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6. Stock-Based Compensation

9 Months Ended

Sep. 30, 2018

Stockholders' deficit:

6. Stock Based Compensation

Plan Stock Options

Aemetis authorized the issuance of 3.2 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 1/12th every three months and are exercisable at any time after vesting subject to continuation of employment.

On January 18, 2018 and May 17, 2018, 725 and 423 thousand stock option grants were issued to employees and directors under the Company Stock Plans respectively. As of September 30, 2018, 2.9 million options are outstanding under the Company Stock Plans.

Inducement Equity Plan Options

In March 2016, 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, 2018, 12 thousand options were outstanding.

Common Stock Reserved for Issuance

The following is a summary of options granted under the Company Stock Plans:

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

Balance as of December 31, 2017			196				2,189			$	2.70
Authorized			655				-				-
Granted			(1,148	)			1,148				1.07
Exercised			-				(2	)			0.67
Forfeited/expired			440				(440	)			4.35
Balance as of September 30, 2018			143				2,895			$	1.80

As of September 30, 2018, there were 1.8 million options vested under all the Company Stock Plans.

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, 2018 and 2017, the Company recorded stock compensation expense in the amount of $202 thousand and $196 thousand, respectively. For the nine months ended September 30, 2018 and 2017, the Company recorded stock compensation expense in the amount of $783 thousand and $800 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 zero due to the small number of plan participants and the plan.

There were no stock options granted during the three months ended September 30, 2018.

As of September 30, 2018, the Company had $1.0 million of total unrecognized compensation expense for employees that the Company will amortize over the 1.84 years of weighted average remaining term.

The Company entered into a Stock Appreciation Rights Agreement to issue 1,050,000 Stock Appreciation Rights (SARs) to Third Eye Capital on August 23, 2018 as part of Amendment No.1 to GAFI Note Purchase Agreement with an exercise date of one year from the issuance date. The SARs Agreement contains a call option for the Company at $2.00 per share during the 11 months of the agreement either pay $2.1 million in cash or issue common stock worth of $2.1 million based on 30-day weighted average price of the stock on the call date, and a put option for the Third Eye Capital at $1.00 per share during the 11th month of the agreement where TEC can redeem the SARs for $1.1 million in cash and cash equivalents. None of the above options is exercised, SARs are automatically exercised for cash and cash equivalents one year from the date of the issuance date at a 30-day weighted average price of the Company’s stock price. We used outside valuation expert to value the SARs using the Monte Carlo method. This valuation model requires us to make assumptions and judgments about the variables used in the calculation, such assumptions include the following: the fair value of our common stock, which was at $1.28 and $1.on August 23, 2018, the volatility of our common stock for a year at 127%, and a risk-free interest rate for one year at 2.43%. Based on this valuation, we recorded a fair value of the SARs of $1.28 million as fees on Amendment No. 1 to the GAFI term loan and these fees are amortized over the term of the loan according to ASC 470-50 Debt – Modification and Extinguishment. The Company also recorded a liability as guarantor of the SARs at the fair value of $1.3 million in other liabilities which will be re-measured at every quarter end using the Monte Carlo valuation method until the SARs are exercised. The SARs were re-measured at the September 30, 2018 using the following assumptions: Company’s stock price at $1.02, the volatility of the stock at 127%, the risk free interest rate at 2.59%. Based on this valuation of $1.174, the SARs liability should be reduced to $1.23 million, hence we recorded a change in fair value as other income.