Document and Entity Information
Document and Entity Information - USD ($) | 12 Months Ended | ||
Dec. 31, 2016 | Mar. 28, 2017 | Jun. 30, 2016 | |
Document And Entity Information | |||
Entity Registrant Name | Superior Drilling Products, Inc. | ||
Entity Central Index Key | 1,600,422 | ||
Document Type | 10-K | ||
Document Period End Date | Dec. 31, 2016 | ||
Amendment Flag | false | ||
Current Fiscal Year End Date | --12-31 | ||
Entity a Well-known Seasoned Issuer | No | ||
Entity a Voluntary Filer | No | ||
Entity's Reporting Status Current | Yes | ||
Entity Filer Category | Smaller Reporting Company | ||
Entity Public Float | $ 0 | ||
Entity Common Stock, Shares Outstanding | 24,197,148 | ||
Trading Symbol | SDPI | ||
Document Fiscal Period Focus | FY | ||
Document Fiscal Year Focus | 2,016 |
Consolidated Balance Sheets
Consolidated Balance Sheets - USD ($) | Dec. 31, 2016 | Dec. 31, 2015 |
Current assets | ||
Cash | $ 2,241,902 | $ 1,297,002 |
Accounts receivable, net | 1,038,664 | 1,861,002 |
Prepaid expenses | 76,175 | 179,450 |
Inventories | 1,167,692 | 1,410,794 |
Asset held for sale | 2,490,000 | |
Other current assets | 13,598 | |
Total current assets | 7,028,031 | 4,748,248 |
Property, plant and equipment, net | 9,068,359 | 14,655,502 |
Intangible assets, net | 8,579,444 | 11,026,111 |
Note receivable | 8,296,717 | 8,296,717 |
Other noncurrent assets | 15,954 | 19,365 |
Total assets | 32,988,505 | 38,745,943 |
Current liabilities | ||
Accounts payable | 1,066,514 | 638,593 |
Accrued expenses | 449,004 | 809,765 |
Income tax payable | 2,000 | |
Current portion of capital lease obligation | 217,302 | 332,185 |
Current portion of related party debt | 272,215 | 555,393 |
Current portion of long-term debt, net of discounts | 2,905,682 | 2,522,871 |
Total current liabilities | 4,910,717 | 4,860,807 |
Other long term liability | 820,657 | 880,032 |
Capital lease obligation, less current portion | 246,090 | |
Related party debt, less current portion | 271,190 | |
Long-term debt, less current portion, net of discounts | 13,288,701 | 16,313,113 |
Total liabilities | 19,020,075 | 22,571,232 |
Shareholders' equity | ||
Common stock - $0.001 par value; 100,000,000 shares authorized; 24,120,695 and 17,459,605 shares outstanding, respectively | 24,120 | 17,460 |
Additional paid-in-capital | 38,295,428 | 31,379,520 |
Accumulated deficit | (24,351,118) | (15,222,269) |
Total shareholders' equity | 13,968,430 | 16,174,711 |
Total liabilities and shareholders' equity | $ 32,988,505 | $ 38,745,943 |
Consolidated Balance Sheets (Pa
Consolidated Balance Sheets (Parenthetical) - $ / shares | Dec. 31, 2016 | Dec. 31, 2015 |
Statement of Financial Position [Abstract] | ||
Common Stock, Par or Stated Value Per Share | $ 0.001 | $ 0.001 |
Common Stock, Shares Authorized | 100,000,000 | 100,000,000 |
Common Stock, Shares, Issued | 24,120,695 | 17,459,605 |
Common Stock, Shares, Outstanding | 24,120,695 | 17,459,605 |
Consolidated Statements of Oper
Consolidated Statements of Operations - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Income Statement [Abstract] | ||
Revenue | $ 7,153,063 | $ 12,706,372 |
Operating cost and expenses | ||
Cost of revenue | 4,491,670 | 6,618,330 |
Selling, general, and administrative expenses | 5,775,760 | 7,013,653 |
Depreciation and amortization expense | 4,291,249 | 4,818,548 |
Impairment of property, plant and equipment – held for sale | 840,380 | |
Impairment of goodwill | 7,802,903 | |
Total operating costs and expenses | 15,399,059 | 26,253,434 |
Operating loss | (8,245,996) | (13,547,062) |
Other income (expense) | ||
Interest income | 313,547 | 293,932 |
Interest expense | (1,613,214) | (1,822,636) |
Other income | 237,203 | 240,286 |
Gain (loss) on sale of assets | 177,611 | (92,378) |
Total other expense | (884,853) | (1,380,796) |
Loss before income taxes | (9,130,849) | (14,927,858) |
Income tax benefit | (2,000) | (472,279) |
Net loss | $ (9,128,849) | $ (14,455,579) |
Basic loss per common share | $ (0.48) | $ (0.83) |
Basic weighted average common shares outstanding | 19,155,981 | 17,347,306 |
Diluted loss per common share | $ (0.48) | $ (0.83) |
Diluted weighted average Common shares outstanding | 19,155,981 | 17,347,306 |
Consolidated Statements of Shar
Consolidated Statements of Shareholders' Equity - USD ($) | Common Stock [Member] | Additional Paid-In Capital [Member] | Accumulated Deficit [Member] | Total |
Balance at Dec. 31, 2014 | $ 17,292 | $ 30,815,609 | $ (766,690) | $ 30,066,211 |
Balance, shares at Dec. 31, 2014 | 17,291,646 | |||
Share based compensation expense | $ 168 | 563,911 | 564,079 | |
Share based compensation expense, shares | 167,959 | |||
Warrants issued for bridge financing | ||||
Net loss | (14,455,579) | (14,455,579) | ||
Balance at Dec. 31, 2015 | $ 17,460 | 31,379,520 | (15,222,269) | 16,174,711 |
Balance, shares at Dec. 31, 2015 | 17,459,605 | |||
Share based compensation expense | $ 210 | 783,252 | 783,462 | |
Share based compensation expense, shares | 211,090 | |||
Warrants issued for bridge financing | 112,024 | 112,024 | ||
Stock issued for Hard Rock note | $ 700 | 999,300 | 1,000,000 | |
Stock issued for Hard Rock note, shares | 700,000 | |||
Issuance of common stock, net of fees and expenses | $ 5,750 | 5,021,332 | 5,027,082 | |
Issuance of common stock, net of fees and expenses, shares | 5,750,000 | |||
Net loss | (9,128,849) | (9,128,849) | ||
Balance at Dec. 31, 2016 | $ 24,120 | $ 38,295,428 | $ (24,351,118) | $ 13,968,430 |
Balance, shares at Dec. 31, 2016 | 24,120,695 |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Cash Flows From Operating Activities | ||
Net loss | $ (9,128,849) | $ (14,455,579) |
Adjustments to reconcile net loss to net cash provided by operating activities: | ||
Depreciation and amortization expense | 4,291,249 | 4,818,548 |
Amortization of debt discount | 107,975 | 567,187 |
Deferred tax benefit | (2,000) | (473,279) |
Share based compensation expense | 783,462 | 564,079 |
Unrealized loss on warrant derivative | 112,024 | |
Impairment of goodwill | 7,802,903 | |
Impairment of property, plant and equipment | 1,054,482 | 66,651 |
Impairment of inventories | 569,602 | |
(Gain) loss on sale of assets | (177,611) | 92,378 |
Non-cash items | (291,238) | |
Changes in operating assets and liabilities: | ||
Accounts receivable | 822,338 | 2,541,999 |
Inventories | (115,444) | (191,715) |
Prepaid expenses and other current assets | 89,677 | 29,484 |
Other noncurrent assets | (60,866) | 84,285 |
Accounts payable and accrued expenses | (218,375) | (531,077) |
Other long term liabilities | (59,375) | |
Net Cash (Used in) Provided by Operating Activities | (1,931,711) | 624,626 |
Cash Flows From Investing Activities | ||
Purchases of property, plant and equipment | (352,751) | (1,284,782) |
Proceeds from sale of fixed assets | 517,385 | 62,000 |
Net Cash Provided by (Used in) Investing Activities | 164,634 | (1,222,782) |
Cash Flows From Financing Activities | ||
Principal payments on debt | (3,254,971) | (3,159,100) |
Principal payments on capital lease obligations | (360,971) | (492,452) |
Principal payments on related party debt | (268,835) | (292,977) |
Proceeds received from borrowings on debt | 1,500,000 | 47,299 |
Proceeds from line of credit | 226,885 | |
Proceeds from sale of subsidiary | 50,700 | |
Proceeds from payments on note receivable | 22,533 | |
Proceeds received from issuance of common stock, net | 5,027,082 | |
Debt issuance costs | (230,446) | |
Net Cash Provided (Used) in Financing Activities | 2,711,977 | (3,897,230) |
Net Increase (decrease) in Cash | 944,900 | (4,495,386) |
Cash at Beginning of Period | 1,297,002 | 5,792,388 |
Cash at End of Period | 2,241,902 | 1,297,002 |
Supplemental information: | ||
Cash paid for Interest | 1,563,280 | 1,159,969 |
Warrants issued for bridge financing debt | 112,024 | |
Note receivable interest forfeited as payment on related party note payable | 311,979 | 291,238 |
Long term debt paid with stock | $ 1,000,000 |
Summary of Significant Accounti
Summary of Significant Accounting Policies | 12 Months Ended |
Dec. 31, 2016 | |
Accounting Policies [Abstract] | |
Summary of Significant Accounting Policies | NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Basis of Presentation Superior Drilling Products, Inc. (the “Company”, “we”, “our” or “us”) is a drilling and completion tool technology company. We design and manufacture new drill bit and horizontal drill string enhancement tools and refurbish PDC (polycrystalline diamond compact) drill bits for the oil, natural gas and mining services industry. Our customers are primarily engaged in domestic and international exploration and production of oil and natural gas. We were incorporated on December 10, 2013 under the name SD Company, Inc. in order to facilitate (a) the reorganization of the entities that are now our consolidated subsidiaries and (b) the subsequent acquisition of Hard Rock Solutions, LLC. We changed our name from SD Company Inc. to Superior Drilling Products, Inc. on May 22, 2014 in conjunction with closing of that reorganization and the completion of our initial public offering. Our headquarters and principal manufacturing operations are located in Vernal, Utah. The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The consolidated financial statements include the accounts of Superior Drilling Products Inc. and all of its wholly-owned subsidiaries. All significant intercompany accounts have been eliminated in consolidation. The Company does not have investments in any unconsolidated subsidiaries. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates. Significant items subject to estimates and assumptions include the carrying amount and useful lives of property and equipment and intangible assets, impairment assessments, share-based compensation expense, and valuation allowances for accounts receivable, inventories, and deferred tax assets. Revenue Recognition We are a drilling and completion tool technology company and we generate revenue from the refurbishment, manufacturing, repair, and sale of drill string tools. Our manufactured products are produced in a standard manufacturing operation, even when produced to our customer’s specifications. We also earn royalty fees under certain arrangements for the tools we sell. In May 2016, the Company entered into an agreement with DTI to be our exclusive distributor of the Drill-N-Ream tool in the United States and Canada. This agreement began the change of direction of our business from renting tools to selling tools. Tool sales, rentals and other related revenue Tool and Product Sales Tool Rental Other Related Revenue Contract Services Drill Bit Manufacturing and Refurbishment Cash and cash equivalents Cash and cash equivalents consist of cash on deposit. We maintain cash deposits with financial institutions that may exceed federally insured limits at times. We have chosen credible institutions and believe our risk of loss is negligible. Fair Value of Financial Instruments The Company’s financial instruments consist of cash and cash equivalents, receivables, payables, and bank debt. The Company believes that the carrying values of these instruments on the accompanying consolidated balance sheets approximate their fair values. Accounts Receivable and Allowance for Doubtful Accounts Accounts receivable are generally due within 60 days of the invoice date. No interest is charged on past-due balances. We grant credit to our customers based upon