Note

Share-Based Compensation

Issuance of Common Stock in exchange for payment of payables

Payment of Officer Salaries

March 29, 2019,

we issued

579,996

shares of our common stock in lieu of

$93,000

of accrued salary and unreimbursed business expenses owed to

two

of our officers. The price-per-share of

$0.16

was based on the closing price of our common stock on the last business day of the month. These shares were issued pursuant to our

2018

Equity Incentive Plan.

June 28, 2019,

we issued

465,875

shares of our common stock in lieu of

$107,000

of accrued salary and unreimbursed business expenses owed to

two

of our officers. The price-per-share of

$0.23

was based on the closing price of our common stock on the last business day of the month. These shares were issued pursuant to our

2018

Equity Incentive Plan.

September 30, 2019,

we issued

35,080

shares of our common stock in lieu of

$11,000

of accrued salary and unreimbursed business expenses owed to an officer. The price-per-share of

$0.31

was based on the closing price of our common stock on the last business day of the month. These shares were issued pursuant to our

2018

Equity Incentive Plan.

March 31, 2018,

we issued

323,030

shares of our common stock in lieu of

$84,000

of accrued salary and unreimbursed business expenses owed to

two

of our officers. The price-per-share of

$0.26

was based on the closing price of our common stock on the last business day of the month.

June 29, 2018,

we issued

176,947

shares of our common stock in lieu of

$76,000

of accrued salary and unreimbursed business expenses owed to

two

of our officers. The price-per-share of

$0.43

was based on the closing price of our common stock on the last business day of the month.

September 28, 2018,

we issued

249,258

shares of our common stock at

$0.27

per share in lieu of

$67,000

of accrued and unpaid obligations to

two

of our officers. The price-per-share was based on the closing price of our common stock on the last day of the month.

Payment of Consultant Fees

During the

nine

months ended

September 30, 2019,

we issued

1,759,472

shares of our common stock at a range of

$0.16

–

$0.23

per share in lieu of

$376,000

accrued and unpaid obligations to consultants.

During the

nine

months ended

September 30, 2018,

we issued

1,390,813

shares of our common stock, at prices ranging between

$0.23

$0.41

per share, in lieu of

$417,000

of accrued and unpaid obligations to consultants.

Payment of Interest on Notes

During the

nine

months ended

September 30, 2019,

we issued

622,784

shares of our common stock, at prices ranging between

$0.10

$0.27per

share, in lieu of

$147,000

of accrued interest due on promissory notes.

During the

nine

months ended

September 30, 2018,

we issued

2,002,868

shares of our common stock, at prices ranging between

$0.31

–

0.42

per share, in lieu of accrued interest totaling

$519,000.

Restricted Stock Units

May 28, 2019,

our Compensation Committee, in conjunction with the approval of a new employment agreement for our Vice President of Operations and President of our subsidiary Odor-

-More, granted Joseph L. Provenzano a restricted stock unit of

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

-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.

Stock Option Expense

Share-based compensation expense was

$984,000

and

$1,201,000

for the

nine

months ended

September 30, 2018

and

2019,

and is recorded in selling, general and administrative expense on the consolidated statements of operations.

The grant-date fair value of the stock options granted was an aggregate

$526,000

and

$1,486,000

for the

nine

months ended

September 30, 2018

and

2019,

respectively.

The grant-date fair value of the stock options that vested was

$984,000

and

$1,193,000

for the

nine

months ended

September 30, 2018

and

2019,

respectively.

As of

September 30, 2019,

there was

$1,594,000

of unrecognized stock compensation expense related to unvested stock options issued as part of our

2018

Plan issuances.

We issued options through our

2018

Equity Incentive Plan, and outside of this plan. Our

2007

Plan is closed. Stock option activity is described below.

2018

Equity Incentive Plan

June 22, 2018,

our stockholders adopted the BioLargo

2018

Equity Incentive Plan (

“2018

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 for a period of

years. Our Board of Directors’ Compensation Committee administers this plan. As plan administrator, the Compensation Committee has sole discretion to set the price of the options. The plan authorizes the following types of awards: (i) incentive and non-qualified stock options, (ii) restricted stock awards, (iii) stock bonus awards, (iv) stock appreciation rights, (v) restricted stock units, and (vi) performance awards. The total number of shares reserved and available for awards pursuant to this Plan as of the date of adoption of this

2018

Plan by the Board was

million shares. The number of shares available to be issued under the

2018

Plan increases automatically each

January 1

by the lesser of (a)

million shares, or (b) such number of shares determined by our Board.

Activity for our stock options under the

2018

Plan from inception through

September 30, 2018

and from

December 31, 2018

through the

nine

months ended

September 30, 2019,

is as follows:

As of September 30, 2018 :	Options Outstanding		Exercise Price per share				Weighted Average Exercise Price per share		Aggregate intrinsic Value (1)
Inception, June 22, 2018		—				—		—
Granted		790,087		0.25	-	0.43		0.34
Balance and vested, September 30, 2018		790,087	$	0.25	-	0.43	$	0.34	$	—

As of September 30 , 2019 :	Options Outstanding			Exercise Price per share				Weighted Average Exercise Price per share		Aggregate intrinsic Value (1)
Balance, December 31, 2018		1,318,517		$	0.22	–	0.43	$	0.30
Granted		7,072,342			0.16	–	0.40		0.27
Expired		—					—		—

Balance, September 30, 2019		8,390,859		$	0.16	–	0.43	$	0.27
Non-vested		(4,144,926	)		0.16	–	0.40		0.29

Vested, September 30, 2019		4,245,933		$	0.17	–	0.36	$	0.23	$	457,000

(

) – Aggregate intrinsic value based on closing common stock price of

$0.31

September 30, 2019.

The options to purchase

7,072,342

shares granted during the

nine

months ended

September 30, 2019

are comprised of options issued to employees, consultants, officers, and directors. We issued options to purchase

6,097,702

shares of our common stock employees as part of their employment agreement and as part of an employee retention program on their respective grant dates ranging between

$0.16

–

0.40

per share. The vesting terms for employment agreements generally called for a portion of option to vest immediately and the remaining portion to vest over

four

years. Certain option issuances to our officers and employees have vesting terms that are based on metrics over a period of time, these are described in more detail below. We issued options to purchase

974,640

shares of our common stock to members of our board of directors for services performed, in lieu of cash, at an exercise price on the respective grant dates ranging between

$0.16

–

0.32

per share.

Chief Financial Officer Contract Extension

January 16, 2019,

we agreed to extend the engagement agreement dated

February 1, 2008 (

the “Engagement Agreement”, which had been previously extended multiple times) with our Chief Financial Officer, Charles K. Dargan, II. The Engagement Extension Agreement dated as of

January 16, 2019 (

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

September 30, 2019 (

the “Extended Term”), and is retroactively effective to the termination of the prior extension on

September 30, 2018.

Mr. Dargan has been serving as the Company’s Chief Financial Officer since such termination pursuant to the terms of the

December 31, 2018

extension.

For the Extended Term, Mr. Dargan was issued an option (“Option”) to purchase

300,000

shares of the Company’s common stock, at a strike price equal to the closing price of the Company’s common stock on

January 16, 2019

$0.22,

to expire

January 16, 2029,

and to vest over the term of the engagement with

75,000

shares having vested as of

December 31, 2018,

and the remaining shares to vest

25,000

shares monthly beginning

January 31, 2019,

and each month thereafter, so long as the Engagement Agreement is in full force and effect. The Option was issued pursuant to the Company’s

2018

Equity Incentive Plan.

The issuance of the Option is Mr. Dargan’s sole source of compensation for the Extended Term. As was the case in all prior terms of his engagement, there is

cash component of his compensation for this term. Mr. Dargan is eligible to be reimbursed for business expenses he incurs in connection with the performance of his services as the Company’s Chief Financial Officer (although he has made

such requests for reimbursement in the past). All other provisions of the Engagement Agreement

not

expressly amended pursuant to the Engagement Extension Agreement remain the same, including provisions regarding indemnification and arbitration of disputes.

Vice President of Operations Contract Extension

May 28, 2019,

the Compensation Committee of the Board of Directors approved the terms of an employment agreement for Joseph L. Provenzano to continue his work as Vice President of Operations and President of our subsidiary Odor-

-More, and granted to Mr. Provenzano an incentive stock option to purchase

1,000,000

shares of the Company’s common stock pursuant to the terms of our

2018

Plan. The exercise price and fair value of the option is equal to the closing price of our common stock on the

May 28, 2019

grant date, at

$0.17

per share. The option will vest annually in

200,000

increments over

five

years. The option

may

be exercised for up to

ten

years following the grant date. 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 Mr. Provenzano’s employment agreement.

