Note 5 - Share-based Compensation

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Compensation and Employee Benefit Plans [Text Block]

Note 5. Share-Based Compensation

Issuance of Common Stock in exchange for Services

Payment of Officer Salaries

On September 30, 2023, two officers agreed to convert an aggregate $12,000 of accrued and unpaid salary into 69,563 shares of our common stock at $0.17 per share. On June 30, 2023, an officer agreed to convert an aggregate $12,000 of accrued and unpaid salary into 68,541 shares of our common stock at $0.18 per share.  On March 31, 2023, an officer agreed to convert an aggregate $6,000 of accrued and unpaid salary into 30,747 shares of our common stock at $0.20 per share.

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.

Shares issued to Officers are unvested at the date of grant and subject to a lock-up agreement restricting vesting and sale until the earlier of (i) the consummation of a sale (in a single transaction or in a series of related transactions) of BioLargo by means of a sale of (a) a majority of the then outstanding common stock of BioLargo (whether by merger, consolidation, sale or transfer of common stock, reorganization, recapitalization or otherwise) or (b) all or substantially all of the assets of BioLargo; and (ii) the successful commercialization of BioLargo’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 12-month period from the sale of products and/or the license of technology; and (iii) the Company’s breach of the employment agreement between the Company and Officer and resulting in Officer’s termination.

Payment of Consultant and Vendor Fees

On  September 30, 2023, we issued 146,123 shares of our common stock at $0.17 per share in lieu of $25,000 of accrued and unpaid obligations to consultants and vendors. On  June 30, 2023, we issued 352,370 shares of our common stock at $0.18 per share in lieu of $63,000 of accrued and unpaid obligations to consultants and vendors. On  March 31, 2023, we issued 899,743 shares of our common stock at $0.20 per share in lieu of $201,000 of accrued and unpaid obligations to consultants and vendors.

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.

All of these offerings and sales were made in reliance on the exemption from registration contained in Section 4(2) of the Securities Exchange Act and/or Regulation D promulgated thereunder as not involving a public offering of securities.

Stock Option Expense

During the three and nine months ended September 30, 2023, we recorded an aggregate $725,000 and $1,269,000, and during the three and nine months ended September 30, 2022, we recorded an aggregate $338,000 and $1,455,000, in selling general and administrative expense related to the issuance of stock options. We issued options through our 2018 Equity Incentive Plan, and outside of this plan. Included in these totals is option expense related to issuances by our subsidiary, Clyra Medical, totaling $45,000 and $172,000 in the three and nine months ended September 30, 2023, and $85,000 and $308,000 in the three and nine months ended September 30, 2022. (See Note 8.)

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. It is set to expire on its terms on June 22, 2028. 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 1^st by the lesser of (a) 2 million shares, or (b) such number of shares determined by our Board. As of September 30, 2023, 50,000,000 shares are authorized under the plan.

Activity for our stock options under the 2018 Plan during the nine months ended September 30, 2023, and 2022, is as follows:

	Options Outstanding			Exercise Price per share		Weighted Average Price per share		Aggregate intrinsic Value(1)
Balance, December 31, 2022		28,484,549		$	0.12 – 0.43	$	0.19
Granted		8,219,920			0.17 – 0.20	$	0.18
Balance, September 30, 2023		36,704,469			0.12 – 0.43	$	0.19
Unvested		(4,648,922	)		0.12 – 0.27	$	0.15
Vested, September 30, 2023		32,055,547			0.12 – 0.43	$	0.19	$	278,000
Balance, December 31, 2021		23,186,142			0.16 – 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

(1) – Aggregate intrinsic value based on closing common stock price of $0.17 at September 30, 2023.

The options granted to purchase 8,219,920 shares during the nine months ended September 30, 2023 with an aggregate fair value of $1,370,000 were issued to an officer, board of directors, employees and a consultant. The exercise price for all options were issued on their respective grant date of March 31, 2023 ($0.20 per share) and June 30, 2023 ($0.18 per share) and September 30, 2023 ($0.17 per share): (i) we issued options to purchase 1,565,858 shares of our common stock to members of our board of directors for services performed, in lieu of cash; the fair value of these options totaled $266,000; (ii) we issued options to purchase 1,784,140 shares of our common stock to employees as part of an employee retention plan; the fair value of employee retention plan options totaled $306,000 and will vest quarterly over four years as long as they are retained as employees; (iii) we issued options to purchase 4,069,922 shares of our common stock to consultants in lieu of cash and for expiring options totaling $657,000, and (iv) we issued 800,000 options to our Chief Financial Officer with a fair value of $141,000 (see “Chief Financial Officer Contract Extension” immediately below). Of the 800,000 issued to the CFO, 500,000 were issued for expiring options. All stock option expense is recorded on our consolidated statement of operations as selling, general and administrative expense.

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 21, 2023, 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 21, 2023 (the “Engagement Extension Agreement”) provides for an additional one-year term to expire January 31, 2024 (the “Extended Term”), at which time Mr. Dargan will continue to serve as CFO, unless and until either party terminates the agreement.

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 21, 2023, and the remaining shares to vest 25,000 shares monthly beginning March 31, 2023, and each month thereafter, so long as the agreement is in full force and effect. The Option is exercisable at $0.20 per share, the closing price of BioLargo’s common stock on the March 21, 2023, 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.

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, 2023 and 2022 is as follows:

	Options Outstanding			Exercise price per share		Weighted Average Price per share		Aggregate intrinsic Value(1)
Balance, December 31, 2022		1,904,085		$	0.28 – 0.69	$	0.56
Expired		(340,000	)		0.28 - 0.30		0.30
Balance, September 30, 2023		1,564,085			0.28 – 0.69	$	0.61	$	—
Balance, December 31, 2021		2,879,246			0.23 – 0.94	$	0.49
Expired		(975,161	)		0.28 - 0.35		0.36
Balance, September 30, 2022		1,904,085		$	0.24 – 0.94	$	0.56

⁽¹⁾ – Aggregate intrinsic value based on closing common stock price of $0.17 at September 30, 2023.

Non-Plan Options

Activity of our non-plan stock options issued for the nine months ended September 30, 2023 and 2022 is as follows:

	Non-plan Options outstanding			Exercise price per share		Weighted averageprice per share		Aggregate intrinsic Value(1)
Balance, December 31, 2022		19,023,829		$	0.12 – 0.83	$	0.39
Granted		60,040			0.18 – 0.20		0.20
Expired		(1,205,550	)		0.30		0.30
Balance, September 30, 2023		17,878,319		$	0.12 – 0.83	$	0.39
Unvested		(507,500	)		0.45		0.45
Vested, September 30, 2023		17,370,819		$	0.12 – 0.83	$	0.39	$	28,000
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

(1) – Aggregate intrinsic value based on closing common stock price of $0.17 at September 30, 2023.

During the nine months ended September 30, 2023, we issued options to purchase an aggregate 60,040 shares of our common stock at prices on the grant date ranging $0.18 – $0.20 per share to vendors for fees for services. The fair value of the options issued totaled an aggregate $11,000 and is recorded in our selling, general and administrative expense.

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.