Note 5 - Stockholders' Equity

3 Months Ended

12 Months Ended

Mar. 31, 2017

Dec. 31, 2016

Notes to Financial Statements

Compensation and Employee Benefit Plans [Text Block]

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.

Note

Stockholders’ Equity

Preferred Stock

Our certificate of incorporation authorizes our Board of Directors to issue preferred stock, from time to time, on such terms and conditions as they shall determine. As of

December

31,

2015

and

December

31,

2016

there were

outstanding shares of our preferred stock.

Common Stock

During the year ended

December

31,

2016,

we issued

2,342,264

shares of common stock in lieu of cash for fees for service provided by consultants and to settle our accrued interest liability, resulting in an aggregate grant date fair value of

$993,078,

which is recorded in selling general and administrative expense and interest expense

During the year ended

December

31,

2015

and

2016,

we issued

258,236

and

2,167,420

shares of common stock per the request of noteholders’ to convert the principal balance due on promissory notes totaling

$64,559

and

$589,371,

respectively.

During the year ended

December

31,

2016,

we issued

2,818,271

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

$864,009

from the exercise of stock purchase warrants.

There were no shares issued for the exercise of warrants during

2015.

During the year ended

December

31,

2015,

we issued

1,370,480

shares of common stock in lieu of cash for fees for service provided by consultants, to settle accrued and unpaid salary to officers and to settle our accrued interest liability, resulting in an aggregate grant date fair value of

$670,339,

which is recorded in selling general and administrative expense and interest expense

Our total capitalization as of

December

31,

2016

is:

Description	Shares
Outstanding Common Stock:		92,975,970
Outstanding Options:		30,065,352
Outstanding Warrants:		20,035,114
Subtotal:		143,076,436
Shares issuable upon conversion of Convertible Promissory Notes:		15,063,278
Total*		158,139,714

The total shares issued in the above table of

158,139,714

assumes that all options and warrants are exercised and that all convertible notes are converted to common stock. The total does not take into account future stock issuances related to the payment of interest.

Share-Based Compensation

During the year ended

December

31,

2015

and

2016,

we recorded an aggregate

$1,831,313

and

$751,113,

respectively, 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

at any time amend or terminate the plan. The term of the options

may

be up to

years.

June

20,

2016,

we recorded the issuance of options to purchase an aggregate

40,000

shares of our common stock to the non-employee members of our Board of Directors, pursuant to the terms of the

2007

Equity Plan which calls for an annual automatic issuance. The exercise price of

$0.45

equals the price of our common stock on the grant date. The fair value of these options totaled

$18,000

and was recorded as selling, general and administrative expense.

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 fair value of the options resulted in additional

$119,971

of selling, general and administrative expenses.

September

30,

2015,

our CFO Charles K. Dargan, II agreed to extend his engagement agreement dated

February

2008

(the “Engagement Agreement”, which had been previously extended multiple times), pursuant to which Mr. Dargan has been serving as our Chief Financial Officer. The Engagement Extension Agreement dated as of

September

30,

2015

(the “Engagement Extension Agreement”) provides for an additional term to expire

September

30,

2016

(the “Extended Term”), is retroactively effective to

February

2015.

During the Extended Term, Mr. Dargan shall be compensated through the issuance of an option to purchase

300,000

shares of our common stock that vest over the term of the engagement with

120,000

shares vested as of

September

30,

2015,

and the remaining shares to vest

15,000

monthly, provided that the Engagement Extension Agreement with Mr. Dargan has not been terminated prior to each vesting date. During the year ended

December

31,

2015

and

2016,

we recorded

$94,050

and

$76,950

of selling, general and administrative expense. On

February

10,

2017,

we again extended Mr. Dargan’s agreement, and issued him an additional option to purchase

300,000

shares of our common stock, at a strike price of

$0.69

per share which is equal to the closing price of our common stock on

February

10,

2017.

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.

June

24,

2015,

our board of directors extended by

five

years the expiration of options to purchase an aggregate

1,772,581

shares of our common stock issued to consultants, vendors and employees on

August

2010.

The options were originally issued in exchange for accrued and unpaid amounts owed to the individuals, at an exercise price of

$0.30

and now expire

August

2020.

Fair value of the option totaled

$620,403

of additional selling, general and administrative expenses.

June

24,

2015,

we recorded the issuance of options to purchase an aggregate

40,000

shares of our common stock to the non-employee members of our Board of Directors, pursuant to the terms of the

2007

Equity Plan which calls for an annual automatic issuance. The exercise price of

$0.38

equals the price of our common stock on the grant date. The fair value of these options totaled

$15,200

and was recorded as selling, general and administrative expense.

June

24,

2015,

our board of directors extended by

five

years the expiration of an option to purchase

200,000

shares of our common stock issued to our Chief Science Officer in

February

2010.

The option was issued in exchange for unpaid salary obligation at an exercise price of

$0.575

and now expires

February

2020.

The fair value of the option totaled

$68,000

and was recorded as a selling, general and administrative expense.

April

20,

2015,

we issued an option to purchase

700,000

shares of our common stock to a consultant. The option vests ratably over

two

years, expires

ten

years from the date of issuance, and is exercisable at

$0.40

per share. The price of our common stock on the grant date was

$0.34

per share. The fair value of this option totaled

$238,000

and is being expensed as selling, general and administrative expense over the vesting period. During the year ended

December

31,

2015

and

2016,

we recorded

79,280

of selling, general and administrative expense. This contract ended

August

2016

and the remaining unvested

262,500

options were cancelled.

