Note 4 – Stock-based Compensation

Stock Incentive Plans

The Co-Diagnostics, Inc. 2015 Long Term Incentive Plan reserves an aggregate of 6,000,000 shares. The number of unissued stock options authorized under the plan at September 30, 2018 was 4,827,293.

Stock Options

There were 850,000 options granted to nine employees in the three and nine months ended September 30, 2018 valued at $1,070,859. There were 61,335 options granted to three independent members of our Board of Directors in the three and nine months ended September 30, 2017 valued at $97,474. We recognize the value of granted options over the vesting period of each option. The Black-Scholes valuation model requires various judgmental assumptions including the estimated volatility, risk-free interest rate and expected option term. In determining the expected volatility our computation is based the stock prices of 3 comparable companies and is based on a combination of historical and market-based implied volatility. The risk-free interest rate was based on the yield curve of a zero-coupon U.S. Treasury bond on the date the option was issued with a maturity equal to the expected term of the option. The fair values for the options granted were estimated at the date of grant using the Black Scholes option-pricing model with the following weighted average assumptions:

The weighted average fair value of options granted during the nine months ended September 30, 2018 and 2017 was $1.93 and $1.59 per share, respectively.

Included in stock-based compensation for the three and nine months ended September 30, 2018, the Company recognized expense of $380,445 recorded in our general and administrative department for 850,000 options granted to nine employees.

Included in stock-based compensation for the nine months ended September 30, 2017, the Company recognized expense of $111,068 recorded in our general and administrative department (i) $97,474 for 61,335 options granted to three members of our board of directors and (ii) $13,594 for options vesting which had been granted prior to January 1, 2017.

Included in stock-based compensation for the three months ended September 30, 2017, the Company recognized expense of $103,672 recorded in our general and administrative department (i) $97,474 for 61,335 options granted to three members of our board of directors and (ii) $6,198 for options vesting which had been granted prior to January 1, 2017.

The following table summarizes option activity during the nine months and year ended September 30, 2018 and December 31, 2017, respectively.

Warrants

The Company estimates the fair value of issued warrants on the date of issuance as determined using a Black-Scholes pricing model. The Company amortizes the fair value of issued warrants using a vesting schedule based on the terms and conditions of each warrant. The Black-Scholes valuation model requires various judgmental assumptions including the estimated volatility, risk-free interest rate and expected warrant term. In determining the expected volatility our computation is based on the stock prices of three comparable companies and on a combination of historical and market-based implied volatility. The risk-free interest rate is based on the yield curve of a zero-coupon U.S. Treasury bond on the date the warrant was issued with a maturity equal to the expected term of the warrant.

There were no warrants issued in the nine months ended September 30, 2018. There were 595,133 warrants issued in the nine months ended September 30, 2017. The fair values for the warrants issued were estimated at the date of grant using the Black Scholes option-pricing model with the following weighted average assumptions:

The weighted average fair value of warrants issued during the nine months ended September 30, 2017 was $1.74 per share.

Included in stock-based compensation for both the three and nine months ended September 30, 2017, the Company recognized expense of $256,198 recorded in our general and administrative department for 297,727 warrants issued to two companies for services rendered.

The following table summarizes warrant activity during the nine months and year ended September 30, 2018 and December 31, 2017, respectively.

The following table summarizes information about stock options and warrants outstanding at September 30, 2018.

Total unrecognized stock-based compensation was $707,929 at September 30, 2018 of which (i) $34,823 was for stock issued for services to be provided and ii) $673,106 was for options granted. The Company expects to recognize the aggregate amount of this compensation expense over the next years in accordance with contractual provisions and vesting as follows: