Note 5 - Share-based Compensation

9 Months Ended

Sep. 30, 2022

Notes to Financial Statements

Compensation and Employee Benefit Plans [Text Block]

Note 5.   Share-Based Compensation

Issuance of Common Stock in exchange for payment of payables

Payment of Officer Salaries

On September 30, 2022, we issued 167,781 shares of our common stock at $0.27 per share in lieu of $72,000 of accrued and unpaid salary to our officers.

On  September 30, 2021, we issued 61,842 shares of our common stock at $0.19 per share in lieu of $12,000 of accrued and unpaid salary to our officers. On March 31, 2021, we issued 137,364 shares of our common stock at $0.23 per share in lieu of $31,000 of accrued and unpaid salary to our officers.

Payment of Consultant Fees

On September 30, 2022, we issued 211,047 shares of our common stock at $0.27 per share in lieu of $24,000 of accrued and unpaid obligations to consultants. On June 30, 2022, we issued 76,996 shares of our common stock at $0.18 per share in lieu of $60,000 of accrued and unpaid obligations to consultants. On March 31, 2022, we issued 86,752 shares of our common stock at $0.23 per share in lieu of $31,000 of accrued and unpaid obligations to consultants.

On  September 30, 2021, we issued 586,963 shares of our common stock at $0.19 per share in lieu of $71,000 of accrued and unpaid salary to consultants. On  June 30, 2021, we issued 357,132 shares of our common stock at $0.17 per share in lieu of $60,000 of accrued and unpaid obligations to consultants. On  March 31, 2021, we issued 610,123 shares of our common stock at $0.23 per share in lieu of $81,000 of accrued and unpaid obligations to consultants.

Payment of Accrued Interest

During the three months ended June 30, 2021, we issued 81,777 shares of our common stock at $0.17 per share in lieu of $16,000 of accrued and unpaid interest.

Stock Option Expense

During the three and nine months ended September 30, 2022, we recorded an aggregate $338,000 and $1,455,000, and during the three and nine months ended September 30, 2021, we recorded an aggregate $430,000 and $1,447,000 in selling general and administrative expense related to the issuance of stock options. We issued options through our 2018 Equity Incentive Plan, our now expired 2007 Equity Incentive Plan, and outside of these plans. See Note 8 for information on stock option expense for options issued by subsidiary Clyra.

2018 Equity Incentive Plan

On 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 10 years. Our Board of Director’s 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 is 40 million shares. The number of shares available to be issued under the 2018 Plan increases automatically each January 1st by the lesser of (a) 2 million shares, or (b) such number of shares determined by our Board.

Activity for our stock options under the 2018 Plan for the nine months ended September 30, 2022 and September 30, 2021, is as follows:

							Weighted
							Average		Aggregate
	Options			Exercise			Price per		intrinsic
	Outstanding			Price per share			share		Value(1)
Balance, December 31, 2021		23,186,142		$0.12	–	0.43	$	0.19
Granted		4,748,212		0.18	–	0.27		0.22
Balance, September 30, 2022		27,934,354		$0.12	–	0.43	$	0.19
Non-vested		(4,449,874	)	0.12	–	0.40		0.22
Vested, September 30, 2022		23,484,480		$0.12	–	0.43	$	0.19	$	1,893,000
Balance, December 31, 2020		18,865,525		$0.16	–	0.40	$	0.19
Granted		3,686,462		0.13	–	0.23		0.19
Balance, September 30, 2021		22,591,987		$0.12	–	0.43	$	0.19

(1) Aggregate intrinsic value based on closing common stock price of $0.27 at September 30, 2022.

The options granted to purchase 4,748,212 shares during the nine months ended  September 30, 2022 were issued to officers, board of directors, employees and consultants: (i) we issued options to purchase 290,135 shares of our common stock at an exercise price on the respective grant date of $0.22 and $0.23 per share to our CFO and President to replace options that had expired; (ii) we issued options to purchase 1,134,356 shares of our common stock at an exercise price on the respective grant date ranging between $0.18 – $0.27 per share to members of our board of directors for services performed, in lieu of cash; the fair value of these options totaled $246,000; (iii) we issued options to purchase 2,340,730 shares of our common stock to employees as part of an employee retention plan at an exercise price on the respective date ranging between $0.18 – $0.27 per share; the fair value of employee retention plan options totaled $492,000 and will vest quarterly over four years as long as they are retained as employees; (iv) we issued options to purchase 682,991 shares of our common stock to consultants in lieu of cash for expiring options and per agreement totaling $145,000, and (v) we issued options to our Chief Financial Officer (see “Chief Financial Officer Contract Extension” immediately below). All stock option expense is recorded on our consolidated statement of operations as selling, general and administrative expense.

