NOTE 8—SHARE-BASED COMPENSATION

2015 Equity Incentive Plan

Our board of directors and stockholders have approved and adopted the 2015 Plan, which provided for the grant of incentive stock options, within the meaning of Section 422 of the Code (the Internal Revenue Code), to our employees and any parent and subsidiary corporations’ employees, and for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock and restricted stock units to our employees, directors and consultants and our parent and subsidiary corporations’ employees and consultants. A total of 4,500,000 shares of our common stock were reserved for issuance pursuant to the 2015 Plan. The administrator will determine the methods of payment of the exercise price of an option, which may include cash, shares or other property acceptable to the administrator, as well as other types of consideration permitted by applicable law. Options granted under the 2015 Plan vest according to the schedule specified in the grant agreements, which is generally a four year period and generally become immediately exercisable upon the occurrence of a change in control, as defined. Upon the 2018 Equity Incentive Plan (the “2018 Plan’) becoming effective in September 2018, no further grants are allowed under the 2015 Plan.

2018 Equity Incentive Plan

Our board of directors and stockholders approved and adopted the 2018 Plan, which became effective upon the Company’s initial public offering in September 2018 and which provides for the grant of incentive stock options, within the meaning of Section 422 of the Code (the Internal Revenue Code), to our employees and any parent and subsidiary corporations’ employees, and for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock and restricted stock units to our employees, directors and consultants and our parent and subsidiary corporations’ employees and consultants. A total of 5,500,000 shares of our common stock, inclusive of the awards previously granted under the 2015 Equity Incentive Plan, are reserved for issuance pursuant to the 2018 Plan. In addition, the number of shares available for issuance under the 2018 Plan will also include an annual increase on the first day of each fiscal year beginning in 2019, equal to 4% of the outstanding shares of common stock as of the last day of our immediately preceding fiscal year. The exercise price of options granted under the plans must at least be equal to the fair market value of our common stock on the date of grant. The term of an incentive stock option may not exceed 10 years, except that with respect to any participant who owns more than 10% of the voting power of all classes of our outstanding stock, the term must not exceed five years and the exercise price must equal at least 110% of the fair market value on the grant date. The administrator will determine the methods of payment of the exercise price of an option, which may include cash, shares or other property acceptable to the administrator, as well as other types of consideration permitted by applicable law. Options granted under the 2018 Plan vest according to the schedule specified in the grant agreements, which is generally a four year period and generally become immediately exercisable upon the occurrence of a change in control, as defined.

Stock Option Valuation

During the three month periods ended June 30, 2019 and 2018, stock based compensation for stock option grants were $952,000 and $318,000, respectively, for options granted to employees and directors. During the three months ended June 30, 2019, the expenses were recorded as $169,000 in research and development expense and $783,000 in general and administrative expense. During the three months ended June 30, 2018, the expenses were recorded as $65,000 in research and development expense and $253,000 in general and administrative expense.

During the six month periods ended June 30, 2019 and 2018, stock based compensation for stock option grants were $1,800,000 and $490,000, respectively, for options granted to employees, non-employees and directors. During the six months ended June 30, 2019, the expenses were recorded as $314,000 in research and development expense and $1,486,000 in general and administrative expense. During the six months ended June 30, 2018, the expenses were recorded as $124,000 in research and development expense and $366,000 in general and administrative expense for options granted to employees and directors.

During the three and six months ended June 30, 2018, $585,000 was recorded in research and development expense for options granted to non-employees.

The following table summarizes common stock options issued and outstanding:


						Weighted
		Weighted		Aggregate		average
		average		intrinsic		remaining
		exercise		value		contractual
	Options	price		(in thousands)		life (years)
Outstanding and expected to vest at December 31, 2018	3,357,873	$	7.74	$	43,224	7.90
Granted	356,000	$	21.50
Outstanding and expected to vest at June 30, 2019	3,713,873	$	9.06	$	51,297	7.65
Exercisable at June 30, 2019	2,107,637	$	3.60	$	40,609	6.58

The weighted average fair value of stock options granted during the three months ended June 30, 2019 and 2018 was $12.30 and $6.68, respectively.

The weighted average fair value of stock options granted during the six month periods ended June 30, 2019 and 2018 was $12.34 and $6.68, respectively.

The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for those stock options that had exercise prices lower than the fair value of the Company’s common stock.

As of December 31, 2018, we had $10,848,000 of unrecognized compensation related to employee stock options that are expected to vest over a period of 2.82 years. As of June 30, 2019, we had $13,440,000 of unrecognized compensation related to employee stock options that is expected to vest over a period of 2.79 years.

Restricted Stock Unit Activity

During the three and six months ended June 30, 2019, stock-based compensation for restricted stock unit grants was $20,000 and $36,000, respectively. During the three months ended June 30, 2019, the expenses were recorded as $18,000 in research and development expense and $2,000 in general and administrative expense. During the six months ended June 30, 2019, the expenses were recorded as $32,000 in research and development expense and $4,000 in general and administrative expense There was no stock based compensation for restricted stock units during the three or six months ended June 30, 2018.

The following table summarizes restricted stock units issued and outstanding:


		Restricted Stock Units
Outstanding and expected to vest at December 31, 2018		—
Granted		10,296
Outstanding and expected to vest at June 30, 2019		10,296

As of June 30, 2019, we had $203,000 of unrecognized compensation related to employee restricted stock units that are expected to vest over a period of 2.55 years.