Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Sep. 30, 2017 | Nov. 09, 2017 | |
Document And Entity Information | ||
Entity Registrant Name | Superior Drilling Products, Inc. | |
Entity Central Index Key | 1,600,422 | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2017 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 24,313,312 | |
Trading Symbol | SDPI | |
Document Fiscal Period Focus | Q3 | |
Document Fiscal Year Focus | 2,017 |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets (Unaudited) - USD ($) | Sep. 30, 2017 | Dec. 31, 2016 |
Current assets | ||
Cash | $ 2,705,837 | $ 2,241,902 |
Accounts receivable, net | 2,532,659 | 1,038,664 |
Prepaid expenses | 154,018 | 76,175 |
Inventories | 1,176,912 | 1,167,692 |
Asset held for sale | 2,490,000 | |
Other current assets | 251,600 | 13,598 |
Total current assets | 6,821,026 | 7,028,031 |
Property, plant and equipment, net | 9,039,031 | 9,068,359 |
Intangible assets, net | 6,744,444 | 8,579,444 |
Related party note receivable | 7,746,717 | 8,296,717 |
Other noncurrent assets | 15,954 | 15,954 |
Total assets | 30,367,172 | 32,988,505 |
Current liabilities | ||
Accounts payable | 658,390 | 1,066,514 |
Accrued expenses | 1,125,359 | 449,004 |
Capital lease obligation | 217,302 | |
Related party debt obligation | 197,922 | 272,215 |
Current portion of long-term debt, net of discounts | 6,647,944 | 2,905,682 |
Total current liabilities | 8,629,615 | 4,910,717 |
Other long term liability | 820,657 | |
Long-term debt, less current portion, net of discounts | 6,763,880 | 13,288,701 |
Total liabilities | 15,393,495 | 19,020,075 |
Commitments and contingencies (Note 7) | ||
Shareholders' equity | ||
Common stock - $0.001 par value; 100,000,000 shares authorized; 24,313,312 and 24,120,695 shares issued and outstanding, respectively | 24,313 | 24,120 |
Additional paid-in-capital | 38,793,619 | 38,295,428 |
Accumulated deficit | (23,844,255) | (24,351,118) |
Total shareholders' equity | 14,973,677 | 13,968,430 |
Total liabilities and shareholders' equity | $ 30,367,172 | $ 32,988,505 |
Condensed Consolidated Balance3
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares | Sep. 30, 2017 | Dec. 31, 2016 |
Statement of Financial Position [Abstract] | ||
Common stock, par value | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 100,000,000 | 100,000,000 |
Common stock, shares issued | 24,313,312 | 24,120,695 |
Common stock, shares outstanding | 24,313,312 | 24,120,695 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | |
Income Statement [Abstract] | ||||
Revenue | $ 4,446,540 | $ 2,261,310 | $ 11,865,648 | $ 4,820,405 |
Operating costs and expenses | ||||
Cost of revenue | 1,716,740 | 972,400 | 4,388,860 | 3,324,975 |
Selling, general and administrative expenses | 1,102,373 | 1,319,686 | 3,837,218 | 4,149,136 |
Depreciation and amortization expense | 907,837 | 932,250 | 2,745,232 | 3,379,215 |
Total operating costs and expenses | 3,726,950 | 3,224,336 | 10,971,310 | 10,853,326 |
Operating income (loss) | 719,590 | (963,026) | 894,338 | (6,032,921) |
Other income (expense) | ||||
Interest income | 90,959 | 78,650 | 255,327 | 234,969 |
Interest expense | (224,510) | (373,335) | (698,638) | (1,101,412) |
Other income | 49,975 | 43,669 | 158,926 | |
Gain on sale of assets | 4,003 | 12,167 | 195,453 | |
Unrealized gain on warrant derivative | 28,301 | 28,301 | ||
Total other expense | (133,551) | (212,406) | (387,475) | (483,763) |
Income (loss) before income taxes | 586,039 | (1,175,432) | 506,863 | (6,516,684) |
Income tax expense | (2,000) | (2,000) | ||
Net income (loss) | $ 586,039 | $ (1,173,432) | $ 506,863 | $ (6,514,684) |
Basic income (loss) earnings per common share | $ 0.02 | $ (0.07) | $ 0.02 | $ (0.37) |
Basic weighted average common shares outstanding | 24,261,272 | 17,891,786 | 24,218,477 | 17,606,324 |
Diluted income (loss) per common share | $ 0.02 | $ (0.07) | $ 0.02 | $ (0.37) |
Diluted weighted average common shares outstanding | 24,261,272 | 17,891,786 | 24,218,477 | 17,606,324 |
Condensed Consolidated Stateme5
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) | 9 Months Ended | |
Sep. 30, 2017 | Sep. 30, 2016 | |
Cash Flows From Operating Activities | ||