an evaluation of each customer’s financial condition. We periodically monitor the payment history and ongoing creditworthiness of our customers. An allowance for doubtful accounts is established at a level estimated by management to be adequate based upon various factors including historical experience, aging status of customer accounts, payment history and financial condition of our customers. The allowance for doubtful accounts was $9,000 and $0 as of December 31, 2016, and 2015, respectively. Inventories Inventories consist of raw materials, work-in-process and finished goods and are stated at the lower of cost, determined using the weighted-average cost method, or market. Finished goods inventories include raw materials, direct labor and production overhead. The Company regularly reviews inventories on hand and current market conditions to determine if the cost of finished goods inventories exceed current market prices and impairs the cost basis of the inventory accordingly. Property, Plant and Equipment Property, plant and equipment is stated at cost. The cost of ordinary maintenance and repair is charged to operating expense, while replacement of critical components and major improvements are capitalized. Depreciation or amortization of property and equipment, including assets held under capital leases, is calculated using the straight-line method over the asset’s estimated useful life as follows: Buildings and leasehold Improvements 2-39 years Machinery, equipment and rental Tools 18 months -10 years Furniture and fixtures 7 years Transportation equipment 5 - 30 years Computer equipment and software 3-5 years Property, plant and equipment is reviewed for impairment on an annual basis or whenever events or changes in circumstances indicate the carrying value of an asset or asset group may not be recoverable. Indicative events or circumstances include, but are not limited to, matters such as a significant decline in market value or a significant change in business climate. An impairment loss is recognized when the carrying value of an asset exceeds the estimated undiscounted future cash flows from the use of the asset and its eventual disposition. The amount of impairment loss recognized is the excess of the asset’s carrying value over its fair value. Assets to be disposed of are reported at the lower of the carrying value or the fair value less cost to sell. Upon sale or other disposition of an asset, the Company recognizes a gain or loss on disposal measured as the difference between the net carrying value of the asset and the net proceeds received. In 2016, the Company recognized an impairment loss of $840,380 related to property that was sold in the first quarter of 2017. This loss was recorded in 2016 and the asset was classified as held for sale. The impairment loss was based on a third-party independent appraisal that utilized the sales comparison approach that determined the fair value of the property. There was no gain 0on the sale of the asset in 2017 as the impairment had been recorded to reflect the fair value of the property. (See Note 10 – Related Party Transactions). In 2016 and 2015, the Company recognized an impairment loss in cost of sales of $211,056 and $66,651, respectively, related to the Open Hole Strider technology that had been capitalized as part of fixed assets. It was determined in 2016 that the tool design had limited market potential and the Company decided to re-design the tool to be offered to a broader market. Goodwill Goodwill is the excess cost of an acquired entity over the amounts assigned to assets acquired and liabilities assumed in a business combination. The Company allocated $7,802,903 to goodwill in in conjunction with the Hard Rock acquisition in 2014. An assessment for impairment is performed annually or whenever an event indicating impairment may have occurred. The Company completes its annual impairment test for goodwill and other indefinite-lived intangibles using an assessment date of December 31. Goodwill is reviewed for impairment by comparing the carrying value of the reporting unit’s net assets (including allocated goodwill) to the fair value of the reporting unit. The fair value of the reporting units is determined using a discounted cash flow approach. Determining the fair value of a reporting unit requires judgment and the use of significant estimates and assumptions. Such estimates and assumptions include revenue growth rates, operating margins, weighted average costs of capital, drill rig counts, market share and future market conditions, among others. If the reporting unit’s carrying value is greater than its fair value, a second step is performed whereby the implied fair value of goodwill is estimated by allocating the fair value of the reporting unit in a hypothetical purchase price allocation analysis. The Company recognizes a goodwill impairment charge for the amount by which the carrying value of goodwill exceeds its fair value. The impairment test is a fair value test which includes assumptions such as growth and discount rates. Any impairment losses are reflected in operating income. The Company determined goodwill of $7,802,903 was fully impaired while performing the 2015 annual impairment test. Global oil and natural gas commodity prices, particularly crude oil, decreased significantly. The decrease in commodity prices had a negative impact on industry drilling and capital expenditure activity, which affected the demand for products and services of our Company. As part of the first step of goodwill impairment testing, we updated our income approach assessment of the future cash flows for our Company, applying expected long-term growth rates, discount rates, and terminal values that we consider reasonable for our Company. Critical assumptions include a recovery and market expansion of the tool during 2016 and beyond. The Company’s market capitalization was also used to corroborate reporting unit valuation. As goodwill was fully impaired in 2015, no test was performed in 2016. Intangible Assets The Company’s intangible assets with finite lives consist of developed technology, customer contracts and relationships, and trade names and trademarks. The cost of intangible assets with finite lives is amortized using the straight-line method over the estimated period of economic benefit, ranging from 3 to 17 years. Asset lives are adjusted whenever there is a change in the estimated period of economic benefit. No residual value has been assigned to these intangible assets. Intangible assets with finite lives are tested for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. These conditions may include a change in the extent or manner in which the asset is being used or a change in future operations. The Company assesses the recoverability of the carrying amount by preparing estimates of future revenue, margins, and cash flows. If the sum of expected future cash flows (undiscounted and without interest charges) is less than the carrying amount, an impairment loss is recognized. The impairment loss recognized is the amount by which the carrying amount exceeds the fair value. Fair value of these assets may be determined by a variety of methodologies, including discounted cash flow models. Comprehensive Income (Loss) Comprehensive income (loss) encompasses all changes in stockholders’ equity, except those arising from investments from and distributions to stockholders. The Company’s comprehensive income (loss) includes net income (loss) and foreign currency translation adjustments. Research and Development We expense research and development costs as they are incurred. For the years ended December 31, 2016 and 2015, these expenses were approximately $1,200,000 and $1,500,000, respectively, and are included in the selling, general, and administrative expenses in the statement of operations. Earnings (Loss) Per Share Basic earnings (loss) per common share is calculated by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) attributable to common shareholders by the weighted average number of common shares outstanding, including potentially dilutive common share equivalents, if the effect is dilutive. Potentially dilutive common shares equivalents include stock options and warrants. Approximately 250,000 warrants to purchase our common stock were excluded from this calculation because they were antidilutive for the year ended December 31, 2016. Income Taxes The Company recognizes an asset or liability for the deferred tax consequences of all temporary differences between the tax basis of assets or liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years when the reported amounts of the asset or liabilities are recovered or settled and for operating loss carry forwards. These deferred tax assets and liabilities are measured using the enacted tax rates that will be in effect when the differences are expected to reverse and the carry forwards are expected to be realized. Deferred tax assets are reviewed periodically for recoverability and a valuation allowance is provided as necessary. Debt Issuance Costs Costs related to debt issuance are capitalized and amortized as interest expense over the term of the related debt using the straight-line method, which approximates the effective interest method. Upon the repayment of debt, the Company accelerates the recognition of an appropriate amount of the costs as interest expense. Debt issuance costs related to the Hard Rock Note are presented as a direct reduction from the carrying amount of the note payable. As of December 31, 2016 and 2015, the debt issuance costs were $153,503 and $261,493, respectively. Share Based Compensation Share based compensation expense for share based payments, related to stock option and restricted stock awards, is recognized based on their grant-date fair values. The Company recognizes compensation expense, net of estimated forfeitures, on a straight-line basis over the requisite service period of the award. Estimated forfeitures are based on historical experience. Concentrations and Credit Risk The Company has two significant customers that represent 63% of our revenue for the year ended December 31, 2016, respectively. These customers had $649,960 in accounts receivable at December 31, 2016. We had one customer that represented 37%, of our revenue for the year ended December 31, 2015, and had $887,081 in accounts receivable at December 31, 2015. Assets and Liabilities Held for Sale The Company classifies disposal groups as held for sale in the period in which all of the following criteria are met: (1) management, having the authority to approve the action, commits to a plan to sell the disposal group; (2) the disposal group is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such disposal groups; (3) an active program to locate a buyer or buyers and other actions required to complete the plan to sell the disposal group have been initiated; (4) the sale of the disposal group is probable, and transfer of the disposal group is expected to qualify for recognition as a completed sale, within one year, except if events of circumstances beyond the Company’s control extend the period of time required to sell the disposal group beyond one year; (5) the disposal group is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and (6) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. See Note 10 – Related Party Transactions. Reclassifications Certain prior year amounts have been reclassified to conform to the current year presentation. The reclassifications did not impact net income. Recently Issued Accounting Standards In May 2014, the No. 2014-09, Revenue from Contracts with Customers 5, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers , In July 2015, the FASB issued ASU No. 2015-11, “ Simplifying the Measurement of Inventory In February 2016, the FASB issued ASU No. 2016-02, “ Leases In March 2016, the FASB issued ASU No. 2016-09, “ Improvements to Employee Share-Based Payment Accounting Effective January 1, 2016, the Company adopted the accounting guidance the FASB issued ASU 2015-03, “ Simplifying the Presentation of Debt Issuance Costs. |
