As submitted for confidential review with the Securities and Exchange Commission on            , 2014

Registration No. 333-     

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

CONFIDENTIAL SUBMISSION

FORM S-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

 

SD COMPANY, INC.

(Exact Name of Registrant as specified in its charter)

 

Utah		1389		46-4341605
(State or other jurisdiction of incorporation)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification No.)

1583 South 1700 East, Vernal, UT 84078
(435) 789-0594

(Address, including zip code, and telephone number, including
area code, of Registrant’s principal executive offices)

 

Troy Meier, CEO
SD COMPANY, INC.
1583 South 1700 East
Vernal, UT 84078
(435) 789-0594

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

Copies to:

Eugenie D. Rivers		Michael T. Raymond
Shahzad Qadri		Bradley J. Wyatt
Wong Fleming, P.C.		Dickinson Wright, PLLC
2340 130th Avenue NE, Ste. D150		2600 W. Big Beaver Rd., Ste. 300
Bellevue, WA 98005		Troy, MI 48084-3312
(425) 869-4040		248-433-7200

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box. o

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer o
Non-accelerated filer (Do not check if a smaller reporting company)		Smaller reporting company x

 

CALCULATION OF REGISTRATION FEE

Title of each class of securities to be registered		Proposed maximum aggregate offering price(1)(2)				Amount of Registration Fee
Common Stock, $.001 par value		$				$

 

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant files a further amendment that specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act, or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), shall determine.

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SUBJECT TO COMPLETION, DATED            , 2014

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

     Shares

 

Common Stock

 

This is the initial public offering of securities of SD COMPANY, INC. We are offering to sell           shares of our common stock in this offering (the “Shares”). Prior to this offering, there has been no public market for our securities. The initial public offering price is expected to be between $     and $     per Share. We have applied to list the Shares on the NYSE MKT under the symbol “SDPI”.

We are an “emerging growth company” and a “smaller reporting company” under the federal securities laws and will be subject to reduced public company reporting requirements. See “Risk Factors” beginning on page 11 for a discussion of the factors you should consider before you make your decision to invest in our securities.

		Per Share				Total(3)
Public offering price		$				$
Underwriting discount and commission(1)		$				$
Proceeds, before expenses, to us(2)		$				$

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The Shares are offered by the Underwriter, subject to prior sale when, as and if delivered to and accepted by the Underwriter and subject to right to reject orders in whole or in part. Delivery of the Shares will be made on or about             , 2014.

 

Sole Book-Running Manager

Roth Capital Partners, LLC

 

The date of this prospectus is             2014.

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		Page
ABOUT THIS PROSPECTUS			ii
PROPRIETARY INFORMATION			ii
INDUSTRY DATA			ii
PROSPECTUS SUMMARY			1
OFFERING SUMMARY			8
RISK FACTORS			11
USE OF PROCEEDS			27
DETERMINATION OF THE OFFERING PRICE			27
DIVIDEND POLICY			28
CAPITALIZATION			28
DILUTION OF THE PRICE YOU PAY FOR YOUR SHARES			29
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			31
OIL AND GAS DRILLING INDUSTRY			49
BUSINESS			54
MANAGEMENT			65
EXECUTIVE COMPENSATION			70
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS			75
SHARES ELIGIBLE FOR FUTURE SALE			78
DESCRIPTION OF CAPITAL STOCK			80
BENEFICIAL OWNERSHIP OF COMMON STOCK			85
UNDERWRITING			86
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS OF COMMON STOCK			89
LEGAL MATTERS			92
EXPERTS			92
WHERE YOU CAN FIND MORE INFORMATION			92

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ABOUT THIS PROSPECTUS

You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, our securities only in jurisdictions where offers and sales are permitted. You should assume that the information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our securities. Our business, financial condition, results of operations, and prospects may have changed since that date.

In connection with this offering, the underwriter may over allot or effect transactions that stabilize or maintain the market prices of our securities at a level above that which might otherwise prevail in the open market. Such stabilizing will be effected on the NYSE MKT. Such stabilizing, if commenced, may be discontinued at any time.

For Investors Outside the U.S.:  Neither we nor any of the Underwriter have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the U.S. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus.

PROPRIETARY INFORMATION

Our name, logo and other trademarks or service marks appearing in this prospectus are the property of SD COMPANY, INC. Trade names, trademarks, and service marks of other companies appearing in this prospectus are the property of those respective holders.

INDUSTRY DATA

We use industry and market data throughout this prospectus, which we have obtained from market research, independent industry publications, or other publicly available information. Although we believe that each such source is reliable as of its respective date, the information contained in such sources has not been independently verified. While we are not aware of any misstatements regarding any industry and market data presented herein, such data is subject to change based on various factors, including those discussed under the heading “Risk Factors” in this prospectus. We have not commissioned, nor are we affiliated with, any of the independent industry sources we cite.

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RISK FACTORS

Risks Related to Our Industry

Our business depends on the level of activity and expenditure levels in the oil and gas industry, which is significantly affected by volatile oil and gas prices and other factors.

Demand for our drill bit remanufacturing services and our newly manufactured drill bits and drill string tools is sensitive to the level of exploration, development and production activity of, and the corresponding capital spending by our customers oil and natural gas companies and oilfield services companies. Oil and gas prices, and market expectations of potential price changes, significantly affect this level of activity. However, higher current commodity prices do not necessarily translate into increased drilling activity, since customers’ expectations of future commodity prices typically drive demand for our services and products. Customer expectations of longer-term lower oil and natural gas prices may cause them to reduce or defer drilling equipment expenditures given the long-term nature of many large-scale development projects. In addition, their demand for our services and products is affected by the availability of quality drilling prospects, exploration success, relative production costs, the stage of reservoir development, environmental activists, and political and regulatory environments. The demand for our services and products may be affected by numerous other factors, including:

Prices for oil and natural gas are subject to large fluctuations in response to relatively minor changes in the supply of and demand for oil and natural gas, market uncertainty and speculation, and a variety of other factors that are beyond our control. The equity, credit, and commodity markets have seen significant volatility since late 2008. Oil and natural gas prices rose to record levels in 2008 and then began to decline in late 2008 in conjunction with the widespread economic recession. The price of natural gas has remained depressed since 2009, largely due to discoveries of vast new natural gas resources in the United States. Gas prices began increasing in the latter half of 2012, and prices as of February 10, 2014 were above $4.59 per mmbtu. The

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price of oil and gas may continue to fluctuate in the near- and long-term. Worldwide military, political, and economic events have in the past contributed to oil and gas price volatility and are likely to do so in the future. Any prolonged reduction in oil and natural gas prices may depress the immediate levels of exploration, development, and production activity.

A significant downturn in the oil and gas industry will adversely affect the demand for oilfield services. If demand for drilling services or drilling rig utilization rates decreases significantly, demand for our products and services may decrease, which could have a material adverse effect on our business, financial condition and results of operations.

The oil and gas industry is undergoing continuing consolidation that may impact our results of operations.

The oil and gas industry is rapidly consolidating. This consolidation may result in reduced capital spending by existing and potential customers, which may lead to decreased demand for our products and services as they use their size and purchasing power to seek economies of scale and pricing concessions. Additionally, customers could acquire one of our competitors and begin producing products similar to ours, which may also lead to decreased demand for our products and services. We are unable to predict what effect consolidation in the industry may have on price or customer capital spending, or on our selling strategies, competitive position, ability to attract and retain customers, or ability to negotiate favorable customer agreements. If we cannot maintain sales levels for customers that have consolidated, or replace such revenues with increased business activities from other customers, this consolidation activity could have a significant negative impact on our business, financial condition and results of operations.

We operate in an intensively competitive industry, and if we fail to compete effectively, our business will suffer.

As our industry rapidly consolidates, it is becoming intensely competitive. Our competitors are numerous, ranging from small private firms to multi-billion dollar public companies. Our competitors, some of whom have a more diverse product line and access to greater amounts of capital than we do, have the ability to compete against the cost savings generated by our technology by reducing prices and by introducing competing technologies. Our competitors may also have the ability to offer bundles of products and services to customers that we do not offer. In addition, our customers may elect to develop and adopt competing technologies. These competitive forces could force us to make price concessions or otherwise reduce prices for our services. If we are unable to maintain our competitiveness, our market share, revenue, and profits could decline, adversely affecting our business, financial condition or results of operations.

Our operating results may be adversely impacted by worldwide economic uncertainties and specific conditions in the markets we address.

The oil and gas industry has a history of periodic downturns, due to the factors discussed previously in these “Risk Factors”. In addition, the general worldwide economy has experienced downturns, at various times over the past several years, due to the lack of available credit, slower economic activity, concerns about inflation and deflation, increased energy costs, decreased consumer confidence, reduced corporate profits and capital spending, and adverse business conditions. These conditions make it extremely difficult for our clients and vendors to forecast accurately future business activities, which could cause businesses to slow spending on services and products. Those conditions make it very difficult for us to predict the short-term and long-term impacts on our business. We cannot predict the timing, strength or duration of any economic slowdown or subsequent economic recovery worldwide or in the oil and gas industry. Any economic slowdown could have an adverse effect on our business, financial condition and results of operations. As a consequence, operating results for a particular future period are difficult to predict and, therefore, prior results are not necessarily indicative of results to be expected in future periods.

Risks Relating to Our Business

We derive a significant portion of our revenues from a small number of customers. The loss of any of our major customers may cause significant declines in our revenues.

We contract exclusively with Baker Hughes, a multinational organization, for our entire drill bit remanufacturing business, and most of our original equipment drill bit manufacturing business, which

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currently represents large majority of our revenues. Even after closing of the Hard Rock acquisition with the proceeds of this offering, only a small number of customers will represent a significant amount of our consolidated revenues. While we expect to expand Hard Rock’s client base in the future, in the near term we expect we will continue to depend on a relatively small number of customers and we may be unable to maintain and expand those current customer relationships. If we lose any of our major customers to a competitor or for any other reason, including, for example, if our reputation declines, if a customer materially reduces its orders from us, if our relationship with one or more of our major customers deteriorates, or if a major customer becomes insolvent or otherwise unable to pay for our products, our business and results of operations may be materially adversely affected.

The annual installments on the promissory note we intend to give to Hard Rock’s seller at closing of that acquisition will be a major expense. Failure to generate sufficient revenue to make those installments in a timely manner or at all may cause us to go into default and potentially to lose the patents securing that note.

We have contracted to purchase all of Hard Rock’s limited liability company interests and the all of the patents pending and other technology covering the Drill N Ream tool (“Hard Rock IP”) for $25 million. The purchase agreement provides for us to pay $12.5 million of the purchase price to the seller at closing of the acquisition promptly after completion of this offering. The seller has agreed to carry back a promissory note for the remaining $12.5 million of the purchase price, secured by the Hard Rock IP. [See — “Prospectus Summary — Hard Rock Acquisition”] If we do not generate subsequent annual income sufficient to make the annual payments under the seller’s note. If we fail to make any annual payment on time or at all, then we may go into default and potentially forfeit the Hard Rock IP back to the seller. The failure to retain the Hard Rock IP after closing the acquisition would cause a significant loss of our investment and might have a material adverse effect on our revenues and ability to grow our drill string tool business.

Our level of other indebtedness, including the loans on our facilities and equipment, and the financial covenants contained in the loan documents, could reduce our financial flexibility.

Our level of indebtedness could affect our operations in several ways, including the following:

A high level of indebtedness would increase the risk that we may default on our debt obligations. Our ability to meet our debt obligations and to reduce our level of indebtedness will depend on our future performance.

We may experience fluctuations in our quarterly operating results.

Our quarterly operating results may fluctuate significantly in the future. Significant annual and quarterly fluctuations in our results of operations may be caused by, among other factors:

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There can be no assurance that the level of revenues and profits, if any, achieved by us in any particular fiscal period will not be significantly lower than in other, including comparable, fiscal periods. We believe quarter-to-quarter comparisons of our revenues and operating results are not necessarily meaningful and should not be relied on as indicators of future performance. Our operating expenses are relatively fixed in the short term and are based on management’s expectations of future revenues. We plan to increase operating expenses to:

If our revenues do not increase along with these expenses, our business could be negatively affected and net profits, if any, in a given quarter may be smaller than expected. This could result in a material adverse impact on our results of operations or financial condition.

We may be exposed to unforeseen risks in our product manufacturing and processes, which could adversely affect our results of operations.

We operate our business from a single manufacturing facility. A natural disaster or extended utility failure at our facility could significantly impact our production ability. In addition, the equipment and management systems necessary for our operations are subject to wear and tear, break down and obsolescence, which could cause them to perform poorly or fail, resulting in fluctuations in manufacturing efficiencies and production costs. Significant manufacturing fluctuations may affect our ability to deliver products to our customers on a timely basis and we may suffer financial penalties and a diminution of our commercial reputation and future product orders. Additionally, some of our business may be conducted under fixed price contracts. Fluctuations in our manufacturing process, or inaccurate estimates and assumptions used in pricing our contracts, even if due to factors out of our control, may result in cost overruns which we may be required to absorb. Any shut down of our manufacturing facility, reductions in our manufacturing process or efficiency, or cost overruns could adversely affect our business, financial condition and results of operations.

Our business relies heavily on the continued services and presence of our founders, executive officers and key personnel, the loss of whom could significantly disrupt our business, if we are unable to attract and retain qualified replacement personnel.

Our success is dependent to a significant degree upon the business expertise and continued contributions of our founders and senior management team. In particular, we are dependent upon the efforts and services of our founders, Mr. Troy Meier, our Chairman and Chief Executive Officer, and Ms. Annette Meier, our President, because of their knowledge, experience, skills, and relationships with major clients and other members of our management team. The loss of their services for any reason could have a material adverse effect on our operations. In addition, the loss of the services of our Chief Financial Officer, or one or more of our other executive officers or key employees could harm our business. Because we are a small and rapidly growing company, we believe the loss of key personnel would be more disruptive to us than it would be to a large, multinational manufacturer. While we currently have employment agreements with our senior executives, many of our key employees could, with little or no prior notice, voluntarily terminate their employment with us at any time.

We do not maintain key person life insurance on the life of any of our employees, except for a life insurance policy covering Mr. Meier for which the Tronco lender is the beneficiary. The loss of the services of any of our senior officers or key employees, or an inability to attract and retain similarly qualified persons, may adversely affect our business and prospects. In addition, as we grow, it may become necessary to identify, hire and integrate additional or new management members. Even if we are able to attract and hire new

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management members, integration into our business will inevitably cause disruption to our business and occur over an extended period of time. During that time, the lack of sufficient or effective senior management personnel could cause our results of operations to suffer.

We may be unable to employ a sufficient number of skilled and qualified workers to sustain or expand our current operations.

Both of our remanufacturing and new manufacturing lines of business require personnel with specialized skills and experience. Our ability to be productive and profitable will depend upon our ability to attract, employ and retain skilled workers. In addition, our ability to expand our operations depends in part on our ability to increase the size of our skilled labor force. The demand for skilled workers is high, the supply is limited, and the cost to attract and retain qualified personnel has increased over the past few years. While we currently offer above-average wages for the local labor market, any significant increase in the wages paid by competing employers could result in a reduction of our skilled labor force, increases in the wage rates that we must pay, or both. If any of these events were to occur, our capacity could be diminished, our ability to respond quickly to customer demands or strong market conditions may be inhibited and our growth potential impaired, any of which could have a material adverse effect on our business, financial condition and results of operations.

If we are not able to manage our growth strategy successfully, our business, and results of operations may be adversely affected.

Our expected future growth presents numerous managerial, administrative, operational, and other challenges. Our ability to manage the growth of our operations will require us to continue to improve our management information systems and our other internal systems and controls. In addition, our growth will increase our need to attract, develop, motivate, and retain both our management and professional employees. The inability of our management to manage our growth effectively or the inability of our employees to achieve anticipated performance could have a material adverse effect on our business.

We intend and expect to continue to make acquisitions that could disrupt our operations and adversely impact our business and operating results.

In addition to acquiring Hard Rock with the proceeds of this offering, our growth strategy includes acquiring other companies that complement our service offerings or broaden our technical capabilities and geographic presence. Acquisitions involve certain known and unknown risks that could cause our actual growth or operating results to differ from our expectations or the expectations of securities analysts. Difficulties with an acquisition strategy include:

Further, acquisitions may also cause us to:

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In addition, our acquisition strategy may divert management’s attention away from our existing businesses, risking the dissatisfaction or loss of key clients or key employees, and expose us to unanticipated problems or legal liabilities, including responsibility as a successor-in-interest for undisclosed or contingent liabilities of acquired businesses or assets.

