations and Licensing”. The amendments in this Update affect the guidance in Accounting Standards Update

2014

-

09,

 Revenue from Contracts with Customers (Topic

606),

 which we are required to apply for annual periods beginning after

December

15,

2017.

Although management is still evaluating the potential impact of the adoption of this standard, its preliminary analysis is that the new guidelines currently will not substantially impact our revenue presentation.

In

March

2016,

the FASB issued Accounting Standards Update (ASU) No.

2016

-

09,

“Improvements to Employee Share-Based Payment Accounting,” which simplifies several aspects of the accounting for share-based award transactions and adds

two

practical expedients for nonpublic entities. The new standards are effective for annual periods beginning after

December

15,

2017.

An entity that elects early adoption must adopt all the amendments in the same period. The Company is currently evaluating the impact of the pending adoption of the ASU on our consolidated financial statements.

In

February

2016,

the FASB issued Accounting Standards Update No.

2016

-

02,

“Leases”. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than

12

months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after

December

15,

2018,

including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. Although management is still evaluating the potential impact of the adoption of this standard, its preliminary analysis is that the new guidelines currently will not substantially impact our revenue presentation.

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Note 4 - Convertible Notes Payable and Line of Credit (Tables)

3 Months Ended

Mar. 31, 2017

Notes Tables

Schedule of Debt [Table Text Block]

	DECEMBER 31,  201 6		MARCH 3 1 ,  201 7
Current liabilities:
Convertible notes, mature July 8, 2017	$	280,000	$	—
Line of credit, matures December 1, 2017		50,000		50,000
Convertible notes, mature December 30, 2017		280,000		280,000
Subtotal:	$	610,000	$	330,000
Long-term liabilities:
Convertible notes, mature June 1, 2018		4,800,097		4,680,097
Line of credit, matures March 31, 2019		—		175,000
Convertible notes, mature September 17, 2019		283,571		283,571
Convertible notes, mature December 31, 2019		167,000		292,000
Subtotal:	$	5,250,668	$	5,430,668
Total:	$	5,860,668	$	5,760,668

Convertible Debt [Table Text Block]

Unit/ Conversion Price		Warrant Exercise Price		Aggregate Outstanding
$	0.25	$	0.40	$	1,652,384
$	0.35	$	0.45		1,881,046
$	0.55	$	0.70		1,146,667
				$	4,680,097

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Note 5 - Share-based Compensation (Tables)

3 Months Ended

Mar. 31, 2017

Notes Tables

Share-based Compensation, Stock Options, Activity [Table Text Block]

								Weighted
								Average
As of March 31, 2016:	Options		Options		Exercise			Price per
	Outstanding		Available		Price per share			share
Balance, December 31, 2015		10,241,086		1,758,914	$0.23	–	1.89	$	0.44
Granted		—		—		—			—
Expired		—		—		—			—
Balance, March 31, 2016		10,241,086		1,758,914	$0.23	–	1.89	$	0.44

									Weighted
									Average
As of March 31, 2017:	Options		Options			Exercise			Price per
	Outstanding		Available			Price per share			share
Balance, December 31, 2016		9,916,586		1,981,414		$0.23	–	1.89	$	0.44
Granted		300,000		(300,000	)		0.69			0.69
Expired		—		—			—			—
Balance, March 31, 2017		10,216,586		1,681,414		$0.23	–	1.89	$	0.47

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

	2016						2017
	Non Plan			2007 Plan			Non Plan			2007 Plan
Risk free interest rate		1.91	%		1.36	%		2.40	%		2.40	%
Expected volatility		645	%		315	%		601	%		601	%
Expected dividend yield		—			—			—			—
Forfeiture rate		—			—			—			—
Expected life in years		7			5			7			7

Outside of 2007 Plan [Member]

Notes Tables

Share-based Compensation, Stock Options, Activity [Table Text Block]

						Weighted
						Average
As of 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