Public Offering
Public Offering | 12 Months Ended |
Dec. 31, 2016 | |
Public Offering | |
Public Offering | NOTE 2. PUBLIC OFFERING On September 30, 2016, we priced a follow-on public offering of common stock at $1.00 per share. The transaction closed on October 5, 2016. Net of underwriting and stock offering expenses of approximately $709,000, the net proceeds to the Company were approximately $5.0 million. The Company used the proceeds to repay a $1 million promissory note received in conjunction with the public offering (“Bridge Financing”), to repay its $868,000 indebtedness with Federal National Commercial Credit (“FNCC”) and pay the remaining $500,000 plus accrued interest on the Hard Rock Note (see Note 6 – Long-term Debt). We have used the remaining funds from the offering and cash flows from operations to service on going debt obligations, which include real property leases and equipment loans, as well as for general corporate purposes, including growth working capital. |
Inventories
Inventories | 12 Months Ended |
Dec. 31, 2016 | |
Inventory Disclosure [Abstract] | |
Inventories | NOTE 3. INVENTORIES Inventories is comprised of the following: December 31, 2016 December 31, 2015 Raw material $ 952,419 $ 968,254 Work in progress 90,017 117,661 Finished goods 125,256 324,879 $ 1,167,692 $ 1,410,794 During 2016, the Company entered into a distribution agreement with Drilling Tools International (“DTI”), under which DTI has a requirement to purchase our Drill-N-Ream tool for their rental tool business and achieve market share requirements in order to maintain exclusive marketing rights for the Drill-N-Ream tool. This agreement began the change of direction of our business from renting tools to selling tools. Due to this change in our business model, we moved tools with a net book value of $225,710 from property, plant and equipment into inventory during 2016. The Company recorded an impairment loss in the cost of sales of $210,745 and $124,872 during the years ended December 31, 2016 and 2015, respectively, relating to the discontinuation of OrBit, a completion drill line product line. As of December 31, 2016, the OrBit product line was fully impaired with a net book value of $0. The Company recorded an impairment loss in the cost of sales of $147,801 during the year ended December 31, 2016 relating to several Strider technologies. Several parts of these tools needed to be replaced so an impairment charge was recognized. |
Property, Plant and Equipment
Property, Plant and Equipment | 12 Months Ended |
Dec. 31, 2016 | |
Property, Plant and Equipment [Abstract] | |
Property, Plant and Equipment | NOTE 4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are comprised of the following: December 31, 2016 December 31, 2015 Land $ 880,416 $ 2,268,039 Buildings 4,847,778 4,847,778 Buildings – Superior Auto Body - 2,213,729 Leasehold improvements 717,232 717,232 Machinery and equipment 5,060,281 7,200,530 Machinery under capital lease 2,322,340 2,322,340 Furniture and fixtures 507,554 507,554 Transportation assets 882,163 1,317,397 15,217,764 21,394,599 Accumulated depreciation (6,149,405 ) (6,739,097 ) $ 9,068,359 $ 14,655,502 During the year ended December 31, 2016, we sold transportation assets that were no longer necessary to our business operations and rental tools for proceeds of $415,817 and gain of $76,211. In 2016, the Company recognized an impairment loss of $840,380 related to real estate property that was sold in the first quarter of 2017. This loss was recorded in 2016 and the asset was classified as held for sale. The impairment loss was based on a third-party independent appraisal that utilized the sales comparison approach that determined the fair value of the property. Upon the sale of the property in 2017, there was no gain or loss on the sale of the asset as it had been adjusted to reflect the fair value of the property. (See Note 10 – Related Party Transactions). In 2016 and 2015, the Company recognized an impairment loss in the cost of sales of $211,056 and $66,651, respectively, related to the Open Hole Strider tool that had been capitalized as part of fixed assets and inventory. It was determined in 2016 that the tool design had limited market potential and the company decided to re-design the tool to be offered to a broader market. Depreciation expense related to property, plant and equipment for the year ended December 31, 2016 and 2015 was $ 1,844,582 and $2,371,881, respectively. |
Intangible Assets
Intangible Assets | 12 Months Ended |
Dec. 31, 2016 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Intangible Assets | NOTE 5. INTANGIBLE ASSETS Intangible assets are comprised of the following: December 31, 2016 December 31, 2015 Developed technology $ 7,000,000 $ 7,000,000 Customer contracts 6,400,000 6,400,000 Trademarks 1,500,000 1,500,000 14,900,000 14,900,000 Accumulated amortization (6,320,556 ) (3,873,889 ) $ 8,579,444 $ 11,026,111 Amortization expense related to intangible assets for the years ended December 31, 2016 and 2015 was $2,446,667 each year. These intangible assets will be amortized over their expected useful lives using the straight-line method, which is a weighted-average amortization period of 6.3 years. As of December 31, 2016, the Company will recognize the following amortization expense for the respective periods ending December 31 noted below: 2017 2,446,667 2018 2,446,667 2019 1,700,000 2020 1,166,667 2021 583,334 Thereafter 236,109 Total $ 8,579,444 During the years ended December 31, 2016 and 2015, no impairments were recognized related to other intangible assets |
Note Receivable
Note Receivable | 12 Months Ended |
Dec. 31, 2016 | |
Receivables [Abstract] | |
Note Receivable | NOTE 6. NOTE RECEIVABLE In January 2014, we entered into a Note Purchase and Sale Agreement under which we agreed to purchase a loan made to Tronco Energy Corporation (“Tronco”), a party related to us through common control, in order to take over the legal position as Tronco’ s senior secured lender. That agreement provided that, upon our full repayment of the Tronco loan from the proceeds of the Offering, the lender would assign to us all of its rights under the Tronco loan, including all of the collateral documents. On May 30, 2014, we closed our purchase of the Tronco loan for a total payoff of $8.3 million, including principal, interest, and early termination fees. As a result of that purchase, we became Tronco’ s senior secured lender, and as a result are entitled to receive all proceeds from sales of the Tronco-owned collateral, as discussed below. As the result of our purchase of the Tronco loan, we have the direct legal right to enforce the collateral and guaranty agreements entered into in connection with the Tronco loan and to collect Tronco’ s collateral sales proceeds, in order to recover the loan purchase amount. The Tronco loan continues to be secured by the first position liens on all of Tronco assets, as well as by the guarantees of Troy and Annette Meier (the “Meier Guaranties”), which are directly payable to and legally enforceable by us. In addition, the Meiers have provided us with stock pledges in which they pledge all of their shares of our common stock held by their family entities (the ‘ ‘ Meier Stock Pledge’ ‘ ), as collateral for the Meiers guaranties until full repayment of Tronco loan. The pledged shares, which became tradable in the public market 180 days after the closing of our initial public offering subject to insider timing requirements and volume limitations under Rule 144 of the Securities Act and required periodic black-out periods, are being held in third-party escrow until full repayment of the Tronco loan. As discussed in Note 10 – Related Party Transactions, as of February 2017, the Company holds 8,267,860 shares as collateral for the Tronco note . In 2015, the Board of Directors agreed to extend the terms of the Tronco loan to interest only payments due on December 31, 2015 and 2016, with a balloon payment of all unpaid interest and principal due in full maturity on December 31, 2017. The interest rate on the note is 3.75%. We earned interest of $311,979 and $291,238 in the years ending December 31, 2016 and 2015, respectively. Based on an informal agreement between Tronco and the Meiers, we forfeited the receipt of the cash interest earned as a reduction to the related party note payable (See Note 7 – Long-Term Debt). On March 28, 2017, the Company and Tronco finalized an agreement with a third party and pursuant to this agreement, the third party acquired all of Tronco Ohio assets for $550,000. As Tronco’s senior secured lender, we released our lien and security interest on these assets in accordance with the agreement. Also on March 28, 2017 and related to the sale of the Tronco assets, the Company agreed to a non-cash receipt of the $550,000 from Tronco by reducing our bonus accrual liabilities. The bonus accrual was earned by the Meiers in 2014, and was recorded in other long term liability. As a result of this agreement, we have reduced both the other long-term liability and the Tronco note receivable in 2017. |
Long-Term Debt
Long-Term Debt | 12 Months Ended |
Dec. 31, 2016 | |
Debt Disclosure [Abstract] | |