Our inability to integrate acquisitions successfully could impede us from realizing all of the benefits of the acquisitions, which could weaken our results of operations.

If we are unable to successfully integrate Hard Rock or other future acquisitions, we could be impeded from realizing all of the benefits of those acquisitions and could weaken our business operations. The integration process may disrupt our business and, if implemented ineffectively, may preclude realization of the full benefits expected by us and could harm our results of operations. In addition, the overall integration of the combining companies may result in unanticipated problems, expenses, liabilities, and competitive responses, and may cause our stock price to decline. The difficulties of integrating an acquisition include, among others:

Finally, even if the operations of an acquisition are integrated successfully, we may not realize the full benefits of the acquisition, including the synergies, cost savings, or growth opportunities that we expect. These benefits may not be achieved within the anticipated time frame, or at all.

If we are unable to raise additional capital, if required in the future, our business could be negatively affected, and/or we could be prevented from achieving our growth objectives.

We believe that the net proceeds from this offering, and the cash flow from our operations, will be sufficient to meet our currently budgeted working capital requirements for at least the next 12 months. Our actual capital needs, however, will depend on many factors, including our clients demands for our services, the amount of revenue generated from operations, and any future bank borrowings or equipment capital leases, none of which can be predicted with certainty. As a result of these factors, we are unable to predict accurately the amount or timing of its future capital needs, if any. If we are required to raise capital in the future through public or private financing or other arrangements, that financing may not be available on acceptable terms, or at all, and our failure to raise capital when needed could harm our business. Additional equity financing may dilute the interests of our shareholders, and debt financing, if available, may involve restrictive covenants and could reduce our profitability. If we cannot raise funds on acceptable terms, we may not be able to grow our business or respond to competitive pressures. The inability to obtain additional capital if and when needed could materially and adversely affect our business and results of operations.

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To compete in our new drill string tool manufacturing industry, we must continue to develop new technologies, methodologies, and products, on a timely and cost-effective basis.

The drilling industry is driven primarily by cost minimization, and our strategy is aimed at reducing drilling costs through the application of new drill bit assembly and drill string tool technologies. While we believe that the proprietary processes and products we have developed currently provide us with technological advantages in serving our customers, our continued success will depend on our ability to meet our customers’ changing needs, on a timely and cost-effective basis, by successfully

If we are not able to do so, our ability to service our customers’ demand may be adversely affected. However, we may not succeed in developing new products or enhancing our existing products on a timely basis, and such new products or enhancements may not achieve market acceptance. Furthermore, from time to time others may announce new products, enhancements or technologies that have the potential to replace or render our existing products obsolete. We may encounter resource constraints, technical barriers, or other difficulties that would delay introduction of new services and related products in the future. Our competitors may introduce new products or obtain patents before we do and achieve a competitive advantage. Additionally, the time and expense invested in product development may not result in commercial applications. Any failure by us to anticipate correspond adequately to changes in technology and customer preferences, the introduction of new products or enhancements by others, or any significant delays in the development or introduction of new products by us could have a material adverse effect on our business and results of operations.

Additionally, we must continue to further develop and expand our bit remanufacturing services to meet our exclusive customer’s needs for bit remanufacturing. Failure to meet our customer’s demand for services may adversely affect our business. We may encounter resource constraints, competition, or other difficulties that may delay our ability to expand our bit remanufacturing services to the level desired or required by our customer.

An interruption in the availability or change in the cost of raw materials or other supplies could negatively affect our business.

We rely on the availability of volume and quality of synthetic diamond cutters for both our remanufactured drill bit business and for our new drill string tool manufacturing business. In addition, we must have a reliable source of steel available for our new manufacturing business which is both of sufficient quality, and available at a cost-effective price. We do not have fixed price contracts or arrangements for all of the raw materials and other supplies that we purchase. Baker Hughes provides the diamond cutters for our remanufacturing business. We generally have readily available sources of synthetic diamond cutters and other supplies needed to conduct our new manufacturing business. However, sourcing cost-effective supplies of quality steel in the relatively low volumes that our new tool manufacturing requires can be challenging. Wherever possible, we maintain alternate sources of supply. However, shortages of, and price increases for, steel and other raw materials and supplies that we use in our business may occur. Future shortages or price fluctuations in synthetic diamond cutters or steel could have a material adverse effect on our ability to conduct either our remanufacturing business or our new drill tools in a timely and cost-effective manner.

Materials and minerals used in our manufacturing process may become subject to laws and regulations that may expose us to significant costs and liabilities.

The diamonds comprising the diamond cutting discs used in our operations are synthetic and manufactured in the United States, South Africa and China. Neither those diamond cutters nor any other minerals used in our operations are currently identified in the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) as “conflict minerals”. However, we cannot predict or control if the United States Secretary of State will or will not identify one of the minerals used in our manufacturing process as a conflict mineral. Should the materials used in our manufacturing process be designated as a conflict mineral,

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we will be required to file Form SD with the Securities Exchange Commission. Added requirements of compliance with Dodd-Frank may in turn adversely affect our results of operations.

Our success at establishing and maintaining a competitive edge for our products requires us to secure and maintain our current and pending patents, as well as protect and enforce our trade secrets and other intellectual property rights.

We regard significant elements of our technology as proprietary and rely on a combination of patent, trade secret, copyright and trademark laws, confidentiality procedures and other intellectual property protection to protect our proprietary technology.

We currently hold a number of U.S. patents, some applications pending, and related international patent applications pending. Although we believe that the manufacturing processes of much of our patented technology are sufficiently complex that competing products made with the same technology are unlikely, there is no assurance that our competitors will not design competing products using the same or similar technology after these patents have expired. It may also be possible for a third party to design around our patents, or use different technology.

Patent rights give the owner of a patent the right to exclude third parties from making, using, selling, and offering for sale the inventions claimed in the patents in the applicable country. However, patent rights do not necessarily grant the patent owner the right to practice the invention claimed in a patent, but merely the right to exclude others from practicing the patented invention. In addition, patent rights have strict territorial limits, and we do not have patents in every jurisdiction in which we conduct business or in which our products are used. Thus, there is no assurance that our patent applications will result in issued patents, that our existing patents or any future patents will give we any competitive advantages for its products or technology, or that, if challenged, our patents will be held valid and enforceable.

In order to protect our trade secrets and other non-patentable intellectual property, we attempt to limit access to and distribution of our technology and customarily enter into confidentiality agreements with our employees, customers and potential customers and suppliers. However, our rights in our confidential information, trade secrets, and confidential know-how will not prevent third parties from independently developing similar information. Publicly available information (e.g. information in expired issued patents, published patent applications, and scientific literature) can also be used by third parties to develop technology independently. We cannot provide assurance that this independently developed technology will not be equivalent or superior to our proprietary technology. Further, our intellectual property rights may not have the value that management believes them to have and such value may change over time as we and others develop new product designs and improvements.

Despite the precautions we have taken, unauthorized parties may attempt to copy aspects of our products or obtain and use information that we regards as proprietary, and existing intellectual property laws give only limited protection with respect to such actions. Policing violations of such laws is difficult. The laws of certain countries in which our products are or may be distributed do not protect our products and intellectual property rights to the same extent as do the laws of the United States.

We may be required to enter into other costly litigation to enforce its intellectual property rights or to defend infringement claims by others. We may not prevail in any such legal proceedings related to such claims, and our products and services may be found to infringe, impair, misappropriate, dilute or otherwise violate the intellectual property rights of others. Any legal proceeding concerning intellectual property could be protracted and costly and is inherently unpredictable and could have a material adverse effect on our business, regardless of its outcome. Losing an infringement claim could require us to license the intellectual property rights of third parties. There is no assurance that such licenses would be available on reasonable terms, or at all.

Our failure to implement and comply with our safety program could adversely affect our operating results or financial condition.

Our safety program is a fundamental element of our overall approach to risk management, and the implementation of the safety program is a significant issue in our dealings with our clients. We maintain a      to help ensure that the services we provide are delivered safely and in accordance with standard work

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processes. Unsafe job sites and office environments have the potential to increase employee turnover, increase the cost of a project to our clients, expose us to types and levels of risk that are fundamentally unacceptable, and raise our operating costs. The implementation of our safety processes and procedures are monitored by various agencies and rating bureaus, and may be evaluated by certain clients in cases in which safety requirements have been established in our contracts. If we fail to meet these requirements or do not properly implement and comply with our safety program, there could be a material adverse effect on our business, operating results, or financial condition.

Our operations are subject to environmental and operational safety laws and regulations that may expose us to significant costs and liabilities.

Federal, state and local environmental and health and safety laws apply to our facilities. These laws and regulations govern matters such as:

Environmental Laws.  Proper waste disposal and environmental regulation are major considerations for us because certain metals, minerals, and chemicals used in our manufacturing processes are classified as hazardous substances. Our operations are therefore subject to numerous stringent and complex federal, state and local laws, regulations and ordinances concerning solid waste disposal, hazardous materials storage, use and disposal, air emissions, waste water disposal, employee health and other environmental protection matters (together, “Environmental Laws”). These laws and regulations may, among other things, regulate the management and disposal of hazardous and non-hazardous wastes; require acquisition of environmental permits related to our operations; restrict the types, quantities, and concentrations of various materials that can be released into the environment; limit or prohibit operational activities in certain ecologically sensitive and other protected areas; regulate specific health and safety criteria addressing worker protection; require compliance with operational and equipment standards; impose testing, reporting and record-keeping requirements; and require remedial measures to mitigate pollution from former and ongoing operations. Because the Company is a generator of hazardous materials, it is subject to financial exposure even if it fully complies with these laws.

We believe that our advanced facility construction and workplace safety processes will be successful at containing any potential discharges or injuries. However, even an inadvertent failure to comply with the Environmental Laws could result in substantial costs to us, including clean-up costs, fines and civil or criminal sanctions, or third-party claims for property damage or personal injury. In addition, certain Environmental Laws impose joint and several liability, without regard to fault or legality of conduct, on classes of persons who are considered to be responsible for the release of a hazardous substance into the environment.

As a generator of hazardous materials, we are subject to financial exposure even if it fully complies with current Environmental laws. Environmental laws could become more stringent over time. The trend in environmental regulation has been to impose increasingly stringent restrictions and limitations on activities that may impact the environment. This could result in higher costs to comply with new laws, and increased risks and penalties for noncompliance. The implementation of new laws and regulations could result in materially increased costs, stricter standards and enforcement, larger fines and liability and increased capital expenditures and operating costs, for both us and our customers.

It is possible that environmental issues may arise in the future that we are not now aware of and cannot predict at this time. There is no assurance that any present or future noncompliance with Environmental Laws will not have a material adverse effect on our results of operations or financial condition. See “Business Environmental Matters.”

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Employee Health and Safety.  We are subject to a number of federal and state laws and regulations, including OSHA and comparable state statutes, establishing requirements to protect the health and safety of workers. In addition, the OSHA hazard communication standard, the EPA community right-to-know regulations under Title III of the federal Superfund Amendment and Reauthorization Act and comparable state statutes require that information be maintained concerning hazardous materials used or produced in our operations and that this information be provided to employees, state and local government authorities and the public. Substantial fines and penalties can be imposed and orders or injunctions limiting or prohibiting certain operations may be issued in connection with any failure to comply with laws and regulations relating to worker health and safety.

Environmental, Health and Safety Regulation

Our operations are subject to numerous stringent and complex laws and regulations governing the discharge of materials into the environment, health and safety aspects of our operations, or otherwise relating to human health and environmental protection that may result in increased costs to the Company.

The Resource Conservation and Recovery Act (“RCRA”) and comparable state statutes, regulate the generation, transportation, treatment, storage, disposal and cleanup of hazardous and non-hazardous wastes. Under the auspices of the EPA, the individual states administer some or all of the provisions of RCRA, sometimes in conjunction with their own, more stringent requirements. We are required to manage the transportation, storage and disposal of hazardous and non-hazardous wastes in compliance with RCRA.

Additionally, the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), also known as the Superfund law, imposes joint and several liability, without regard to fault or legality of conduct, on classes of persons who are considered to be responsible for the release of a hazardous substance into the environment. These persons include the owner or operator of the site where the release occurred, and anyone who disposed or arranged for the disposal of a hazardous substance released at the site. We currently own, lease, or operate numerous properties that have been used for manufacturing and other operations for many years. We also contract with waste removal services and landfills. These properties and the substances disposed or released on them may be subject to CERCLA, RCRA and analogous state laws. Under such laws, we could be required to remove previously disposed substances and wastes, remediate contaminated property, or perform remedial operations to prevent future contamination. In addition, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by hazardous substances released into the environment.

Our operations are subject to stringent regulations as it relates to “water discharges” that may result in increased costs for our operations.

The Federal Water Pollution Control Act (the “Clean Water Act”) and analogous state laws impose restrictions and strict controls with respect to the discharge of pollutants, including spills and leaks of oil and other substances, into waters of the United States. The discharge of pollutants into regulated waters is prohibited, except in accordance with the terms of a permit issued by the EPA or an analogous state agency. A responsible party includes the owner or operator of a facility from which a discharge occurs. The Clean Water Act and analogous state laws provide for administrative, civil and criminal penalties for unauthorized discharges and, together with the Oil Pollution Act of 1990, impose rigorous requirements for spill prevention and response planning, as well as substantial potential liability for the costs of removal, remediation, and damages in connection with any unauthorized discharges. If the water recapture systems at our Vernal facility were to fail, we might incur liability for unauthorized discharges.

Our Company is subject to several state and federal laws and regulations as it relates to employee health and safety, failure of the Company to be in compliance may result in significant fines and penalties.

We are subject to a number of federal and state laws and regulations, including OSHA and comparable state statutes, establishing requirements to protect the health and safety of workers. In addition, the OSHA hazard communication standard, the EPA community right-to-know regulations under Title III of the federal Superfund Amendment and Reauthorization Act and comparable state statutes require that information be maintained concerning hazardous materials used or produced in our operations and that this information be provided to employees, state and local government authorities and the public. Substantial fines and penalties can be imposed and orders or injunctions limiting or prohibiting certain operations may be issued in connection with any failure to comply with laws and regulations relating to worker health and safety.

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Our product liability insurance may not be sufficient to cover the damages awarded in a successful product liability claim. Uninsured or underinsured claims or litigation or an increase in our insurance premiums could adversely impact our results.

We are subject to the risk of product liability claims and lawsuits for harm caused by our products. Most of our products are used in hazardous drilling and production applications in which an accident or a failure of a product can cause personal injury, loss of life, damage to property, equipment or the environment or suspension of operations. Despite our quality assurance measures, defects may occur in our products. Any defects could give rise to liability for damages, including consequential damages, and could impair the market’s acceptance of our products.

We carry commercial general liability insurance coverage, which includes products liability coverage, subject to deductibles and at levels we believe are sufficient to cover existing and future claims. However, there is no assurance that our insurance will be sufficient to cover any claims that may arise. An unexpected judgment could be rendered against us in cases in which we could be uninsured or underinsured and beyond the amounts we currently have reserved or anticipate incurring. The liability for payment of damages in a successful product liability claim in excess of our insurance coverage could have a material adverse effect on our business, financial condition and results of operations. In addition, we may not be able to maintain adequate insurance coverage at rates we believe are reasonable. Significant increases in the cost of insurance and more restrictive coverage could also have an adverse impact on our results of operations.

Unavailability or cancellation of third-party insurance coverage would increase our overall risk exposure as well as disrupt the management of our business operations.

If any of our third-party insurers fail, suddenly cancel our coverage, or otherwise are unable to provide us with adequate insurance coverage, then our overall risk exposure and our operational expenses would increase and the management of our business operations would be disrupted. In addition, there can be no assurance that any of our existing insurance coverage will be renewable upon the expiration of the coverage period or that future coverage will be affordable at the required limits.

Our information systems may experience an interruption or breach in security.

We rely on “CHUCK”, our proprietary production management technology, and on other information systems to conduct our business. Any failure, interruption or breach in security of our information systems could result in failures or disruptions in our customer relationship management, general ledger systems and other systems. While we have policies and procedures designed to prevent or limit the effect of the failure, interruption or security breach of our information systems, threats to our information technology systems associated with cyber-security risks and cyber incidents or attacks continue to grow. It is also possible that breaches to our systems could go unnoticed for some period of time. Risks associated with these threats include, among other things, loss of intellectual property, impairment of our ability to conduct our operations, disruption of our customers’ operations, loss or damage to our customer data delivery systems, and increased costs to prevent, respond to or mitigate cyber-security events. The occurrence of any failures, interruptions or security breaches of our information systems could damage our reputation, result in a loss of customer business, or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our financial position or results of operations.

