Note

Share-Based Compensation

During the

three

months ended

March 31, 2017

and

2018,

we recorded an aggregate

$280,288

and

$320,090,

respectively, in selling general and administrative expense related to the issuance of stock options.

2007

Equity Incentive Plan

September

2007,

and as amended

April 29, 2011,

the BioLargo, Inc.

2007

Equity Incentive Plan (

“2007

Plan”) was adopted as a means of providing our directors, key employees and consultants additional incentive to provide services. Both stock options and stock grants were made under this plan for a period of

years. It expired on its terms on

September 7, 2017.

The Board’s Compensation Committee administers this plan. As plan administrator, the Compensation Committee has sole discretion to set the price of the options. The Company is in the process of implementing a new stock option plan for

2018.

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 vested monthly through

September

30,

2017.

Activity for our stock options under the

2007

Plan for the

three

months ended

March 31, 2017

and

2018

is as follows:

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

								Weighted
								Average
As of March 31, 2018:	Options				Exercise			Price per
	Outstanding				Price per share			share
Balance, December 31, 2017		9,831,586		$	0.23	–	1.89	$	0.44
Granted		—				—			—
Expired		(50,000	)			1.89			1.89
Balance, March 31, 2018		9,781,586		$	0.23	–	1.65	$	0.43

Options issued Outside of the

2007

Equity Incentive Plan

January 31, 2018,

we issued options to purchase

18,071

shares of our common stock at an exercise price of

$0.28

per share, expiring

years from the date of grant. The fair value of these options total

$5,060

and is recorded as selling, general and administrative expenses.

February 28, 2018,

we issued options to purchase

21,429

shares of our common stock at an exercise price of

$0.28

per share expiring

years from the date of grant. The fair value of these options total

$6,000

and is recorded as selling, general and administrative expenses.

March 31, 2018,

we issued options to purchase

565,649

shares of our common stock at an exercise price of

$0.26

per share to members of our board of directors for services, an employee in lieu of salary, and to consultants for services. The fair value of these options totaled

$146,503

and is recorded as selling, general and administrative expenses.

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

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. This agreement terminated in

November 2017,

and the remaining unvested

175,000

options were cancelled.

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 members of 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.

Activity of our stock options issued outside of the

2007

Equity Incentive Plan for the

three

months ended

March 31, 2017

and

2018

is as follows:

							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

								Weighted
								Average
As of March 31, 2018 :	Options			Exercise				Price per
	Outstanding			Price per share				share
Balance, December 31, 2017		20,018,408		$	0.25	–	1.00	$	0.51
Granted		619,435			0.26	–	0.28		0.26
Expired		(2,400,000	)			0.99			0.99
Balance, March 31, 2018		18,237,843		$	0.25	–	1.00	$	0.45

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:

	2017						2018
	Non Plan			2007 Plan			Non Plan
Risk free interest rate		2.40	%		2.40	%		2.43	%
Expected volatility		601	%		601	%		563	%
Expected dividend yield		—			—			—
Forfeiture rate		—			—			—
Expected life in years		7			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.