Long-Term Debt | NOTE 7. LONG-TERM DEBT Long-term debt is comprised of the following: December 31, 2016 December 31, 2015 Real estate loans $ 7,264,036 $ 7,585,063 Hard Rock Note, net of discount 7,846,497 9,738,521 Related party loans - 826,583 Machinery loans 684,921 853,970 Transportation loans 398,929 658,430 16,194,383 19,662,567 Current portion of long-term debt (2,905,682 ) (3,078,264 ) $ 13,288,701 $ 16,584,303 Real Estate Loans Our manufacturing facility was financed by a commercial bank loan requiring monthly payments of approximately $39,000, including principal and interest at 5.25%. A lump sum principal payment of approximately $4.2 million is due at the maturity date of this loan on August 15, 2018. In 2012, we became co-borrowers on a $1.7 million loan and a $1.2 million loan for Superior Auto Body. The interest on this debt accrued at 5.50% and 2.42%, respectively, and the notes required monthly payments of $10,565 and $7,517, respectively, and a lump sum payment at maturity for the remaining principal balance. Both notes were paid off in February 2017 in conjunction with the sale of the Superior Auto Body land and building (see Note 10 – Related Party Transactions). Hard Rock Note In 2014, the Company purchased all of the interests of Hard Rock. Consideration consisted of $12.5 million paid in cash at closing and a $12.5 million seller’ s note (the “Hard Rock Note”). The Hard Rock Note and subsequent amendments are secured by all of the patents, patents pending, other patent rights, and trademarks transferred to Hard Rock by Hard Rock in the closing of the Hard Rock acquisition. At issuance, the fair value of the Hard Rock Note was determined to be $11,144,000, which is less than the face value due to a below-market interest rate. The resulting discount of $1,356,000 will be amortized to interest expense using the effective interest method, totaling approximately $108,000 and $567,000 during 2016 and 2015, respectively. On August 10, 2016, certain of our subsidiaries entered into an amended and restated note with the seller in our acquisition of Hard Rock Solutions, LLC. As amended and restated, the Hard Rock Note accrues interest at 5.75% per annum and matures and is fully payable on January 15, 2020. Under the current terms of the Hard Rock Note, we are required to make the following payments: accrued interest only on each of January 15, March 15, May 15 and July 15, 2017; $500,000 in principal plus accrued interest on each of January 15, March 15, May 15 and July 15, 2018, and $1,000,000 in principal plus accrued interest on each of January 15, March 15, May 15 and July 15, 2019. The remaining balance of principal of $2,000,000 and accrued interest on the Hard Rock Note are due on January 15, 2020. During the year ending December 31, 2016, we paid interest of $769,582 and a principal payment of $2,000,000, of which $1,000,000 was paid with 700,000 restricted shares of common stock on August 10, 2016 (having an agreed per share value of $1.43). The Company paid interest of $406,250 and a principal payment of $2,500,000 during the year ending December 31, 2015. Subsequent to year end, we made the accrued interest payments related to the note on January 15, 2017 and March 15, 2017 of $129,808 and $74,356, respectively. Related Party Loans In 2014, the Company issued notes payable to related parties in the amount of $2 million. The notes bear interest at 7.5% and mature on January 2, 2017. In January 2017, the Company made a $50,000 payment. Based on an informal agreement, the Company will continue to reduce the balance on the note in 2017 against the interest due to the Company on the Tronco note receivable (see Note 6 – Note Receivable) instead of repaying the note. Bridge Financing On August 8, 2016, we entered into a private transaction with a private investor pursuant to which we issued a promissory note in the aggregate principal amounts of $1,000,000 and a warrant to purchase up to an aggregate of 250,000 shares of our common stock, subject to certain adjustments to the number of shares and the exercise price described in the warrants. These warrants were valued at $112,024, based on using the Black Scholes model and were recorded as a liability and treated as derivatives. The variable inputs used in the Black Scholes calculation were; expected volatility of 95%, discount rate of 0.72% and the term of the warrants of 5 years. Once the indebtedness was paid off on October 5, 2016, and the final number of shares were known, the liability was removed and the warrants were included in equity. Machinery Loans During February 2013, we obtained a commercial loan collateralized by specific machinery with a face value of $592,000, requiring monthly payments of approximately $8,600, including principal and interest at 6% beginning March 1, 2013 and continuing through maturity on February 1, 2020. This loan contains a minimum debt service ratio and fixed charge covenants. The Company was in compliance with these covenants as of December 31, 2016. In 2013, we obtained a $627,000 loan for machinery The Small Business Administration has guaranteed 75% of the loan balance and the terms are as follows: 7-year maturity, 6.00% interest rate, 84 monthly payments of $9,160. The machinery is held as collateral. Transportation Loans Vehicles Our loans for Company vehicles and other transportation are with various financing parties we have engaged with in connection with the acquisition of the vehicles. As of December 31, 2016, the loans bear interest ranging from 0%-8.39% with maturity dates ranging from July 2017 through October 2021, and are collateralized by the vehicles. Our cumulative monthly payment under these loans as of December 31, 2016 was approximately $3,050, including principal and interest. Airplane Loan Our loan for the Company airplane bears interest at 7.35%, requires monthly payments of principal and interest of approximately $3,500, matures in May of 2026 and is collateralized by the airplane. Future annual maturities of all long-term debt are as follows(1) : Year 2017 $ 2,577,488 2018 6,709,503 2019 4,323,767 2020 2,234,131 2021 134,503 Thereafter 861,572 Total long-term debt $ 16,840,964 (1) Excludes discounts for debt issuance costts. |
Leases
Leases | 12 Months Ended |
Dec. 31, 2016 | |
Leases [Abstract] | |
Leases | NOTE 8. LEASES Capital Leases In 2012, we entered into a lease for machinery which required an initial payment of $928,776, followed by 3 monthly payments of $15,000, and 58 monthly payments of approximately $32,000. The terms of the lease included an imputed interest rate of 12.52%. The lease term expires August 1, 2017, at which time we may either purchase the machinery for the greater of its then-agreed fair value or 15% of its original cost, renew the lease for an additional 12 months or return the machine. We have not yet made a decision as to what we will elect at the end of the lease term. Payments under the lease are personally guaranteed by the Meiers. The lease has been capitalized and, accordingly, the machinery and related obligation under the lease have been included in the accompanying balance sheet as of December 31, 2016. Accumulated amortization on machinery under the capitalized lease totaled $1,442,098 and $1,209,864 for the year ending December 31, 2016 and 2015, respectively. Amortization expense for this machine is included in depreciation and amortization expense on the combined statement of operations. The remaining future minimum lease payment total of $217,302 is required before the term expires in August 2017, which includes $9,242 imputed interest expense. Operating Leases We also lease certain property and equipment under non-cancellable agreements which have been accounted for as operating leases. Future minimum lease payments required under operating leases in effect at December 31, 2016 are as follows: Year 2017 $ 166,451 2018 140,977 2019 130,086 2020 76,512 Thereafter - Operating leases $ 514,026 |
Commitments and Contingencies
Commitments and Contingencies | 12 Months Ended |
Dec. 31, 2016 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | NOTE 9. COMMITMENTS AND CONTINGENCIES We are subject to litigation that arises from time to time in the ordinary course of our business activities. We are not currently involved in any litigation which management believes could have a material effect on our financial position or results of operations, except as follows: In October 2013, Del-Rio Resources, Inc. (“Del-Rio”) filed suit, on its own behalf and derivatively on behalf of Philco Exploration, LLC (“Philco”), against the following co-defendants (a) Tronco Ohio, LLC and Tronco, (b) the lender on the Tronco loan, ACF Property Management, Inc. (p.k.a. Fortuna Asset Management, LLC,) (“ACF”), (c) Troy and Annette Meier personally, and several of their family trusts, (d) Meier Family Holding Company, LLC and Meier Management Company, LLC, and (e) Superior Drilling Solutions, LLC and Meier Properties Series, LLC . That suit is currently pending in the Eighth Judicial District Court, Uintah County, Utah under Cause #130800125. Tronco and Del-Rio are the sole owners and managers of Philco. Philco served as the exploration operator. Part of the collateral for the Tronco loan is Philco’ s mineral leases. Del-Rio’ s suit alleges that the defendants made amendments to the Tronco loan without complying with the voting provisions of Philco’ s operating agreement, and that all of the Meier-related entities somehow benefitted from the Tronco loan proceeds, in an unspecified manner. Del-Rio’ s suit seeks to invalidate ACF’ s deeds of trust on the Philco mineral leases, and to acquire title to those Philco mineral leases. ACF no longer has deeds of trust of any of the Philco mineral leases. Del Rio is also requesting monetary and punitive damages, disgorgement, prejudgment interest, post judgment interest, costs, and attorney fees, against all defendants, in an amount to be determined at trial. We believe that Del-Rio’s claims are without merit, and all defendants are actively defending in this matter. In particular, SDS’ and MPS’ only involvement was to grant guaranties and/or security interests in their respective separate personal and real property to ACF to additionally collateralize the Tronco loan before its purchase by us. In addition, since the Meiers and their personal trusts guaranty repayment of the Tronco loan, we believe that the basis of Del-Rio’ s damages claims are nullified. Consequently, we do not believe that Del Rio’s purported claims against SDS and MPS will have any material adverse effect on our cash flow, business, or operations. As of March 31, 2017, there have been no updates or decisions made concerning this matter. |
Related Party Transactions
Related Party Transactions | 12 Months Ended |
Dec. 31, 2016 | |
Related Party Transactions [Abstract] | |
Related Party Transactions | NOTE 10. RELATED PARTY TRANSACTIONS Superior Auto Body On January 1, 2016, the Company completed the divestiture of our interest in Superior Auto Body and Paint, LLC, by selling the remaining ownership interests in the business operations to a third party. The Company received $101,400 in proceeds. The Company leased certain of its facilities to Superior Auto Body (“SAB”). We recorded rental income from the related party in the amounts of $199,902 for the years ended December 31, 2016 and 2015. As discussed below, in 2017, we sold the facilities that had been leased to SAB and accordingly, we will no longer receive this rental income. In February 2017, the Company sold real estate to SAB for the net proceeds of $2.5 million. The cash received from the sale was used to pay down the $2.5 million loan balance on the property. As part of the sale, the Company released 547,000 shares of the Meiers common stock from the collateral for the Tronco Note. Prior to the sale, the Company held 8,814,860 common stock shares as collateral for the Tronco Note. After the sale in 2017, the Company holds 8,267,860 shares as collateral for the Tronco Note (see Note 6 – Note Receivable). |
Income Taxes
Income Taxes | 12 Months Ended |