Risks Relating to Our Common Stock

As a smaller reporting company, we are subject to scaled disclosure requirements that may make it more challenging for investors to analyze our results of operations and financial prospects.

Currently, we are a “smaller reporting company,” meaning that our outstanding common stock held by non-affiliates had a value of less than $75 million at the time of filing of our registration statement. As a “smaller reporting company,” we are able to provide simplified executive compensation disclosures in our filings; are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public accounting firms provide an attestation report on the effectiveness of internal control over financial reporting; and have certain other decreased disclosure obligations in our SEC filings, including, being required to provide only two years of audited financial statements in annual reports. Consequently, it may be more challenging for investors to analyze our results of operations and financial prospects.

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We are an emerging growth company, and any decision on our part to comply only with certain reduced reporting and disclosure requirements applicable to emerging growth companies could make our common stock less attractive to investors.

We are an emerging growth company, and, for as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including, but not limited to, not being required to have our independent registered public accounting firm audit our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We could be an emerging growth company for up to five years following the completion of this offering. We will cease to be an emerging growth company upon the earliest of: (a) the end of the fiscal year following the fifth anniversary of this offering, (b) the first fiscal year after our annual gross revenue exceed $1.0 billion, (c) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities or (d) the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeded $700 million as of the end of the second quarter of that fiscal year. We cannot predict if investors will find our common stock less attractive if we choose to rely on these exemptions. If some investors find our common stock less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our common stock and the price of our common stock may be more volatile.

Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. However, we have elected to adopt new or revised accounting standards at such times as applicable to other non-emerging grown public companies.

Furthermore, a material weakness in internal controls may remain undetected for a longer period because of our extended exemption from the auditor attestation requirements under Section 404(b) of Sarbanes-Oxley.

Future forecast of earnings are inherently uncertain and subject to significant business, economic, financial, regulatory and competitive risks and uncertainties that could cause our actual results to differ materially from such forecasts.

Earnings forecasts are inherently uncertain and subject to significant business, economic, financial, regulatory and competitive risks and uncertainties that could cause our actual results to differ materially from that which is forecasted. Because of our purchase of Hard Rock, we may face greater difficulties in accurately projecting future consolidated earnings. Any earnings forecasts will be prepared by management and will not be verified by an opinion or report from any independent registered public accountants. We cannot assure you that we will be able to forecast earnings accurately, if at all, or that we will be able to achieve such forecasts.

The Meiers own a controlling interest of our stock and thus will have substantial control over our management and affairs, and over certain actions requiring a shareholder vote.

Immediately following this offering, Troy and Annette Meier will own, beneficially through their affiliated entities, approximately 61% of the combined voting power of our stock (or 58% if the underwriter exercise their option to purchase additional Shares in full). In addition, both Mr. Meier and Ms. Meier will serve on our Board of Directors. Consequently, the Meiers will, for the foreseeable future, have significant influence over our management and affairs and will be able to control virtually all matters requiring stockholder approval, including the election of directors and significant corporate transactions such as mergers or other sales of our company or assets, and their interests could differ from ours and those of our other stockholders. In addition, the concentration of ownership may have the effect of delaying, preventing or deterring a change in control of our company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and might ultimately affect the market price of our common stock.

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An active market for our common stock may not develop, which would adversely affect the liquidity and price of the Shares.

Liquid and active trading markets usually result in less price volatility and more efficiency in carrying out investors’ purchase and sale orders. However, before this offering, our common stock was not traded on any market. An active trading market for our securities may never develop or, if developed, it may not be sustained. As a result, you may be unable to sell your Shares unless an active market for our common stock can be established or sustained.

Our initial application to list our common stock on the NYSE MKT market may not be approved and even if it is approved, there is no guarantee that we will be able to maintain our listing on NYSE MKT market.

Our common stock is not currently traded on any public market, but we have applied to have our common stock listed on the NYSE MKT market. There is no guarantee that NYSE MKT will approve our initial listing application or that we will be able to remedy any problems identified by NYSE MKT that would prevent our listing. Additionally, even if we are listed on the NYSE MKT, we will be required to comply with certain quantitative and qualitative continued listing requirements, including a minimum bid price and corporate governance requirements. If we fail to meet these continued listing requirements, we may receive notification from NYSE MKT of such failure, which must be publicly filed, and we could eventually be delisted from the NYSE MKT.

The initial public offering price of our common stock may be higher than the market price of our common stock after this offering, which may be volatile.

The initial public offering price will be negotiated between us and representatives of the underwriter, based on numerous factors which we discuss in the “Underwriting” section of this prospectus, and may not be indicative of the market price of our common stock after this offering. The subsequent market price of our common stock may vary significantly due to a number of factors, some of which are beyond our control. The following factors could affect our common stock price:

In addition, the trading markets in general have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock. If the market price of our common stock drops, you could lose a substantial part or all of your investment in our common stock. Consequently, you may not be able to sell your shares of our common stock at prices equal to or greater than the price paid by you in the offering.

Purchasers of common stock will experience immediate and substantial dilution in the net tangible book value per share of common stock from the initial public offering price.

Assuming an initial public offering price of $     per share (the mid-point of the price range set forth on the cover page of this prospectus), our pro forma net tangible book value as of June 30, 2013, after giving effect to this offering, would be $     per share. As a result, you will experience an immediate and substantial price dilution equal to $     in the net tangible book value per share of common stock from the initial public offering price. See “Dilution” for a complete description of the calculation of net tangible book value.

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Future sales of our common stock in the public market could lower our stock price, and any additional capital raised by us through the sale of equity may reduce your ownership percentage in us.

Our Articles of Incorporation allow us to issue significant numbers of additional shares, including shares that may be issued under our employee and director incentive plans. After this offering, we may file a registration statement with the SEC on Form S-8 providing for the registration of shares of our common stock issued or reserved for issuance under employee and director stock incentive plans. After the expiration of lock-up agreements with the Underwriter, and subject to the satisfaction of vesting conditions, shares registered under the Form S-8 registration statement would be immediately available for resale in the public market.

In addition, after completion of this offering and assuming full subscription of the offering and over-allotment, we will have approximately      shares of our common stock which we may sell in subsequent public or private offerings. We cannot predict the size of future issuances of our common stock or the effect, if any, that future issuances and sales of shares of our common stock will have on the market price of our common stock. Sales of substantial amounts of our common stock (including shares issued in connection with a future acquisition), or the perception that such sales could occur, could dilute your percentage of ownership in our common stock, and may adversely affect prevailing market prices of our common stock. See “Shares Eligible for Future sale”.

Our declaration of dividends is within the discretion of our Board of Directors and there can be no assurance that we will pay dividends.

Our dividend policy is within the discretion of our Board of Directors and will depend upon various factors, including our results of operations, financial condition, capital requirements and investment opportunities. We can provide no assurance that we will pay dividends on our common stock. No dividends on our common stock will accrue in arrears. In addition, under Utah law no distribution may be made if, after giving it effect: (a) we would be unable to pay our debts as they come due, or (b) our total assets would be less than our total liabilities. We can provide no assurance that those restrictions will not prevent us from paying a dividend in future periods. See “Description of Capital Stock — Dividends.”

We will incur increased costs as a result of being a public company, including the cost of complying with the Sarbanes-Oxley Act of 2002, and the corporate governance requirements of the SEC and the NYSE MKT.

As a privately held company, we have not been responsible for the corporate governance and financial reporting practices and policies required of a publicly traded company. As a publicly traded company with listed equity securities we will need to comply with a substantial number of laws, regulations and requirements that are new to us, and which will significantly increase our costs and expenses. Among other things, we will need to:

In addition, we must establish, maintain, evaluate, and report on a system of internal controls over financial reporting in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) and the related rules and regulations of the SEC and the Public Company Accounting Oversight Board (the “PCAOB”). If we fail to implement and maintain the required internal controls over our financial processes and reporting after the offering or in the future, we could be subject to regulatory scrutiny, civil or criminal penalties and/or shareholder litigation, which could harm our operating results or cause us to

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fail to meet our reporting obligations. Any failure to provide reliable financial reports or prevent fraud would harm our business and operating results and cause us to fail to meet our reporting obligations, and non-complying internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our securities.

For so long as we qualify as an “emerging growth company” under the JOBS Act, which may be up to five years following this offering, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404. Once we are no longer an emerging growth company or, if prior to such date, we opt to no longer take advantage of the applicable exemption, we will be required to include an opinion from our independent registered public accounting firm on the effectiveness of our internal controls over financial reporting and we may be subject to other heightened reporting and regulatory requirements that will increase our compliance burden and expense.

Being a public company could place a strain on our management as complying with these requirement will require substantial management resources.

Complying with public company statutes, rules and regulations will occupy a significant amount of our management’s and Board of Directors’ time and could place a strain on our senior management team. Further, management’s attention may be diverted from other business concerns, which could adversely affect our business. We have made changes and will need to make additional changes to our corporate governance, disclosure controls and financial reporting and accounting systems to meet our reporting obligations. These factors could make it more difficult for us to attract and retain qualified executive officers and key personnel, and qualified members of our Board of Directors, particularly to serve on our Audit Committee.

We may issue preferred stock whose terms could adversely affect the voting power or value of our common stock.

Our articles of incorporation authorizes us to issue, without the approval of our shareholders, one or more classes or series of preferred stock having such designations, preferences, limitations and relative rights, including preferences over our common stock respecting dividends and distributions, as our board of directors may determine. The terms of one or more classes or series of preferred stock could adversely impact the voting power or value of our common stock. For example, we might grant holders of preferred stock the right to elect some number of our directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we might assign to holders of preferred stock could affect the residual value of the common stock.

The existence of some provisions in our organizational documents could delay or prevent a change in control of our company, even if that change would be beneficial to our shareholders. Our certificate of incorporation and bylaws contain provisions that may make acquiring control of our company difficult, including:

We have a significant number of shares of currently restricted and locked-up stock outstanding which, if registered or otherwise eligible for resale in the future could have a depressive effect on the price of our publicly traded shares.

Upon completion of this offering, we will have up to approximately      shares outstanding (subject to certain other assumptions). Of these shares, approximately      shares will be restricted from resale, of which      shares may be transferable under Rule 144 of the Securities Act upon expiration of the underwriter’s180-day lock-up period after closing of this offering. We also have reserved another      shares for issuance under outstanding warrants and stock options. Significant sales of our shares in the future under

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another registration statement, pursuant to Rule 144, or otherwise, or the prospect of such sales, may depress the price of our common stock. See “Shares Eligible for Future Sale.”

By opting out Utah’s Control Shares Acquisition Act, we may be a more susceptible target for a hostile takeover than if we had not opted out of the protections of that act.

In our Articles of Incorporation we have elected to not be subject to Utah’s Control Shares Acquisitions Act (Utah Code Ann. 61-6-1 et seq.) (“Control Shares Act”). The Control Shares Act provides stringent rules governing takeovers of Utah public corporations. While Utah public corporations that have not opted out of the Control Share Act will be more difficult to acquire, they may achieve lower valuations than those corporations that opt out of the act’s provisions. While we believe it is in the best interests of our shareholders to maximize our valuation, our decision to not be subject to the Control Shares Act may make it easier for a potential hostile takeover to occur than if we had not opted out of the coverage of that act.

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USE OF PROCEEDS

We expect to receive net proceeds of approximately $      million from sale of our common stock in this offering, (a) assuming an initial public offering price of $      per share (the midpoint of the price range set forth on the cover page of this prospectus) and (b) after deducting estimated expenses payable by us and underwriting discounts and commissions of approximately $      million.

Each $1.00 increase or decrease in the assumed public offering price of $      per share would increase or decrease, as applicable, the aggregate amount of the net proceeds to us by approximately $      million, based on those same estimated expenses. Similarly, any increase or decrease in the number of shares that we sell in the offering will increase or decrease our net proceeds in proportion to that increase or decrease, as applicable, multiplied by the offering price per share, less underwriting discounts and commissions.

We initially intend to use a portion of the net proceeds from this offering as follows:

DETERMINATION OF THE OFFERING PRICE

The price of the Shares we are offering was determined by our board through ‘arm’s length’ negotiations with underwriter in order for us to raise up to a total of $     in this offering. Among the factors considered were:

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The offering price stated on the cover page of this prospectus should not be considered an indication of the actual value of shares of common stock. That price is subject to change as a result of market conditions and other factors, and we cannot assure you that the shares of common stock can be resold at or above the offering price.

DIVIDEND POLICY

We do not anticipate declaring or paying any cash dividends on our common stock following our initial public offering. The payment of any dividends in the future will be at the discretion of our board of directors and will depend upon our financial condition, results of operations, earnings, capital requirements, contractual restrictions, outstanding indebtedness, and other factors deemed relevant by our board of directors. As a result, you will probably need to sell your shares of our common stock to realize a return on your investment, and you may not be able to sell those shares at or above the price you paid for them.

CAPITALIZATION

The following table sets forth our cash and cash equivalents, total debt, and capitalization as of September 30, 2013:

You should read this table together with “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Description of Capital Stock,” and our consolidated financial statements and related notes included elsewhere in this prospectus.

		As of September 30, 2013
		Actual				As Adjusted
		(In thousands, except share and per share amounts)
Cash and cash equivalents		$	38			$	—
Total debt		$	20,016			$	—
Stockholders’ equity:
Undesignated preferred stock: $0.001 par value; 20,000,000 shares authorized, no shares issued and outstanding, actual and as adjusted		$	—			$	—
Common stock: $0.001 par value; 100,000,000 shares authorized, 1,000 shares issued and outstanding, actual; 100,000,000 shares authorized, 18,618,810 shares issued and outstanding, as adjusted		$	0			$	—
Additional paid-in capital			(788	)		$	—
Retained earnings		$	—			$	—
Total stockholders’ equity			(788	)		$	—
Total capitalization		$	19,266			$	—

A $1.00 increase or decrease in the assumed initial public offering price per share would increase or decrease our cash and cash equivalents by approximately $     million, would increase or decrease additional paid-in capital by approximately $     million, and would increase or decrease total stockholders’ equity and total capitalization by approximately $     million, after deducting estimated underwriting discounts and commissions and the estimated offering expenses payable by us. Similarly, any increase or decrease in the number of shares that we sell in the offering will increase or decrease our net proceeds by such increase or decrease, as applicable, multiplied by the offering price per share, less underwriting discount and commission.

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DILUTION OF THE PRICE YOU PAY FOR YOUR SHARES

Dilution represents the difference between the offering price and our net tangible book value per share immediately after completion of this offering. Dilution arises mainly as a result of (a) our determination of the offering price of the shares being offered, (b) the potential for issuance of additional Shares upon conversion of the Bridge Loan and exercise of the Bridge Lender’s warrants, and (c) the lower book value of the Shares held by our existing stockholders.

Our “net tangible book value per share” is determined by subtracting our total liabilities from our total tangible assets, and then dividing the result by the number of our outstanding Shares. As of September 30, 2013, our net tangible book value was $    , or $     per share, based upon       shares outstanding.

If we close this offering at per share price of $     (the midpoint of the price range stated on the cover page of this prospectus) for      shares, we will receive $    , less the estimated underwriting discounts and commissions and estimated offering expenses. See “    ”. The following table illustrates the per share dilution if we had received those net offering proceeds on September 30, 2013:

Actual as of September 30, 2013:
Net tangible book value		$
Number of outstanding shares
Net tangible book value per share – existing shareholders		$
Adjusted as if offering had closed on September 30, 2013:
Adjusted net tangible book value (offering proceeds assumed at $     price/share)		$
Number of shares outstanding post-offering
Adjusted net tangible book value per share as if offering proceeds received		$
Accretion/Dilution Analysis
Potential gain per share for existing shareholders		$
Potential dilution to new investors (assumed $     offering price/share)			($   )

If the underwriter’s over-allotment option is exercised in full, the number of Shares held by our existing shareholders after this offering would be     , or     %, and the number of shares held by new investors would increase to     , or     %, based upon      shares outstanding after this offering. In that case, our as-adjusted net tangible book value would have been $    , or $     per share, and the dilution per share to new investors would have be $     if the offering had closed as of September 30, 2013.