Net income (loss) | $ 506,863 | $ (6,514,684) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Depreciation and amortization expense | 2,745,232 | 3,379,215 |
Amortization of debt discount | 59,766 | 93,172 |
Deferred tax benefit | (2,000) | |
Share based compensation expense | 498,384 | 534,051 |
Unrealized gain on warrant derivative | (28,301) | |
Write-off of Strider asset | 361,903 | |
Gain on sale of assets | (12,167) | (195,453) |
Changes in operating assets and liabilities: | ||
Accounts receivable | (1,493,995) | 648,546 |
Inventories | (9,220) | (73,733) |
Prepaid expenses and other noncurrent assets | (315,845) | (169,981) |
Other assets | (10,936) | |
Accounts payable and accrued expenses | (610,936) | 496,629 |
Other long term liabilities | (17,490) | |
Net Cash Provided by (Used in) Operating Activities | 1,350,592 | (1,481,572) |
Cash Flows From Investing Activities | ||
Purchases of property, plant and equipment | (220,101) | (315,101) |
Proceeds from sale of fixed assets | 2,483,921 | 483,217 |
Net Cash Provided by Investing Activities | 2,263,820 | 168,116 |
Cash Flows From Financing Activities | ||
Principal payments on debt | (2,858,882) | (1,226,339) |
Principal payments on related party debt | (74,293) | (44,662) |
Principal payments on capital lease obligations | (217,302) | (244,461) |
Proceeds received from debt borrowings | 1,500,000 | |
Net proceeds received from line of credit | 637,992 | |
Proceeds from sale of subsidiary | 50,700 | |
Proceeds from payments on related party note receivable | 22,533 | |
Stock offering expenses | (193,418) | |
Debt issuance costs | (153,643) | |
Net Cash (Used in) Provided by Financing Activities | (3,150,477) | 348,702 |
Net increase (decrease) in Cash | 463,935 | (964,754) |
Cash at Beginning of Period | 2,241,902 | 1,297,002 |
Cash at End of Period | 2,705,837 | 332,248 |
Supplemental information: | ||
Cash paid for Interest | 617,565 | 1,194,498 |
Non-cash payment of other long term liability by offsetting related party note receivable | 550,000 | |
Acquisition of equipment by issuance of note payable | 16,557 | |
Purchases of property, plant and equipment included in accrued expenses | 626,000 | |
Long term debt paid with stock | 1,000,000 | |
Accounts receivable - stock subscription | $ 5,297,500 |
Summary of Significant Accounti
Summary of Significant Accounting Policies | 9 Months Ended |
Sep. 30, 2017 | |
Accounting Policies [Abstract] | |
Summary of Significant Accounting Policies | NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Nature of Operations Superior Drilling Products, Inc. (the “Company”, “SDPI”, “we”, “our” or “us”) is a drilling and completion tool technology company providing solutions for the oil and natural gas drilling industry. The Company, designs, engineers, manufactures, sells, and repairs drilling and completion tools. Our subsidiaries include (a) Superior Drilling Solutions, LLC (previously known as Superior Drilling Products, LLC), a Utah limited liability company (“SDS”), together with its wholly owned subsidiary Superior Design and Fabrication, LLC, a Utah limited liability company (“SDF”), (b) Extreme Technologies, LLC, a Utah limited liability company (“ET”), (c) Meier Properties Series, LLC, a Utah limited liability company (“MPS”), (d) Meier Leasing, LLC, a Utah limited liability company (“ML”), and (e) HR. Basis of Presentation 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. In April 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an emerging growth company can utilize the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for implementing new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to nonissuers. We have elected to delay such adoption of new or revised accounting standards, and as a result, we may not implement new or revised accounting standards on the relevant dates on which adoption of such standards is required for other issuer companies. Subject to certain conditions set forth in the JOBS Act, as an emerging growth company, we intend to rely on certain of these exemptions, including without limitation, providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404 and implementing any requirement that may be adopted regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis). These exemptions will apply for a