Vice President of Sales

May 28, 2019,

the Compensation Committee of the Board of Directors approved the terms of an employment agreement for our Vice President of Sales and issued him options to purchase an aggregate

1,200,000

shares of the Company’s common stock pursuant to the terms of our

2018

Plan. The exercise price of the

first

option to purchase

200,000

shares is equal to the closing price of our common stock on the

May 28

grant date, at

$0.17

per share. One-

third

of the option vests upon grant, the next

third

at the

first

anniversary of the grant, and the final

third

upon the

second

anniversary of the grant. The remaining options to purchase an aggregate

1,000,000

shares are unvested at grant date, and contingent upon certain performance metrics based on sales of our Odor-

-More subsidiary,

none

of which have been met. As such,

additional fair value was recorded and we are unable to estimate at this time if these metrics will be met. Upon execution of his employment agreement on

July 5, 2019,

an additional option to purchase

300,000

shares was granted, with an exercise price as of

July 5 (

$0.25

), vesting

100,000

shares on the first,

second

and

third

anniversary of the agreement.

Director of Business Development for Odor-

-More

July 23, 2019,

the Compensation Committee of the Board of Directors approved the terms of an employment agreement for Odor-

-More’s Director of Business Development, who also serves as BioLargo’s Director of Corporate Development, and issued him options to purchase an aggregate

1,000,000

shares of the Company’s common stock at

$0.35

per share pursuant to the terms of our

2018

Plan. The

first

option allows the purchase of

400,000

shares and vests

100,000

days after issuance,

100,000

shares on the

first

anniversary, and

200,000

shares on the

second

anniversary of the employment agreement. The remaining options to purchase an aggregate

600,000

shares are unvested at grant date, and contingent upon certain performance metrics based on sales of our Odor-

-More subsidiary,

none

of which have been met. As such,

additional fair value was recorded at

September 30, 2019,

and we are unable to estimate at this time if these metrics will be met.

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

may

be made under this plan for a period of

years, which expired on

September 7, 2017.

As of

September 2017,

the Plan was closed to further stock option grants.

Activity for our stock options under the

2007

Plan for the

nine

months ended

September 30, 2018

and

2019

is as follows:

As of September 30 , 2018 :	Options Outstanding			Exercise p rice per share				Weighted Average Price per share		Aggregate intrinsic Value (1)
Balance, December 31, 2017		9,831,586		$	0.23	–	1.89	$	0.44
Expired		(110,000	)		1.45	–	1.89		1.60
Balance, September 30, 2018		9,721,586		$	0.23	–	1.65	$	0.43

As of September 30 , 2019 :
Balance, December 31, 2018		9,691,586		$	0.23	–	0.94	$	0.43
Expired		(902,135	)		0.28	–	0.70		0.48
Balance, September 30, 2019		8,789,451		$	0.23	–	1.65	$	0.47	$	25,000

(

) – Aggregate intrinsic value based on closing common stock price of

$0.31

September 30, 2019.

Non-Plan Options issued

Activity of our non-plan stock options issued for the

nine

months ended

September 30, 2018

and

2019

is as follows:

As of September 30 , 2018 :	Non-plan Options outstanding			Exercise price per share				Weighted Average price per share		Aggregate intrinsic value (1)
Balance, December 31, 2017		20,018,408		$	0.25	–	1.00	$	0.51
Granted		1,211,527			0.23	–	0.43		0.26
Expired		(2,400,000	)				0.99		0.99
Balance, September 30, 2018		18,829,935		$	0.25	–	1.00	$	0.45

As of September 30 , 2019 :
Balance, December 31, 2018		19,319,496		$	0.23	–	1.00	$	0.43
Granted		1,290,222			0.16	–	0.25		0.22
Expired		(691,975	)				0.55		0.55
Balance, September 30, 2019		19,917,743		$	0.16	–	1.00	$	0.41
Non-vested		(2,202,038	)		0.25	–	0.45		0.45
Vested, September 30, 2019		17,897,705			0.16	–	1.00		0.41	$	420,000

(

) – Aggregate intrinsic value based on closing common stock price of

$0.31

September 30, 2019.

During the

nine

months ended

September 30, 2019,

we issued options to purchase

1,290,222

shares of our common stock at exercise prices ranging between

$0.16

–

$0.25

per share to vendors for fees for service.