A $     increase or decrease in the assumed initial public offering price of $     per share, which is the midpoint of the price range set forth on the cover page of the prospectus, would increase or decrease, as applicable, our as adjusted net tangible book value per share by $    , and increase or decrease, as applicable, the dilution per share to new investors by $    , assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, any increase or decrease in the number of shares that we sell in the offering will increase or decrease our net proceeds in proportion to such increase or decrease, as applicable, multiplied by the offering price per share, less underwriting discount and commission and offering expenses.

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The following table sets forth, as of September 30, 2013, on the as-adjusted basis described above, the differences between our existing shareholders and new investors with respect to the total number of shares purchased from us, the total consideration paid, and the average price per share paid before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, at an assumed initial public offering price of $ .00 per share, which is the midpoint of the range set forth on the cover page of this prospectus:

		Shares Purchased								Total Consideration								Average Price Per Share
		Number				Percent				Amount				Percent
Existing stockholders							%			$					%			$
New investors
Total							100	%		$					100	%		$

A $     increase or decrease in the assumed initial public offering price of $     per share of our common stock would increase or decrease, as applicable, total consideration paid by new investors, total consideration paid by all shareholders, and average price per share paid by all shareholders by $    , $    , and $    , respectively, assuming the number of shares of our common stock offered by us, as set forth on the cover page of this prospectus, remains the same. Similarly, any increase or decrease in the number of shares that we sell in the offering will increase or decrease our net proceeds in proportion to such increase or decrease, as applicable, multiplied by the offering price per share, less underwriting discount and commission.

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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Investors should read the following information together with “Prospectus Summary — Summary Historical Combined and Unaudited Pro Forma Financial Data,” “Selected Historical Combined and Unaudited Pro Forma Financial Data” and the financial statements and the notes thereto included elsewhere in this prospectus. This discussion and analysis contains forward-looking statements, which involve risks and uncertainties, including those described under the captions “Risk Factors” and “Cautionary Note Regarding Forward Looking Statements” and elsewhere in this prospectus. Our actual results may differ materially from those anticipated in these forward-looking statements.

The financial information contained in the following discussion is based on our audited financial statements for the years ended December 31, 2012 and 2011, the unaudited financial statements for the nine months ended September 30, 2013 and 2012, and the unaudited pro forma financial information for the year ended December 31, 2012 and the nine months ended September 30, 2013.

Overview

We group our capabilities and operations into four lines of business:

MPS and ML are asset holding companies for our real property, including Ropers Business Park, our Vernal facility, and equipment, respectively.

We were incorporated as a Utah corporation in December 2013, and in connection with completion of this offering, will complete a reorganization in which we acquire all of the outstanding limited liability company membership interests of SDP, SDF, ET, MPS, and ML, and after its acquisition, Hard Rock. As a result, we will be the holding company under which all six of those subsidiaries will conduct ongoing operations.

Key Trends, Developments and Challenges

Advent of Horizontal Drilling.  We started SDF and ET in order to take advantage of the oil and gas industry’s significant shift to horizontal drilling and its resulting substantial need for new horizontal drill string tools and technology. See “Industry”.

Shift in Product Mix.  Due to the industry shifting to horizontal drilling, we believe that further development of other drill bit and drill string components, such as our Drill N Ream tool, will become increasingly important to our business as we continue to grow through both organic expansion and strategic acquisitions.

Customer Diversification. By adding development and manufacturing of new drill bits and drill string tools, that do not conflict with our Baker Hughes remanufacturing contract, our new manufacturing line of business allowed us to add HRSI as a second significant customer, and to conduct custom projects for other oil and gas field service companies. With our acquisition of Hard Rock upon completion of this offering, HRSI’s Drill N Ream rental customers will become our direct customers, adding additional diversification to our customer base and sources of revenues.

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Opportunities to Expand our Business with Baker Hughes.  Baker Hughes has recently requested that we help fill their additional demand for drill bits by increasing our manufacturing services by 25% – 30%. In addition, they have communicated interest in our possibly managing some of their in-house remanufacturing facilities. This expansion of our relationship with Baker Hughes would diversify our products, as well as our customer base outside of the Rocky Mountain, California and Alaska regions.

Components of Income and Expense

Operating Revenues.  Currently, we have three primary sources of revenue: (a) remanufacturing drill bits for Baker Hughes, (b) Drill N Ream unit manufacturing and rental revenues from HRSI, and (c) new manufacturing Baker Hughes accounted for 66% and 84%, and HRSI accounted for 31% and 16% of our revenue for the years ended December 31, 2012 and 2011, respectively.

See also “— Critical Accounting Policies and Estimates — Revenue Recognition.”

Direct Costs.  We expense direct costs of production when incurred. No inventory is recorded as any amount would be immaterial. Excluded from production costs of both lines of business are facilities costs, depreciation and amortization. Those excluded costs instead are included in operating expenses.

Remanufactured Drill Bits.  Direct costs for our remanufactured drill bit business consist primarily of labor and materials used in the remanufacturing process. The single largest expense related to remanufacturing a drill bit is the new PDC cutters, however, those are purchased and provided to us by Baker Hughes, so we do not incur any cost for them.

New Machined Tools.  Direct costs for our machined tool products consist primarily of steel and cutting tools. Direct costs also include production expenses, labor and other expenses incurred in connection with the new tool manufacturing projects.

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Operating Expenses.  We expense operating costs when incurred. Operating expenses include the costs of the support staffs, management and administrative personnel costs, payroll taxes, and employee benefits for all of our employees and the portion of salaries and wages not allocated to direct costs of remanufactured drill bit and machined tool revenues for those employees who are directly engaged in the production process, as discussed above. Operating expenses also include facility costs, depreciation and amortization, professional services, legal and accounting fees and administrative operating costs.

Factors Affecting Comparability

We believe that the following selected factors can be expected to have a significant effect on the comparability of our recent or future results of operations:

Holdings Reorganization.  In connection with the closing of this offering, we will complete a reorganization transaction in which we will acquire all of the limited liability company membership interests of SDP, SDF, ET and ML and, as a result, became the holding company under which those subsidiaries will conduct operations. Each of the Subsidiaries is considered to be a historical accounting predecessor for financial statement reporting purposes.

Hard Rock Acquisition.  In January 2014, we entered into a membership interest purchase agreement with HRSI (“MIPA”), under which we will purchase 100% of the limited liability company membership interest of its subsidiary, Hard Rock. Closing of the Hard Rock acquisition is scheduled to occur promptly after completion of this offering. HRSI began operations in 2001 and has been marketing the Drill N Ream tool that we produce since 2011. The Hard Rock purchase price is $25 million, consisting of $12.5 million in cash at closing, and a seller-carried promissory note for $12.5 million (the “Hard Rock Note”). The Hard Rock Note will mature three years from the closing date, and accrue interest at the JP Morgan Chase Bank, N.A. annual prime rate. Under the terms of the Hard Rock Note, we will pay two annual principal installments of $5 million plus interest and one final payment of $2.5 million plus interest, on each subsequent anniversary date of the Hard Rock Note date. The Hard Rock Note will be secured by all of the patents, patents pending, other patent rights, and trademarks to be owned by Hard Rock after our acquisition of Hard Rock under the MIPA. After that acquisition, Hard Rock will conduct operations as our wholly-owned subsidiary.

Public Company Expenses.  Upon consummation of our initial public offering, we will become a public company. We also intend to apply to list our securities on the NYSE MKT. As a result, we will need to comply with laws, regulations, and requirements that we did not need to comply with as a private company, including certain provisions of the Sarbanes-Oxley Act and related Securities and Exchange Commission regulations, and will need to comply with the requirements of NYSE MKT if our securities approved for listing. Compliance with the requirements of being a public company will require us to increase our operating expenses in order to pay our employees, legal counsel, and accountants to assist us in, among other things, external reporting, instituting, and monitoring a more comprehensive compliance and board governance function, establishing and maintaining internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act, and preparing and distributing periodic public reports in compliance with our obligations under the federal securities laws. In addition, being a public company will make it more expensive for us to obtain director and officer liability insurance. We estimate that incremental annual public company costs will be between $.5 million and $1 million.

Stock-Based Compensation.

Employee Stock Incentive Plan.  On February 1, 2014, our Board of Directors approved an Employee Stock Incentive Plan in connection with the completion of this offering. A total of         Shares are authorized and reserved for issuance under the Employee Plan. The Company also anticipates that it will adopt a Director Equity Compensation Plan after the closing of this offering, however, the terms of or number of shares to be reserved under that plan are currently unknown. Equity and equity-based compensation plans are intended to make available incentives that will assist us to attract, retain, and motivate 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

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other cash-based or stock-based awards. As a result, we expect to incur non-cash, stock-based compensation expenses in future periods. No equity awards have been granted to date under any plan.

Additional Compensation Expenses.  Upon completion of this offering, we intend to hire (a) additional financial and accounting personnel in connection with our change in status to a publicly traded company, and (b) additional sales and marketing professionals in connection with our acquisition of Hard Rock, in order to market the Drill N Ream tool and our other pending drill string tools. Accordingly, we expect compensation expenses, as reflected in operating expenses, will be higher in future periods.

Internal Controls and Procedures

Before completion of this offering, we have been a private company with limited accounting personnel to adequately execute our accounting processes, and other supervisory resources with which to address our internal control over financial reporting. We are in the process of implementing sufficient accounting and financial reporting systems, processes, controls and personnel in order to adequately support our development strategy and to comply with public reporting requirements.

We are not currently required to comply with the SEC’s rules related to Section 404 of the Sarbanes-Oxley Act and are, therefore, not required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. Upon becoming a public company, we will be required to comply with the SEC’s rules implementing Section 302 of the Sarbanes-Oxley Act, which will require our management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of our internal control over financial reporting. We will not be required to make our first assessment of our internal control over financial reporting until the year following our first annual report required to be filed with the SEC. To comply with the requirements of being a public company, we will need to upgrade our systems, implement additional internal controls, reporting systems and procedures and hire additional accounting, finance and legal staff.

Further, our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting until the year following our first annual report required to be filed with the SEC or the date we are no longer an emerging growth company, unless it is determined that we are a non-accelerated filer, in which case our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control. When, and if, it is required to do so, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating. Our remediation efforts may not enable us to remedy or avoid material weaknesses or significant deficiencies in the future.

Recent Accounting Pronouncements

JOBS Act.  On April 5, 2012, the Jumpstart Our Business Startups Act (“JOBS Act”) was signed into law. Under the JOBS Act, we are an emerging growth company within the meaning of the rules under the Securities Act, and we may utilize certain exemptions from various reporting requirements that are applicable to public companies that are not emerging growth companies. For example, we will not have to provide an auditor’s attestation report on our internal controls in future annual reports on Form 10-K as otherwise required by Section 404(b) of the Sarbanes-Oxley Act. Also, Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards applicable to public companies. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we are choosing to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards when they are required to be adopted by issuers. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.

Other.  No other pronouncements materially affecting our financial statements were issued during 2011, 2012 or thereafter that have impacted, or are expected to impact, our financial statements and results of operations.

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Critical Accounting Policies and Estimates

The discussion of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with U.S. GAAP. During the preparation of these financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions, including those discussed below. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. The results of our analysis form the basis for making assumptions about the carrying values of assets and liabilities that are not readily apparent from other sources. While we believe that the estimates and assumptions used in the preparation of our combined financial statements are appropriate, actual results may differ from these estimates under different assumptions or conditions, and the impact of such differences may be material to our combined financial statements. Our estimates and assumptions are evaluated periodically and adjusted when necessary. The more significant estimates affecting amounts reported in our combined financial statements include, but are not limited to: determining the allowance for doubtful accounts, valuation of related party receivables, recoverability of long-lived assets, useful lives used in calculating depreciation and amortization, and accruals for guarantees.

We believe that the following critical accounting policies involve our more significant judgments and estimates used in the preparation of our financial statements. For further information on all of our significant policies, see Note 1 to our combined financial statements included elsewhere in this prospectus.

Revenue Recognition.

Remanufacturing — Revenue from our remanufacturing services for Baker Hughes is recognized as the services are rendered and when collectability is reasonably assured, typically upon shipment. Shipping and handling costs related to remanufacturing services are paid directly by Baker Hughes at the time of shipment.

Manufacturing — Revenue from Drill N Ream rentals is earned and payable to us upon cash receipt of rental income by HRSI. All other manufactured products are sold at prevailing market rates. We recognize revenue for these products upon delivery, when title passes, when collectability is reasonably assured and when there are no further significant obligations for future performance. Typically this is at the time of customer acceptance. Shipping and handling costs related to product sales are recorded as a component of both the sales price and cost of the product sold.

Rental Income — Revenue from rental of the third building on our Vernal campus to Baker Hughes, and our lease revenue from the Superior Auto Body property is recognized according to the terms of the related leases, typically at the beginning of the monthly rental period.

Concentration of Credit Risk.  Historically substantially all of our revenues were derived from our remanufacturing of PDC drill bits under our exclusive contract with Baker Hughes, plus, more recently, our manufacturing of the Drill N Ream units for HRSI. Together, Baker Hughes and HRSI accounted for 100% and 97% of our revenue for the years ended December 31, 2011 and 2012, respectively. Accounts receivable from Baker Hughes and HRSI accounted for 99% and 98% of our total accounts receivable as of September 30, 2012 and 2013, respectively. However, after our acquisition of Hard Rock upon completion this offering, our historical HRSI revenues and accounts receivable percentages will be spread out among Hard Rock’s customers. For the nine months ended September 30, 2013, four of HRSI’s Drill N Ream rental customers represented approximately 86% of HRSI’s Drill N Ream rental revenues for that period. We believe that the loss of Baker Hughes as a customer would have a significant adverse impact on our business and results of operations. However, we believe that our purchase of Hard Rock and continuing growth of our new manufacturing business will have a positive effect on diversifying our concentration of credit risk in the future.

Accounts Receivable; 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. As of September 30,

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2012 and 2013, management determined that no allowance for doubtful accounts was deemed necessary due to the nature of the contracts with our major customers that underlie the receivables.

Goodwill and Related Intangible Assets.  Goodwill is the excess cost of an acquired entity over the amounts assigned to assets acquired and liabilities assumed in a business combination. We will not be recognizing any goodwill as the result of the Reorganization. To determine the amount of goodwill resulting from our upcoming purchase of Hard Rock and other future acquisitions, we will perform an annual assessment, starting in June, 2014 to determine the fair value of the acquired company’s tangible and intangible assets and liabilities. Goodwill will be allocated to the appropriate subsidiary at that time.

Income Taxes.  From inception, (a) SDP, MPS and ML elected to be taxed under subchapter S of the Internal Revenue Code (“IRC”) for federal income tax purposes and as flow-through entities for state income tax purposes, and (b) SDPCA, SDF, and ET have operated as disregarded single-member LLCs for federal and state income tax purposes. Accordingly, the net income of the Subsidiaries was not subject to corporate level federal or state income taxes. The related tax attributes of the Subsidiaries were passed through to their respective pre-Reorganization owners, and income taxes were payable by those owners. Accordingly, no federal or state income tax provision has been included in the accompanying combined financial statements. We do not have any uncertain tax positions as of December 31, 2011 or 2012. Our federal and state tax returns for the years ended December 31, 2010, 2011 and 2012 remain open to examination. For the years ended December 31, 2011 or 2012, there were no income tax interest or penalty items recorded in the combined statement of operations or as a liability on the combined balance sheet.

Upon closing of the transaction, we will become a C-corporation for federal and state income tax reporting purposes. Accordingly, as of that date we become, and after our corporate reorganization continue to be, subject to federal and state income taxes, which may affect future operating results and cash flows. As of September 30, 2013, we estimated a net deferred tax liability of approximately $1.3 million will be established for differences between the book and tax basis of our assets and liabilities. Upon closing, the deferred tax liability will result in a corresponding expense recorded to net income from operations.

