Share Based Compensation

12 Months Ended

Dec. 31, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Share Based Compensation

NOTE 12. SHARE BASED COMPENSATION

On November 11, 2014, the Company’ s Board of Directors approved that the Directors stock compensation would be included in the Employee Stock Incentive Plan (“Stock Plan”) that reserves 1,724,128 shares of common stock for issuance. Equity and equity-based compensation plans are intended to make available incentives that will assist us in attracting, retaining, and motivating employees, officers, consultants, and directors by allowing them to acquire an ownership interest in our business, and, as a result, encouraging them to contribute to our success. We may provide these incentives through the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares and units, and other cash-based or stock-based awards. As a result, we expect to incur non-cash, stock-based compensation expenses in future periods. The Board of Directors has frozen the 2014 Incentive Plan, such that no future grants of awards will be made and the 2014 Incentive Plan shall only remain in effect with respect to awards under that Plan outstanding as of June 15, 2015 until they expire according to their terms.

On June 15, 2015, our stockholders approved the Superior Drilling Company, Inc. 2015 Long Term Incentive Plan (the “2015 Incentive Plan”). The purpose of the 2015 Incentive Plan is to advance the interests of the Company and its stockholders by providing an incentive to attract, retain and reward persons performing services for the Company and its affiliates and by motivating such persons to contribute to the growth and profitability of the Company and our affiliates. Subject to adjustment as provided in the 2015 Incentive Plan, the maximum aggregate number of shares of the Company’ s common stock that may be issued with respect to awards under the 2015 Incentive Plan is 1,552,905. As of December 31, 2016, there were 780,484 shares outstanding with respect to awards granted under the Company’s 2015 Incentive Plan.

On August 10, 2015, the Board of Directors granted 71,202 restricted stock units from the Company’ s 2015 Incentive Plan to the Directors based on the closing price of the Company’ s common stock on the date of the grant. These restricted stock units will vest over a three-year period.

On August 10, 2015, the Board of Directors granted 366,000 restricted stock units from the Company’ s 2015 Incentive Plan to officers and employees based on the closing price of the Company’ s common stock on the date of the grant. These restricted stock units vested 33% on the grant date, 33% on the first anniversary of the grant date and 34% on second anniversary of the grant date.

On December 23, 2015, the Board of Directors granted 7,000 restricted stock units from the Company’ s 2015 Incentive Plan to an employee based on the closing price of the Company’ s common stock on the date of the grant. These restricted stock units vested 33% on the grant date, 33% on the first anniversary of the grant date and 34% on second anniversary of the grant date.

On November 10, 2016, the Board of Directors granted 600,000 restricted stock units from the Company’ s 2015 Incentive Plan to executive management and directors based on the closing price of the Company’ s common stock on the date of the grant. These restricted units will vest over a three-year period.

Compensation expense recognized for grants vesting under the 2014 Incentive Plan was approximately $233,000 and $210,000 for the years ending December 31, 2016 and 2015, respectively. Compensation expense recognized for grants of restricted stock vesting under the 2015 Incentive Plan was approximately $406,000 and $334,000 for the years ending December 31, 2016 and 2015, respectively. The Company recognized compensation expense and recorded it as share-based compensation in the consolidated statement of operations.

Total unrecognized compensation expense related to unvested restricted stock units expected to be recognized over the remaining weighted vesting period of 2.9 years equaled approximately $773,000 at December 31, 2016. These shares vest over a three-year time period.

The following table summarizes RSU activity for the years ended December 31, 2016 and 2015:

	2016					2015
	Number of Restricted Stock Units			Weighted - Average Grant Date Fair Value		Number of Restricted Stock Units			Weighted - Average Grant Date Fair Value
Unvested RSU’ s at beginning of period		407,493		$	2.48		131,250		$	4.81
Granted		600,000			0.97		444,202			1.84
Forfeited		(17,342	)		1.62		-			-
Vested		(287,543	)		2.22		(167,959	)		2.61
Unvested RSU’ s at end of period		702,608		$	1.31		407,493		$	2.48

Stock Options - On August 10, 2015, the Board of Directors granted 87,500 stock options from the Company’ s 2015 Incentive Plan to officers and employees based on the closing price of the Company’ s common stock on the date of the grant. These restricted stock units and options vested 33% on the grant date, 33% on the first anniversary of the grant date and 34% on second anniversary of the grant date.

