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8. Stock-Based Compensation

12 Months Ended

Dec. 31, 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.

709 thousand stock option grants were issued on May 19, 2016 for employees and Directors under the Company Stock Plans. 10 thousand stock options were issued on November 17, 2016 under the Company Stock Plans for a new hire. As of December 31, 2016, 1.5 million options are outstanding under the Company Stock Plans.

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 December 31, 2016, all options are vested and 89 thousand options are outstanding.

Inducement Equity Plan Options

In March 2015, the Directors of the Company approved an Inducement Equity Plan authorizing the issuance of 100,000 non-statutory options to purchase common stock. The Company issued 12 thousand stock options on August 18, 2016 under the Inducement Equity Plan for a new hire. As of December 31, 2016, 37 thousand options were outstanding.

The following is a summary of awards granted under the above 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		(721	)		721			2.52
Forfeited/expired		69			(69	)		4.70
Balance as of December 31, 2016		98			1,632		$	4.37

Vested and unvested awards outstanding as of December 31, 2016 and 2015 follow:

	Number of Shares		Weighted Average Exercise Price		Remaining Contractual Term (In Years)		Average Intrinsic Value¹
2016
Vested and Exercisable		977	$	5.45		3.28	$	-
Unvested		655		2.76		8.66		-
Total		1,632	$	4.37		5.44	$	-

2015
Vested and Exercisable		687	$	6.49		2.32	$	-
Unvested		293		4.06		5.59		-
Total		980	$	5.76		3.30	$	-

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⁽¹⁾ Intrinsic value based on the $1.39 and $2.90 closing price of Aemetis stock on December 31, 2016 and 2015 respectively, as reported on the NASDAQ Exchange and Over the Counter Bulletin Board respectively.

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 years ended December 31, 2016 and 2015, the Company recorded option expense in the amount of $0.7 million and $0.9 million, 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.

The weighted average fair value calculations for options granted during years ended December 31, 2016 and 2015 are based on the following assumptions:

Description	For the year ended December 31,
	2016			2015
Dividend-yield		0	%		0	%
Risk-free interest rate		1.66	%		1.61	%
Expected volatility		77.69	%		76.55	%
Expected life (years)		6.99			5.40
Market value per share on grant date	$	2.52		$	3.69
Fair value per share on grant date	$	1.79		$	2.27

As of December 31, 2016, the Company had $1.1 million of total unrecognized compensation expense for employees which the Company will amortize over the 2.15 years of weighted remaining term.

In addition, Company issued 50 thousand shares in the Company’s restricted common stock for services provided by outside consulting firms at an exercise price of $4.26 during 2015. We determine the fair value of the these awards granted as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. Stock-based compensation awards issued to non-employees are recorded in expense and additional paid-in capital in stockholders’ deficit over the applicable service periods based on the fair value of the awards or consideration received at the vesting date.