Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2017

Consolidation, Policy [Policy Text Block]

Principles of Consolidation

The consolidated financial statements include the accounts of the Compan

y, its majority owned subsidiaries, and Clyra. Management believes Clyra’s financial statements are appropriately consolidated with that of the Company because the Company is Clyra’s largest shareholder, owning

46.3%

of its outstanding voting stock at

December 31, 2017,

and

two

members of BioLargo’s board of directors are

two

three

members of Clyra’s board of directors (see Note

). All intercompany accounts and transactions have been eliminated.

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, trans

lation gains and losses resulting from differences in exchange rates are recorded in accumulated other comprehensive income.

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of

three

months or less when acquired to be cash equivalents. Substantially all cash equivalents are held in short-term money market accounts at

one

of the largest financial institutions in the United States. From time to time, our cash account balances are greater than the Federal Deposit Insurance Corporation insurance limit of

$250,000

per owner per bank, and during such times, we are exposed to credit loss for amounts in excess of insured limits in the event of non-performance by the financial institution. We do

not

anticipate non-performance by our financial institution.

Our cash balances were made up of the following:

	DECEMBER 31, 201 6		DECEMBER 3 1 , 201 7

Biolargo, Inc. and wholly owned subsidiaries	$	1,671,857	$	461,914
Clyra Medical Technologies, Inc.		238,296		528,543
Total	$	1,910,153	$	990,457

Receivables, Policy [Policy Text Block]

Accounts Receivable

Trade accounts receivable are recorded net of allowances for doubtful accounts. Estimates for allowances for doubtful accounts are determined based on payment history and individual customer circumstances. The allowance for doubtful accounts

as of

December 31, 2016

and

2017

was

and

$2,500,

respectively.

Inventory, Policy [Policy Text Block]

Inventory

Inventories are stated at the lower of cost or net realizable value using the average cost method. Inventories consisted of:

	DECEMBER 31, 2016		DECEMBER 31, 2017

Raw material	$	14,555	$	34,104
Finished goods		19,891		19,869
Total	$	34,446	$	53,973

Intangible Assets, Finite-Lived, Policy [Policy Text Block]

Other Assets

Other Assets consisted

of payments made to purchase patents related to our commercialization efforts of the Isan system and a security deposit of

$32,530

related to our business offices.

For each of the years ended

December 31,

2016

and

2017,

we recorded amortization expense totaling

$10,920

and

$10,920.

As of

December 31, 2017,

the patents have been fully amortized.

Impairment or Disposal of Long-Lived Assets, Policy [Policy Text Block]

Impairment

Long-lived and definite lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset

may

not

be recoverable. If the sum of the expected future undiscounted cash flows from the use of the asset and its eventual disposition is less than the carrying amount of the asset, then an impairment loss is recognized. The impairment loss is measured based on the fair value of the asset. Any resulting impairment is recorded as a reduction in the carrying value of the related asset in excess of fair value and a charge to operating results. For the years ended

December 31,

2016

and

2017,

management determined that there was

impairment of its long-lived assets.

Segment Reporting, Policy [Policy Text Block]

Business

segment information

During

2016

the Company operated as

one

business segment.

During

2017,

the Company determined that it operates

three

business segments consisting of Odor-

-More, Clyra and Biolargo/other based on the manner in which the chief operating decision maker now manages these businesses, including resource allocation and performance assessment.

Odor-

-More is engaged in developing and selling products using the Biolargo technology. Clyra is engaged in developing medical products using the BioLargo technology, with an emphasis in advanced wound care.

Biolargo/Other includes certain functional roles that do

not

engage in revenue generating activities, such as corporate operations and oversight, research and development, and general corporate and administrative functions, including finance, human resources, marketing and legal. It also includes the Company’s engineering subsidiary, as it only recently commenced operations and does

not

have substantial activity as of

December 31, 2017.

The

2017

Company segment

information is as follows:

	Odor-No-More			Clyra			BioLargo / Other			Total
Revenues	$	503,982		$	—		$	12,231		$	516,213
Cost of goods/services		(315,203	)		—			(7,514	)		(322,717	)
Depreciation and amortization		27,843			—			1,998			29,841
Interest expense		—			20,476			3,841,697			3,862,173
Expenditures for assets		4,200			—			24,471			28,671
Equipment, net of depreciation		46,392			—			62,473			108,865
Net loss		(500,000	)		(914,622	)		(8,267,912	)		(9,546,519	)
Tangible assets, net		210,725			528,543			756,152			1,495,420

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 years ended

December 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.

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 transactions, debt transactions, derivative liabilities, allowance for

bad debt, asset depreciation and amortization, and payroll taxes, among others.

The methods, estimates and judgments we use in applying these most critical accounting policies have a significant impa

ct on the results of our financial statements.

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

Share-based Payments

For stock and stock options issued to consultants and other non-employees for services, the Company measures and records an expense as of the earlier of the date at which either: a commitment for performance by the non-employee has been reached or the non-employee

’s performance is complete. The equity instruments are measured at the current fair value, and for stock options, the instruments are measured at fair value using the Black Scholes options model.