Chief Financial Officer Contract Extension

On   March 22, 2022, we and our Chief Financial Officer Charles K. Dargan, II formally agreed to extend the engagement agreement dated   February 1, 2008 (the “Engagement Agreement”, which had been previously extended multiple times), pursuant to which Mr. Dargan has been and continues to serve as the Company’s Chief Financial Officer. The Engagement Extension Agreement dated as of  March 22, 2022 (the “Engagement Extension Agreement”) provides for an additional one-year term to expire  January 31, 2023 (the “Extended Term”).

As the sole compensation for the Extended Term, Mr. Dargan was issued an option (“Option”) to purchase 25,000 shares of the Company’s common stock for each month during the Extended Term (thus, an option to purchase 300,000 shares reflecting an extended term of 12 months). The Option vests over the period of the Extended Term, with 25,000 shares having vested as of   March 22, 2022, and the remaining shares to vest 25,000 shares monthly beginning   March 22, 2022, and each month thereafter, so long as the agreement is in full force and effect. The Option is exercisable at $0.24 per share, the closing price of BioLargo’s common stock on March 22, 2022, the grant date, expires ten years from the grant date, and was issued pursuant to the Company’s 2018 Equity Incentive Plan.

The Option is Mr. Dargan’s sole compensation for the Extended Term. As was the case in all prior terms of his engagement, there is no cash component of his compensation for the Extended 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 no 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.

The options granted to purchase 3,686,462 shares during the nine months ended  September 30, 2021 were issued to an officer, board of directors, employees and consultants: (i) we issued options to purchase 300,000 shares of our common stock at an exercise price on the respective grant date of $0.17 per share to our CFO as described below; (ii) we issued options to purchase 1,049,024 shares of our common stock at an exercise price on the respective grant date of $0.17 and $0.23 per share to members of our board of directors for services performed, in lieu of cash; the fair value of these options totaled $198,000; (iii) we issued options to purchase 1,800,011 shares of our common stock to employees as part of an employee retention and expiring options plan at exercises price on the respective date ranging between $0.17 and $0.23 per share; the fair value of employee retention plan options totaled $327,000 and will vest quarterly over four years as long as they are retained as employees; and (iv) we issued options to purchase 537,427 shares of our common stock to consultants and employees in lieu of cash for unpaid obligations totaling $95,000. All stock option expense is recorded on our consolidated statement of operations as selling, general and administrative expense.

2007 Equity Incentive Plan

On September 7, 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 10 years, which expired 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. 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, 2022 and 2021 is as follows:

							Weighted
							Average		Aggregate
	Options			Exercise			Price per		intrinsic
	Outstanding			price per share			share		Value(1)
Balance, December 31, 2021		2,879,246		$0.28	–	0.94	$	0.49
Expired		(975,161	)	$0.28	–	0.35		0.36
Balance, September 30, 2022		1,904,085		$0.28	–	0.94	$	0.56	$	—
Balance, December 31, 2020		5,689,363		$0.28	–	0.94	$	0.44
Expired		(1,769,008	)	0.39	–	0.51		0.40
Balance, September 30, 2021		3,920,355		$0.28	–	1.65	$	0.45

(1) – Aggregate intrinsic value based on closing common stock price of $0.27 at September 30, 2022.

Non-Plan Options issued

Activity of our non-plan stock options issued for the nine months ended September 30, 2022 and 2021 is as follows:

							Weighted
	Non-plan						average		Aggregate
	Options			Exercise			price per		Intrinsic
	Outstanding			price per share			share		value(1)
Balance, December 31, 2021		20,119,207		$0.17	–	1.00	$	0.41
Granted		105,797		$0.23	–	0.27		0.26
Balance, September 30, 2022		20,225,004		$0.17	–	1.00	$	0.39
Non-vested		(1,050,000	)	0.17	–	0.45		0.45
Vested, September 30, 2022		19,175,004		$0.17	–	1.00	$	0.38	$	274,000
Balance, December 31, 2020		20,749,583		$0.17	–	1.00	$	0.41
Granted		43,956			0.23			0.23
Expired		(800,000	)		1.00			1.00
Balance, September 30, 2021		19,993,539		$0.17	–	1.00	$	0.39

 (1)  – Aggregate intrinsic value based on closing common stock price of $0.27 at September 30, 2022.

During the nine months ended September 30, 2022, we issued options to purchase 105,797 shares of our common stock at prices on the grant date ranging $0.23 – $0.27 per share to a vendor for services. The fair value of these options total $36,000 and is recorded in our selling, general and administrative expense.

During the nine months ended September 30, 2021, we issued an option to purchase 43,956 shares of our common stock at $0.23 per share to a vendor for services. The fair value of these options total $10,000 and is recorded in our selling, general and administrative expense.