Dec. 31, 2016 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | NOTE 11. INCOME TAXES Components of income tax benefit are as follows: Current income taxes: For the Year Ended December 31, 2016 For the Year Ended December 31, 2015 Federal $ - $ - State (2,000 ) 1,000 Current provision for income taxes (2,000 ) 1,000 Deferred provision (benefit) for income taxes: Federal - (413,148 ) State - (60,131 ) Deferred provision (benefit) for income taxes - (473,279 ) Provision for income taxes $ (2,000 ) $ (472,279 ) The non-current deferred tax assets and liabilities consist of the following: Deferred tax assets: 263A adjustment 21,595 26,178 Accrued expenses 305,024 326,589 Prepaid expense (24,908 ) (66,596 ) Stock compensation 55,624 55,817 Stock option 60,970 - Amortization of intangibles 3,791,944 3,444,048 Net operating loss 4,263,351 2,088,208 Others 11,887 35,489 Total non-current deferred tax assets 8,485,487 5,909,733 Deferred tax liabilities: Depreciation on fixed assets (1,008,413 ) (1,624,453 ) Total non-current deferred tax liabilities (1,008,413 ) (1,624,453 ) Net non-current deferred tax assets/liabilities 7,477,074 4,285,280 Less: Valuation Allowance (7,477,074 ) (4,285,280 ) Total deferred tax liabilities $ - $ - Reconciliation of the tax rate to the U.S. federal statutory tax rate which relate to the year ended December 31, 2016 and 2015 is as follows: For the Year Ended December 31, 2016 For the Year Ended December 31, 2015 Tax at federal statutory rate $ (3,104,489 ) $ (5,075,472 ) State income taxes (1,320 ) 660 Permanent differences 196,479 273,190 Change in valuation allowance 3,191,794 4,285,280 Other - State rate effect (272,768 ) (464,450 ) Change in status 14,216 508,385 Other (25,912 ) 127 Provision for income taxes $ (2,000 ) $ (472,279 ) |
Share Based Compensation
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 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. |
Subsequent Events
Subsequent Events | 12 Months Ended |
Dec. 31, 2016 | |
Subsequent Events [Abstract] | |
Subsequent Events | NOTE 13. SUBSEQUENT EVENTS Tronco Asset Sale On March 28, 2017, the Company and Tronco finalized an agreement with a third party and pursuant to this agreement, the third party acquired all of Tronco Ohio assets for $550,000. As the Tronco’ s senior secured lender, we released our lien and security interest on these assets in accordance with the agreement. Also on March 28, 2017 and related to the sale of the Tronco assets, the Company agreed to a non-cash receipt of the $550,000 from Tronco by reducing our bonus accrual liabilities. The bonus accrual was earned by the Meiers in 2014, and was recorded in other long term liability. As a result of this agreement, we have reduced both the other long term liability and the Tronco note receivable in 2017. |
Summary of Significant Accoun20
Summary of Significant Accounting Policies (Policies) | 12 Months Ended |
Dec. 31, 2016 | |
Accounting Policies [Abstract] | |
Organization and Basis of Presentation | Organization and Basis of Presentation Superior Drilling Products, Inc. (the “Company”, “we”, “our” or “us”) is a drilling and completion tool technology company. We design and manufacture new drill bit and horizontal drill string enhancement tools and refurbish PDC (polycrystalline diamond compact) drill bits for the oil, natural gas and mining services industry. Our customers are primarily engaged in domestic and international exploration and production of oil and natural gas. We were incorporated on December 10, 2013 under the name SD Company, Inc. in order to facilitate (a) the reorganization of the entities that are now our consolidated subsidiaries and (b) the subsequent acquisition of Hard Rock Solutions, LLC. We changed our name from SD Company Inc. to Superior Drilling Products, Inc. on May 22, 2014 in conjunction with closing of that reorganization and the completion of our initial public offering. Our headquarters and principal manufacturing operations are located in Vernal, Utah. The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The consolidated financial statements include the accounts of Superior Drilling Products Inc. and all of its wholly-owned subsidiaries. All significant intercompany accounts have been eliminated in consolidation. The Company does not have investments in any unconsolidated subsidiaries. |
Use of Estimates | Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates. Significant items subject to estimates and assumptions include the carrying amount and useful lives of property and equipment and intangible assets, impairment assessments, share-based compensation expense, and valuation allowances for accounts receivable, inventories, and deferred tax assets. |
Revenue Recognition | Revenue Recognition We are a drilling and completion tool technology company and we generate revenue from the refurbishment, manufacturing, repair, and sale of drill string tools. Our manufactured products are produced in a standard manufacturing operation, even when produced to our customer’s specifications. We also earn royalty fees under certain arrangements for the tools we sell. In May 2016, the Company entered into an agreement with DTI to be our exclusive distributor of the Drill-N-Ream tool in the United States and Canada. This agreement began the change of direction of our business from renting tools to selling tools. Tool sales, rentals and other related revenue Tool and Product Sales Tool Rental Other Related Revenue Contract Services Drill Bit Manufacturing and Refurbishment |
Cash and cash equivalents | Cash and cash equivalents Cash and cash equivalents consist of cash on deposit. We maintain cash deposits with financial institutions that may exceed federally insured limits at times. We have chosen credible institutions and believe our risk of loss is negligible. |
Fair Value of Financial Instruments | Fair Value of Financial Instruments The Company’s financial instruments consist of cash and cash equivalents, receivables, payables, and bank debt. The Company believes that the carrying values of these instruments on the accompanying consolidated balance sheets approximate their fair values. |
Accounts Receivable and Allowance for Doubtful Accounts | Accounts Receivable and Allowance for Doubtful Accounts Accounts receivable are generally due within 60 days of the invoice date. No interest is charged on past-due balances. We grant credit to our customers based upon an evaluation of each customer’s financial condition. We periodically monitor the payment history and ongoing creditworthiness of our customers. An allowance for doubtful accounts is established at a level estimated by management to be adequate based upon various factors including historical experience, aging status of customer accounts, payment history and financial condition of our customers. The allowance for doubtful accounts was $9,000 and $0 as of December 31, 2016, and 2015, respectively. |
Inventories | Inventories Inventories consist of raw materials, work-in-process and finished goods and are stated at the lower of cost, determined using the weighted-average cost method, or market. Finished goods inventories include raw materials, direct labor and production overhead. The Company regularly reviews inventories on hand and current market conditions to determine if the cost of finished goods inventories exceed current market prices and impairs the cost basis of the inventory accordingly. |
Property, Plant and Equipment | Property, Plant and Equipment Property, plant and equipment is stated at cost. The cost of ordinary maintenance and repair is charged to operating expense, while replacement of critical components and major improvements are capitalized. Depreciation or amortization of property and equipment, including assets held under capital leases, is calculated using the straight-line method over the asset’s estimated useful life as follows: Buildings and leasehold Improvements 2-39 years Machinery, equipment and rental Tools 18 months -10 years Furniture and fixtures 7 years Transportation equipment 5 - 30 years Computer equipment and software 3-5 years Property, plant and equipment is reviewed for impairment on an annual basis or whenever events or changes in circumstances indicate the carrying value of an asset or asset group may not be recoverable. Indicative events or circumstances include, but are not limited to, matters such as a significant decline in market value or a significant change in business climate. An impairment loss is recognized when the carrying value of an asset exceeds the estimated undiscounted future cash flows from the use of the asset and its eventual disposition. The amount of impairment loss recognized is the excess of the asset’s carrying value over its fair value. Assets to be disposed of are reported at the lower of the carrying value or the fair value less cost to sell. Upon sale or other disposition of an asset, the Company recognizes a gain or loss on disposal measured as the difference between the net carrying value of the asset and the net proceeds received. In 2016, the Company recognized an impairment loss of $840,380 related to property that was sold in the first quarter of 2017. This loss was recorded in 2016 and the asset was classified as held for sale. The impairment loss was based on a third-party independent appraisal that utilized the sales comparison approach that determined the fair value of the property. There was no gain 0on the sale of the asset in 2017 as the impairment had been recorded to reflect the fair value of the property. (See Note 10 – Related Party Transactions). In 2016 and 2015, the Company recognized an impairment loss in cost of sales of $211,056 and $66,651, respectively, related to the Open Hole Strider technology that had been capitalized as part of fixed assets. It was determined in 2016 that the tool design had limited market potential and the Company decided to re-design the tool to be offered to a broader market. |
Goodwill | Goodwill Goodwill is the excess cost of an acquired entity over the amounts assigned to assets acquired and liabilities assumed in a business combination. The Company allocated $7,802,903 to goodwill in in conjunction with the Hard Rock acquisition in 2014. An assessment for impairment is performed annually or whenever an event indicating impairment may have occurred. The Company completes its annual impairment test for goodwill and other indefinite-lived intangibles using an assessment date of December 31. Goodwill is reviewed for impairment by comparing the carrying value of the reporting unit’s net assets (including allocated goodwill) to the fair value of the reporting unit. The fair value of the reporting units is determined using a discounted cash flow approach. Determining the fair value of a reporting unit requires judgment and the use of significant estimates and assumptions. Such estimates and assumptions include revenue growth rates, operating margins, weighted average costs of capital, drill rig counts, market share and future market conditions, among others. If the reporting unit’s carrying value is greater than its fair value, a second step is performed whereby the implied fair value of goodwill is estimated by allocating the fair value of the reporting unit in a hypothetical purchase price allocation analysis. The Company recognizes a goodwill impairment charge for the amount by which the carrying value of goodwill exceeds its fair value. The impairment test is a fair value test which includes assumptions such as growth and discount rates. Any impairment losses are reflected in operating income. The Company determined goodwill of $7,802,903 was fully impaired while performing the 2015 annual impairment test. Global oil and natural gas commodity prices, particularly crude oil, decreased significantly. The decrease in commodity prices had a negative impact on industry drilling and capital expenditure activity, which affected the demand for products and services of our Company. As part of the first step of goodwill impairment testing, we updated our income approach assessment of the future cash flows for our Company, applying expected long-term growth rates, discount rates, and terminal values that we consider reasonable for our Company. Critical assumptions include a recovery and market expansion of the tool during 2016 and beyond. The Company’s market capitalization was also used to corroborate reporting unit valuation. As goodwill was fully impaired in 2015, no test was performed in 2016. |