Results of Operations

The following table represents our condensed combined statement of operations for the periods indicated:

		Year ended December 31,																Nine months ended September 30,
(in thousands)		2012 (audited)								2011 (audited)								2013 (audited)								2012 (audited)
Gross revenues		$	9,955				100.0	%		$	6,824				100.0	%		$	8,797				100.0	%		$	7,888				100.0	%
Cost of goods sold			4,090				41.1	%			2,808				41.1	%			4,057				46.1	%			3,150				39.9	%
Gross profit			5,865				58.9	%			4,015				58.8	%			4,740				53.9	%			4,738				60.1	%
Operating expenses			1,761				17.7	%			1,293				18.9	%			1,877				21.3	%			1,226				15.5	%
Income from continuing operations			4,104				41.2	%			2,722				39.9	%			2,863				32.5	%			3,512				44.5	%
Other income			582				5.8	%			373				5.5	%			219				2.5	%			353				4.5	%
Income tax (expense) benefit			—				0.0	%			—				0.0	%			—				0.0	%			—				0.0	%
Change in guaranteed debt obligation			(207	)			-2.1	%			(207	)			-3.0	%			(258	)			-2.9	%			(281	)			-3.6	%
Interest expense			(994	)			-10.0	%			(672	)			-9.8	%			(765	)			-8.7	%			(709	)			-9.0	%
Net income		$	3,485				35.0	%		$	2,217				32.5	%		$	2,058				23.4	%		$	2,875				36.4	%

The following table represents our gross revenues, direct costs, and gross profits by line of business for the periods indicated:

		Remanufacturing business																Manufacturing business
		Nine months ended September 30, 2013								Year ended December 31, 2012								Nine months ended September 30, 2013								Year ended December 31, 2012
(in thousands)		(unaudited)								(audited)								(unaudited)								(audited)
Gross revenues		$	6,511				74.0	%		$	6,741				67.7	%		$	867				9.9	%		$	933				9.4	%
Cost of goods sold			1,911				21.7	%			1,905				19.1	%			1,322				15.0	%			1,443				14.5	%
Gross profit		$	4,600				52.3	%		$	4,836				48.6	%		$	(455	)			-5.2	%		$	(510	)			-5.1	%

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Year ended December 31, 2012 compared to year ended December 31, 2011

Revenues.  Our revenues increased approximately $3.1 million, or 45.9%, for the year ended December 31, 2012 as compared to the year ended December 31, 2011, with increases in each of our revenue categories. Of this increase, our remanufacturing revenues increased $1,414,000, or 26.5% year over year, and constituted approximately 67.7% of our total 2012 revenues. Our new manufacturing revenues decrease approximately $(147,600), or 13.7%, year over year, and constituted approximately 9.4% of our total 2012 revenues. Our Drill N Ream rent royalties increased approximately $1.86 million, or 447.9%, and constituted approximately 22.9% of our total 2012 revenues. The significant increase in our Drill N Ream rental royalties is due to 2012 being the first full year of Drill N Ream rentals. The increase in our remanufacturing revenues in 2012 was primarily due to increased demand for our remanufacturing services by Baker Hughes as oil and gas field exploration activity jumped in our primary geographic markets in 2012⁽¹⁾. Before we formed SDF and ET in October 2011, our remanufacturing revenues made up 100% of our gross revenues. While currently continuing to grow, our revenues could be affected adversely by changes in economic conditions that affect the oil and gas exploration business. We are unaware of any upcoming delays in our customer’s current projects, and therefore are not anticipating such events to influence our revenues in the foreseeable future.

Costs of goods sold; Gross profits.  Our direct costs increased approximately $1.28 million, or 45.6%, during the year ended December 31, 2012 compared to the year ended December 31, 2011. Of this increase, our remanufacturing direct costs increased 31.4% year over year, and constituted 46.6% of total direct costs. Our new manufacturing direct costs increased 56.4% year over year, and constituted 35.3% of total direct costs. The increase in our direct costs in 2012 is primarily due to increased demand for our remanufacturing services by Baker Hughes. However, as a percentage of revenues, direct costs were consistent with sales for the year ended December 31, 2012. Depreciation is included as a direct cost and increased $306,000 or 70.4% year over year and constituted 18.1% of the direct costs.

Operating expenses.  Our operating expenses increased approximately $468,000, or 36.2%, for the year ended December 31, 2012 compared to FYE 2011. However, as a percentage of revenues, operating costs decreased to 17.7% for FYE 2012, from 18.9% for FYE 2011. Operating expenses include the costs of management and administrative personnel costs, payroll taxes, bonuses and employee benefits for all of our employees and the portion of salaries and wages not allocated to direct costs of contract revenues for those employees who provide our products. Operating expenses also include facility costs, professional products, legal and accounting fees, and administrative operating costs. We expense operating costs when incurred. The increase in our operating expenses in 2012 was primarily due to the growth in office and other operational expenses.

Other income.  Other income primarily consists of lease payments received from two real property leases: one from Baker Hughes for lease of the fourth building in our Vernal campus, and the other for lease of the SAB facilities. See “Business — Properties”. For FYE 2012, other income increased $208,000, or 55.8%, as compared to FYE 2011, primarily due to SAB Building rent was added in March of 2012 and we got better pricing on our scrap metal.

Other expenses.  Other expenses consist primarily of interest expense and Change in Guaranteed Debt Obligation relating to the Tronco loan guaranty. See “— Off-Balance Sheet and Contingent Arrangements”, below. Interest expense increased $321,000, or 47.9%, in FYE 2012 as compared to FYE 2011. This increase was primarily due to interest paid on loans to purchase additional machinery for our new machine shop. The Tronco guaranteed debt obligation stayed level at $207,000, at FYE 2012 as compared to FYE 2011.

Income taxes.  During the years ended December 31, 2011 and 2012, the related tax attributes of our Subsidiaries were passed through to their respective pre-Reorganization owners, and income taxes were payable by those owners. See “Critical Accounting Policies and Estimates — Income Taxes”, above.

Nine months ended September 30, 2013 compared to nine months ended September 30, 2012

Revenues.  Our revenues increased approximately $909,000, or 11.5%, during the nine months ended September 30, 2013, as compared to the same period in 2012. Of this increase, our remanufacturing revenues

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Costs of Goods sold.  During the nine months ended September 30, 2013, our direct costs increased approximately $907,000 or 28.8%, compared to the nine months ended September 30, 2012. Of this increase, our remanufacturing direct costs increased $321,000 or 20.2% period over period, and constituted 47.1% of total direct costs. Our new manufacturing direct costs increased $236,000 or 21.8% period over period, and constituted 32.6% of total direct costs. The increase in our direct costs for the nine months ended September 30, 2013 is primarily due to the continuing increased demand for our remanufacturing services by Baker Hughes. However, as a percentage of revenues, direct costs increased to 46.1% for the nine months ended September 30, 2013, up slightly from 39.9% for the nine months ended September 30, 2012. These changes in direct costs were primarily due to the increase in depreciation expenses. Depreciation is included as a direct cost and the increase was $350,000 or 73.6% and constituted 20.3% of the total direct costs..

Operating expenses.  Our operating expenses increased approximately $651,000, or 53.1%, for the nine months ended September 30, 2013 compared to the same period in 2012. However, as a percentage of revenues, operating costs inreased to 21.3% for nine months ended September 30, 2013, from 15.5% for nine months ended September 30, 2012. The increase in operating expenses during the nine months ended September 30, 2013 continue to be due primarily to increases in labor, equipment and machinery costs for our new machine shop, but also includes the costs of conducting this offering.

Other Income.  Other income primarily consists of lease payments received from two real property leases: one from Baker Hughes for lease of the third building in our Vernal campus, and the other for lease of the SAB facilities. See “Business — Properties”. For nine months ended September 30, 2013, other income decreased $134,000, or 37.9%, as compared to nine months ended September 30, 2012, primarily due to the decrease in the renewal of the Baker Hughes lease and the loss associated with trading in 2 cars at a loss.

Other expenses.  Other expenses consist primarily of interest expense and Change in Guaranteed Debt Obligation relating to the Tronco loan guaranty. See “— Off-Balance Sheet and Contingent Arrangements — Tronco-Related Loans”, below. Interest expense increased $33,830, or 3.4%, in September 30, 2013 as compared to September 30, 2012. This increase was primarily due to interest paid on loans to purchase additional autos refinanced at a Equipment Loop. The Tronco guaranteed debt obligation decreased by $23,000 or 8.1% at FYE 2012 as compared to FYE 2011.

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HRSI — Results of Operations

The following table represents HRSI’s statement of operations for the periods indicated:

		Nine months ended September 30,																Year ended December 31,
		2013								2012								2012								2011
Gross revenues		$	6,975				100.0	%		$	9,776				100.0	%		$	11,977				100.0	%		$	6,211				100.0	%
Cost of goods sold			2,134				30.6	%			2,393				24.5	%			3,113				26.0	%			1,730				27.9	%
Gross profit			4,841				69.4	%			7,383				75.5	%			8,864				74.0	%			4,481				72.1	%
Operating expenses			1,565				22.4	%			2,023				20.7	%			3,021				25.2	%			1,207				19.4	%
Operating income			3,276				47.0	%			5,360				54.8	%			5,843				48.8	%			3.273				52.7	%
Other Income (expense) – net			83				1.2	%			31				0.3	%			5				0.0	%			11				0.2	%
Income tax expense (benefit)			(28	)			(0.4	)%			(25	)			(0.3	)%			(31	)			(0.3	)%			1,232				19.8	%
Net income (loss)		$	3,387				48.6	%		$	5,416				55.4	%		$	5,879				49.1	%		$	2,053				33.1	%

Year ended December 31, 2012 compared to year ended December 31, 2011

Revenues.  HRSI focused its business almost exclusively on the Drill N Ream tool rental business starting during 2011. For its first full year ended December 31, 2012 (FYE 2012), HRSI’s revenues increased approximately $5.8 million, or 92.8%, as compared to the year ended December 31, 2011 (FYE 2011). The significant increase in HRSI’s Drill N Ream tool rental revenues during FYE 2012 over FYE 2011 was primarily due to increased demand for new horizontal drilling tool solutions as the U.S. oil and gas field exploration began to accelerate in 2012. Approximately four of HRSI’s customers are responsible for approximately 86% of HRSI’s revenues. As a result, HRSI’s revenues could be affected adversely by the loss of more than one of those customers, or by changes in those major customers’ equipment demand as the result of economic conditions that affect the oil and gas exploration business. We are unaware of any upcoming delays in HRSI’s customers’ current projects, and therefore are not anticipating such events to influence Hard Rock’s revenues in the foreseeable future.

Costs of goods sold; Gross profits.  HRSI’s costs of goods sold consist almost entirely of the cost of the Drill N Ream tools that it purchases from us, and of the Drill N Ream rental royalties that it pays to us. As a result, the rental royalties will be eliminated after our acquisition of Hard Rock from the proceeds of this offering. The costs of goods sold increased approximately $1.38 million, or 79.9%, during FYE 2012 compared to FYE 2011. The increase in HRSI’s direct costs in 2012 is primarily due to increased demand for rental of the Drill N Ream tool by HRSI’s customers. However, as a percentage of revenues, costs of goods sold decreased to 27% in FYE 2012 from 27.9% in FYE 2011. As a result, HRSI’s gross profits increased approximately $4.38 million, or 97.8%, during FYE 2012 as compared to FYE 2011.

Operating expenses.  HRSI’s operating expenses increased approximately $1.8 million, or 150.3%, for FYE 2012 as compared to FYE 2011. Operating expenses include facility costs, professional products, legal and accounting fees, and administrative operating costs, which include funding a pension plan for the benefit of HRSI’s owners. The increase in operating expenses was primarily due to the funding of the pension plan. The pension plan is not part of the assets being transferred to Hard Rock.

Income taxes.  Effective January 1, 2012, HRSI made an election to be taxed as an S-corporation. During 2011, HRSI recorded a $1.23 million provision for federal and state income taxes based on its statutory tax rate. During FYE 2012, HRSI’s related tax attributes were passed through to it owners, and income taxes were payable by those owners. The tax benefit was generated based on reversals of built-in gains after the S-corp election.

Nine months ended September 30, 2013 compared to nine months ended September 30, 2012

Revenues.  HRSI’s revenues decreased approximately $2.8 million, or (28.7%), during the nine months ended September 30, 2013, as compared to the same period in 2012. This decrease in Drill N Ream revenue was primarily due to the lower level of Drill N Ream rentals during the nine months ended September 30, 2013, as compared to the same period in 2012.

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Costs of goods sold.  During the nine months ended September 30, 2013, HRSI’s direct costs decreased approximately $385,000, or (18%), as compared to the same period in 2012. This decrease was the result of the lower level of Drill N Ream rentals during the nine months ended September 30, 2013, as compared to the same period in 2012.

Operating expenses.  HRSI’s operating expenses decreased approximately $458,000, or (22.6%), for the nine months ended September 30, 2013, as compared to the same period in 2012. The decrease in operating expenses during the nine months ended September 30, 2013 was due to the lower level of Drill N Ream rentals during the nine months ended September 30, 2013, as compared to the same period in 2012. However, as a percentage of revenues, operating costs increased to 22.4% for the nine months ended September 30, 2013, from 23% for the same period in 2012.

Income taxes.  During FYE 2012, HRSI’s related tax attributes were passed through to it owners, and income taxes were payable by those owners. The tax benefit was generated based on reversals of built-in gains after the S-corp election.

The following table reflects HRSI’s current assets and liabilities, as of the dates indicated:

		September 31, 2013				December 31, 2012				December 31, 2011
Current Assets
Cash		$	3,274			$	6,580			$	846
Accounts receivable			883				1,704				2,468
Prepaid expenses			16				21				84
Total			4,173				8,306				3,398
Current Liabilities
Accounts payable		$	98			$	1,113			$	53
Accrued Commissions (payable to SDP)			205				615				715
Accrued expenses			164				11				340
Income taxes payable			559				559				32
Current portion of deferred tax liability			0				0				559
Current portion of long-term debt			0				9				8
Total			$1,026				$2,307				$1,707

Cash Flows

Operating activities

For the nine months ended September 30, 2013, net cash provided by HRSI’s operating activities was approximately $3.4 million, primarily attributable to approximately $3.4 million in net income, plus approximately $385,000 in depreciation and amortization, offset in part by an increase of approximately $1.0 million in accounts payable and a decrease of approximately $821,000 in accounts receivables.

For the year ended December 31, 2012, net cash provided by HRSI’s operating activities was approximately $7.7 million, primarily attributable to approximately $5.9 million in net income, plus an approximately $764,000 decrease in accounts receivable, approximately $56,000 in prepaids and other current assets, approximately $635,000 in payables and accrued liabilities and approximately $358,000 in depreciation and amortization.

For the year ended December 31, 2011, net cash provided by operating activities was approximately $1.6 million, primarily attributable to approximately $2.1 in net income, plus approximately $1.1 increase in accounts payable and accrued liabilities and approximately $62,000 in depreciation and amortization, offset by approximately $2.5 increase in accounts receivables, approximately $85,000 increase in other prepaids and other current assets.

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Investing activities

For the nine months ended September 30, 2013, net cash used in HRSI’s investing activities was approximately $264,000, primarily attributable to approximately $582,000 used to purchase additional property and equipment, offset by approximately $318,000 generated from the sale of existing property and equipment.

For the year ended December 31, 2012, net cash used in investing activities amounted to approximately $920,000 primarily resulting from cash used for the purchase of property and equipment of approximately $1,086,000, offset by proceeds of approximately $167,000 generated from the sale of property and equipment.

For the year ended December 31, 2011, net cash used in investing activities amounted to approximately $678,000, as a result of approximately $766,000 used for the purchase of property and equipment, offset by proceeds of approximately $89,000 generated from the sale of property and equipment.

Financing activities

For the nine months ended September 30, 2013, net cash used in financing activities was approximately $6,409,000, primarily attributable to approximately $22,000 in payments on long-term debt and approximately $6,387,000 in S-corporation owners’ distributions.

For the year ended December 31, 2012, net cash used in financing activities was approximately $1,009,000, primarily attributable to approximately $8,000 in payments on long-term debt and approximately $1,001,000 in S-corporation owners’ distributions.

For the year ended December 31, 2011, net cash used in financing activities was approximately $58,000, primarily attributable to approximately $8,000 in payments on long-term debt, approximately $4,000 in repayment of a note payable to a shareholder and approximately $47,000 in S-corporation owners’ distributions.

Pro Forma Results of Operations — Hard Rock Acquisition

The following table represents our pro forma condensed combined statement of operations for the periods indicated, as if we had completed our acquisition of Hard Rock on January 1, 2012. All Drill N Ream income and expenses have been adjusted to reflect the net effect of HRSI’s rental revenues and direct costs, and SDP’s rental royalties and costs.