period of five years following the completion of our IPO, which occurred in May 2014, although if the market value of our common stock that is held by nonaffiliates exceeds $700 million as of any June 30 before that time, we would cease to be an emerging growth company as of the following December 31. Revenue Recognition We are a drilling and completion tool technology company and we generate revenue from the manufacturing, repair, and sale of drilling and completion tools. Our manufactured products are produced in a standard manufacturing operation, even when produced to our customer’s specifications. We earn royalty commission revenue when our customer invoices their customer for the use of the tools. The Company may act as an agent by billing and collecting its customers’ tool rental revenue. When we are an agent for our customer, revenue is presented in the statement of operations on a net basis. At September 30, 2017, there was approximately $80,850 of accounts receivable and approximately $94,000 of accounts payable related to transactions we performed as an agent for our customer. At September 30, 2016, there was approximately $270,000 of accounts receivable and approximately $321,000 of accounts payable related to transactions we performed as an agent for our customer. Unaudited Interim Financial Presentation These interim consolidated condensed financial statements for the three and nine months ended September 30, 2017 and 2016, and the related footnote disclosures included herein, are unaudited. However, in the opinion of management, these unaudited interim financial statements have been prepared on the same basis as the audited financial statements, and reflect all adjustments necessary to fairly state the results for such periods. The results of operations for the three and nine months ended September 30, 2017 are not necessarily indicative of the results of operations expected for the year ended December 31, 2017. These interim consolidated condensed financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the years ended December 31, 2016 and 2015 and the notes thereto, which were included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission (the “SEC”). 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. Accounting Standards In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers Revenue from Contracts with Customers , ASU 2015-14 permits the use of either the retrospective or cumulative effect transition method. We have not yet selected a transition method nor has the effect of the standard on ongoing financial reporting been determined. In February 2016, the FASB issued ASU No. 2016-02, “ Leases |
Liquidity
Liquidity | 9 Months Ended |
Sep. 30, 2017 | |
Liquidity | |
Liquidity | NOTE 2. LIQUIDITY At September 30, 2017, we had a working capital deficit of approximately $1,800,000. The Company’s manufacturing facility is financed by a commercial bank loan with principal of $4,200,000 due August 15, 2018 (see Note 7 – Long-Term Debt). The classification of this debt from long-term to short-term resulted in a working capital deficit at September 30, 2017. The Company plans to work with its lender to refinance its commercial bank loan in the first half of 2018. Additionally, approximately $626,000 is included in accrued liabilities related to the exercise of the option to purchase machinery under our expired capital lease agreement (see Note 7 – Long-Term Debt). Our principal uses of cash are operating expenses, working capital requirements, capital expenditures and debt service payments. Our operational and financial strategies include managing our operating costs, working capital and debt to enhance liquidity. We will continue to work to grow revenue and review additional cost containment measures and be cash flow positive in 2017. If we are unable to do this and successfully refinance our commercial bank loan that is collateralized by our property, we may not be able to, among other things, (i) maintain our current general and administrative spending levels; (ii) fund certain obligations as they become due; and (iii) respond to competitive pressures or unanticipated capital requirements. We cannot provide any assurance that financing will be available to us in the future on acceptable terms. |