Activity for our stock options under the

2007

Plan for the year ended

December

31,

2015

and

2016

is as follows:

										Weighted
										Average
	Options			Shares			Exercise			Price per
	Outstanding			Available			Price per share			share
Balance, December 31, 2014		8,601,086			3,398,914		$0.23	-	1.89	$	0.44
Granted		1,040,000			(1,040,000	)	0.30	-	0.58		0.35
Plan classification		600,000			(600,000	)	0.30	-	0.60		0.33
Balance, December 31, 2015		10,241,086			1,758,914		$0.22	-	1.89	$	0.44
Granted		40,000			(40,000	)		0.45			0.45
Exercised		(102,000	)		—			0.35			0.35
Cancelled		(262,500	)		262,500			0.40			0.40
Balance, December 31, 2016		9,916,586			1,981,414		$0.22	-	1.89	$	0.46

The following table summarizes the stock options issued under the

2007

Equity Plan outstanding at

December

31,

2016.

				Weighted				Currently Exercisable
				Average		Weighted
Options				Remaining		Average		Number		Weighted
Outstanding				Contractual		Exercise		Of Shares		Average
at December 31, 2016	Exercise Price			Life		Price		December 31, 2016		Exercise Price
525,000	$0.40	-	1.89		1	$	1.06		525,000	$	1.06
892,135	0.28	-	0.99		2		0.51		892,135		0.51
1,020,000	0.25	-	0.70		3		0.55		1,020,000		0.55
3,650,528	0.22	-	0.57		4		0.37		3,650,528		0.37
1,656,262	0.34	-	0.40		5		0.36		1,656,262		0.36
715,161	0.28	-	0.40		6		0.36		715,161		0.36
640,000	0.30	-	0.65		7		0.48		640,000		0.48
477,500	0.38	-	0.40		8		0.42		477,500		0.42
340,000	0.45	-	0.57		9		0.56		340,000		0.56

9,916,586	$0.22	-	1.89		5	$	0.46		9,916,586	$	0.46

Options issued Outside of the

2007

Equity Incentive Plan

During the year ended

December

31,

2016,

we issued options to purchase

1,009,718

shares of our common stock at exercise prices ranging between

$0.33

–

$0.83

per share to vendors and to our members of our board of directors, in lieu of

$316,007

in accrued and unpaid fees. The aggregate fair value of these options totaled

$357,312

and is recorded as selling, general and administrative expenses.

During the year ended

December

31,

2015,

we issued options to purchase

2,075,934

shares of our common stock at exercise prices ranging between

$0.33

–

$0.65

per share to vendors and to our members of our board of directors, in lieu of

$942,509

in accrued and unpaid fees. The fair value of these options totaled

$887,864

and is recorded as selling, general and administrative expenses.

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

December

31,

2015

and

2016

was

$74,145

and

$99,600,

respectively.

Activity of our stock options issued outside of the

2007

Plan for the year ended

December

31,

2015

and

2016

is as follows:

							Weighted
							Average
	Options			Exercise			Price per
	Outstanding			Price per share			share
Balance, December 31, 2014		17,965,291		$0.18	-	1.00	$	0.40
Granted		2,075,931		0.25	-	0.65		0.40
Expired		(46,250	)		0.30			0.30
Plan classification		(600,000	)	0.30	-	0.63		0.33
Balance, December 31, 2015		19,394,975		$0.18	-	1.00	$	0.40
Granted		1,009,718		0.33	-	0.83		0.48
Exercised		(255,927	)		0.25			0.35
Balance, December 31, 2016		20,148,766		$0.18	-	1.00	$	0.43

The following table summarizes the stock options issued outside of the

2007

Equity Incentive Plan outstanding at

December

31,

2016.

				Weighted				Currently Exercisable
				Average		Weighted		Number of
Options				Remaining		Average		Shares at		Weighted
Outstanding at				Contractual		Exercise		December 31,		Average
December 31, 2016	Exercise Price			Life		Price		2016		Exercise Price
7,733,259		$0.18			.25	$	0.18		7,733,259	$	0.18
2,400,000		0.99			.25		0.99		2,400,000		0.99
691,975		0.55			2		0.55		691,975		0.55
800,000		1.00			5		1.00		800,000		1.00
168,750		0.40			6		0.40		168,750		0.40
1,497,986		0.30			6		0.30		1,497,986		0.30
3,122,093	0.25	-	0.65		7		0.32		3,122,093		0.32
2,120,947	0.33	-	0.47		8		0.37		2,120,947		0.37
1,388,166	0.33	-	0.65		9		0.47		1,238,116		0.47
225,641	0.60	-	0.83		10		0.76		225,641		0.76
20,148,766	$0.18	-	1.00		4	$	0.40		19,998,766	$	0.40

We recognize compensation expense for stock option awards on a straight-line basis for employees 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 year ended

December

31:

	2015						2016
	Non Plan			2007 Plan			Non Plan			2007 Plan
Risk free interest rate	1.83	-	2.33%	1.60	-	2.38%	1.91	-	2.49%	1.36	-	2.14%
Expected volatility	794	-	821%	322	-	807%	623	-	738%	315	-	794%
Expected dividend yield		-			-			-			-
Forfeiture rate		-			-			-			-
Life in years		7		3	-	7		7			5

Historically, we have not had significant forfeitures of unvested stock options granted to employees and Directors. A significant number of our stock option grants are fully vested at issuance or have short vesting provisions. Therefore, we have estimated the forfeiture rate of our outstanding stock options as

zero.