		Actual(2) Nine months ended								Pro Forma(1) Nine months ended								Actual (2) Year ended								Pro Forma(1) Year ended
(in thousands)		September 30, 2013								September 30, 2013								December 31, 2012								December 31, 2012
Gross revenues		$	8,797				100	%		$	13,449				100	%		$	9,955				100	%		$	18,609				100	%
Costs of goods sold			4,057				46.1	%			4,368				32.5	%			4,090				41.1	%			4,288				23.0	%
Gross profit			4,740				53.9	%			9,081				67.5	%			5,865				58.9	%			14,321				77.0	%
Operating expenses			1,877				21.3	%			4,144				30.8	%			1,761				17.7	%			5,682				30.5	%
Income from continuing operations			2,863				32.5	%			4,937				36.7	%			4,104				41.2	%			8,640				46.4	%
Other Income			219				2.5	%			313				2.3	%			582				5.8	%			587				3.2	%
Income tax (expense) benefit			—				0.0	%			(1,496	)			-11.1	%			—				0.0	%			(2,933	)			8.1	%
Change in guaranteed debt obligation			(258	)			-2.9	%			(258	)			-1.9	%			(207	)			-2.1	%			(207	)			-1.1	%
Interest Expense			(765	)			-8.7	%			1,155				-8.6	%			(994	)			-10.0	%			(1,501	)			15.8	%
Net income		$	2,058				23.4	%		$	4,761				17.4	%		$	3,485				35.0	%		$	4,587				24.6	%

This unaudited pro forma condensed combined statement of operations data is presented for illustration purposes only, and does not necessarily indicate the operating results that would have been achieved if the

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Hard Rock acquisition had occurred at the beginning of the period presented, nor is it indicative of future operating results. The unaudited pro forma condensed combined statement of operations data should be read in conjunction with our historical combined financial statements and accompanying notes included in this prospectus. Also, this unaudited pro forma condensed combined statement of operations data does not reflect HRSI’s actual results of operations, and should be read in conjunction with HRSI’s historical financial statements and accompanying notes presented elsewhere in this prospectus.

Pro forma year ended December 31, 2012 compared to actual year ended December 31, 2012

Gross revenues.  Our FYE 2012 revenues, on a pro forma basis with Hard Rock, would have increased approximately $8.7 million (86.9%) over our actual results for the same period without the Hard Rock acquisition. This pro forma increase in revenues is primarily due to the amount that the Drill N Ream rental revenue received by HRSI exceeded the rental royalty that HRSI actually paid to us.

Direct costs; Gross Profit.  In comparison to the significant increase in pro forma revenues for FYE 2012, our pro forma direct costs for FYE 2012 would have increased approximately $197,000 (4.8%) as the result of Hard Rock acquisition. However, our percentage of direct costs to revenues would have decreased to 23.0% on a pro forma basis, from our actual 41.1% percentage of direct costs to revenues. As a result, our pro forma gross profits would have been 77.0% of pro forma revenue, a substantial increase over our actual 58.9% gross profits to actual revenues in FYE 2012. This substantial increase in pro forma gross profit, over our actual gross profits in FYE 2012, is primarily due to the net effect of combining our charges to HRSI for the Drill N Ream units that it purchases, with the expense recognized by HRSI for those purchases.

Operating expenses.  On a pro forma basis, our operating costs would have been approximately $3.9 million (222.6%) higher than our actual operating costs, for FYE 2012. However, as a percentage of revenues, our pro forma operating costs would only have increased 12.8% from our operating costs as a percentage of revenues in FYE 2012. The increase in pro forma operating expenses is primarily due to the cost of marketing salaries and expenses relating to the Drill N Ream rentals.

Income taxes.  On a pro forma basis, our consolidated effective federal and state income tax rate would have increased to 39% as compared to zero for our actual year ended December 31, 2012. This pro forma increase in effective tax rate is due to our Reorganization into a C-corporation holding company structure immediately before closing of this offering and acquisition of Hard Rock. Our actual FYE 2012 effective tax rate of zero is due the pass-through tax status of SDP, SDF, ET, MPS, and ML in FYE 2012. See “Critical Accounting Policies and Estimates — Income Taxes”, above.

Pro forma nine months ended September 20, 2013 compared to actual nine months ended September 20, 2013

Gross revenues.  Our revenues for the nine months ended September 30, 2013, on a pro forma basis with Hard Rock, would have increased approximately $4.7 million (52.9%) over our actual results for the same period without the Hard Rock acquisition. As in the pro forma FYE 2012 results discussed above, this pro forma increase in revenues is primarily due to the amount that the Drill N Ream rental revenue received by HRSI exceeded the rental royalty that HRSI actually paid to us.

Direct costs; Gross Profit.  In comparison to the significant increase in pro forma revenues for nine months ended September 30, 2013, our pro forma direct costs for that same period would have increased only $310,000 (or 7.7%). However, our percentage of direct costs to revenues would have decreased to 32.5% on a pro forma basis, from our actual 46.1% percent of direct costs to revenues. As a result, our pro forma gross profits would have been 67.5% of pro forma revenue, a substantial increase over our actual 53.9% gross profits to actual revenues in the nine months ended September 30, 2013. As in the pro forma FYE 2012 results discussed above, this substantial increase in pro forma gross profit, over our actual gross profit for the nine months ended September 30, 2013, is primarily due to the net effect of combining our charges to HRSI for the Drill N Ream units that it purchases, with the expense recognized by HRSI for those purchases.

Operating expenses.  On a pro forma basis, our operating costs would have been approximately $2.3 million (120.8%) higher than our actual operating costs, for nine months ended September 30, 2013. However, as a percentage of revenues, our pro forma operating costs would only have increased to 30.8% (or 9.5%) from our actual 21.3% of operating costs as a percentage of revenues of, in nine months ended

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September 30, 2013. As in the pro forma FYE 2012 results discussed above, the increase in pro forma operating expenses is primarily due to the cost of marketing salaries and expenses relating to the Drill N Ream rentals.

Income taxes.  On a pro forma basis, our consolidated effective federal and state income tax rate would have increased to 39% as compared to zero for our actual nine months ended September 30, 2013. This pro forma increase in effective tax rate is due to our anticipated Reorganization into a C-corporation holding company structure immediately before closing of this offering and pending acquisition of Hard Rock. Our actual effective tax rate for the nine months ended September 30, 2013 of zero is due the pass-through tax status of SDP, SDF, ET, MPS, and ML in nine months ended September 30, 2013. See “Critical Accounting Policies and Estimates —  Income Taxes”, above.

Liquidity and Capital Resources

Our principal sources of liquidity are our cash and cash equivalents balances, cash flow from operations, and access to financial markets. Our principal uses of cash are operating expenses, working capital requirements, capital expenditures, and repayment of debt. After completion of this offering, we believe that our sources of liquidity, including cash flow from operations, existing cash, and cash equivalents will be sufficient to meet our projected cash requirements for at least the next 12 months, including (a) the increased operating expenses we expect to incur in connection with being a public company, (b) in connection with the additional financial and accounting personnel we have hired or will hire in connection with our change in status to a publicly traded company, and (c) our planned acquisition of Hard Rock. We will monitor our capital requirements to ensure our needs are in line with available capital resources.

We believe our experienced employees and management team are our most valuable resources. Attracting, training, and retaining key personnel have been and will remain critical to our success. To achieve our human capital goals, we intend to remain focused on providing our personnel with entrepreneurial opportunities to increase client contact within their areas of expertise and to expand our business within our product offerings.

We will have broad discretion over the use of the net proceeds in this offering. As of the date of this prospectus, we currently intend to use the net proceeds for the purposes set forth in “Use of Proceeds” with the remainder to be used primarily for general corporate purposes, including working capital, sales and marketing activities, general and administrative matters and capital expenditures. We may also use a portion of the net proceeds to expand our current business through other acquisitions or investments in other complementary strategic businesses. However, we have no commitments with respect to any other acquisitions at this time. To the extent any net proceeds are used to repay any debt obligations, the aggregate outstanding balance of our notes payable as of September 30, 2013 was approximately $     million with interest rates ranging from     % to     %.

Cash Flows

The following table reflects our current assets and liabilities, as of the dates indicated:

		September 30, 2013				December 31, 2012				December 31, 2011
Current Assets
Cash		$	38,141			$	70,188			$	169,235
Accounts receivable			2,583,492				1,154,494				985,693
Prepaid expenses			148,609				184,131				210,320
Other current assets			162,229				74,616				133,125
Total			2,932,471				1,483,429				1,498,373
Current Liabilities
Accounts payable		$	441,786			$	231,393			$	152,772
Accrued expenses			265,727				195,171				272,990
Current portion of capital lease obligation(1)			250,148				349,741				111,071
Current portion of guaranteed debt obligation(2)			4,995,834				—				—

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		September 30, 2013				December 31, 2012				December 31, 2011
Long-term debt – related party			—				53,925				100,000
Current portion of long-term debt(3)			1,013,221				944,169				3,412,916
Total		$	6,966,716			$	1,774,399			$	4,049,749

Operating activities

For the nine months ended September 30, 2013, net cash used in our operating activities was approximately $2 million, primarily attributable to approximately $2.1 million in net income, plus $281,000 increase in accounts payable and $824,000 increase in depreciation and amortization, offset in part by approximately $1.4 million increase in accounts receivables.

For the year ended December 31, 2012, net cash used in our operating activities was approximately $4.3 million, primarily attributable to approximately $3.5 million in net income, plus $206,000 in guaranteed debt obligations, $742,000 depreciation and $85,000 prepaid expenses, offset by approximately $169,000 in accounts receivables, $79,000 in other assets.

For the year ended December 31, 2011, net cash provided by operating activities was approximately $2.1 million primarily attributable to approximately $2.2 million in net income, plus an increase of $287,000 in accounts payable and $436,000 in depreciation, $207,000 in guaranteed debt obligations, offset by an approximately $672,000 increase in accounts receivables, and $308,000 in other prepaid assets.

Investing activities

For the nine months ended September 30, 2013, net cash used in our investing activities was approximately $132,000, primarily attributable to approximately $150,000 used to purchase additional property and equipment, offset by approximately $26,000 generated from the sale of existing property and equipment.

For the year ended December 31, 2012, net cash used in investing activities amounted to $854,000 primarily resulting from cash used for the purchase of property and equipment of $1,019,000, offset by proceeds of $165,000 generated from the sale of property and equipment.

For the year ended December 31, 2011, net cash used in investing activities amounted to $456,000, as a result of $456,000 used for the purchase of property and equipment.

Financing activities

For the nine months ended September 30, 2013, net cash used in financing activities was approximately $1.9 million, primarily attributable to approximately $458,000 in payments on long-term debt, $168,000 in payments on long-term lease obligations, and $2.1 million in S-corporation owners’ distributions, offset by $674,000 in shareholder capital contributions.

For the year ended December 31, 2012, net cash used in financing activities was approximately $3.5 million, primarily attributable to approximately $521,000 in payments on long-term debt, $147,000 in payments on long-term lease obligations, and $3.0 million in S-corporation owners’ distributions, offset by approximately $207,000 in shareholder capital contributions and debt borrowings of $228,000.

For the year ended December 31, 2011, net cash used in financing activities was approximately $1.6 million primarily attributable to approximately $377,000 in payments on long-term debt obligations, $83,000 in payments on long term lease obligations and $2.5 million in S-corporation owners’ distributions, offset by approximately $1,297,000 in shareholder capital contributions.

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Contractual Obligations

Baker Hughes Contract.  In December 2013, Baker Hughes renewed the Vender Agreement under which we provide them with our remanufacturing services for an additional four years. Under this renewed Vendor Agreement, Baker Hughes has agreed to pay us an amount equal to their cost of remanufacturing at their internal remanufacturing facilities, plus 10%. In addition, we have a right of first refusal to provide remanufacturing services to all of Baker Hughes operations in the western United States, except Texas and Oklahoma, and agree not to perform remanufacturing services for any other party. Baker Hughes agrees to provide us with all the PDC diamond cutters needed to remanufacture their drill bits, and they retain a security interest in all of those PDC cutters. The Vendor Agreement also grants Baker Hughes the right, for up to 60 days after termination of the Vendor Agreement, to purchase our Vernal manufacturing facility and the remanufacturing machinery located in our remanufacturing facility, for a to-be-determined fair market value, and subject to certain other requirements and conditions.

Manufacturing Equipment Leases and Loans.  We have entered into a number of leases of and loans to purchase equipment and machinery used in our new manufacturing operations.

Facilities Loans.

Manufacturing Facility.  Our main Vernal, Utah manufacturing facility (see “Business — Properties”) is titled to MPS, with two buildings leased to SDP, one building leased to SDF, and the one building leased to Baker Hughes. This property is subject to a first Deed of Trust loan in the current principal amount of $4.6 million, which accrues interest at 5.25% per year, requires monthly payments of $33,900, and matures in full in August 2015. We also have granted junior liens on this property as additional collateral for the Tronco Loan and for another commercial loan in the current principal amount of approximately $696,000, which will be repaid from the proceeds of this offering (see “Off-Balance Sheet and Contingent Obligations — Tronco-Related Loans”, below). In addition, in 2012, we purchased one acre and a commercial building that are contiguous to our manufacturing facility, which we currently use for storage, but which is usable for expansion of portions of our business operations. See “Business — Properties”. This contiguous property is subject to a first Deed of Trust loan which is also guaranteed by Mr. Meier and Ms. Meier in the current principal amount of $217,000 which accrues interest at higher of prime + 2% or 5.5% per year, requires monthly payments of approximately $2,600, and a balloon payment at maturity in July 2022. This loan additionally requires that the intercompany leases on our main facilities remain intact.

Bakersfield Property.  In 2012, we received funding for expansion of our business into California under the EB-5 program of the United States Citizenship and Immigration Services. In order to obtain funding under this program, our expansion into California had certain job creation and capital investment requirements both in an area targeted by the program for development. We have obtained three loans under the program which bear interest at 2.25 – 5.5% and are collateralized by land, buildings and equipment owned by us and located in Bakersfield, California. Two loans totaling $1,127,000 were completed as of December 31, 2012, and cumulatively require monthly payments of approximately $7,100, including principal and interest. The first loan in the amount of $650,000 has a final maturity date of April 1, 2022, and the second in the amount of $477,000 has a final maturity date October 1, 2032. The current principal amounts are $632,000 and $459,000, respectively. The third loan is for tenant improvements and was still in the construction phase as of

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December 31, 2012. Subsequent to December 31, 2012, in July 2013, the third loan was revised to monthly interest only payments of approximately $3,300, and has a final maturity date of May 1, 2017.

Investment Real Estate Loans

Superior Auto Body (SAB) Loans.  Beginning in July 2008, we became co-borrowers with SAB, a related party, for development of an auto body shop located in Riverton, Utah, to be operated by the related party. The auto body shop is titled in MPS and rented to SAB under a lease agreement which requires the co-borrower to make the $17,700 monthly payments on this loan in satisfaction of its lease obligation. Two loans originally totaling approximately $2.8 million were obtained for the purchase of the real property and construction of the facilities. Of that amount, approximately $1,663,000 is currently outstanding under a first Deed of Trust loan which accrues interest at 6%, requires monthly payments of approximately $10,600, and matures in March 2017. The remaining amount was issued under a second Deed of Trust loan, purchased by the SBA which has a current principal balance of $1,095,000, accrues interest at 2.42%, requires monthly payments of approximately $6,100, and matures in July 2032. The purchased real property and constructed improvements are the primary collateral for both loans. See also, “Certain Relationships and Related Party Transactions”.

Naples Property Loan.  This loan is secured by approximately 11 unimproved acres in Naples Utah for a now-terminated property developers venture conducted by a now-defunct limited liability company in which Mr. Meier was an investor of the loan on the property. When the venture failed, we took title to the property and assumed this loan. This loan has a current principal balance of approximately $1,297,000, accrues interest at the rate of 7% per year, requires monthly payments of approximately $12,800, and matures in November 2014 with a final balloon payment of approximately $680,000. This loan is secured by the purchased property.

Other Raw Land Loan.  This loan was used to purchase approximately 47 unimproved acres in Vernal Utah that is contiguous to the Meier’s residence for $700,000. Originally, this loan did not bear interest, and was due in full on December 2008. After that maturity date, this loan was orally amended to accrue interest at 8% per year, require monthly payments of $5,000, and mature in December 2018 with a final balloon payment of approximately $358,000. This loan is secured by the purchased property. The loan will be eliminated through distribution of the property before effectiveness of this offering.