						Weighted
						Average
As of March 31, 2017:	Options		Exercise			Price per
	Outstanding		Price per share			share
Balance, December 31, 2016		20,148,766	$0.18	–	1.00	$	0.40
Granted		583,526	0.50	–	0.67		0.59
Expired		—		—			—
Balance, March 31, 2017		20,732,292	$0.18	–	1.00	$	0.41

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Note 6 - Warrants (Tables)

3 Months Ended

Mar. 31, 2017

Notes Tables

Schedule of Stockholders' Equity Note, Warrants or Rights [Table Text Block]

As of March 31, 2016	Number of
	Shares		Price Range
Balance, December 31, 2015		13,779,438	$0.125	–	1.00
Issued		728,571		0.45
Expired		—		—
Balance, March 31, 2016		14,508,009	$0.125	–	1.00

As of March 31, 2017	Number of
	Shares			Price Range
Balance, December 31, 2016		20,035,114		$0.125	–	1.00
Issued		219,298			0.70
Exercised		(510,000	)	0.25	–	0.30
Balance, March 31, 2017		19,744,412		$0.125	–	1.00

Schedule Of Assumptions Used To Determine Fair Value Of Warrants [Table Text Block]

	2016			2017
Risk free interest rate		1.36	%		1.93	%
Expected volatility		315	%		297	%
Expected dividend yield		—			—
Forfeiture rate		—			—
Expected life in years		5			5

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Note 7 - Accounts Payable and Accrued Expenses (Tables)

3 Months Ended

Mar. 31, 2017

Notes Tables

Schedule of Accounts Payable and Accrued Liabilities [Table Text Block]

	December 31,		March 31 ,
	2016		2017
Accounts payable and accrued expenses	$	22,231	$	57,363
Payroll tax liability		137,500		137,500
Officer bonus		80,000		—
Accrued interest		40,372		41,836
Total accounts payable and accrued expenses	$	280,103	$	236,699

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Note 1 - Business and Organization (Details Textual) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016	Dec. 31, 2015
Net Income (Loss), Including Portion Attributable to Noncontrolling Interest	$ (2,060,076)	$ (1,644,393)
Net Cash Provided by (Used in) Operating Activities	(1,176,252)
Working Capital	713,172
Assets, Current	1,409,971		$ 2,016,682
Retained Earnings (Accumulated Deficit)	(93,912,246)		(91,915,426)
Cash and Cash Equivalents, at Carrying Value	1,175,525	1,022,290	$ 1,910,153	$ 1,763,114
Revenues	46,017
Cash and Cash Equivalents, Period Increase (Decrease)	(734,628)	$ (740,824)
Long-term Debt, Gross	5,760,668
Convertible Debt	5,430,668
Accounts Payable and Accrued Liabilities	$ 236,699

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Note 2 - Summary of Significant Accounting Policies (Details Textual) - USD ($)	3 Months Ended
	Mar. 31, 2017	Dec. 31, 2016
Cash, Uninsured Amount	$ 925,525	$ 1,660,153
Allowance for Doubtful Accounts, Premiums and Other Receivables	$ 15,000
Canadian Government Grants [Member] | Minimum [Member]
Grant Term	180 days
Canadian Government Grants [Member] | Maximum [Member]
Grant Term	1 year 180 days

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Note 3 - Prepaid Expenses (Details Textual)	Mar. 31, 2017 USD ($)
Prepaid Advance for Services	$ 125,910
Prepaid Advertising	$ 21,472

