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5. Stock-Based Compensation

9 Months Ended

Sep. 30, 2016

Common Stock Reserved for Issuance

Aemetis authorized the issuance of 1.9 million shares of common stock under its Zymetis 2006 Stock Plan and Amended and Restated 2007 Stock Plan (together, the “Company Stock Plans”), which include both incentive and non-statutory stock options. These options generally expire five to ten years from the date of grant with a general vesting term of 1/12^th every three months and are exercisable at any time after vesting subject to continuation of employment.

Non-Plan Stock Options

In November 2012, the Company issued 98 thousand stock options to board members and consultants outside of any Company stock option plan. As of September 30, 2016, all options are vested and 89 thousand options are outstanding.

Inducement Equity Plan Options

In March 2015, the Board of Directors of the Company approved an Inducement Equity Plan authorizing the issuance of 100 thousand non-statutory stock options to purchase common stock. As of September 30, 2016, 37 thousand options were outstanding.

The following is a summary of options granted under all stock plans:

	Shares Available for Grant			Number of Shares Outstanding			Weighted-Average Exercise Price

Balance as of December 31, 2015		95			980		$	5.76
Authorized		655			-			-
Granted		(711	)		711			2.52
Exercised		-			-			-
Forfeited/expired		69			(69	)		4.70
Balance as of September 30, 2016		108			1,622		$	4.39

Stock-based compensation for employees

Stock-based compensation is accounted for in accordance with the provisions of ASC 718, Compensation-Stock Compensation, which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors based on estimated fair values on the grant date. We estimate the fair value of stock-based awards on the date of grant using the Black-Scholes option pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods using the straight-line method.

For the three months ended September 30, 2016 and 2015, the Company recorded stock compensation expense in the amount of $172 thousand and $161 thousand, respectively. For the nine months ended September 30, 2016 and 2015, the Company recorded stock compensation expense in the amount of $573 thousand and $694 thousand, respectively.

Valuation and Expense Information

All issuances of stock options or other issuances of equity instruments to employees as the consideration for services received by us are accounted for based on the fair value of the equity instrument issued. The fair value of options granted to employees is estimated on the grant date using the Black-Scholes option valuation model. This valuation model for stock based compensation expense requires us to make assumptions and judgments about the variables used in the calculation, including the fair value of our common stock, the expected term (the period of time that the options granted are expected to be outstanding), the volatility of our common stock, a risk-free interest rate, and expected dividends. We also estimate forfeitures of unvested stock options. To the extent actual forfeitures differ from the estimates, the difference will be recorded as a cumulative adjustment in the period estimates are revised. No compensation cost is recorded for options that do not vest. We use the simplified calculation of expected life described in the SEC’s Staff Accounting Bulletin No. 107, Share-Based Payment, and volatility is based on an average of the historical volatilities of the common stock of four entities with characteristics similar to those of the Company. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option. We use an expected dividend yield of zero, as we do not anticipate paying any dividends in the foreseeable future. Expected forfeitures are assumed to be zero due to the small number of plan participants and the plan.

12,000 new hire stock options were issued during the three months ended September 30, 2016. The following assumptions were used to calculate the fair value of the stock options issued.

Description	Value
Dividend-yield		0	%
Risk-free interest rate		1.38	%
Expected volatility		75.9	%
Expected life (years)		7
Market value per share on grant date	$	1.63
Fair value per share on grant date	$	1.01

As of September 30, 2016, the Company had $1.3 million of total unrecognized compensation expense for employees which the Company will amortize over the 2.35 years of weighted average remaining term.