Inventories
Inventories | 9 Months Ended |
Sep. 30, 2017 | |
Inventory Disclosure [Abstract] | |
Inventories | NOTE 3. INVENTORIES Inventories is comprised of the following: September 30, 2017 December 31, 2016 Raw material $ 1,000,895 $ 952,419 Work in progress 67,679 90,017 Finished goods 108,338 125,256 $ 1,176,912 $ 1,167,692 |
Property, Plant and Equipment
Property, Plant and Equipment | 9 Months Ended |
Sep. 30, 2017 | |
Property, Plant and Equipment [Abstract] | |
Property, Plant and Equipment | NOTE 4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are comprised of the following: September 30, 2017 December 31, 2016 Land $ 880,416 $ 880,416 Buildings 4,847,778 4,847,778 Leasehold improvements 717,232 717,232 Machinery and equipment 8,141,746 5,060,281 Machinery under capital lease - 2,322,340 Furniture and fixtures 507,554 507,554 Transportation assets 811,381 882,163 15,906,107 15,217,764 Accumulated depreciation (6,867,076 ) (6,149,405 ) $ 9,039,031 $ 9,068,359 Depreciation expense related to property, plant and equipment for the three and nine months ended September 30, 2017 was $296,170 and $910,232, respectively, and for the three and nine months ended September 30, 2016 was $320,583 and $1,544,215, respectively. |
Intangible Assets
Intangible Assets | 9 Months Ended |
Sep. 30, 2017 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Intangible Assets | NOTE 5. INTANGIBLE ASSETS Intangible assets are comprised of the following: September 30, 2017 December 31, 2016 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 (8,155,556 ) (6,320,556 ) $ 6,744,444 $ 8,579,444 Amortization expense related to intangible assets for the three and nine months ended September 30, 2017 and September 30, 2016 was $611,667 and $1,835,000, respectively. Annually, and more often as necessary, we will perform an evaluation of our intangible assets for indications of impairment. If indications exist, we will perform an evaluation of the fair value of the intangible assets and, if necessary, record an impairment charge. As of September 30, 2017, the Company reviewed the net balance of the intangible assets and determined no impairment was needed. |
Related Party Note Receivable
Related Party Note Receivable | 9 Months Ended |
Sep. 30, 2017 | |
Receivables [Abstract] | |
Related Party Note Receivable | NOTE 6. RELATED PARTY 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. The interest rate on the note is 4.5%. We earned interest of $87,867 and $251,600 for the three and nine months ended September 30, 2017, respectively, and interest of $78,421 and $233,558 for the three and nine months ended September 30, 2016, respectively. 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 the Ohio assets of Tronco for $550,000. As Tronco’s senior secured lender, we agreed to release our lien and security interest on these assets in accordance with the agreement. The Company agreed to a non-cash receipt of the $550,000 from Tronco by reducing our bonus accrual liabilities, which was earned by the Meiers in 2014 but not paid, and was recorded in other long-term liability. As a result of this agreement, we reduced both the other long-term liability and the Tronco related party note receivable during the first quarter of 2017. On August 8, 2017, the Board of Directors agreed to extend the terms of the Tronco loan to interest only payments due December 31, 2017, 2018, 2019, 2020, and 2021, with a balloon payment of all unpaid interest and principal due upon full maturity on December 31, 2022. 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 are 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. The Company holds 8,267,860 shares and 530,725 restricted stock units as collateral for the Tronco note as of September 30, 2017. |
Long-Term Debt
Long-Term Debt | 9 Months Ended |
Sep. 30, 2017 | |
Debt Disclosure [Abstract] | |
