Note

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

August

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.

February

10,

2017,

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

October

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

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.

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

February

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

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.

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.

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.