For equity instruments issued and outstanding where performance is

not

complete, but the instrument has been recorded, those instruments are measured again at their then current fair market values at each of the reporting dates (they are “marked-to market”) until the performance and the contract are complete.

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.

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. Licensees typically 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. License fees are recognized over the estimated period of future benefit to the average licensee

We are obligated to share any revenues under our license agreement on an equal basis with Peter Holdings Pty. Ltd. On

July 1, 2016,

per the terms of the agreement the

$100,000

deposit received in

2014

was recorded to license revenue, offset by the

$45,000

share paid to Peter Holdings Pty. Ltd.

Income Tax, Policy [Policy Text Block]

Income

Taxes

The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of asset and liabilities. Deferred tax assets and liabilities are determined based on the differences between financial

reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The effect on deferred tax asset and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

We account for uncertainties in income tax law under a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns as prescribed by generally accepted accounting principles (“GAAP”). Under GAAP, the tax effects of a position are recognized

only if it is “more-likely-than-

not”

to be sustained by the taxing authority as of the reporting date. If the tax position is

not

considered “more-likely-than-

not”

to be sustained, then

benefits of the position are recognized.

Fair Value of Financial Instruments, Policy [Policy Text Block]

Fair Value of Financial Instruments

Management believes the carrying amounts of the Company's financial instruments (excluding debt and equity instruments) as of

December 31, 2016

and

2017

approximate their respective fair values because of the short-term nature of these instruments. Such instruments consist of cash, accounts receivable, prepaid assets, accounts payable, lines of credit, and other assets and liabilities.

Government Grants [Policy Text Block]

Government Grants

We have been awarded

multiple research 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 grants received are considered other income and are included in our consolidated statements of operations. We received our

first

grant in

2015

and have been awarded over

grants totaling approximately

$1,300,000.

Some of the funds from these grants are given directly to

third

parties (such as the University of Alberta or a

third

-party research scientist) 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. This cooperative research allows us to utilize (i) a depth of resources and talent to accomplish highly skilled work, (ii) financial aid to support research and development costs, (iii) independent and credible validation of our technical claims.

The grants

typically provide for (i) recurring monthly amounts, (ii) reimbursement of costs for research talent for which we invoice to request payment, and (iii) ancillary cost reimbursement for research talent 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. These grants have substantially increased our level of research and development activities in Canada. We continue to apply for Canadian government and agency grants to fund research and development activities.

Not

all of our grant applications have been awarded, and

assurance can be made that any pending grant application, or any future grant applications, will be awarded.

Tax Credits [Policy Text Block]

Tax Credits

Our research and development activities in Canada

may

entitle our Canadian subsidiary to claim benefits under the “Scientific Research and Experimental Development (SR&ED) Program”, a Canadian federal tax incentive program designed to encourage Canadian businesses of all sizes and in all sectors to conduct research and development in Canada. Benefits under the program include credits to taxable income. If our Canadian subsidiary does

not

have taxable income in a reporting period, we instead receive a tax refund from the Canadian Revenue Authority. Those refunds are classified as Other Income on our statement of operations.

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements

July 2017,

the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”)

No.

2017

11,

“Earnings Per Share (Topic

260

), Distinguishing Liabilities from Equity (Topic

480

), Derivatives and Hedging (Topic

815

).” The relevant section for Biolargo is Topic

815

where it pertains to accounting for certain financial instruments with down round features. Until the issuance of this ASU, financial instruments with down round features required fair value measurement and subsequent changes in fair value were recognized in earnings. As a result of this ASU, financial instruments with down round features are

longer treated as a derivative liability measured at fair value. Instead, when the down round feature is triggered, the effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. For public entities, the ASU is effective for fiscal years and interim periods within those fiscal years, beginning after

December 15, 2018.

Early adoption is permitted, including adoption in an interim period. Biolargo has elected early adoption as of

July 1, 2017. (

See Note

)

May 2017,

the FASB issued ASU

2017

09,

“Compensation

– Stock Compensation (topic

718

)”. The amendments in this Update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic

718.

An entity should account for the effects of a modification unless all the following are met: (i) the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the modified award is the same as the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the original award immediately before the original award is modified, (ii) The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified and (iii) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after

December 15, 2017.

Management has analyzed the new guideline and it will

not

substantially impact our accounting for stock compensation awards.

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 and interim periods beginning after

December 15, 2017.

Management’s current analysis is that the new guidelines currently will

not

substantially impact our revenue recognition. However, future licenses, if any, will require specific contract terms for the basis of royalty payments and for support and maintenance of the intellectual property that is the subject of the license.

March 2016,

the FASB issued 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.

Management

’s current analysis is that the new guidelines will

not

substantially impact our accounting for share-based payments.

February 2016,

the FASB issued ASU

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

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 will create a ROU asset and lease liability for the

Company’s lease agreements in place at the time the standard goes into effect. Currently, the Company has

two

real property leases with terms longer than

months (see Note