Long-Term Debt | NOTE 7. LONG-TERM DEBT Long-term debt is comprised of the following: September 30, 2017 December 31, 2016 Real estate loans $ 4,583,000 $ 7,264,036 Hard Rock Note, net of discount 7,903,808 7,846,497 Machinery loans 557,368 684,921 Transportation loans 367,648 398,929 13,411,824 16,194,383 Current portion of long-term debt (6,647,944 ) (2,905,682 ) Long-term debt, less current portion $ 6,763,880 $ 13,288,701 Real Estate Loans Our manufacturing facility is 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. On February 9, 2017, the Company sold real estate to Superior Auto Body (“SAB”), a related party, 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 (see Note 6 – Related Party Note Receivable). Hard Rock Note In 2014, the Company purchased all of the interests of Hard Rock Solutions, LLC (“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 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 $19,657 and $59,766 for the three and nine months ended September 30, 2017, 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. 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 remaining payments: $2,000,000 in total principal plus accrued interest in 2018 through four $500,000 in principal plus accrued interest payments 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 for a total of $4,000,000 in principal and accrued interest. The remaining balance of principal of $2,000,000 and accrued interest on the Hard Rock Note are due on January 15, 2020. During 2017, we made accrued interest payments related to the note on January 15, 2017, March 15, 2017, May 15, 2017, and July 15, 2017 of $129,808, $74,356, $76,877, and $76,877, respectively. Capital Lease In 2012, we entered into a lease for machinery which was capitalized by the Company and accordingly, the machinery and the related obligation under the lease were included on the Company’s balance sheet. The lease had a five-year term with an option to buy the asset or renew the lease. On August 31, 2017, the Company exercised the option to purchase the machinery for $690,000, which is due in November 2017. As of September 30, 2017, the Company owed $626,000 to the original lessor which was included in accrued expenses. |
Commitments and Contingencies
Commitments and Contingencies | 9 Months Ended |
Sep. 30, 2017 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | NOTE 8. 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: Del Rio Suit 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) SDS and MPS in the Eighth Judicial District Court, Uintah County, Utah Cause #130800125 (the “Suit”). On May 11, 2017, pursuant to a mediation proceeding, all of the plaintiffs and remaining defendants in the Suit executed a Settlement Agreement whereby each of the parties have released all of their claims against the other parties to the Suit without liability, effective as of March 22, 2017. Such release includes the Company’s two subsidiaries that were a party to the Suit, SDS and MPS, as well as Troy and Annette Meier personally and all of their family trusts named as defendants in the Suit. As a result of the execution of the Settlement Agreement, a Stipulated Motion for Dismissal with Prejudice was filed with the Court which includes a form of Order of Dismissal with Prejudice (the “Court Order”). On May 15, 2017, the Court Order was executed by the judge and the Suit was formally dismissed with prejudice. |
Related Party Transactions
Related Party Transactions | 9 Months Ended |
Sep. 30, 2017 | |
Related Party Transactions [Abstract] | |
Related Party Transactions | NOTE 9. RELATED PARTY TRANSACTIONS In 2014, the Company issued notes payable to related parties in the amount of $2 million. The notes bear interest at 7.5% and were scheduled to mature on January 2, 2017. The Company made principal payments of $50,000 in January 2017 and $24,000 in May 2017. 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 related party note receivable (see Note 6 – Related Party Note Receivable) instead of repaying the note. |
Summary of Significant Accoun15
Summary of Significant Accounting Policies (Policies) | 9 Months Ended |
Sep. 30, 2017 | |
Accounting Policies [Abstract] | |