Commercial Loans

Bridge Loan.  In connection with this offering, we have entered into a $2 million bridge loan with a private lender. Upon the effectiveness of this offering, this loan would automatically convert into shares of our restricted common stock and a warrant to purchase an equivalent number of shares of our common stock. This loan accrues interest at 5% per year, and starting in November 2014, will require monthly payments of approximately $50,500, with a balloon payment at maturity in February 2016, if not previously converted under additional voluntary conversion provisions of the loan. This bridge loan is secured by a junior blanket lien on our and SDP’s accounts. A portion of the proceeds of this loan will be used to repay two commercial loans, totaling approximately $790,000, which were incurred in connection with making the annual debt service payments on the Tronco Loan after that venture was discontinued. See “Off-Balance Sheet and Contingent Arrangements — Tronco-Related Loans”, below.

Company Plane.  Commercial loan for purchase of company plane. This loan has a current principal balance of approximately $339,000, accrues interest at the rate of 7.35% per year, requires monthly payments of approximately $3,500, matures in May 2026, and is secured by the plane.

Vehicle Loans.  We have also entered into loans to fund vehicle purchases totaling $339,713, with interest rates ranging from 0% to 12%, and maturity dates ranging from February 2014 to December 2020.

Tronco-Related Loans.  In order to fund several large lump-sum payments due on the Tronco Loan before its most recent renewal, we borrowed under a number of secured commercial loans and lines of credit. See “off-Balance Sheet and Contingent Arrangements — Tronco-Related Loans”, below. Those loans have a total outstanding principal balances of $1,084,000, accrue interest at 7% to require total payments of $13,160 per month, and have maturity dates of October 2014 to 11/1/14. We intend to repay $696,000 of those loans from the Bridge Loans discussed above, and the remaining $388,000 from the proceeds of this offering.

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Pro Forma Contractual Obligations.  The following table presents our contractual obligations and contingent commitments by period as of September 30, 2013, on a pro forma basis to give effect to (a) our Reorganization in connection with this offering as described in “Organizational Structure”, (b) our acquisition of Hard Rock promptly after closing of this offering, and (c) the use of the estimated net proceeds from this offering as described in “Use of Proceeds”, as if all such transactions had occurred on January 1, 2012. Our obligations to make payments in the future may vary due to certain assumptions including the duration of our obligations and anticipated actions by third parties.

		Payments Due by Period
		Total				Less than 1 year				1 – 3 years				3 – 5 years				More than 5 years
			(in thousands)
Long-term debt and capital lease obligations(1)		$	29,539			$	10,837			$	13,325			$	1,590			$	3,787
Interest payments(2)			2,580				837				983				275				485
Non-cancelable operating leases			597				265				331				0				0
Uncertain tax positions			0				0				0				0				0
Total		$	32,716			$	11,939			$	14,639			$	1,865			$	4,272

Off-Balance Sheet and Contingent Arrangements

Tronco-Related Loans

Loan Guarantee.  We have guaranteed a loan of Tronco Energy Corporation (“Tronco”), a party related through common control. The Tronco loan, as recently amended, has a current principal balance of $6.89 million, accrues interest at 11% per year, requires monthly payments of approximately $83,000, and has four 6 month extensions which if exersised matures in December 2015, along with a deferred interest obligation of approximately $1.37 million (the “Tronco Loan”). The Tronco Loan is secured by substantially all the oil and gas properties and reserves of Tronco, and in addition to our guarantee, a personal guarantee of our shareholders, and a junior Deed of Trust lien on our Vernal campus. The Tronco Loan also is partially secured by a pledge of all of SDP’s limited liability company membership interests granted by its members, Meier Management Company, LLC and Meier Family Holding Company, LLC, before our Reorganization, and of all of SDF’s limited liability company membership interests granted by its sole member, Meier Management Company, LLC. The lender has consented to the Reorganization in exchange for our pledge of the SDP and SDF limited liability company interests after we acquire them in the Reorganization.

In 2010, it became probable that we would assume responsibility for the repayment of the Tronco Loan. Therefore we recorded an accrual for the estimated amount of the loss. In addition, as of January 1, 2014, we entered in to a Note Purchase and Sale Agreement with the lender under which the lender agrees to sell us the Tronco Note and supporting loan documents in exchange for our intended payoff of the Tronco Loan from the proceeds of this offering. Upon closing of that transaction, we would step into the lender’s lien position on the collateral securing the Tronco Loan, and would release the limited liability company membership interest pledges and the junior Deeds of Trust against our Vernal Campus.

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Upon closing of a sale, we will apply the proceeds against the Tronco Loan, which we anticipate we will then own. Management estimates that our probable loss after application of the sales proceeds would have been as follows if those proceeds had been received as of September 30, 2013:

(Rounded)		September 30, 2013
Principal amount outstanding		$	8,175,000
Estimated recoverable amount of Tronco’s assets			(3,180,000	)
Approximate probable loss		$	4,995,000

Meiers’ Personal Loans.  In order to fund several large lump-sum payments due on the Tronco Loan before its most recent renewal, the Meiers obtained three loans collateralized by liens on residential real property owned by the Meier’s personally. Those loans total $1,995,286, accrue interest rates from 3.35% to 7.88%, require total monthly payments of $17,000, and mature between September 2036 and September 2037. The Meier’s have made all payments due on these loans from their S-corporation distributions. It is our intent to repay all of these loans from the proceeds of this offering.

Effects of Inflation

Based on our analysis of the periods presented, we believe that inflation has not had a material effect on our operating results. There can be no assurance that future inflation will not have an adverse impact on our operating results and financial condition.

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OIL AND GAS DRILLING INDUSTRY

Overview

Our revenue is dependent on the following three business categories:

Customer demand in these categories is dependent on a number of factors, including our customers’ forecasts of future energy demand, their expectations for future energy prices, their access to resources to develop and produce oil and natural gas, their ability to fund their capital programs, and the impact of new government regulations.

Drilling Industry Background

Drilling is part of the oilfield services group within the energy industry. The drilling industry is often segmented into the North American market and the international market. These markets share common exposure to the same macro environment, but also exhibit unique factors that drive the dynamics of each market.

Oilfield services companies drill the wells for hydrocarbon exploration and production companies (“E&P” companies). Demand for onshore drilling is a function of the willingness of E&P companies to make operating and capital expenditures to explore for, develop and produce hydrocarbons. When oil or natural gas prices increase, E&P companies generally increase their capital expenditures, resulting in greater revenues and profits for both drillers and equipment manufacturers. Likewise, significant decreases in the prices of those commodities typically lead E&P companies to reduce their capital expenditures, which decreases the demand for drilling equipment.

Most oil and gas operators do not own their own rigs and instead rely on specialized rig contractors to provide the rig and the crew. Drilling contractors typically provide the rig and the operating crews to E&P companies on a day-rate basis. In the U.S., drilling contracts are normally by well or a short-term period (e.g., 90 days). Internationally, the contracts are normally one to three years. International contracts are longer because the E&P company usually owns a larger field and the mobilization costs are prohibitive for anything less than a one-year term.

The drilling industry is highly fragmented and highly dependent on the level of drilling activity. Despite the fact that there are between 200 and 300 land drilling contractors in North America, the top six contractors account for 46% of the rigs. Internationally, most countries have no more than five to ten land drilling contractors in each country, not including the in-house drilling contractors of some national oil companies.

Drill Bits

Historical.  The first drill bits used in the oil drilling industry were “fish tail” bits that were relatively durable but very slow. In 1909, Howard Hughes Sr., patented the first two-cone rotary bit. In 1931, two Hughes engineers invented the “Tricone”, a roller cone drill bit with three cones. The Hughes patent for the Tricone bit lasted until 1951, after which other companies made similar bits. By the early 1980s, the “PDC” (polycrystalline diamond compact) fixed cutter drill bit had gained market traction. PDC fixed cutter bits have no rolling cones or other moving parts. Instead they have ridges studded with synthetic black diamond “cutters” or PDCs, and drilling occurs due to shearing the rock as the bit is rotated by the drill string. The vast majority of drilling today is with PDC bits. The rapid growth of PDC bit usage is partly the result of the remanufacturing process developed by Troy Meier and now conducted by SDP.

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Hybrid Drill Bit — Cutting Mechanics.  Today’s modern hybrid drill bit, combines the Tricone roller configuration with PDC fixed cutter framework. These hybrid bits provide “rolling torque” management: the dual action cutting structures balance down-hole dynamics for greatly enhanced stability, bit life, and drilling efficiency. Baker Hughes is the leader in hybrid bit technology and is utilizing the capabilities of SDP to grow this business.

Source: Baker Hughes

Cyclicality and Volatility

The drilling industry is cyclical, and past cycles have been driven primarily by alternating periods of ample supply or shortage of oil and natural gas relative to demand. Oil and natural gas prices rose to record levels in 2008. Prices began to decline in late 2008 in conjunction with the widespread economic recession. While the price of oil rebounded somewhat in 2009 and continued to rise throughout 2010 and 2011, the price of natural gas has remained depressed since 2009 largely due to discoveries of vast new natural gas resources in the U.S. During 2011, oil prices generally remained high due to increased demand, generally flattening international supply and geopolitical tensions. Gas prices trended upwards in the latter half of 2012, followed by a sharp rise due to a cold winter at the end of 2013. Prices, as of February 10, 2014, are above $4.59 per mmbtu.

As global drilling activity has steadily recovered since the 2009 economic downturn, there has been a corresponding increase in new-build rig activity as operators require newer technology to meet increasingly challenging drilling conditions, with a focus on mobility, drilling efficiency, power and safety. We believe this trend will continue to fuel a high level of capital investment in drilling rigs, which presents an opportunity for both capital equipment manufacturers and for value added component suppliers, such as us.

The worldwide level of capital spending by oil and gas companies for exploration, development and production is projected to increase 6% from 2013 to 2014. This increased level of spending is partly driven by the current and expected prices for oil and gas as well as the perceived stability and sustainability of those current and expected prices. Despite continuing macroeconomic concerns and the recent volatility in global commodity prices, expectations for worldwide growth remain favorable.

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Drilling Industry Changes and Trends

As more conventional reservoirs have been discovered and depleted from years of production, operators must increasingly turn to unconventional resources, including tight sands, shales and coal-bed methane.

The dramatic growth in the development of unconventional shale and tight sand formations, primarily in North America, is causing increased development of horizontal wells, the well path best suited to developing shale and tight sands. Horizontal wells are typically used in conjunction with hydraulic fracturing, which is used even more frequently as the number of fracturing stages increases.

The reason horizontal drilling has become the predominate method of drilling is because the horizontal section of the well is actually in the producing formation for up to 15,000 ft. Historically, the placement of vertical and directional wells would be able to intersect and produce only from several pay zones. The production from one horizontal well could easily replace the production of a number of conventional vertical or directional wells, and are therefore far more economical.

The increasing growth in horizontal and hydraulic fracturing activity is placing increasing demands on drilling rigs. Greater demand and wear on drilling equipment resulting from increased horizontal drilling requires investment in new equipment to address these unique demands and results in shorter replacement cycles for capital equipment, driving maintenance and refurbishment activity.

Overall service intensity continues to increase in North America as customers are demanding key technologies, such as advanced directional drilling, more complex completion systems and pressure pumping

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to develop the unconventional plays with liquids content. This change in development activity requires investment in new drilling rigs and related equipment to address the unique demands of these resource plays and places a much greater strain on drilling and completion equipment. These changes have resulted in shorter replacement cycles for capital equipment and increased demand for maintenance and refurbishment of existing equipment. As the industry adapts to these increased demands, we believe that there will be significant opportunities to bring new products and equipment to market, such as the Drill N Ream, that have been designed and engineered with these new challenges in mind.

In the U.S., 64% of the active land rigs, as of March 15, 2013, were drilling horizontal wells, compared to 20% of the active land rigs five years ago, according to data from Baker Hughes. Source: Baker Hughes

Another factor is that, in response to the current commodity environment of high oil prices relative to gas prices, a number of E&P companies have announced that they are reducing dry natural gas drilling and production and redirecting their activities and capital toward currently more economic liquids-rich plays. The slowdown in the spending directly related to natural gas development has been largely offset by incremental investment to develop unconventional plays with crude oil and natural gas liquids content. Liquids-rich plays are those that are characterized by the production of predominantly oil and natural gas liquids, such as ethane, propane, butane and iso-butane, which are used as energy sources and manufacturing feedstocks, the prices of which have historically been highly correlated with oil prices rather than natural gas prices.

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Current Oil and Gas Industry Economic Drivers

While we believe that these trends will benefit us, our markets may be adversely affected by industry conditions that are beyond our control. Any prolonged substantial reduction in oil and gas prices would likely affect oil and gas drilling and production levels and therefore would affect demand for the products and services provided by us. For more information on this and other risks to our business and the industry in which we operate, see Item IA. Risk Factors — “Risks Related to Our Business and Industry.” The primary drivers expected to impact the 2013 drilling industry business environment include the following:

Worldwide Economic Growth  — In general there is a strong linkage between overall economic activity, growth and the demand for hydrocarbons. The outlook for 2013 has been one of gradual strengthening of economic activity amidst ongoing concerns fueled by sovereign debt issues in Europe, a slowdown in the Chinese economy, and the moderate rate of the economic growth in the U.S. However, this growth may be hampered by weakness or further deterioration of the global economy, particularly in China and Europe.

Oil Production  — The EIA January 2013 Short-Term Energy Outlook projected that non-OPEC oil production would increase in 2013 over 2012. This expected increase in demand for oil, mainly driven by countries outside the OECD, is expected to support higher expenditures within the oil and gas sector. This increase is largely due to continued production growth from U.S. tight oil formations and Canadian oil sands, fostered by sustained higher oil prices. Global OPEC surplus oil capacity, overwhelmingly concentrated in Saudi Arabia, is anticipated to increase in 2013, while at the same time, OPEC oil production is anticipated to fall significantly in 2013. While significant investments are expected to be required to support increases in production capacity, price volatility driven by global economic and geopolitical uncertainties may lead to delays in operator investment decisions across the rest of the world.

Oil Prices — At current oil trading prices, most oil developments globally are expected to continue to provide adequate returns to encourage incremental investment. New midstream infrastructure in the U.S. is expected during 2013 which should help to narrow the price gap between WTI and Brent. Based on oil supply forecasts and modest anticipated economic growth globally, we would expect oil prices to remain relatively strong throughout 2013 barring any major macro-economic events.

Natural Gas Production — Natural gas is an increasingly important hydrocarbon to meet the world’s energy needs. Worldwide natural gas production continues to grow. Despite this overall trend, low natural gas prices in North America have resulted in a reduction in the natural gas-directed rig and completion activity in this region. This began to impact North America natural gas production in 2012, resulting in a gradual increase in Henry Hub spot gas prices in the second half of 2012, but a relatively mild winter season in key consuming regions in the U.S. has pressured natural gas prices downward since November 2012. Overall, worldwide natural gas production will, however, tend to be more stable as high natural gas prices in places such as Europe and Asia encourage sustained global growth of natural gas production. In addition, the announced shift away from nuclear power generation by several countries and the development of natural gas projects in the OECD outside North America is expected to further support natural gas prices.

Natural Gas Prices — With natural gas prices trading, during 2012, at prices which were particularly low when compared to oil on a Btu-equivalent basis, many industry participants believe that the economics of most dry natural gas-directed investments in North America have become marginal. This is primarily due to the abundant supplies available from the unconventional plays in North America, including natural gas produced in association with unconventional oil wells, which is expected to remain high in 2013. The EIA said in its January 2013 Short-term Energy Outlook that working natural gas inventories remain at near record high levels. The EIA, however, expects natural gas prices in North America to increase in 2013 as a result of the reduction in natural gas-directed drilling activity.

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BUSINESS

Overview

We are an innovative, industry-leading manufacturer of both remanufactured and new diamond drill bits and drill string components for the oil, natural gas, and mining drilling industries. Our dynamic founders and executives, Troy Meier and Annette Meier, have extensive business and drilling industry knowledge and a proven track record of bringing innovative business ideas to commercial success. From our headquarters in Vernal, Utah, we operate the most advanced Polycrystalline Diamond Compact (PDC) drill bit remanufacturing facility in the world, as well as a state-of-the-art, computerized machining facility where we design and manufacture new drill bit and drillstring tools, such as our patent pending “Drill N Ream” well bore conditioning tool (“Drill N Ream”). Starting with our development of the first commercially viable process to remanufacture PDC drill bits, and continuing through our recent introduction of the “Drill N Ream” tool for horizontal drilling applications, we believe that we continue to set the trend in drill bits and drillstring tool technology and design. Exhibiting broad business knowledge with a proven track record of bringing innovative business ideas to commercial success, Mr. Meier and Annette operate SDP together: Mr. Meier serves as CEO with responsibility for our design and engineering operations, and Annette serves as President with responsibility for all of our business operations.

