In 2003, the Company adopted a stock option plan (the “2003 Plan”), which authorized the board of directors to grant stock option awards to eligible employees, directors, consultants and service providers (together the “Optionees”) of the Company. In April 2012, such plan expired. In 2014, the Company established the 2014 Stock Option Plan (the “2014 Plan”) whereby 1,000,000 shares of the Company’s common stock were reserved for issuance to eligible Optionees. The 2014 Plan provided for the grant of incentive stock options, non-statutory stock options, stock bonuses and rights to acquire restricted stock. Option awards under the 2014 Plan expired up to a maximum of 10 years from the date of the grant. On May 17, 2018, the Company’s board of directors terminated the 2014 Plan.

Obligations under the 2003 Plan and 2014 Plan included time and performance-based awards. For time-based awards, vesting generally occurred over the service period of up to four years. Performance based awards vested at the time that the underlying performance conditions were met.

In 2018, the Company concluded that option awards communicated to Optionees (the “Communicated Option Awards”) under the 2003 Plan and 2014 Plan were not validly authorized and therefore were not valid outstanding option awards. Although the Communicated Option Awards were not outstanding options, the Company believed the Communicated Option Awards represented a contractual obligation to the Optionees and therefore the Company classified the Communicated Option Awards as liabilities in the financial statements which were remeasured at fair value each reporting period.

On June 4, 2018, the 2014 Plan was replaced with the 2018 Stock Compensation Plan (the “Compensation Plan”) whereby 3,300,000 shares of the Company’s common stock were reserved for issuance. On June 4, 2018, the Company’s board of directors authorized 1,901,900 replacement equity awards of stock options and, on June 8, 2018, 1,340,832 restricted stock units (collectively, the “Replacement Awards”) to the Optionees. On various dates in June 2018, but after the board of directors’ authorization, the Replacement Awards were communicated to the Optionees in exchange for the cancellation of, and waiver to any claims related to, the Communicated Option Awards granted under the 2003 Plan and 2014 Plan which were determined to be not validly authorized. The issuance of the Replacement Awards and cancellation of the Communicated Option Awards was treated as a modification. The modification date is the date of the grant of the Replacement Awards, such date being June 4, 2018, for options and June 8, 2018, for restricted stock unit awards. The Company is recognizing the remaining unrecognized compensation cost, as well as any incremental compensation cost of the Replacement Awards of $17.2 million, over the remaining service period of the Replacement Awards, as described below. As the Replacement Awards have been determined to be equity-classified awards, the Company no longer records such awards as liabilities. The Compensation Plan terminated in connection with the adoption of the Company’s 2018 Equity Incentive Plan, described below, and, accordingly no new awards are available for issuance under this plan. The Compensation Plan continues to govern awards granted thereunder.

Stock options granted under the Compensation Plan, including those granted as a component of the Replacement Awards, generally vest 33% on the first anniversary of the grant date with the balance vesting monthly over the remaining two years. The restricted stock units granted under the Compensation Plan, including those granted as a component of the Replacement Awards, include a service condition and a performance condition. The service condition generally begins on the grant date and continues through January 2020 and the restricted stock units vest at various times commencing March 27, 2019 until January 2020. The performance condition related to the Company completing its IPO and the vesting of the restricted stock units were contingent upon the achievement of such IPO, which was achieved on October 1, 2018.

The restricted stock units granted under the Compensation Plan, including those granted as a component of the Replacement Awards, include a service condition and a performance condition. The service condition generally begins on the grant date and continues through January 2020 and the restricted stock units vest at various times commencing the day following the expiration of the lock-up until January 2020. The performance condition related to the Company completing its IPO and the vesting of the restricted stock units were contingent upon the achievement of such IPO, which was achieved on October 1, 2018. Stock options granted under the 2018 Plan generally vest 25% on the first anniversary of the vesting commencement date with the balance vesting monthly over the remaining three years. Restricted stock units granted under the 2018 plan generally have a vesting schedule with one third of the total number of shares underlying the restricted stock units vesting on the first anniversary of the vesting commencement date and one sixth of the total shares vesting every six months thereafter such that the award will be fully vested on the third anniversary of the vesting commencement date.

