Ring Energy, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

EMPLOYEE STOCK OPTIONS AND RESTRICTED STOCK AWARD PLAN

EMPLOYEE STOCK OPTIONS AND RESTRICTED STOCK AWARD PLAN

12 Months Ended

Dec. 31, 2017

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

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

NOTE 10 EMPLOYEE STOCK OPTIONS AND RESTRICTED STOCK AWARD PLAN

In 2011, the Company’s Board of Directors approved and adopted a long term incentive plan, which was subsequently approved and amended by the shareholders. There were 1,040,200 shares eligible for grant, either as options or as restricted stock, at December 31, 2017.

Employee Stock Options Following is a table reflecting the issuances during 2015, 2016 and 2017 and their related exercise prices:

Grant date	# of options		Exercise price
April 1, 2015		3,750	$	10.89
December 9, 2015		291,000		8.25

January 13, 2016 ⁽¹⁾		241,000	$	5.25
May 3, 2016		15,000		6.42
December 13, 2016		582,500		11.75

April 20, 2017		7,500	$	11.70

		1,140,750

(1) On December 9, 2015, Ring issued option awards to its named executive officers and directors. On January 13, 2016, upon the recommendation of the Compensation Committee, Ring rescinded the option awards granted to its employees and directors (other than Messrs. McCabe and Rochford, who are the members of the Compensation Committee) as the result of a significant decline in the stock price and re-issued the option awards as of that date to meet the goals and objectives of the Company’s equity based compensation program. The amounts shown as Option Awards include the additional fair value of the new options over the original grant.

All granted options vest at the rate of 20% each year over five years beginning one year from the date granted and expire ten years from the grant date. A summary of the status of the stock options as of December 31, 2017, 2016 and 2015 and changes during the years ended December 31, 2017, 2016 and 2015 is as follows:

	2017				2016				2015
			Weighted-				Weighted-				Weighted-
			Average				Average				Average
	Options		Exercise Price		Options		Exercise Price		Options		Exercise Price
Outstanding at beginning of the year		3,362,350	$	5.90		2,881,750	$	5.07		2,684,500	$	4.67
Issued		7,500		11.70		838,500		9.79		294,750		8.28
Forfeited or rescinded		(11,450)		10.12		(331,400)		8.62		(32,500)		4.47
Exercised		(165,400)		2.63		(26,500)		4.41		(65,000)		3.46

Outstanding at end of year		3,193,000	$	6.07		3,362,350	$	5.90		2,881,750	$	5.07

Exercisable at end of year		2,091,900	$	4.85		1,722,850	$	4.01		1,214,000	$	3.85

Weighted average fair value of options granted during the year			$	9.14			$	9.72			$	6.55

The Company uses the Black-Scholes option pricing model to calculate the fair-value of each option grant. The expected volatility is based on the historical price volatility of the Company’s common stock. We elected to use the simplified method for estimating the expected term as allowed by generally accepted accounting principles for options granted during the years ended December 31, 2017, 2016 and 2015. Under the simplified method, the expected term is equal to the midpoint between the vesting period and the contractual term of the stock option. The risk-free interest rate represents the U.S. Treasury bill rate for the expected life of the related stock options. The dividend yield represents the Company’s anticipated cash dividend over the expected life of the stock options. The following are the Black-Scholes weighted-average assumptions used for options granted during the periods ended December 31, 2017, 2016 and 2015:

	Risk free interest rate			Expected life (years)		Dividend yield		Volatility

April 1, 2015		1.32	%		6.5		-		103	%
December 9, 2015		1.64	%		6.5		-		100	%

January 13, 2016		1.51	%		6.5		-		100	%
May 3, 2016		1.25	%		6.5		-		99	%
December 13, 2016		1.92	%		6.5		-		96	%

April 20, 2017		1.78	%		6.5		-		94	%

For the years ended December 31, 2017, 2016 and 2015, the Company incurred stock based compensation expense related to stock options of $3,618,309, $2,267,053 and $2,566,716, respectively. As of December 31, 2017, there was $3,741,997 of unrecognized compensation cost related to stock options that will be recognized over a weighted average period of 2.5 years. The aggregate intrinsic value of options vested and expected to vest at December 31, 2017 was $25,126,363. The aggregate intrinsic value of options exercisable at December 31, 2017 was $19,884,600. The year-end intrinsic values are based on a December 31, 2017 closing price of $13.90.

Options exercised of 165,400 in 2017, 26,500 in 2016 and 65,000 in 2015 had an aggregate intrinsic value on the date of exercise of $1,744,047, $65,089 and $476,642, respectively.

The following table summarizes information related to the Company’s stock options outstanding at December 31, 2017:

		Options Outstanding
Exercise price		Number Outstanding		Weighted- Average Remaining Contractual Life (in years)		Number Exercisable
	2.00		555,000		4.17		555,000
	4.50		1,340,000		5.24		1,080,000
	5.50		5,000		5.45		-
	7.50		29,000		5.73		23,000
	10.00		90,000		6.21		72,000
	14.54		20,000		6.99		12,000
	8.00		282,500		7.17		168,700
	8.25		50,000		8.19		20,000
	5.25		223,000		8.28		45,000
	6.42		15,000		8.59		3,000
	11.75		576,000		9.20		115,200
	11.70		7,500		9.30		-

			3,193,000		6.27		2,093,900

Any excess tax benefits from the exercise of stock options will not be recognized in paid-in capital until the Company is in a current tax paying position. Presently, the company has a net loss and therefore not yet subject to income taxes. Accordingly, no excess tax benefits have been recognized for the years ended December 31, 2017, 2016 or 2015.

Restricted stock grants Following is a table reflecting the restricted stock grants during 2017. No restricted stock was granted during 2015 or 2016.

Grant date		# of shares of restricted stock
December 19, 2017			330,900

All restricted stock grants vest at the rate of 20% each year over five years beginning one year from the date granted. A summary of the status of restricted stock grants as of December 31, 2017 and changes during the years ended December 31, 2017 is as follows:

	2017
	Restricted stock		Weighted- Average Grant Date Fair Value
Outstanding at beginning of the year		-	$	-
Granted		330,900		13.44
Forfeited or rescinded		-		-
Vested		-		-

Outstanding at end of year		330,900	$	13.44

No restricted stock was granted prior to 2017.

No restricted stock vested during 2017.

For the year ended December 31, 2017, the Company incurred stock based compensation expense related to restricted stock grants of $66,770. No such expense was incurred during 2016 or 2015. As of December 31, 2017, there was $4,380,526 of unrecognized compensation cost related to restricted stock grants that will be recognized over a weighted average period of 2.0 years.