Organization and Nature of Operations | Organization and Nature of Operations Superior Drilling Products, Inc. (the “Company”, “SDPI”, “we”, “our” or “us”) is a drilling and completion tool technology company providing solutions for the oil and natural gas drilling industry. The Company, designs, engineers, manufactures, sells, and repairs drilling and completion tools. Our subsidiaries include (a) Superior Drilling Solutions, LLC (previously known as Superior Drilling Products, LLC), a Utah limited liability company (“SDS”), together with its wholly owned subsidiary Superior Design and Fabrication, LLC, a Utah limited liability company (“SDF”), (b) Extreme Technologies, LLC, a Utah limited liability company (“ET”), (c) Meier Properties Series, LLC, a Utah limited liability company (“MPS”), (d) Meier Leasing, LLC, a Utah limited liability company (“ML”), and (e) HR. |
Basis of Presentation | Basis of Presentation 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. In April 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an emerging growth company can utilize the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for implementing new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to nonissuers. We have elected to delay such adoption of new or revised accounting standards, and as a result, we may not implement new or revised accounting standards on the relevant dates on which adoption of such standards is required for other issuer companies. Subject to certain conditions set forth in the JOBS Act, as an emerging growth company, we intend to rely on certain of these exemptions, including without limitation, providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404 and implementing any requirement that may be adopted regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis). These exemptions will apply for a period of five years following the completion of our IPO, which occurred in May 2014, although if the market value of our common stock that is held by nonaffiliates exceeds $700 million as of any June 30 before that time, we would cease to be an emerging growth company as of the following December 31. |
Revenue Recognition | Revenue Recognition We are a drilling and completion tool technology company and we generate revenue from the manufacturing, repair, and sale of drilling and completion tools. Our manufactured products are produced in a standard manufacturing operation, even when produced to our customer’s specifications. We earn royalty commission revenue when our customer invoices their customer for the use of the tools. The Company may act as an agent by billing and collecting its customers’ tool rental revenue. When we are an agent for our customer, revenue is presented in the statement of operations on a net basis. At September 30, 2017, there was approximately $80,850 of accounts receivable and approximately $94,000 of accounts payable related to transactions we performed as an agent for our customer. At September 30, 2016, there was approximately $270,000 of accounts receivable and approximately $321,000 of accounts payable related to transactions we performed as an agent for our customer. |
Unaudited Interim Financial Presentation | Unaudited Interim Financial Presentation These interim consolidated condensed financial statements for the three and nine months ended September 30, 2017 and 2016, and the related footnote disclosures included herein, are unaudited. However, in the opinion of management, these unaudited interim financial statements have been prepared on the same basis as the audited financial statements, and reflect all adjustments necessary to fairly state the results for such periods. The results of operations for the three and nine months ended September 30, 2017 are not necessarily indicative of the results of operations expected for the year ended December 31, 2017. These interim consolidated condensed financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the years ended December 31, 2016 and 2015 and the notes thereto, which were included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission (the “SEC”). |
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. |
Accounting Standards | Accounting Standards In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers Revenue from Contracts with Customers , ASU 2015-14 permits the use of either the retrospective or cumulative effect transition method. We have not yet selected a transition method nor has the effect of the standard on ongoing financial reporting been determined. In February 2016, the FASB issued ASU No. 2016-02, “ Leases |
Inventories (Tables)
Inventories (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