Intangible Assets | Intangible Assets The Company’s intangible assets with finite lives consist of developed technology, customer contracts and relationships, and trade names and trademarks. The cost of intangible assets with finite lives is amortized using the straight-line method over the estimated period of economic benefit, ranging from 3 to 17 years. Asset lives are adjusted whenever there is a change in the estimated period of economic benefit. No residual value has been assigned to these intangible assets. Intangible assets with finite lives are tested for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. These conditions may include a change in the extent or manner in which the asset is being used or a change in future operations. The Company assesses the recoverability of the carrying amount by preparing estimates of future revenue, margins, and cash flows. If the sum of expected future cash flows (undiscounted and without interest charges) is less than the carrying amount, an impairment loss is recognized. The impairment loss recognized is the amount by which the carrying amount exceeds the fair value. Fair value of these assets may be determined by a variety of methodologies, including discounted cash flow models. |
Comprehensive Income (Loss) | Comprehensive Income (Loss) Comprehensive income (loss) encompasses all changes in stockholders’ equity, except those arising from investments from and distributions to stockholders. The Company’s comprehensive income (loss) includes net income (loss) and foreign currency translation adjustments. |
Research and Development | Research and Development We expense research and development costs as they are incurred. For the years ended December 31, 2016 and 2015, these expenses were approximately $1,200,000 and $1,500,000, respectively, and are included in the selling, general, and administrative expenses in the statement of operations. |
Earnings (Loss) Per Share | Earnings (Loss) Per Share Basic earnings (loss) per common share is calculated by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) attributable to common shareholders by the weighted average number of common shares outstanding, including potentially dilutive common share equivalents, if the effect is dilutive. Potentially dilutive common shares equivalents include stock options and warrants. Approximately 250,000 warrants to purchase our common stock were excluded from this calculation because they were antidilutive for the year ended December 31, 2016. |
Income Taxes | Income Taxes The Company recognizes an asset or liability for the deferred tax consequences of all temporary differences between the tax basis of assets or liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years when the reported amounts of the asset or liabilities are recovered or settled and for operating loss carry forwards. These deferred tax assets and liabilities are measured using the enacted tax rates that will be in effect when the differences are expected to reverse and the carry forwards are expected to be realized. Deferred tax assets are reviewed periodically for recoverability and a valuation allowance is provided as necessary. |
Debt Issuance Costs | Debt Issuance Costs Costs related to debt issuance are capitalized and amortized as interest expense over the term of the related debt using the straight-line method, which approximates the effective interest method. Upon the repayment of debt, the Company accelerates the recognition of an appropriate amount of the costs as interest expense. Debt issuance costs related to the Hard Rock Note are presented as a direct reduction from the carrying amount of the note payable. As of December 31, 2016 and 2015, the debt issuance costs were $153,503 and $261,493, respectively. |
Share Based Compensation | Share Based Compensation Share based compensation expense for share based payments, related to stock option and restricted stock awards, is recognized based on their grant-date fair values. The Company recognizes compensation expense, net of estimated forfeitures, on a straight-line basis over the requisite service period of the award. Estimated forfeitures are based on historical experience. |
Concentrations and Credit Risk | Concentrations and Credit Risk The Company has two significant customers that represent 63% of our revenue for the year ended December 31, 2016, respectively. These customers had $649,960 in accounts receivable at December 31, 2016. We had one customer that represented 37%, of our revenue for the year ended December 31, 2015, and had $887,081 in accounts receivable at December 31, 2015. |
Assets and Liabilities Held for Sale | Assets and Liabilities Held for Sale The Company classifies disposal groups as held for sale in the period in which all of the following criteria are met: (1) management, having the authority to approve the action, commits to a plan to sell the disposal group; (2) the disposal group is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such disposal groups; (3) an active program to locate a buyer or buyers and other actions required to complete the plan to sell the disposal group have been initiated; (4) the sale of the disposal group is probable, and transfer of the disposal group is expected to qualify for recognition as a completed sale, within one year, except if events of circumstances beyond the Company’s control extend the period of time required to sell the disposal group beyond one year; (5) the disposal group is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and (6) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. See Note 10 – Related Party Transactions. |
Reclassifications | Reclassifications Certain prior year amounts have been reclassified to conform to the current year presentation. The reclassifications did not impact net income. |
Recently Issued Accounting Standards | Recently Issued Accounting Standards In May 2014, the No. 2014-09, Revenue from Contracts with Customers 5, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers , In July 2015, the FASB issued ASU No. 2015-11, “ Simplifying the Measurement of Inventory In February 2016, the FASB issued ASU No. 2016-02, “ Leases In March 2016, the FASB issued ASU No. 2016-09, “ Improvements to Employee Share-Based Payment Accounting Effective January 1, 2016, the Company adopted the accounting guidance the FASB issued ASU 2015-03, “ Simplifying the Presentation of Debt Issuance Costs. |
Summary of Significant Accoun21
Summary of Significant Accounting Policies (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Accounting Policies [Abstract] | |
Schedule of Property And Equipment Useful Life | Depreciation or amortization of property and equipment, including assets held under capital leases, is calculated using the straight-line method over the asset’s estimated useful life as follows: Buildings and leasehold Improvements 2-39 years Machinery, equipment and rental Tools 18 months -10 years Furniture and fixtures 7 years Transportation equipment 5 - 30 years Computer equipment and software 3-5 years |
Inventories (Tables)
Inventories (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Inventory Disclosure [Abstract] | |
Schedule of Inventories | Inventories is comprised of the following: December 31, 2016 December 31, 2015 Raw material $ 952,419 $ 968,254 Work in progress 90,017 117,661 Finished goods 125,256 324,879 $ 1,167,692 $ 1,410,794 |
Property, Plant and Equipment (
Property, Plant and Equipment (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Property, Plant and Equipment [Abstract] | |
Schedule Property, Plant and Equipment | Property, plant and equipment are comprised of the following: December 31, 2016 December 31, 2015 Land $ 880,416 $ 2,268,039 Buildings 4,847,778 4,847,778 Buildings – Superior Auto Body - 2,213,729 Leasehold improvements 717,232 717,232 Machinery and equipment 5,060,281 7,200,530 Machinery under capital lease 2,322,340 2,322,340 Furniture and fixtures 507,554 507,554 Transportation assets 882,163 1,317,397 15,217,764 21,394,599 Accumulated depreciation (6,149,405 ) (6,739,097 ) $ 9,068,359 $ 14,655,502 |
Intangible Assets (Tables)
Intangible Assets (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Schedule Intangible Assets | Intangible assets are comprised of the following: December 31, 2016 December 31, 2015 Developed technology $ 7,000,000 $ 7,000,000 Customer contracts 6,400,000 6,400,000 Trademarks 1,500,000 1,500,000 14,900,000 14,900,000 Accumulated amortization (6,320,556 ) (3,873,889 ) $ 8,579,444 $ 11,026,111 |
Schedule of Finite-Lived Intangible Assets, Future Amortization Expense | As of December 31, 2016, the Company will recognize the following amortization expense for the respective periods ending December 31 noted below: 2017 2,446,667 2018 2,446,667 2019 1,700,000 2020 1,166,667 2021 583,334 Thereafter 236,109 Total $ 8,579,444 |
Long-Term Debt (Tables)
Long-Term Debt (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Debt Disclosure [Abstract] | |
Schedule of Long-term Debt Instruments | Long-term debt is comprised of the following: December 31, 2016 December 31, 2015 Real estate loans $ 7,264,036 $ 7,585,063 Hard Rock Note, net of discount 7,846,497 9,738,521 Related party loans - 826,583 Machinery loans 684,921 853,970 Transportation loans 398,929 658,430 16,194,383 19,662,567 Current portion of long-term debt (2,905,682 ) (3,078,264 ) $ 13,288,701 $ 16,584,303 |
Schedule of Future Annual Maturities of Long-Term Debt | Future annual maturities of all long-term debt are as follows(1) : Year 2017 $ 2,577,488 2018 6,709,503 2019 4,323,767 2020 2,234,131 2021 134,503 Thereafter 861,572 Total long-term debt $ 16,840,964 (1) Excludes discounts for debt issuance costts. |
Leases (Tables)
Leases (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Leases [Abstract] | |
Schedule of Future Minimum Rental Payments for Operating Leases | Future minimum lease payments required under operating leases in effect at December 31, 2016 are as follows: Year 2017 $ 166,451 2018 140,977 2019 130,086 2020 76,512 Thereafter - Operating leases $ 514,026 |
Income Taxes (Tables)
Income Taxes (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Income Tax Disclosure [Abstract] | |
Schedule of Components of Income Tax Expense (Benefit) | Components of income tax benefit are as follows: Current income taxes: For the Year Ended December 31, 2016 For the Year Ended December 31, 2015 Federal $ - $ - State (2,000 ) 1,000 Current provision for income taxes (2,000 ) 1,000 Deferred provision (benefit) for income taxes: Federal - (413,148 ) State - (60,131 ) Deferred provision (benefit) for income taxes - (473,279 ) Provision for income taxes $ (2,000 ) $ (472,279 ) |
Schedule of Deferred Tax Assets and Liabilities | The non-current deferred tax assets and liabilities consist of the following: Deferred tax assets: 263A adjustment 21,595 26,178 Accrued expenses 305,024 326,589 Prepaid expense (24,908 ) (66,596 ) Stock compensation 55,624 55,817 Stock option 60,970 - Amortization of intangibles 3,791,944 3,444,048 Net operating loss 4,263,351 2,088,208 Others 11,887 35,489 Total non-current deferred tax assets 8,485,487 5,909,733 Deferred tax liabilities: Depreciation on fixed assets (1,008,413 ) (1,624,453 ) Total non-current deferred tax liabilities (1,008,413 ) (1,624,453 ) Net non-current deferred tax assets/liabilities 7,477,074 4,285,280 Less: Valuation Allowance (7,477,074 ) (4,285,280 ) Total deferred tax liabilities $ - $ - |