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Note 4 - Convertible Notes Payable and Line of Credit (Details Textual)								1 Months Ended	3 Months Ended
	Mar. 31, 2017 USD ($) $ / shares shares	Jan. 13, 2017 USD ($) shares	Dec. 30, 2016 USD ($) $ / shares shares	Dec. 27, 2016 USD ($) $ / shares shares	Sep. 17, 2016 USD ($) $ / shares shares	Jul. 08, 2016 USD ($) $ / shares shares	Jun. 06, 2016 USD ($) shares	May 15, 2017 USD ($)	Mar. 31, 2017 USD ($) $ / shares shares	Mar. 31, 2016 USD ($)	Apr. 30, 2017 $ / shares	Dec. 31, 2016 USD ($)
Interest Expense, Debt									$ 953,636	$ 406,325
Debt Conversion, Original Debt, Amount									141,763	206,934
Proceeds from Lines of Credit							$ 300,000
Line of Credit Facility, Interest Rate During Period							18.00%
Line of Credit, Current	$ 50,000								50,000			$ 50,000
Long-term Debt, Gross	$ 5,760,668								$ 5,760,668
Share Price | $ / shares			$ 0.83	$ 0.86	$ 0.70						$ 0.51
Winter 2016 Unit Offering [Member]
Debt Instrument, Convertible, Conversion Price | $ / shares				$ 0.57
Debt Instrument, Interest Rate, Stated Percentage				12.00%
Class of Warrant or Right, Number of Securities Called by Warrants or Rights | shares	512,281								512,281
Class of Warrant or Right, Exercise Price of Warrants or Rights | $ / shares				$ 0.70
Units Issued During Period, Value, New Issues				$ 600,000
Number of Trading Days Prior to Interest Payment Due Date if Paid by Issuance of Common Stock				20 days
Debt Conversion before Maturity, Number of Trading Days Common Stock Closes at or above 3 Times the Unit Price				10 days
Class of Warrant or Right, Number of Securities Called by Each Warrant or Right | shares				1
Class of Warrant or Right, Exercise Period				30 days
Class of Warrant or Right, Exercise Period Condition, Number of Trading Days Common Stock Closes at or above 2 Times the Exercise Price				10 days
Proceeds from Issuance of Units									$ 292,000
Winter 2016 Unit Offering [Member] | Three accredited Investors [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights | shares	219,298								219,298
Proceeds from Issuance of Units									$ 125,000
Clyra Medical Technology Inc [Member] | Sanatio [Member]
Debt Instrument, Interest Rate, Stated Percentage	10.00%								10.00%
Proceeds from Lines of Credit	$ 175,000							$ 75,000
Line of Credit Facility, Maximum Borrowing Capacity	$ 250,000								$ 250,000
Original Issue Discount, Percentage	5.00%								5.00%
Number of Days’ Written Notice Required to Call the Line of Credit									60
Clyra Medical Technology Inc [Member]
Subsidiary, Parent Ownership Interest	54.00%								54.00%
The 2015 Unit Offering [Member]
Proceeds from Convertible Debt										$ 255,000
Debt Instrument, Interest Rate, Stated Percentage										12.00%
Class of Warrant or Right, Exercise Price of Warrants or Rights | $ / shares
Conversion of Line of Credit to 2015 Unit Offering [Member]
Debt Conversion, Original Debt, Amount					$ 250,000
Debt Conversion, Original Debt, Accrued Interest Amount					$ 33,571
Promissory Notes Issued in 2015 Unit Offering and Accrued Interest Into Common Stock [Member]
Debt Conversion, Original Debt, Amount									$ 120,000
Debt Conversion, Converted Instrument, Shares Issued | shares									406,789
Line of Credit [Member]
Debt Instrument, Term							270 days
Warrants Issued Concurrently With One Year Convertible Note [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights | shares			400,000			400,000
Class of Warrant or Right, Exercise Price of Warrants or Rights | $ / shares			$ 0.75			$ 0.65
Class of Warrant or Right, Expiration Term			5 years			5 years
Warrants Issued Concurrently with Line of Credit [Member]
Class of Warrant or Right, Number of Warrants Per Each Dollar Invested | shares							1
Warrant Issued in Exchange of Cancelled Line of Credit [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights | shares					515,583
Class of Warrant or Right, Exercise Price of Warrants or Rights | $ / shares					$ 0.70
One Year Convertible Notes [Member]
Proceeds from Convertible Debt			$ 250,000			$ 250,000
Debt Instrument, Convertible, Conversion Price | $ / shares			$ 0.57			$ 0.45
Debt Instrument, Face Amount			$ 280,000			$ 280,000
Debt Instrument, Interest Rate, Stated Percentage			3.00%			3.00%
Debt Conversion, Original Debt, Amount		$ 280,000
Debt Conversion, Converted Instrument, Shares Issued | shares		640,889
Convertible Notes Maturing on September 17, 2019 [Member]
Debt Instrument, Convertible, Conversion Price | $ / shares					$ 0.55
Long-term Debt, Gross					$ 283,571