Inventory Disclosure [Abstract] | |
Schedule of Inventories | Inventories is comprised of the following: September 30, 2017 December 31, 2016 Raw material $ 1,000,895 $ 952,419 Work in progress 67,679 90,017 Finished goods 108,338 125,256 $ 1,176,912 $ 1,167,692 |
Property, Plant and Equipment (
Property, Plant and Equipment (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
Property, Plant and Equipment [Abstract] | |
Schedule of Property, Plant and Equipment | Property, plant and equipment are comprised of the following: September 30, 2017 December 31, 2016 Land $ 880,416 $ 880,416 Buildings 4,847,778 4,847,778 Leasehold improvements 717,232 717,232 Machinery and equipment 8,141,746 5,060,281 Machinery under capital lease - 2,322,340 Furniture and fixtures 507,554 507,554 Transportation assets 811,381 882,163 15,906,107 15,217,764 Accumulated depreciation (6,867,076 ) (6,149,405 ) $ 9,039,031 $ 9,068,359 |
Intangible Assets (Tables)
Intangible Assets (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Schedule of Intangible Assets | Intangible assets are comprised of the following: September 30, 2017 December 31, 2016 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 (8,155,556 ) (6,320,556 ) $ 6,744,444 $ 8,579,444 |
Long-Term Debt (Tables)
Long-Term Debt (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
Debt Disclosure [Abstract] | |
Schedule of Long-term Debt Instruments | Long-term debt is comprised of the following: September 30, 2017 December 31, 2016 Real estate loans $ 4,583,000 $ 7,264,036 Hard Rock Note, net of discount 7,903,808 7,846,497 Machinery loans 557,368 684,921 Transportation loans 367,648 398,929 13,411,824 16,194,383 Current portion of long-term debt (6,647,944 ) (2,905,682 ) Long-term debt, less current portion $ 6,763,880 $ 13,288,701 |
Summary of Significant Accoun20
Summary of Significant Accounting Policies (Details Narrative) - USD ($) | Sep. 30, 2017 | Sep. 30, 2016 |
Accounts receivable | $ 80,850 | $ 270,000 |
Accounts payable | 94,000 | $ 321,000 |
Maximum [Member] | Nonaffiliates [Member] | ||
Market value of common stock | $ 700,000,000 |
Liquidity (Details Narrative)
Liquidity (Details Narrative) - USD ($) | 9 Months Ended | 12 Months Ended | |
Sep. 30, 2017 | Sep. 30, 2016 | Dec. 31, 2014 | |
Notes to Financial Statements | |||
Working capital deficit | $ 1,800,000 | ||
Commercial bank loan with principal amount | $ 4,200,000 | ||
Debt due date | Aug. 15, 2018 | Jan. 2, 2017 | |
Purchases of property, plant and equipment included in accrued expenses | $ 626,000 |
Inventories - Schedule of Inven
Inventories - Schedule of Inventories (Details) - USD ($) | Sep. 30, 2017 | Dec. 31, 2016 |
Inventory Disclosure [Abstract] | ||
Raw material | $ 1,000,895 | $ 952,419 |
Work in progress | 67,679 | 90,017 |
Finished goods | 108,338 | 125,256 |
Inventory, Net | $ 1,176,912 | $ 1,167,692 |
Property, Plant and Equipment23
Property, Plant and Equipment (Details Narrative) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | |
Property, Plant and Equipment [Abstract] | ||||
Depreciation expense related to PP&E | $ 296,170 | $ 320,583 | $ 910,232 | $ 1,544,215 |
Property, Plant and Equipment -
Property, Plant and Equipment - Schedule of Property, Plant and Equipment (Details) - USD ($) | Sep. 30, 2017 | Dec. 31, 2016 |
Property, Plant and Equipment [Abstract] | ||
Land | $ 880,416 | $ 880,416 |
Buildings | 4,847,778 | 4,847,778 |
Leasehold improvements | 717,232 | 717,232 |
Machinery and equipment | 8,141,746 | 5,060,281 |
Machinery under capital lease | 2,322,340 | |
Furniture and fixtures | 507,554 | 507,554 |
Transportation assets | 811,381 | 882,163 |
Property, plant and equipment, gross | 15,906,107 | 15,217,764 |
Accumulated depreciation | (6,867,076) | (6,149,405) |
Property, plant and equipment, net | $ 9,039,031 | $ 9,068,359 |
Intangible Assets (Details Narr
Intangible Assets (Details Narrative) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | |
Goodwill and Intangible Assets Disclosure [Abstract] | ||||
Amortization of intangible assets | $ 611,667 | $ 611,667 | $ 1,835,000 | $ 1,835,000 |
Intangible Assets - Schedule of
Intangible Assets - Schedule of Intangible Assets (Details) - USD ($) | Sep. 30, 2017 | Dec. 31, 2016 |