Schedule of Effective Income Tax Rate Reconciliation | Reconciliation of the tax rate to the U.S. federal statutory tax rate which relate to the year ended December 31, 2016 and 2015 is as follows: For the Year Ended December 31, 2016 For the Year Ended December 31, 2015 Tax at federal statutory rate $ (3,104,489 ) $ (5,075,472 ) State income taxes (1,320 ) 660 Permanent differences 196,479 273,190 Change in valuation allowance 3,191,794 4,285,280 Other - State rate effect (272,768 ) (464,450 ) Change in status 14,216 508,385 Other (25,912 ) 127 Provision for income taxes $ (2,000 ) $ (472,279 ) |
Share Based Compensation (Table
Share Based Compensation (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Schedule of Share-based Compensation, Restricted Stock Units Award Activity | 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 |
Schedule of Share-based Compensation, Stock Options, Activity | 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 - $ - - $ - |
Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions | 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 |
Summary of Significant Accoun29
Summary of Significant Accounting Policies (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Accounts receivable | $ 221,000 | |
Accounts payable | 207,000 | |
Allowance for doubtful accounts | 9,000 | $ 0 |
Impairment loss | 840,380 | |
Impairment of goodwill | 7,802,903 | |
Research and development expense | $ 1,200,000 | 1,500,000 |
Warrant to purchase of common stock | 250,000 | |
Debt issuance costs | $ 153,503 | 261,493 |
Two Customer [Member] | Sales Revenue, Net [Member] | ||
Accounts receivable | $ 649,960 | |
Concentration risk, percentage | 63.00% | |
One Customer [Member] | Sales Revenue, Net [Member] | ||
Accounts receivable | $ 887,081 | |
Concentration risk, percentage | 37.00% | |
Minimum [Member] | ||
Finite-lived intangible asset, useful life | 3 years | |
Maximum [Member] | ||
Finite-lived intangible asset, useful life | 17 years | |
Hard Rock Acquisition [Member] | ||
Goodwill | $ 7,802,903 | |
Open Hole Strider Technology [Member] | ||
Impairment loss | $ 211,056 | $ 66,651 |
Summary of Significant Accoun30
Summary of Significant Accounting Policies - Schedule of Property And Equipment Useful Life (Details) | 12 Months Ended |
Dec. 31, 2016 | |
Buildings and Leasehold Improvements [Member] | Minimum [Member] | |
Property, plant and equipment, useful life | 2 years |
Buildings and Leasehold Improvements [Member] | Maximum [Member] | |
Property, plant and equipment, useful life | 39 years |
Machinery, Equipment and Rental Tools [Member] | Minimum [Member] | |
Property, plant and equipment, useful life | 18 months |
Machinery, Equipment and Rental Tools [Member] | Maximum [Member] | |
Property, plant and equipment, useful life | 10 years |
Furniture and Fixtures [Member] | |
Property, plant and equipment, useful life | 7 years |
Transportation Equipment [Member] | Minimum [Member] | |
Property, plant and equipment, useful life | 5 years |
Transportation Equipment [Member] | Maximum [Member] | |
Property, plant and equipment, useful life | 30 years |
Computer Equipment and Software [Member] | Minimum [Member] | |
Property, plant and equipment, useful life | 3 years |
Computer Equipment and Software [Member] | Maximum [Member] | |
Property, plant and equipment, useful life | 5 years |
Public Offering (Details Narrat
Public Offering (Details Narrative) - USD ($) | Sep. 30, 2016 | Dec. 31, 2016 | |
Public offering common stock per share | $ 1 | ||
Underwriting and stock offering expenses | $ 709,000 | ||
Proceeds from issuance of public offering | 5,000,000 | ||
Proceeds from repayment of promissory note | 1,000,000 | ||
Indebtedness amount | 868,000 | ||
Long term debt | [1] | $ 16,840,964 | |
Hard Rock [Member] | |||
Long term debt | $ 500,000 | ||
[1] | Excludes discounts for debt issuance costts. |
Inventories (Details Narrative)
Inventories (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Inventory gross | $ 225,710 | |
Impairment loss | 210,745 | $ 124,872 |
OrBit [Member] | ||
Inventory gross | 0 | |
Strider Technologies [Member] | ||
Impairment loss | $ 147,801 |
Inventories - Schedule of Inven
Inventories - Schedule of Inventories (Details) - USD ($) | Dec. 31, 2016 | Dec. 31, 2015 |
Inventory Disclosure [Abstract] | ||
Raw material | $ 952,419 | $ 968,254 |
Work in progress | 90,017 | 117,661 |
Finished goods | 125,256 | 324,879 |
Inventory, Net | $ 1,167,692 | $ 1,410,794 |
Property, Plant and Equipment34
Property, Plant and Equipment (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Proceeds from business operations and rental tools | $ 415,817 | |
Gain on business operations and rental tools | 76,211 | |
Impairment of property, plant and equipment – held for sale | 840,380 | |
Depreciation expense related to PP&E | 1,844,582 | 2,371,881 |
Open Hole Strider Technology [Member] | ||
Impairment of property, plant and equipment – held for sale | $ 211,056 | $ 66,651 |
Property, Plant and Equipment -
Property, Plant and Equipment - Schedule Property, Plant and Equipment (Details) - USD ($) | Dec. 31, 2016 | Dec. 31, 2015 |
Property, Plant and Equipment [Abstract] | ||
Land | $ 880,416 | $ 2,268,039 |
Buildings | 4,847,778 | 4,847,778 |
Buildings - Superior Auto Body | 2,213,729 | |
Leasehold improvements | 717,232 | 717,232 |
Machinery and equipment | 5,060,281 | 7,200,530 |
Machinery under capital lease | 2,322,340 | 2,322,340 |
Furniture and fixtures | 507,554 | 507,554 |
Transportation assets | 882,163 | 1,317,397 |
Property, Plant and Equipment, Gross | 15,217,764 | 21,394,599 |
Accumulated depreciation | (6,149,405) | (6,739,097) |
Property, Plant and Equipment, Net | $ 9,068,359 | $ 14,655,502 |
Intangible Assets (Details Narr
Intangible Assets (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Goodwill and Intangible Assets Disclosure [Abstract] | ||
Amortization of intangible assets | $ 2,446,667 | $ 2,446,667 |
Finite Lived Intangible Assets Weighted Average Amortization Period | 6 years 3 months 18 days | |
Impairment of intangible assets |
Intangible Assets - Schedule In
Intangible Assets - Schedule Intangible Assets (Details) - USD ($) | Dec. 31, 2016 | Dec. 31, 2015 |
Finite-Lived Intangible Assets [Line Items] | ||
Intangible Assets, Gross | $ 14,900,000 | $ 14,900,000 |
Accumulated amortization | 6,320,556 | (3,873,889) |
Finite-Lived Intangible Assets, Net | 8,579,444 | 11,026,111 |
Developed Technology [Member] | ||
Finite-Lived Intangible Assets [Line Items] | ||
Intangible Assets, Gross | 7,000,000 | 7,000,000 |
Customer Contracts [Member] | ||
Finite-Lived Intangible Assets [Line Items] | ||
Intangible Assets, Gross | 6,400,000 | 6,400,000 |
Trademarks and Trade Names [Member] | ||
Finite-Lived Intangible Assets [Line Items] | ||
Intangible Assets, Gross | $ 1,500,000 | $ 1,500,000 |
Intangible Assets - Schedule of
Intangible Assets - Schedule of Finite-Lived Intangible Assets, Future Amortization Expense (Details) - USD ($) | Dec. 31, 2016 | Dec. 31, 2015 |
Goodwill and Intangible Assets Disclosure [Abstract] | ||
2,017 | $ 2,446,667 | |
2,018 | 2,446,667 | |
2,019 | 1,700,000 | |
2,020 | 1,166,667 | |
2,021 | 583,334 | |
Thereafter | 236,109 | |
Finite-Lived Intangible Assets, Net | $ 8,579,444 | $ 11,026,111 |
Note Receivable (Details Narrat
Note Receivable (Details Narrative) - USD ($) | 12 Months Ended | ||
Dec. 31, 2016 | Dec. 31, 2015 | May 30, 2014 | |
Notes Receivable | $ 8,296,717 | $ 8,296,717 | |
February 2017 [Member] | |||
Number of collateral shares | 8,267,860 | ||
Interest income | $ 311,979 | ||
Tronco Energy Corporation [Member] | |||
Notes Receivable | $ 8,300,000 | ||
Maturity date | Dec. 31, 2017 | ||
Debt interest rate | 3.75% | ||
Interest income | $ 291,238 | ||
Tronco Energy Corporation [Member] | March 28, 2017 [Member] | |||
Assets acquired | $ 550,000 | ||
Non cash receipt of accrual liabilities | $ 550,000 |
Long-Term Debt (Details Narrati
Long-Term Debt (Details Narrative) - USD ($) | Aug. 10, 2016 | Aug. 08, 2016 | Dec. 31, 2014 | Feb. 28, 2013 | Dec. 31, 2012 | Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
Long term loan | [1] | $ 16,840,964 | ||||||||
Amortization of Debt Discount | 107,975 | $ 567,187 | ||||||||
Debt instrument, periodic payment, interest | 769,582 | |||||||||
Debt instrument, face amount | $ 2,000,000 | |||||||||
Related Party Loans [Member] | ||||||||||
Debt instrument, interest rate | 7.50% | 7.50% | ||||||||
Proceeds from notes payable to related parties | $ 2,000,000 | |||||||||
Bridge Financing [Member] | ||||||||||
Fair value assumptions, expected volatility rate | 95.00% | |||||||||
Fair value inputs, discount rate | 0.72% | |||||||||
Fair value assumptions, expected term | 5 years | |||||||||
Machinery Loans [Member] | ||||||||||
Debt instrument, periodic payment | $ 8,600 | $ 9,160 | ||||||||
Debt instrument, interest rate | 6.00% | 6.00% | ||||||||
Debt instrument, maturity date | Feb. 1, 2020 | |||||||||
Loan maturity description | 7-year maturity | |||||||||
Debt payment terms | 84 monthly payments | |||||||||
Proceeds from loan | $ 592,000 | $ 627,000 | ||||||||
Percentage of business administration | 75.00% | |||||||||
Transportation Loans [Member] | ||||||||||
Debt instrument, periodic payment | $ 3,050 | |||||||||
Transportation Loans [Member] | Minimum [Member] | ||||||||||
Debt instrument, interest rate | 0.00% | |||||||||
Loan maturity description | July 2,017 | |||||||||
Transportation Loans [Member] | Maximum [Member] | ||||||||||
Debt instrument, interest rate | 8.39% | |||||||||
Loan maturity description | October 2,021 | |||||||||
Airplane Loan [Member] | ||||||||||
Debt instrument, periodic payment | $ 3,500 | |||||||||
Debt instrument, interest rate | 7.35% | |||||||||
Loan maturity description | May of 2026 | |||||||||
Real Estate Loans [Member] | ||||||||||
Debt instrument, periodic payment | $ 10,565 | $ 39,000 | ||||||||
Debt instrument, interest rate | 5.50% | 5.25% | ||||||||
Debt instrument, periodic payment, principal | $ 4,200,000 | |||||||||
Debt instrument, maturity date | Aug. 15, 2018 | |||||||||
Long term loan | $ 1,700,000 | |||||||||
Real Estate Loans [Member] | Superior Auto Body [Member] | ||||||||||
Debt instrument, periodic payment | $ 7,517 | |||||||||
Debt instrument, interest rate | 2.24% | |||||||||
Long term loan | $ 1,200,000 | |||||||||
Hard Rock Note [Member] | ||||||||||
Debt instrument, interest rate | 5.75% | |||||||||
Debt instrument, periodic payment, principal | $ 1,000,000 | 2,500,000 | ||||||||
Debt instrument, maturity date | Jan. 15, 2020 | |||||||||
Long term loan | $ 7,846,497 | 9,738,521 | ||||||||
Business Combination, Consideration Transferred, Liabilities Incurred | $ 12,500,000 | |||||||||
Payments to Acquire Businesses, Gross | 12,500,000 | |||||||||
Debt Instrument, Fair Value Disclosure | 11,144,000 | $ 11,144,000 | ||||||||
Amortization of Debt Discount | $ 1,356,000 | |||||||||
Line of credit outstanding | 2,000,000 | 108,000 | 567,000 | |||||||
Debt instrument, periodic payment, interest | $ 406,250 | |||||||||
Stock issued value, restricted stock | $ 1,000,000 | |||||||||
Stock issued shares, restricted stock | 700,000 | |||||||||
Hard Rock Note [Member] | January 15, 2017 [Member] | ||||||||||
