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8. Stock-Based Compensation

3 Months Ended

Mar. 31, 2019

Share-based Compensation [Abstract]

8. Stock Based Compensation

Plan Stock Options

Aemetis authorized the issuance of 3.9 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 1/12th every three months and are exercisable at any time after vesting subject to continuation of employment.

707 thousand stock option grants were issued on January 8, 2019 for employees and Directors under the Company Stock Plans. On February 21, 2019, 10 thousand stock option grant was issued to a consultant to the Company. As of March 31, 2019, 3.5 million options are outstanding under the Company Stock Plans.

Inducement Equity Plan Options

In March 2015, the Directors of the Company approved an Inducement Equity Plan authorizing the issuance of 0.1 million non-statutory options to purchase common stock. As of March 31, 2019, 9 thousand options are outstanding under the Inducement Equity Plan.

Common Stock Reserved for Issuance

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, 2018			149				2,889			$	1.80
Authorized			655				-				-
Granted			(717	)			717				0.70
Forfeited/expired			144				(144	)			3.53
Balance as of March 31, 2019			231				3,462			$	1.50

As of March 31, 2019, there were 2.2 million options vested under all the above 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 March 31, 2019 and 2018, the Company recorded option expense in the amount of $290 thousand and $264 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. Under ASU 2016-09 Improvements to Employee Share-Based Payments Accounting, we have elected to recognize forfeitures as they occur. 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.

There were 717 thousand options granted during the three months ended March 31, 2019.

The weighted average fair value calculations for options granted during the three months ended March 31, 2019 and 2018 are based on the following assumptions:

		For the three months ended March 31,
Description		2019				2018
Dividend-yield			0	%			0	%
Risk-free interest rate			2.59	%			2.52	%
Expected volatility			88.52	%			81.46	%
Expected life (years)			6.41				6.48
Market value per share on grant date		$	0.70			$	0.70
Fair value per share on grant date		$	0.53			$	0.50

As of March 31, 2019, the Company had $0.9 million of total unrecognized compensation expense for employees, which the Company will amortize over the 1.96 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 first 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 Third Eye Capital can redeem the SARs for $1.1 million in cash and cash equivalents. If none of the above options is exercised, SARs are automatically exercised and paid for in cash and cash equivalents one year from the date of the issuance date based upon the 30-day weighted average price of the Company’s stock price. We used an 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: stock price on the measurement date, the volatility of our common stock for the period remaining, and a risk-free interest rate for the period remaining. Based on the valuation of issuance date, 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 for the fair value of $1.28 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 measured at March 31, 2019 and December 31, 2018 using the following assumptions:

Description		March 31, 2019				December 31, 2018
Risk-free interest rate			2.44	%			2.60	%
Expected volatility			79	%			125	%
Market value per share		$	0.83			$	0.61
Fair value per share on grant date		$	1.11			$	1.08

The Company considers the stock appreciation rights to be level 3 of the fair value hierarchy based upon the applicable guidance.

The following table reflects the activity for liabilities measured at fair value using Level 3 inputs from December 31, 2018 to March 31, 2019:

	SARs Liability Balance
Balance as of December 31, 2018		$	1,132
Related change in fair value			35
Balance as of March 31, 2019		$	1,167