Finite-Lived Intangible Assets [Line Items] | ||
Intangible assets, gross | $ 14,900,000 | $ 14,900,000 |
Accumulated amortization | (8,155,556) | (6,320,556) |
Intangible assets, net | 6,744,444 | 8,579,444 |
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 [Member] | ||
Finite-Lived Intangible Assets [Line Items] | ||
Intangible assets, gross | $ 1,500,000 | $ 1,500,000 |
Related Party Note Receivable (
Related Party Note Receivable (Details Narrative) - USD ($) | Aug. 08, 2017 | Mar. 28, 2017 | Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | Dec. 31, 2014 | May 30, 2014 |
Debt interest rate | 7.50% | |||||||
Maturity Date Description | On August 8, 2017, the Board of Directors agreed to extend the terms of the Tronco loan to interest only payments due December 31, 2017, 2018, 2019, 2020, and 2021, with a balloon payment of all unpaid interest and principal due upon full maturity on December 31, 2022. | |||||||
Tronco Energy Corporation [Member] | ||||||||
Notes Receivable | $ 8,300,000 | |||||||
Debt interest rate | 4.50% | 4.50% | ||||||
Interest income | $ 87,867 | $ 78,421 | $ 251,600 | $ 233,558 | ||||
Assets acquired | $ 550,000 | |||||||
Non cash receipt of accrual liabilities | $ 550,000 | |||||||
Number of collateral shares | 8,267,860 | |||||||
Additional restricted stock units | 530,725 |
Long-Term Debt (Details Narrati
Long-Term Debt (Details Narrative) - USD ($) | Aug. 31, 2017 | Feb. 09, 2017 | Aug. 10, 2016 | Dec. 31, 2014 | Sep. 30, 2017 | Sep. 30, 2017 | Sep. 30, 2016 | Dec. 31, 2014 | Dec. 31, 2012 | Jul. 15, 2017 | May 15, 2017 | Mar. 15, 2017 | Jan. 15, 2017 |
Debt instrument, interest rate | 7.50% | 7.50% | |||||||||||
Debt instrument, maturity date | Aug. 15, 2018 | Jan. 2, 2017 | |||||||||||
Proceeds from related party | $ 2,000,000 | ||||||||||||
Amortization of debt discount | $ 59,766 | $ 93,172 | |||||||||||
Accrued interest | $ 76,877 | $ 76,877 | $ 74,356 | $ 129,808 | |||||||||
Capital lease renewal term | 5 years | ||||||||||||
Purchase price of renewal of other machinery assets | $ 690,000 | ||||||||||||
Due date | Nov. 30, 2017 | ||||||||||||
Due to related party | $ 626,000 | 626,000 | |||||||||||
Real Estate Loans [Member] | |||||||||||||
Debt instrument, periodic payment | $ 39,000 | ||||||||||||
Debt instrument, interest rate | 5.25% | 5.25% | |||||||||||
Debt instrument, periodic payment, principal | $ 4,200,000 | ||||||||||||
Debt instrument, maturity date | Aug. 15, 2018 | ||||||||||||
Real Estate Loans [Member] | Superior Auto Body [Member] | |||||||||||||
Proceeds from related party | $ 2,500,000 | ||||||||||||
Long term loan | $ 2,500,000 | ||||||||||||
Number of shares collateral | 547,000 | ||||||||||||
Hard Rock Note [Member] | |||||||||||||
Debt instrument, interest rate | 5.75% | ||||||||||||
Debt instrument, maturity date | Jan. 15, 2020 | ||||||||||||
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 | $ 19,657 | $ 59,766 | ||||||||||
Line of credit outstanding | $ 2,000,000 | ||||||||||||
Debt instrument, periodic payment, interest | 4,000,000 | ||||||||||||
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 |
Long-Term Debt - Schedule of Lo
Long-Term Debt - Schedule of Long-term Debt Instruments (Details) - USD ($) | Sep. 30, 2017 | Dec. 31, 2016 |
Long term debt, Total | $ 13,411,824 | $ 16,194,383 |
Current portion of long-term debt | (6,647,944) | (2,905,682) |
Long-term debt, less current portion | 6,763,880 | 13,288,701 |
Hard Rock Note [Member] | ||
Long term debt, Total | 7,903,808 | 7,846,497 |
Real Estate Loans [Member] | ||
Long term debt, Total | 4,583,000 | 7,264,036 |
Machinery Loans [Member] | ||
Long term debt, Total | 557,368 | 684,921 |
Transportation Loans [Member] | ||
Long term debt, Total | $ 367,648 | $ 398,929 |
Related Party Transactions (Det
Related Party Transactions (Details Narrative) - USD ($) | 1 Months Ended | 9 Months Ended | 12 Months Ended | ||
May 31, 2017 | Jan. 31, 2017 | Sep. 30, 2017 | Sep. 30, 2016 | Dec. 31, 2014 | |
Related Party Transactions [Abstract] | |||||
Proceeds from note payable related party | $ 2,000,000 | ||||
Debt interest rate | 7.50% | ||||
Debt maturity date | Aug. 15, 2018 | Jan. 2, 2017 | |||
Payment of related party | $ 24,000 | $ 50,000 | $ 74,293 | $ 44,662 |