On March 4, 2016, the Board of Directors granted options to acquire 78,944 shares of stock from the Company’ s 2015 Incentive Plan to officers and employees based on the closing price of the Company’ s common stock on the date of the grant, which was $1.73. These options vested 100% on the grant date and have a ten year term expiring on March 4, 2026. The fair value of the vested stock options were calculated using the Black-Scholes model with a volatility and discount rate over the expected term of each employee.

On March 18, 2016, the Board of Directors granted options to acquire 81,714 shares of stock from the Company’ s 2015 Incentive Plan to officers and employees based on the closing price of the Company’ s common stock on the date of the grant, which was $1.67. These options vested 100% on the grant date and have a ten year term expiring on March 18, 2026. The fair value of the vested stock options were calculated using the Black-Scholes model with a volatility and discount rate over the expected term of each employee.

On March 31, 2016, the Board of Directors granted options to acquire 148,475 shares of stock from the Company’ s 2015 Incentive Plan to directors, officers and employees based on the closing price of the Company’ s common stock on the date of the grant, which was $1.37. These options vested 100% on the grant date and have a ten-year term expiring on March 31, 2026. The fair value of the vested stock options were calculated using the Black-Scholes model with a volatility and discount rate over the expected term of each employee.

On December 5, 2016, the Board of Directors granted 5,000 stock options from the Company’ s 2015 Incentive Plan to officers and employees based on the closing price of the Company’ s common stock on the date of the grant, which was $1.20. These restricted stock units and options vested 33% on the first anniversary of the grant date, 33% on the second anniversary of the grant date and 34% on third anniversary of the grant date.

On December 22, 2016, the Board of Directors granted 54,200 stock options from the Company’ s 2015 Incentive Plan to officers and employees based on the closing price of the Company’ s common stock on the date of the grant, which was $1.11. These restricted stock units and options vested 33% on the first anniversary of the grant date, 33% on the second anniversary of the grant date and 34% on third anniversary of the grant date.

These three issuances of options issued during March 2016 were part of decreasing the base salary of employees and directors in exchange for salary for options plan, issued out of the 2015 Incentive Plan.

Compensation expense recognized for option grants vesting under the 2015 Incentive Plan was approximately $145,000 and $20,000 for the years ending December 31, 2016 and 2015. The Company recognized compensation expense and recorded it as share-based compensation in the consolidated condensed statement of operations.

The following table summarizes stock options outstanding and changes during the years ended December 31, 2016 and 2015:

	2016					2015
	Number of Stock Options			Weighted - Average Exercise Price		Number of Stock Options			Weighted - Average Exercise Price
Stock options outstanding at beginning of period		86,500		$	1.85		-		$	-
Granted		368,333			1.47		87,500			1.85
Exercised		-			-		-			-
Expired		(10,325	)		1.85		-			-
Canceled or forfeited		(19,508	)		1.85		(1,000	)		1.85
Stock options outstanding at end of period		425,000		$	1.52		86,500		$	1.85
Stock options exercised at end of period		-		$	-		-		$	-

The fair value of stock options granted to employees and directors in 2016 and 2016 was estimated at the grant date using the Black-Scholes option pricing model using the following assumptions:

Expected volatility	51	%
Discount rate	1.16	%
Expected life (years)	3
Dividend yield	N/A

Option pricing models require the input of highly subjective assumptions, including the expected price volatility. Expected price volatility is based on the historical volatility of our common stock. Changes in the subjective input assumptions can materially affect the fair value estimate. The expected term of the options granted is derived from the output of the option pricing model and represents the period of time that the options granted are expected to be outstanding. The discount rate for the periods within the contractual term of the option is based on the U.S. Treasury yield curve in effect at the date of grant.