In September 2018, the Company’s board of directors adopted, and the Company’s stockholders approved, the Company’s 2018 Equity Incentive Plan (the “2018 Plan”). The 2018 Plan became effective on September 25, 2018. As of December 31, 2019, 953,275 shares of common stock are reserved for future issuance pursuant to the Company’s 2018 Plan. In addition, the shares reserved for issuance under the 2018 Plan include (1) those shares reserved but unissued under the Compensation Plan as of the date of stockholder approval of the 2018 Plan and (2) shares of common stock subject to or issued pursuant to awards granted under the Compensation Plan that, after the date of stockholder approval of the 2018 Plan, expire or otherwise terminate without having been exercised in full or are forfeited to or repurchased by us (provided that the maximum number of shares that may be added to the 2018 Plan pursuant to (1) and (2) is 3,300,000 shares). The 2018 Plan provides for the grant of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code to the Company’s employees and any of the Company’s parent and subsidiary corporations’ employees, if applicable, and for the grant of nonstatutory stock options, restricted stock, restricted stock units, stock appreciation rights, performance units and performance shares to the Company’s employees, directors and consultants and the Company’s parent and subsidiary corporations’ employees, if applicable, and consultants. The number of shares available for issuance under the Company’s 2018 Plan also includes an annual increase on the first day of each fiscal year beginning with our 2019 fiscal year, equal to the least of 1) 1,632,134 shares; 2) five percent (5%) of the outstanding shares of our common stock as of the last day of the immediately preceding fiscal year; or 3) such other amount as our board of directors may determine.

A summary of the activity and related information of the Communicated Option Awards classified as liabilities and communicated during the year ended December 31, 2018, is presented below:

	Liability- Classified Awards (in shares)			Weighted Average Exercise Price		Weighted Average Remaining Life (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2017		933,500		$	3.92		4.86	$	19,676
Granted		170,000			25.00
Forfeited		(67,000	)		5.33
Cancelled and settled with Replacement Awards		(1,036,500	)		7.29		—		22,442
Outstanding at December 31, 2018		—		$	—		—	$	—
Exercisable at December 31, 2018		—		$	—		—	$	—
Vested and expected to vest at December 31, 2018		—		$	—		—	$	—

A summary of the activity and related information of the stock options issued is presented below:

	Stock Options			Weighted Average Exercise Price		Weighted Average Remaining Life (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2017		—		$	—		—	$	—
Granted		1,945,900			28.47
Forfeited		(25,800	)		19.27
Outstanding at December 31, 2018		1,920,100		$	28.59		9.43	$	—
Granted		1,521,335			1.22
Forfeited		(301,898	)		26.81
Outstanding at December 31, 2019		3,139,537		$	15.50		8.09	$	—
Exercisable at December 31, 2019		1,116,888		$	28.92		5.44	$	—
Vested and expected to vest at December 31, 2019		3,139,537		$	15.50		8.09	$	—

A summary of the activity and related information of the restricted stock units is presented below:

	Restricted Stock Units			Weighted Average Grant Date Fair Value
Outstanding at December 31, 2017		—		$	—
Granted		1,502,666			26.86
Forfeited		(8,555	)		16.99
Outstanding at December 31, 2018		1,494,111		$	26.91
Granted		300,003			3.95
Vested and released		(1,206,743	)		27.93
Forfeited		(315,899	)		19.91
Outstanding at December 31, 2019		271,472		$	5.15

Stock-based compensation expense recorded in operating expenses was as follows (in thousands):

	Year Ended December 31,
	2019		2018
Selling, general and administrative	$	20,392	$	11,936
Research and development		1,537		1,951
Stock-based compensation in operating expenses	$	21,929	$	13,887

Stock-based compensation amounts of $1.6 million and $0.6 million were capitalized to property and equipment and inventory during the years ended December 31, 2019 and 2018, respectively.

Unrecognized compensation expense for stock options issued as of December 31, 2019 was $4.8 million and is expected to be recognized over a weighted-average period of 1.6 years. Unrecognized compensation expense for the restricted stock units as of December 31, 2019 was $1.0 million and is expected to be recognized over a weighted-average period of 1.7 years.

The Communicated Option Awards were presented as a stock-based compensation liability, until June 4, 2018, when they were settled and reclassified to equity. The Communicated Option Awards were revalued at each reporting period with the change in fair value recorded to compensation expense.

The fair value of the Communicated Option Awards classified as liabilities was estimated using the Black Scholes option pricing model and the weighted-average assumptions used in the model are noted in the following table:

The weighted-average fair value for Communicated Option Awards granted during 2018 was $12.91. The Company’s shares were not traded on any public market during the term of the Communicated Option Awards. The common stock value as of the date of grant was based on the share price of recent equity issuances, if available. If there were no such recent transactions, the Company’s share valuation was estimated. As of the date of the modification of the Communicated Option Awards, which resulted in the settlement of the stock-based compensation liability, the common stock price was estimated utilizing a hybrid method, a combination of the Probability Weighted Expected Return Method (“PWERM”) and Option Pricing Model (“OPM”). The estimate incorporated a near-term IPO scenario using PWERM weighted at 80%. Other near-term exit events, a long-term stay private case, and dissolution were all considered as non-IPO scenarios using OPM, and were weighted at 20%. The estimate also reflected a 10% and 15% discount for lack of marketability under PWERM and OPM, respectively. The risk-free interest rate approximates the implied yield available on United States Treasury securities with an equivalent remaining term. Expected volatility is based on the historical volatilities of certain “guideline” companies. Expected dividend yield is based on dividends historically paid by the Company. The expected life is based on the “simplified” method using the average of the term and vesting period.

The fair value of the stock options issued under the 2018 Plan was estimated using the Black Scholes option pricing model and the weighted-average assumptions used in the model are noted in the following table:

	Year Ended December 31,
	2019			2018
Risk-free interest rate		1.6	%		2.89	%
Volatility		59.26	%		42.64	%
Expected dividend yield		0.00	%		0.00	%
Expected life (in years)		5.9			6.5

The weighted average fair value for the stock options granted during 2018 was $12.70. The Company’s shares were not traded in any public market at the stock option grant dates during the first nine months of 2018. For purposes of determining the fair value of the Company’s common stock for the grants made in June 2018, the Company utilized a hybrid method, a combination of the PWERM and OPM as described above. The risk-free interest rate approximates the implied yield available on United States Treasury securities with an equivalent remaining term. Expected volatility is based on the historical volatilities of certain “guideline” companies. Expected dividend yield is based on dividends historically paid by the Company. The expected life is based on the “simplified” method using the average of the term and vesting period.

The Company’s 2018 Employee Stock Purchase Plan (ESPP) became effective in September 2018. A total of 446,160 shares of common stock were available for sale under our ESPP as of December 31, 2019. Under the Company’s ESPP, eligible employees are allowed to purchase the Company’s stock at a discounted price, which is 85% of the lower market price of the Company’s common stock at the beginning or at the end of the six-month purchase period. The Company issued 9,207 shares in exchange for $37,000 in the year ended December 31, 2019 under the ESPP. The number of shares of common stock that will be available for sale under the ESPP also includes an annual increase on the first day of each fiscal year beginning with our 2019 fiscal year, equal to the least of (1) 296,752 shares; (2) one and one quarter percent (1.25%) of the outstanding shares of our common stock as of the last day of the immediately preceding fiscal year; or (3) such other amount as the administrator may determine.