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Note 4 - Convertible Notes Payable and Line of Credit - Schedule of Debt (Details) - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Convertible notes, Current	$ 330,000	$ 610,000
Convertible notes	5,430,668	5,250,668
Total:	5,760,668	5,860,668
Convertible Notes Maturing on July 8, 2017 [Member]
Convertible notes, Current		280,000
Line of Credit, Matures December 1, 2017 [Member]
Convertible notes, Current	50,000	50,000
Convertible Notes Maturing on December 30, 2017 [Member]
Convertible notes, Current	280,000	280,000
Convertible Notes Maturing on June 1, 2018 [Member]
Convertible notes	4,680,097	4,800,097
Clyra Line of Credit, Matures March 31, 2019 [Member]
Convertible notes	175,000
Convertible Notes Maturing on September 17, 2019 [Member]
Convertible notes	283,571	283,571
Convertible Notes Maturing on December 31, 2019 [Member]
Convertible notes	$ 292,000	$ 167,000

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Note 4 - Convertible Notes payable and Lines of Credit - Pricing Supplements (Details) - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Aggregate Outstanding	$ 5,255,668	$ 5,250,668
The 2015 Unit Offering [Member]
Warrant Exercise Price (in dollars per share)
Aggregate Outstanding	$ 4,680,097
Pricing Supplement No.1 [Member] | The 2015 Unit Offering [Member]
Conversion Price (in dollars per share)	$ 0.25
Warrant Exercise Price (in dollars per share)	$ 0.40
Aggregate Outstanding	$ 1,652,384
Pricing Supplement No.2 [Member] | The 2015 Unit Offering [Member]
Conversion Price (in dollars per share)	$ 0.35
Warrant Exercise Price (in dollars per share)	$ 0.45
Aggregate Outstanding	$ 1,881,046
Pricing Supplement No.3 [Member] | The 2015 Unit Offering [Member]
Conversion Price (in dollars per share)	$ 0.55
Warrant Exercise Price (in dollars per share)	$ 0.70
Aggregate Outstanding	$ 1,146,667

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Note 5 - Share-based Compensation (Details Textual) - USD ($) $ / shares in Units, Rate in Thousands				3 Months Ended
	Feb. 10, 2017	Feb. 01, 2017	Mar. 21, 2016	Mar. 31, 2017	Mar. 31, 2016
Employee Stock Option [Member]
Share Based Compensation Arrangement by Share Based Payment Award Fair Value Assumptions Expected Forfeiture Rate				0.00%
The 2007 Equity Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross				300,000
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price				$ 0.69
The 2007 Equity Incentive Plan [Member] | Chief Financial Officer [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	300,000
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price	$ 0.69
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested, Number of Shares	125,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Remaining Number of Shares to Vest Each Month	25,000
Sharebased Compensation Arrangement by Sharebased Payment Award Options Granted in Period, Fair Value				$ 207,000
The 2007 Equity Incentive Plan [Member] | Board of Directors and Vendors [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross			307,777
Sharebased Compensation Arrangement By Sharebased Payment Award Options Expiration Period Extension			5 years
Outside of the 2007 Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross				583,526	263,523
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price				$ 0.59	$ 0.33
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested in Period, Fair Value				$ 20,025	$ 94,905
Outside of the 2007 Plan [Member] | Board of Directors and Vendors [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross				283,526	263,523
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price				$ 0.50	$ 0.33
Sharebased Compensation Arrangement by Sharebased Payment Award Options Granted in Period, Fair Value				$ 141,763
Outside of the 2007 Plan [Member] | Strategic Advisor [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross		300,000
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price		$ 0.67
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested, Number of Shares				25,000
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period		10 years
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting, Equal Amount of Shares		12,500
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period		2 years
Outside of the 2007 Plan [Member] | Board of Directors Chairman [Member]
Other Liabilities, Current				$ 65,000	$ 67,500
Outside of the 2007 Plan [Member] | Vendors [Member]
Other Liabilities, Current				56,671	12,975
Selling, General and Administrative Expenses [Member]
Allocated Share-based Compensation Expense				280,288	301,839
Selling, General and Administrative Expenses [Member] | The 2007 Equity Incentive Plan [Member]
Allocated Share-based Compensation Expense			$ 119,971
Selling, General and Administrative Expenses [Member] | The 2007 Equity Incentive Plan [Member] | Chief Financial Officer [Member]
Allocated Share-based Compensation Expense				103,500
Selling, General and Administrative Expenses [Member] | Outside of the 2007 Plan [Member] | Board of Directors and Vendors [Member]
Allocated Share-based Compensation Expense				20,092	$ 86,963
Selling, General and Administrative Expenses [Member] | Outside of the 2007 Plan [Member] | Strategic Advisor [Member]
Allocated Share-based Compensation Expense				$ 15,000

