9. Stock-Based Compensation

2018 Incentive Award Plan

In March 2018, the Company’s board of directors adopted the Company’s 2018 Incentive Award Plan (the “2018 Plan”). The 2018 Plan was approved by the Company’s stockholders in April 2018 and became effective on May 2, 2018. The 2018 Plan initially reserved 4,289,936 shares for the issuance of stock options as well as any automatic annual increases in the number of shares of common stock reserved for future issuance under the 2018 Plan. Awards granted under the 2018 Plan expire no later than ten years from the date of grant. For stock options, the option price shall not be less than 100% of the estimated fair value on the day of grant. Options granted typically vest over a four-year period but may be granted with different vesting terms.

2018 Employee Stock Purchase Plan

In March 2018, the Company’s board of directors adopted the Company’s 2018 Employee Stock Purchase Plan (the “2018 ESPP”). The 2018 ESPP was approved by the Company’s stockholders in April 2018 and became effective on May 2, 2018. The 2018 ESPP reserved 536,242 shares of common stock for issuance pursuant to future awards, as well as any automatic increases in the number of shares of our common stock reserved for future issuance under this plan.

2013 Equity Incentive Plan

In June 2013, the Company adopted the 2013 Equity Incentive Plan (the “2013 Plan”), which provides for the granting of incentive stock options (“ISOs”), non-statutory stock options (“NSOs”) and restricted shares to employees, directors, and consultants at the discretion of management and the Board of Directors. As of March 31, 2018, there were an aggregate of 450,233 shares of common stock authorized for issuance under the 2013 Plan.

The exercise price of an ISO and NSO shall not be less than 100% of the estimated fair value of the shares on the date of grant, and the exercise price of an ISO and NSO granted to a 10% stockholder shall not be less than 110% of the estimated fair value of the shares on the date of grant. For awards granted between September 2017 and March 2018 with an exercise price of $3.42, a deemed fair value ranging from $3.95 to $5.43 per share was used in calculating stock-based compensation expense, which was determined using management hindsight. Options granted under the 2013 Plan expire no later than 10 years from the date of grant and generally vest over a four-year period but may be granted with different vesting terms. The 2013Plan also provides that unvested options that were not exercised as of an employee’s termination date shall revert to the 2013 Plan.

Stock Option Activity

A summary of the Company’s stock option activity under the 2013 Plan is as follows:

	Number of Shares			Weighted- Average Exercise Price
Balances at December 31, 2017		4,196,203			3.06
Granted		493,776			5.79
Exercised		(400,587	)		3.10
Canceled		(25,423	)		3.39
Balances at March 31, 2018		4,263,969			3.37

Performance Contingent Stock Options Granted to Employees

During the three months ended March 31, 2018, the Board of Directors granted performance contingent stock option awards exercisable for 53,575 shares, to certain members of the Company’s executive team. These awards had a weighted average exercise price of $3.42 which was based on the fair market value on the grant date, as determined by the Board of Directors, and vest upon the successful achievement of one or more specified performance goals.

The total estimated fair value of employee performance contingent stock option awards was estimated at the date of grant using a Black-Scholes option-pricing model using the same assumptions as the stock options granted to employees with service-based vesting conditions was $0.4 million. As of March 31, 2018, the Company determined that the achievement of the requisite performance conditions was not probable and, as a result, no compensation cost was recognized for the performance contingent awards.

As of March 31, 2018 and 2017, there were 329,498 and 275,922 performance contingent stock option awards outstanding with a total fair value of $0.7 million and $0.3 million respectively. As of March 31, 2018 and 2017, the Company determined that the achievement of the requisite performance conditions was not probable and, as a result, no compensation cost was recognized for these awards.

Performance and Market Contingent Stock Options Granted to Employees

During the three months ended March 31, 2018, the Board of Directors granted performance and market contingent stock option awards exercisable for 160,727 shares of common stock to certain members of the Company’s executive team. These awards had a weighted average exercise price of $3.42, which was based on the fair market value on the grant date, as determined by the Board of Directors. The total estimated grant-date fair value of these options was $0.7 million. Key assumptions in the valuation model included expected volatility, a risk-free interest rate, expected dividend yield, and an expected term unique to the terms of these awards.

Under the performance and market contingent awards, 53,575 of the shares have three separate market triggers for vesting based upon (i) the closing of a financing where the Company sells shares of its equity securities to institutional investors at a minimum price per share, (ii) a change in control with aggregate proceeds payable to the Company’s common stock at a minimum price per share, or (iii) an initial public offering that becomes effective at a minimum specified price per share The remaining 107,152 shares have three separate market triggers for vesting based upon (i) the closing of a financing where the Company sells shares of its equity securities to institutional investors at a minimum pre-money valuation, (ii) a change in control with a minimum aggregate proceeds payable to the Company’s common stock, or (iii) an initial public offering that becomes effective or an achievement of a minimum market capitalization, as measured by a trailing 30 day volume-weighted average price.

By definition, the market condition in these awards can only be achieved after the performance condition of a liquidity event has been achieved. As such, the requisite service period is based on the estimated period over which the market condition can be achieved. When a performance goal is deemed to be probable of achievement, time-based vesting and recognition of stock-based compensation expense commences. As of March 31, 2018, the Company determined that the achievement of the requisite performance conditions was not probable and, as a result, no compensation cost was recognized for these awards.

As of March 31, 2018 and 2017, there were 454,584 and 360,594 performance and market contingent stock option awards outstanding with a total fair value of $1.0 million and $0.4 million respectively. As of March 31, 2018 and 2017, the Company determined that the achievement of the requisite performance conditions was not probable and, as a result, no compensation cost was recognized for these awards.

Restricted Stock

A summary of the Company’s restricted stock activity for the three months ended March 31, 2018:

	Shares			Weighted Average Grant Date Fair Value
Unvested at December 31, 2017		478,971		$	4.57
Granted		—		$	4.57
Vested		(119,742	)	$	4.57
Unvested at March 31, 2018		359,229		$	4.57

Stock-Based Compensation Expense

The following table sets forth the total stock-based compensation expense for all options granted to employees and nonemployees, including shares sold through the issuance of non-recourse promissory notes which are considered to be options for accounting purposes, included in the Company’s statement of operations:

	Three Months Ended March 31,
	2018		2017
	(in thousands)
Research and development	$	974	$	170
General and administrative		396		243
Total	$	1,370	$	413