Share-Based Compensation

12 Months Ended

Dec. 31, 2019

Share-based Payment Arrangement [Abstract]

Share-Based Compensation

NOTE 10. SHARE-BASED COMPENSATION

In 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.

In 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. In 2017, the Company’s board of directors approved an additional 1,440,000 shares of the Company’s common stock to be added to the 2015 Incentive Plan. 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 2,992,905. As of December 31, 2019, there were 380,139 shares outstanding with respect to awards granted under the Company’s 2015 Incentive Plan.

Restricted stock units

On July 30, 2019, the Board of Directors granted 359,375 restricted stock units from the 2015 Incentive Plan to executive management and directors based on the average price of the Company’s common stock on the date of the grant. These restricted units will vest over a three - year period.

On August 3, 2018, the Board of Directors granted 189,038 restricted stock units from the 2015 Incentive Plan to executive management and directors based on the average price of the Company’s common stock on the date of the grant. These restricted units will vest over a three - year period.

On December 18, 2018, the Board of Directors granted 147,391 restricted stock units from the 2015 Incentive Plan to Troy and Annette Meier based on the average price of the Company’s common stock on the date of the grant. These restricted units will vest over a three - year period (see Note 6-Related Party Note Receivable).

Compensation expense recognized for grants of restricted stock vesting under the 2015 Incentive Plan was approximately $577,000 and $458,000 for the years ending December 31, 2019 and 2018, 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 2.12 years equaled approximately $474,000 at December 31, 2019. These shares vest over three years.

The following table summarizes RSU activity for the years ended December 31, 2019 and 2018:

	2019					2018
	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		747,048		$	1.37		647,195		$	1.12
Granted		359,375		$	0.96		386,429			1.61
Forfeited		-			-		-			-
Vested		(400,029	)		1.25		(286,576	)		1.12
Unvested RSU’s at end of period		706,394		$	1.24		747,048		$	1.37

Stock Options

On December 11, 2019, the Board of Directors granted 75,000 stock options from the 2015 Incentive Plan to officers and employees based on the Company’s common stock on the date of grant, which was $0.84. These options vest 33% on the grant date, 33% on the first anniversary of the grant date, and 34% on the second anniversary of the grant date.

On December 7, 2018, the Board of Directors granted 75,000 stock options from the 2015 Incentive Plan to officers and employees based on the Company’s common stock on the date of grant, which was $1.69. These options vest 33% on the grant date, 33% on the first anniversary of the grant date, and 34% on the second anniversary of the grant date.

On October 8, 2018, the Board of Directors granted 5,000 stock options from the 2015 Incentive Plan to officers and employees based on the Company’s common stock on the date of grant, which was $4.05. These options vest 33% on the first anniversary of the grant date, 33% on the second anniversary of the grant date, and 34% on the third anniversary of the grant date.

Compensation expense recognized for option grants vesting under the 2015 Incentive Plan was approximately $52,000 and $61,000 for the years ending December 31, 2019 and 2018. 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, 2019 and 2018:

	2019					2018
	Number of Stock Options			Weighted - Average Exercise Price		Number of Stock Options			Weighted - Average Exercise Price
Stock options outstanding at beginning of period		531,968		$	1.56		458,827		$	1.50
Granted		75,000			0.84		93,206			1.80
Exercised		-			-		(9,364	)		1.52
Expired		(9,329	)		1.62		(10,135	)		1.76
Canceled or forfeited		(9,506	)		1.50		(566	)		1.26
Stock options outstanding at end of period		588,133		$	1.50		531,968		$	1.56
Stock options exercised at end of period		-		$	-		-		$	-

The fair value of stock options granted to employees and directors in 2019 was estimated at the grant date using the Black-Scholes option pricing model using the following assumptions:

Expected volatility	59.50	%
Discount rate	1.61	%
Expected life (years)	2
Dividend yield	NA

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.