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Note 5 - Share-based Compensation - Stock Options Issued Under the 2007 Equity Incentive Plan (Details) - The 2007 Equity Incentive Plan [Member] - $ / shares	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Options outstanding, beginning balance (in shares)	9,916,586	10,241,086
Shares available, beginning balance (in shares)	1,981,414	1,758,914
Weighted average price per share, beginning balance (in dollars per share)	$ 0.44	$ 0.44
Exercise price per share, granted (in dollars per share)	$ 0.69
Options outstanding, ending balance (in shares)	10,216,586	10,241,086
Shares available, ending balance (in shares)	1,681,414	1,758,914
Weighted average price per share, ending balance (in dollars per share)	$ 0.47	$ 0.44
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	300,000
Shares available, granted (in shares)	(300,000)
Weighted average price per share, granted (in dollars per share)	$ 0.69
Minimum [Member]
Exercise price per share, beginning balance (in dollars per share)	0.23	0.23
Exercise price per share, granted (in dollars per share)
Exercise price per share,Expired (in dollars per share)
Exercise price per share, ending balance (in dollars per share)	0.23	0.23
Maximum [Member]
Exercise price per share, beginning balance (in dollars per share)	1.89	1.89
Exercise price per share, granted (in dollars per share)
Exercise price per share,Expired (in dollars per share)
Exercise price per share, ending balance (in dollars per share)	$ 1.89	$ 1.89

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Note 5 - Share-based Compensation - Stock Options Issued Outside of the 2007 Equity Incentive Plan (Details) - Outside of the 2007 Plan [Member] - $ / shares	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Options outstanding, beginning balance (in shares)	20,148,766	19,394,975
Weighted average price per share, beginning balance (in dollars per share)	$ 0.40	$ 0.40
Options outstanding, granted (in shares)	583,526	263,523
Granted, exercise price per share (in dollars per share)		$ 0.33
Weighted average price per share, granted (in dollars per share)	$ 0.59	$ 0.33
Options outstanding, expired (in shares)
Weighted average price per share, expired (in dollars per share)
Options outstanding, ending balance (in shares)	20,732,292	19,658,498
Weighted average price per share, ending balance (in dollars per share)	$ 0.41	$ 0.40
Minimum [Member]
Exercise price per share, beginning balance (in dollars per share)	0.18	0.18
Granted, exercise price per share (in dollars per share)	0.50
Exercise price per share, ending balance (in dollars per share)	0.18	0.18
Maximum [Member]
Exercise price per share, beginning balance (in dollars per share)	1	1
Granted, exercise price per share (in dollars per share)	0.67
Exercise price per share, ending balance (in dollars per share)	$ 1	$ 1

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Note 5 - Share-based Compensation - Stock Options, Valuation Assumptions (Details)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Non Plan [Member]
Risk free interest rate	2.40%	1.91%
Expected volatility	601.00%	645.00%
Expected life in years (Year)	7 years	7 years
The 2007 Equity Incentive Plan [Member]
Risk free interest rate	2.40%	1.36%
Expected volatility	601.00%	315.00%
Expected life in years (Year)	7 years	5 years

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Note 6 - Warrants (Details Textual) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Apr. 30, 2017	Jan. 13, 2017	Dec. 31, 2016	Dec. 30, 2016	Dec. 27, 2016	Sep. 17, 2016	Jul. 08, 2016
Share Price			$ 0.51			$ 0.83	$ 0.86	$ 0.70
Derivative Liability, Current	$ 397,960				$ 663,560
Fair Value Adjustment of Warrants	$ (265,600)
Stock Issued During Period, Shares, Exercise of Warrants	510,000	0
Proceeds from Warrant Exercises	$ 153,000
Warrants Issued Concurrently With One Year Convertible Note [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights						400,000			400,000
Class of Warrant or Right, Exercise Price of Warrants or Rights						$ 0.75			$ 0.65
Discount On Convertible Note Payable						$ 280,000			$ 160,000
Derivative Liability, Current	397,960
Fair Value Adjustment of Warrants	$ (265,600)
Series A Warrant [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights		728,571
Class of Warrant or Right, Exercise Price of Warrants or Rights		$ 0.45
Discount On Convertible Note Payable		$ 255,000
Warrants With Exercise Price $0.30 [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights	370,000
Class of Warrant or Right, Exercise Price of Warrants or Rights	$ 0.30
Warrants With Exercise Price $0.25 [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights	140,000
Class of Warrant or Right, Exercise Price of Warrants or Rights	$ 0.25
Warrants Issued Concurrently with Winter 2016 Unit Offering [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights	219,298			512,281
Class of Warrant or Right, Exercise Price of Warrants or Rights	$ 0.70			$ 0.70
Discount On Convertible Note Payable	$ 125,000

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Note 6 - Warrants - Warrants Outstanding (Details) - $ / shares	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Beginning balance, outstanding (in shares)	20,035,114	13,779,438
Issued (in shares)	219,298	728,571
Issued, price range (in dollars per share)	$ 0.70	$ 0.45
Ending balance, outstanding (in shares)	19,744,412	14,508,009
Exercised (in shares)	(510,000)
Minimum [Member]
Beginning balance, outstanding, price range (in dollars per share)	$ 0.125	$ 0.125
Beginning balance, outstanding, price range (in dollars per share)	0.125	0.125
Exercised, price range (in dollars per share)	0.25
Maximum [Member]
Beginning balance, outstanding, price range (in dollars per share)	1	1
Beginning balance, outstanding, price range (in dollars per share)	1	$ 1
Exercised, price range (in dollars per share)	$ 0.30

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Note 6 - Warrants - Assumptions Used to Determine Fair Value of Warrants (Details)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Risk free interest rate	1.93%
Expected volatility	297.00%
Expected life in years (Year)	5 years
Minimum [Member]
Risk free interest rate		1.36%
Expected volatility		315.00%
Expected life in years (Year)		5 years

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Note 7 - Accounts Payable and Accrued Expenses (Details Textual) - USD ($)		1 Months Ended	3 Months Ended
	Sep. 27, 2016	Jan. 31, 2017	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016
Accrued Payroll Taxes, Possible Reduced Amount			$ 5,000
Accrued Bonuses, Current					$ 80,000
Selling, General and Administrative Expense			$ 1,055,055	$ 930,907
Stock Issued During Period, Shares, Issued to Settle Accrued Interest Liability			310,404	282,240
Interest Expense [Member]
Stock Issued During Period, Grant Date Fair Value, Issued to Settle Accrued Interest Liability			$ 178,929	$ 99,492
Chief Executive Officer [Member]
Accrued Bonuses, Current	$ 60,000
Bonuses Paid	$ 20,000	$ 40,000
Consultants [Member]
Stock Issued During Period, Shares, Issued for Services			144,545	192,214
Selling, General and Administrative Expense			$ 82,480	$ 73,658