Debt instrument, periodic payment, interest | 129,808 | |||||||||
Hard Rock Note [Member] | March 15, 2017 [Member] | ||||||||||
Debt instrument, periodic payment, principal | $ 50,000 | |||||||||
Debt instrument, maturity date | Jan. 2, 2017 | |||||||||
Debt instrument, periodic payment, interest | $ 74,356 | |||||||||
Hard Rock Note [Member] | January 15, 2018 [Member] | ||||||||||
Debt instrument, periodic payment, interest | $ 500,000 | |||||||||
Hard Rock Note [Member] | March 15, 2018 [Member] | ||||||||||
Debt instrument, periodic payment, interest | 500,000 | |||||||||
Hard Rock Note [Member] | May 15, 2018 [Member] | ||||||||||
Debt instrument, periodic payment, interest | 500,000 | |||||||||
Hard Rock Note [Member] | July 15, 2018 [Member] | ||||||||||
Debt instrument, periodic payment, interest | 500,000 | |||||||||
Hard Rock Note [Member] | January 15, 2019 [Member] | ||||||||||
Debt instrument, periodic payment, interest | 1,000,000 | |||||||||
Hard Rock Note [Member] | March 15, 2019 [Member] | ||||||||||
Debt instrument, periodic payment, interest | 1,000,000 | |||||||||
Hard Rock Note [Member] | May 15, 2019 [Member] | ||||||||||
Debt instrument, periodic payment, interest | 1,000,000 | |||||||||
Hard Rock Note [Member] | July 15, 2019 [Member] | ||||||||||
Debt instrument, periodic payment, interest | $ 1,000,000 | |||||||||
Bridge Financing [Member] | ||||||||||
Debt instrument, face amount | $ 1,000,000 | |||||||||
Warrant to purchase maximum of common stock, shares | 250,000 | |||||||||
Warrant to purchase maximum of common stock, value | $ 112,024 | |||||||||
[1] | Excludes discounts for debt issuance costts. |
Long-Term Debt - Schedule of Lo
Long-Term Debt - Schedule of Long-term Debt Instruments (Details) - USD ($) | Dec. 31, 2016 | Dec. 31, 2015 |
Long term debt, Total | $ 16,194,383 | $ 19,662,567 |
Current portion of long-term debt | (2,905,682) | (2,522,871) |
Long term portion of long-term debt | 13,288,701 | 16,313,113 |
Hard Rock Note [Member] | ||
Long term debt, Total | 7,846,497 | 9,738,521 |
Related Party Loans [Member] | ||
Long term debt, Total | 826,583 | |
Real Estate Loans [Member] | ||
Long term debt, Total | 7,264,036 | 7,585,063 |
Machinery Loans [Member] | ||
Long term debt, Total | 684,921 | 853,970 |
Transportation Loans [Member] | ||
Long term debt, Total | $ 398,929 | $ 658,430 |
Long-Term Debt - Schedule of Fu
Long-Term Debt - Schedule of Future Annual Maturities of Long-Term Debt (Details) | Dec. 31, 2016USD ($) | [1] |
Debt Disclosure [Abstract] | ||
2,017 | $ 2,577,488 | |
2,018 | 6,709,503 | |
2,019 | 4,323,767 | |
2,020 | 2,234,131 | |
2,021 | 134,503 | |
Thereafter | 861,572 | |
Total long-term debt | $ 16,840,964 | |
[1] | Excludes discounts for debt issuance costts. |
Leases (Details Narrative)
Leases (Details Narrative) - USD ($) | 12 Months Ended | ||
Dec. 31, 2012 | Dec. 31, 2016 | Dec. 31, 2015 | |
Lease initial payment | $ 928,776 | ||
Lease, monthly payments | $ 15,000 | ||
Lease, imputed interest rate | 12.52% | ||
Lease term expiration date | Aug. 1, 2017 | ||
Accumulated amortization on machinery under the capitalized lease | $ 1,442,098 | $ 1,209,864 | |
Future minimum lease payment | $ 217,302 | ||
Imputed interest expense | $ 9,242 | ||
3 Monthly Payments [Member] | |||
Lease, monthly payments | 15,000 | ||
58 Monthly Payments [Member] | |||
Lease, monthly payments | $ 32,000 |
Leases - Schedule of Future Min
Leases - Schedule of Future Minimum Rental Payments for Operating Leases (Details) | Dec. 31, 2016USD ($) |
Leases [Abstract] | |
2,017 | $ 166,451 |
2,018 | 140,977 |
2,019 | 130,086 |
2,020 | 76,512 |
Thereafter | |
Operating leases | $ 514,026 |
Related Party Transactions (Det
Related Party Transactions (Details Narrative) | 12 Months Ended |
Dec. 31, 2016USD ($)shares | |
February 2017 [Member] | Meier Stock Pledge [Member] | |
Number of shares pledged as guaranties | shares | 8,814,860 |
February 2017 [Member] | Tronco Note [Member] | |
Number of shares pledged as guaranties | shares | 8,267,860 |
Superior Auto Body and Paint [Member] | |
Value of operations determined | $ 101,400 |
Rental income | 199,902 |
Superior Auto Body and Paint [Member] | February 2017 [Member] | |
Proceeds from sale of real estate | 2,500,000 |
Loan payoff | $ 2,500,000 |
Number of released from collateral | shares | 547,000 |
Income Taxes - Schedule of Comp
Income Taxes - Schedule of Components of Income Tax Expense (Benefit) (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Income Tax Disclosure [Abstract] | ||
Current, Federal | ||
Current, State | (2,000) | 1,000 |
Current provision for income taxes | (2,000) | 1,000 |
Deferred, Federal | (413,148) | |
Deferred, State | (60,131) | |
Deferred provision (benefit) for income taxes | (2,000) | (473,279) |
Provision for income taxes | $ (2,000) | $ (472,279) |
Income Taxes - Schedule of Defe
Income Taxes - Schedule of Deferred Tax Assets and Liabilities (Details) - USD ($) | Dec. 31, 2016 | Dec. 31, 2015 |
Income Tax Disclosure [Abstract] | ||
263A adjustment | $ 21,595 | $ 26,178 |
Accrued expenses | 305,024 | 326,589 |
Prepaid expense | (24,908) | (66,596) |
Stock compensation | 55,624 | 55,817 |
Stock option | 60,970 | |
Amortization of intangibles | 3,791,944 | 3,444,048 |
Net operating loss | 4,263,351 | 2,088,208 |
Others | 11,887 | 35,489 |
Total non-current deferred tax assets | 8,485,487 | 5,909,733 |
Depreciation on fixed assets | (1,008,413) | (1,624,453) |
Total non-current deferred tax liabilities | (1,008,413) | (1,624,453) |
Net non-current deferred tax assets/liabilities | 7,477,074 | 4,285,280 |
Less: Valuation Allowance | (7,477,074) | (4,285,280) |
Total deferred tax liabilities |
Income Taxes - Schedule of Effe
Income Taxes - Schedule of Effective Income Tax Rate Reconciliation (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Income Tax Disclosure [Abstract] | ||
Tax at federal statutory rate | $ (3,104,489) | $ (5,075,472) |
State income taxes | (1,320) | 660 |
Permanent differences | 196,479 | 273,190 |
Change in valuation allowance | 3,191,794 | 4,285,280 |
Other - State rate effect | (272,768) | (464,450) |
Change in status | 14,216 | 508,385 |
Other | (25,912) | 127 |
Provision for income taxes | $ (2,000) | $ (472,279) |
Share Based Compensation (Detai
Share Based Compensation (Details Narrative) - USD ($) | Dec. 22, 2016 | Dec. 05, 2016 | Nov. 10, 2016 | Mar. 31, 2016 | Mar. 18, 2016 | Mar. 04, 2016 | Dec. 23, 2015 | Aug. 10, 2015 | Jun. 15, 2015 | Dec. 31, 2016 | Dec. 31, 2015 | Nov. 11, 2014 |
Common stock, shares outstanding | 24,120,695 | 17,459,605 | ||||||||||
Compensation expense recognized | $ 783,462 | $ 564,079 | ||||||||||
Restricted Stock Units (RSUs) [Member] | ||||||||||||
Number of restricted units granted | 600,000 | 444,202 | ||||||||||
Restricted stock units vesting period | 2 years 10 months 24 days | |||||||||||
Unrecognized compensation expense | $ 773,000 | |||||||||||
2015 Incentive Plan [Member] | ||||||||||||
Maximum aggregate number of common shares issued | 1,552,905 | |||||||||||
Common stock, shares outstanding | 780,484 | |||||||||||
Number of restricted units granted | 71,202 | |||||||||||
Restricted stock units vesting period | 3 years | |||||||||||
2015 Incentive Plan [Member] | Restricted Stock Units (RSUs) [Member] | ||||||||||||
Number of restricted units granted | 87,500 | |||||||||||
Restricted stock units vesting rights description | 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. | |||||||||||
Compensation expense recognized | $ 406,000 | $ 334,000 | ||||||||||
2015 Incentive Plan [Member] | Officers and Employees [Member] | ||||||||||||
Number of restricted units granted | 5,000 | 148,475 | 81,714 | 78,944 | 366,000 | |||||||
Restricted stock units vesting rights description | 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 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. | ||||||||||
Share based payment award vesting rights, percentage | 100.00% | 100.00% | 100.00% | |||||||||
Share price | $ 1.20 | $ 1.37 | $ 1.67 | $ 1.73 | ||||||||
Share based payment award term | 10 years | 10 years | 10 years | |||||||||
Share based payment award expiration date | Mar. 31, 2026 | Mar. 18, 2026 | Mar. 4, 2026 | |||||||||
2015 Incentive Plan [Member] | Employees [Member] | ||||||||||||
Number of restricted units granted | 54,200 | 7,000 | ||||||||||
Restricted stock units vesting rights description | 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 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. | ||||||||||
Share price | $ 1.11 | |||||||||||
2015 Incentive Plan [Member] | Executive Management and Directors [Member] | ||||||||||||
Number of restricted units granted | 600,000 | |||||||||||
Restricted stock units vesting period | 3 years | |||||||||||
2014 Incentive Plan [Member] | ||||||||||||
Compensation expense recognized | $ 233,000 | $ 210,000 | ||||||||||
Board of Directors [Member] | Employee Stock Incentive Plan [Member] | ||||||||||||
Number of common stock approved | 1,724,128 |
Share Based Compensation - Sche
Share Based Compensation - Schedule of Share-based Compensation, Restricted Stock Units Award Activity (Details) - Restricted Stock Units (RSUs) [Member] - $ / shares | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Number of shares, beginning balance | 407,493 | 131,250 |
Number of shares, Granted | 600,000 | 444,202 |
Number of shares, Forfeited | (17,342) | |
Number of shares, Vested | (287,543) | (167,959) |
Number of shares, ending balance | 702,608 | 407,493 |
Weighted - Average Grant Date Fair Value, beginning balance | $ 2.48 | $ 4.81 |
Weighted - Average Grant Date Fair Value, Granted | 0.97 | 1.84 |
Weighted - Average Grant Date Fair Value, Forfeited | 1.62 | |
Weighted - Average Grant Date Fair Value, Vested | 2.22 | 2.61 |
Weighted - Average Grant Date Fair Value, ending balance | $ 1.31 | $ 2.48 |
Share Based Compensation - Sc51
Share Based Compensation - Schedule of Share-based Compensation, Stock Options, Activity (Details) - $ / shares | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||
Number of Stock Options outstanding, beginning balance | 86,500 | |
Number of Stock Options, Granted | 368,333 | 87,500 |
Number of Stock Options, Exercised | ||
Number of Stock Options, Expired | (10,325) | |
Number of Stock Options, Canceled or forfeited | (19,508) | (1,000) |
Number of Stock Options outstanding, ending balance | 425,000 | 86,500 |
Number of Stock Options, exercised at end of period | ||
Weighted - Average Exercise Price, beginning balance | $ 1.85 | |
Weighted - Average Exercise Price, Granted | 1.47 | 1.85 |
Weighted - Average Exercise Price, Exercised | ||
Weighted - Average Exercise Price, Expired | 1.85 | |
Weighted - Average Exercise Price, Canceled or forfeited | 1.85 | 1.85 |
Weighted - Average Exercise Price, ending balance | 1.52 | 1.85 |
Weighted - Average Exercise Price, exercised at end of period |
Share Based Compensation - Sc52
Share Based Compensation - Schedule of Share-based Compensation Valuation Assumptions (Details) | 12 Months Ended |
Dec. 31, 2016 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Expected volatility | 51.00% |
Discount rate | 1.16% |
Expected life (years) | 3 years |
Dividend yield | 0.00% |
Subsequent Events (Details Narr
Subsequent Events (Details Narrative) - Subsequent Event [Member] - Tronco Ohio [Member] | Mar. 28, 2017USD ($) |
Proceeds from sale of assets | $ 550,000 |
Non cash receipt of accrued liabilities | $ 555,000 |