On September 5, 2017, the Board approved the establishment of the Krystal Biotech, Inc. 2017 IPO Plan (the “2017 IPO Plan”), which was adopted prior to the effectiveness of our registration statement on Form S-1 relating to our IPO. Under the 2017 IPO Plan, the Company may grant incentive stock options, non-qualified stock options, stock appreciation rights, dividend equivalent rights, restricted stock, and stock grants to purchase up to 900,000 shares of the Company’s Common Stock.

The Company granted 67,500 and 55,000 stock options to employees and directors of the Company during the three months ended March 31, 2019 and 2018, respectively. Options granted to employees vest ratably over a four-year period and options granted to directors of the company vest ratably between one and four-year periods. Options have a life of ten years. Commencing in the first quarter of 2019, the accounting treatment for stock options granted to non-employees was aligned with the accounting for employee stock options upon the adoption of ASU 2018-07 as described in Note 2 “Summary of Significant Accounting Policies”. Prior to the first quarter of 2019, stock options granted to non-employees were accounted for using the fair value method of accounting, and are periodically revalued as the options vest, and recognized as expense over the related service period.

						Weighted-
				Weighted-		average		Aggregate
	Stock			average		Remaining		Intrinsic
	Options			Exercise		Contractual		Value
	Outstanding			Price		Life (Years)		(In thousands) ⁽¹⁾
Balance at December 31, 2018		357,089		$	8.73		8.8	$	4,302
Granted		67,500		$	23.87
Exercised		(14,653	)	$	2.75
Cancelled or forfeited		(9,000	)	$	18.71
Balance at March 31, 2019		400,936		$	11.28		8.8	$	8,670
Exercisable at March 31, 2019		93,468		$	5.82		8.2	$	2,531
Vested at March 31, 2019		112,364		$	5.30		8.2	$	3,102

(1)

Aggregate intrinsic value represents the difference between the closing stock price of our common stock on March 31, 2019 and the exercise price of outstanding in-the-money options.

Options for 14,653 shares of our common stock with an intrinsic value of $442 thousand were exercised during the three months ended March 31, 2019.

The Company has recorded aggregate stock-based compensation expense related to the issuance of stock option awards to employees and non-employees in the condensed consolidated statements of operations for the three months ended March 31, 2019 and 2018 as follows (in thousands):

Stock Options Granted to Employees. The Company recorded stock-based compensation expense related to employee’s and board member’s stock options of $185 thousand and $61 thousand for the three months ended March 31, 2019 and 2018, respectively. The fair value of options granted to employees was estimated at the date of grant using the Black-Scholes valuation model with the following weighted-average assumptions for the three months ended March 31, 2019 and 2018:

	Three Months Ended March 31,
	2019			2018
Expected stock price volatility		71	%		80	%
Expected term of the award (years)		6.25			6.25
Risk-free interest rate		2.46	%		2.71	%
Forfeiture Rate		10.00	%		0.00	%
Expected dividend yield		0	%		0	%

The weighted-average grant-date fair value per share of options granted to employees during the three months ended March 31, 2019 was $15.51.

There was $1.5 million of unrecognized stock-based compensation expense related to employees’ awards that is expected to be recognized over a weighted-average period of 2.88 years as of March 31, 2019.

Stock Options Granted to Non-Employees. The Company recorded stock-based compensation expense related to non-employees’ stock options of $19 thousand and $4 thousand for the three months ended March 31, 2019 ad 2018, respectively.

Restricted Stock Awards. The Company granted 26,213 and 16,213 restricted stock awards (“RSA”s) on June 1, 2018 to our Chief Executive Officer and Chief Operating Officer, respectively. The RSAs vest ratably over a one-year period. 31,818 shares of RSAs had vested as of March 31, 2019. The RSAs, including the unvested portion, are considered issued and outstanding as of March 31, 2019. The fair value of each restricted stock was $10.30 reflecting the closing price of our common stock on the grant date. The Company recorded stock-based compensation expense related to RSAs of $109 thousand and $0 for the three months ended March 31, 2019 and 2018, respectively within general and administrative expenses in the accompanying condensed consolidated statements of operations. As of March 31, 2019, there was $73 thousand of unrecognized stock-based compensation expense related to RSAs that is expected to be recognized over a weighted-average period of 2 months.

Stock options and restricted stock awards available for grant were 623,074 at March 31, 2019.