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Note 7 - Accounts Payable and Accrued Expenses - Summary of Accounts Payable and Accrued Expenses (Details) - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Accounts payable and accrued expenses	$ 57,363	$ 22,231
Payroll tax liability	137,500	137,500
Officer bonus		80,000
Accrued interest	41,836	40,372
Total accounts payable and accrued expenses	$ 236,699	$ 280,103

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Note 8 - Noncontrolling Interest (Details Textual) - USD ($)			3 Months Ended
	Dec. 30, 2015	Dec. 17, 2012	Mar. 31, 2017	Mar. 31, 2016
Consulting Services, Monthly Payment	$ 23,438
Consulting Services, Period of Services	4 years
Net Income (Loss) Attributable to Noncontrolling Interest			$ (63,256)	$ (66,972)
Revenue, Net			46,017	$ 13,942
Clyra Medical Technology Inc [Member]
Sale of Stock, Percentage of Ownership after Transaction	54.00%
Clyra Medical Technology Inc [Member]
Investment Owned, Balance, Shares		7,500
Preferred Stock, Dividend Rate, Percentage	8.00%
Preferred Shares Dividend, Period	5 years
Dividends Payable			75,000
Net Income (Loss) Attributable to Noncontrolling Interest			137,082
Revenue, Net			$ 0
Clyra Medical Technology Inc [Member] | Series A Preferred Stock [Member] | Sanatio [Member]
Sale of Stock, Number of Shares Issued in Transaction	9,830
Proceeds from Issuance or Sale of Equity	$ 750,000
Clyra Medical Technology Inc [Member] | Each of 3 Individuals [Member]
Stock Issued During Period, Shares, New Issues		1,500
Sanatio [Member] | Clyra Medical Technology Inc [Member]
Noncontrolling Interest, Ownership Percentage by Noncontrolling Owners	40.00%

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Note 9 - Commitments and Contingencies (Details Textual)	May 15, 2017 USD ($)	Sep. 01, 2016	May 15, 2017 CAD
Leased Office in Westminster California [Member]
Lessee, Operating Lease, Term of Contract		4 years
Leased Office in Westminster California [Member] | Subsequent Event [Member]
Lessee, Operating Lease, Remaining Lease Term	3 years 90 days
Operating Leases, Future Minimum Payments Due | $	$ 326,781
Leased Research Offices and Laboratory at University of Alberta Agri-Food Discovery Place [Member] | Subsequent Event [Member]
Lessee, Operating Lease, Remaining Lease Term	1 year 30 days
Operating Leases, Future Minimum Payments Due | CAD			CAD 66,690

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Note 10 - Subsequent Events (Details Textual) - USD ($)	May 02, 2017	Apr. 30, 2017	Dec. 30, 2016	Dec. 27, 2016	Sep. 17, 2016
Share Price		$ 0.51	$ 0.83	$ 0.86	$ 0.70
President and Chief Executive Officer [Member] | Subsequent Event [Member]
Employment Agreement, Annual Base Compensation	$ 288,603
Employment Agreement, Car Allowance Monthly	$ 800
Employment Agreement, Option, Number of Shares, Expected to Grant	3,731,322
Employment Agreement, Common Stock, Expect to Grant, Subject to Lock-Up Agreement	1,500,000
Employment Agreement, Lock-up Agreement, Successful Commercialization, Minimum Cash Receipt	$ 3,000,000
Employment Agreement, Lock-up Agreement, Minimum Revenue Recognized	$ 3,000,000
Employment Agreement, Term	5 years
President and Chief Executive Officer [Member] | Subsequent Event [Member] | Non-Qualified Stock Option [Member]
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price	$ 0.45
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period	10 years
President and Chief Executive Officer [Member] | Subsequent Event [Member] | 2007 Stock Option [Member]
Stock Issued During Period, Shares, New Issues		3,866,630
Investment Options, Exercise Price		$ 0.18
Share-based Compensation Arrangement by Share-based Payment Award, Options, Expirations in Period		3,866,629
President and Chief Executive Officer [Member] | Subsequent Event [Member] | Shares Issued for the Exercise of 2007 Stock Option [Member]
Stock Issued During Period, Shares, New Issues		2,501,937