Our History

Mr. Meier’s depth of industry knowledge, engineering skills, innovative thinking, and experience in oilfield services was first developed during a successful 13-year career with Christensen Diamond Products Co., a Norton Company, and its successors, including Baker Hughes, currently the world’s fifth largest oilfield services company. At Christensen Diamond, Mr. Meier established overseas factories in Ireland, Venezuela, and China, starting with the shell of a building, configuring the plants, setting up all manufacturing, and determining equipment and personnel requirements. In addition to this managerial and manufacturing experience, he designed tools to improve efficiency both in the plants he developed and in the drilling field. Mr. Meier became Christensen Diamond’s first drill bit fabricator specialist and, by age 28, became its Northern Region designer responsible for designing drill bits, core systems, bi-centric bits, nozzle systems, and related products.

In 1993, after a highly successful 13-year career with Christensen Diamond (now part of Baker Hughes), Mr. Meier single-handedly created an independent drill bit repair/refurbishing industry. Before Mr. Meier proved that refurbishing PDC cutters was a commercially viable business, the drilling industry scrapped whole drill bits once the PDC cutters were worn out after drilling one or two wells.

In 1995, Mr. Meier also designed a new bit with a unique PDC cutting structure which greatly reduced oil well drilling time, resulting in significant savings to the field operators. In 1996, he negotiated an agreement with Baker Hughes in which he traded exclusive rights to his new PDC cutter technology in return for the right to Baker Hughes’ drill bit remanufacturing business worldwide, something that Baker Hughes had never done before.

Our Drill Bit Business

Our drill bit remanufacturing for Baker Hughes was so successful that remanufacturing used drill bits now has become an industry standard. As the refurbishing industry grew, our arrangement with Baker Hughes evolved into an exclusive agreement to perform all drill bit refurbishment work for Baker’s Rocky Mountain region and points west, including the significant oil-producing states of California and Alaska. Today, we continue to lead the field in drill bit repair technology; continually improving repair techniques to improve drill bit performance and efficiency.

The Meiers strategically located their drill bit refurbishment operations in Vernal, Utah in order to take advantage of the close proximity to our target market, an experienced oil field labor pool, access to higher education facilities, and a quality of life and cost of living that would attract and retain skilled workers and their families. Starting during the economic downturn in 2007, we reassessed our manufacturing processes and business lines, and decided to reposition the company and redefined its mission to bring high tech machining into the oil and gas and mining industries. Drawing on Mr. Meier’s manufacturing and design expertise, we completely redesigned our manufacturing process, custom designed equipment and facilities, and developed

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custom software to control all aspects of the drill bit remanufacturing process. Attention was paid as well to addressing safety, health and environmental issues during the manufacturing process.

By fall 2007, we had built and moved into a new SMART facility located in the new Ropers Business Park Vernal, Utah that allowed for future expansion with our occupying two additional buildings, one to house our precision machining and a third to house over flow of both remanufacturing and machining in subsequent years. In 2010, we added another building that is currently leased to Baker Hughes. We now operate from a modern facility with custom features and solutions unlike any other in the industry. We employ a senior work force with special training and extensive experience related to drill bit remanufacturing and tooling manufacture to produce our products and services using a suite of highly technical, computer controlled, purpose-built equipment, much of which we design and manufacture for our proprietary use. Most of our manufacturing equipment and products now use advanced, patent-pending technologies that enable us to increase efficiency, enhance drill bit integrity, and improve safety. Our improvements and efficiencies have increased production capacity from 90 repairs per week in 2008 during a three-shift, seven-day work week, to more than 200 repairs per week in 2013 during only two shifts during a seven-day work week. Baker Hughes now consistently brings its customers to our facilities to showcase our services.

With our new manufacturing platform in place, in 2012, we began designing and manufacturing new steel-body drill bits for Baker Hughes, which is completely separate from our refurbishment contract. Baker Hughes has a large demand for its steel body bits and we can produce those bits in substantially less time due to our enhanced manufacturing capacity. Additional demand has come from Baker’s bit designers who have recognized our precision work and unique capabilities and are sending prototype fabrication requests to us. additional computerized five-axis Multus machining centers (state-of-the-art milling and turning machines), our capacity and the quantity of new drill bits being ordered by Baker Hughes is continually increasing. Additional divisions within Baker Hughes and other oil service industry suppliers, that need specialized precision fabrication also have learned of our new capabilities enabling us to expand our customer base and more rapidly grow this part of our business.

Currently, increased drilling activity in North Dakota, and throughout the Rocky Mountain regions, California, Alaska, and Mid-Continent is creating greater demand for our refurbishment services and new steel-body drill bits to Baker Hughes and other customers we are servicing.

Our Horizontal Drilling Tools

Recently, challenging new horizontal oil and gas well designs and construction have substantially increased the technical demands on drill bit and drill string components. This change in development activity requires investment in new drilling equipment to address the unique demands of this new drilling environment. See “Industry”.

Drill N Ream Well Bore Conditioning Tool.  As a first response to the horizontal drilling challenge, HRSI designed and manufactured the Drill N Ream well bore conditioning tool. The Drill N Ream is a dual-section reaming tool which is located behind the bottom hole assembly (BHA) to smooth and slightly enlarge the well bore in the curved and horizontal sections of horizontal wells, in both oil and water based mud. The Drill N Ream is available in multiple sizes and can be custom manufactured to fit any hole size.

[Insert Picture of Drill N Ream]

The Drill N Ream removes the well bore tortuosity brought about from the drill bit geo-steering, and from directional drilling overcorrections and formation interactions. As a result, the Drill N Ream extends the horizontal distance of the well bore by (a) smoothing out ledges and doglegs left by the bit, which allows the drill string to move through a conditioned well bore with less friction and stress, (b) reducing tool joint damages and trip time (i.e. the time required to pull up and resend the drill string), and (c) enhancing the power available to drive the drill bit assembly. Each time a drilling operator has to retract a drill string and replace a bit or other drill string component it costs the operator substantial time and money, so anything that allows each run to extend further is of great value to our customers. Each Drill N Ream unit has an average life of 12 runs. As a result, the Drill N Ream tool has been used in over 850 wells and appears to have achieved significant initial industry acceptance in a fairly short period of time. We are currently manufacturing

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between two to four to ten Drill N Ream units per month. However, we have the capacity to manufacture between 40 to 45 units per month so we believe that there is substantial opportunity for growth in this product line.

Other Horizontal Drill String Tools.  We are developing a suite of other horizontal drill string tools, using our unique facility and technology platform, and exploiting our additional capacity and manufacturing expertise. Our new product delivery goal is to bring to market at least one new tool per year. Our subsidiary, Extreme Technology (ET) currently has 4 new projects in the pipeline. Each of these pending drill string tools addresses a different technical challenge affecting today’s horizontal drilling designs. We expect our next pending drill string stimulation tool to be released in third quarter 2014. The drill string stimulation tool is designed to help dissipate the inertial drag of a horizontal drill string by generating rhythmic pulses that break the frictional connection between the drill string and well bore greatly enhancing drill rates. Additional new design products are anticipated to be ready for field testing first quarter 2015.

Clean Out Bits:  There is a need in the industry for an inexpensive bit that can be used for the purpose of drilling out plugs or debris left in the production casing after the completion process. Our manufacturing technology allows us to produce products that are ideal for this purpose and very competitive in price.

Effect on Remanufacturing Business.  Our manufacturing initiatives are expected to increase our remanufacturing business significantly. We project that 50% of our new steel body bits and horizontal drilling tools will be sent back to us for refurbishment. We estimate that each bit or tool can be repaired approximately six times before it can no longer be repaired.

Hard Rock Acquisition

Under our existing agreement with HRSI, we produce the Drill N Ream units and HRSI markets them to well operators on a rental basis. This arrangement allows the well operator to switch out Drill N Ream tools when theirs becomes dull, and HRSI then returns the dull tools to us for refurbishing. We now have the opportunity to purchase HRSI’s interest in the Drill N Ream business, including the Drill N Ream patents and tool inventory.

Immediately after closing this offering, we will close our purchase of Hard Rock from HRSI. Hard Rock’s primary business is renting the Drill N Ream tool directly to oilfield operators. HRSI was organized and began operations in 2001. HRSI’s president and Mr. Meier are currently the co-owners of the patents pending covering the Drill N Ream tool. HRSI is the sole authorized distributor and sales agent for the Drill N Ream tool, which we manufacture, under a profit sharing arrangement. In 2013, HRSI formed Hard Rock as a wholly-owned subsidiary, and transferred its tool rental business to Hard Rock, in order to facilitate our purchase transaction. We intend to use a portion of this offering’s proceeds to purchase Hard Rock, at which time it will become our wholly-owned subsidiary.

In order to effect that transaction, SDP and HRSI have signed a Membership Interest Purchase Agreement (MIPA) which includes a $25 million purchase price, with half payable at closing, and the other half payable under a seller-held note payable in annual installments over three years. See “MD&A — Hard Rock Acquisition”. Each of Mr. Meier and HRSI’s president has transferred their respective 50% interest in the Drill N Ream patents pending to a new limited liability company, under the terms of a Intellectual Property Protection Agreement (IPPA), and that entity will transfer all of the patents pending to us at closing of our purchase of Hard Rock. The signed MIPA and PPA are being held in third-party escrow pending closing of this offering and the purchase transaction. SDP will assign its interest in the MIPA and PPA to us in connection with our corporate reorganization immediately before closing this offering.

Growth Strategies

We intend to pursue the following growth strategies as we seek to expand our market share and solidify our position as a leading drill bit and drill string component manufacturer:

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Competition

Drill Bit Remanufacturing.  The primary competitors for our drill bit remanufacturing services are the in-house units at Hughes Christensen, the division of Baker Hughes responsible for drill bits. However, our competitive advantage is demonstrated by both our significantly superior production times, as well as our client’s continuing requests for us to take over or manage the work currently being done by those in-house units. Other drill bit manufacturers also have in-house remanufacturing units, but they are not our competitors since we have an exclusive contract with Baker Hughes.

Drill String Tools.  The primary competitors for our Drill N Ream tool are several single-section reaming tool manufacturers, including Baker Oil Tools (a division of Baker Hughes), NOV, and Schlumberger each priced between $15,000 – $30,000 per unit on a rental basis for each run. However, we believe that the Drill N Ream tool is the only dual-section or dual cutting structure drill string reamer on the market today. It is priced at $20,000 to $25,000 per unit per run, with most runs extending for five to ten thousand feet. We believe that distinction will allow us to continue building on the Drill N Ream tool’s first-mover advantage once we complete our acquisition of Hard Rock upon closing of this offering. We believe that our other pending drill string tools are at the forefront of drill string tool technological development for horizontal drilling. Consequently, potential competitors who may be developing similar technology are currently unknown. There are existing tools that would compete with the drill string stimulation tool, such as the Agitator tool marketed by NOV. However, we believe our technology in the drill string stimulation tool offers significant advantages over the Agitator and we believe will be rapidly accepted in the drilling market.

Competitive Strengths

We believe that we differentiate ourselves from our competitors on the basis of the quality and reliability of our products and services, our proprietary technology, and our ability to rapidly respond with products that meet the most demanding needs of our customers.

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Trends in the Industry

We believe that the following trends will positively affect the oilfield drilling industry, and consequently the demand for our products in the coming years. Also see “Industry”.

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Customers

The increasing growth in horizontal and hydraulic fracturing activity is placing ever increasing demands and wear on drilling rigs and drilling equipment. These demands shorten the replacement cycles for capital equipment, and increase the demand for maintenance and refurbishment of existing equipment.

Drill Bit Remanufacturing.  Our sole customer for our drill bit remanufacturing services is Hughes Christensen, the division of Baker Hughes responsible for drill bits, under our exclusive long-term contract with them. For the past 18 years, we have serviced the Rocky Mountain, California and Alaska oilfields exclusively for Baker Hughes’ substantial number of oilfield operations and customers. We work directly with their field engineers, manufacturing and marketing representatives to develop new products and enhancements, improve efficiency and safety, and solve complex drilling tool problems. Baker has also approached us to handle all of the bit remanufacturing for its north east customers and to accept overflow work from Mid-Continent facility, or to manage those facilities for them.

Drill String Tools.  E&P operators, our customers, are demanding key technologies, such as advanced directional drilling and more complex completion systems. As the industry adapts to these increased demands, we believe that there will be significant opportunities to bring new products and equipment to market, such as our Drill N Ream tool, that have been designed and engineered with these new challenges in mind. We also believe that this product expansion will drive substantial growth in our remanufacturing service offerings as each of these drill string tools cycle through the refurbishment process up to 12 times through the life of the tool, as opposed to only six refurbishment cycles for a drill bit.

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The US currently has approximately 1,800 oil and gas drilling rigs in operation, and internationally there are approximately another 2,000 rigs in operation. Our goal is to first capture an economically significant percentage of the U.S. market for each of our newly released, innovative products before market competition sets in, and then move on to identify the best international markets on which to focus our sales efforts.

New Product Development and Intellectual Property

Our sales and earnings are influenced by our ability to provide the high-level service that our customers demand successfully, which in turn relies on our ability to develop new processes, technology, and products. Much of our product development occurs in response to specific customer requests, in which case we are typically able to pass costs along to the customer. However, we have also historically dedicated additional resources toward the development of new technology and equipment to enhance the effectiveness, safety, and efficiency of the products and services we provide. Although certain of our competitors may spend greater amounts on research and development, we believe that our product development efforts are greatly enhanced by the investments of management time and energy we make to improve our customer service and to work with our customers on their specific product needs and challenges.

Of greatest importance to our development efforts is our ability to preserve excellent customer relations and stay close enough to our customers’ operations so that we can observe opportunities to make changes to our service offerings (and the products that support them) that would yield the maximum benefit to our customers. Although we highly value our proprietary products and technology, we also depend on our technological capabilities, customer service oriented culture, and application of our know-how to distinguish ourselves from our competitors. We also consider the services we provide to our customers, and the technical knowledge and skill of our personnel, to be more important than our registered intellectual property in our ability to compete. While we stress the importance of our research and development programs, the technical challenges and market uncertainties associated with the development and successful introduction of new and updated products are such that we cannot assure you that we will realize any particular amount of future revenue from the services and related products resulting from our research and development programs.

Although in the aggregate our intellectual property is important to us, we currently do not regard any single component as critical or essential to our business as a whole. However, upon our acquisition of Hard Rock, the suite of patents pending that cover the Drill N Ream tool will be significant to our post-offering business. Also see “Proprietary Rights”, below.

Seasonality

A substantial portion of our business is not significantly impacted by changing seasons. A small portion of the revenue we generate from selected operations may benefit from higher first quarter activity levels, as operators take advantage of the winter freeze to gain access to remote drilling and production areas. In the past, some of our revenue in Alaska has declined during the second quarter due to warming weather conditions that resulted in thawing, softer ground, difficulty accessing drill sites and road bans that curtailed drilling activity.

Marketing and Sales

We do not engage in any marketing or sales efforts for our PDC drill bits in the oil and gas industry because we are under an exclusive contract with Baker Hughes for those services.

For the Drill N Ream tool, HRSI has conducted substantially all of the sales and marketing efforts to date under our manufacturing and licensing arrangement. To date, the Drill N Ream tool has been deployed largely in North Dakota’s Bakken oil field, and in Utah, Oklahoma, and Texas. Our goal is to expand the Drill N Ream tool’s coverage by targeting a substantially expanded sales and marketing effort in the Ohio, Pennsylvania, Oklahoma, Texas, California, and Utah oil fields, among others. Upon our acquisition of Hard Rock from the proceeds of this offering, we intend to build a strong sales and marketing team to market the Drill N Ream tool to oilfield operators, as well as our other pending drill string tools once they are brought to market.

Suppliers and Raw Materials

We acquire supplies, component parts, products and raw materials from suppliers, including steel suppliers, foundries, forge shops and original equipment manufacturers. The prices we pay for our raw

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materials may be affected by, among other things, energy, industrial diamond, steel and other commodity prices, tariffs and duties on imported materials and foreign currency exchange rates. Certain of our component parts, products or specific raw materials are only available from a limited number of suppliers.

Our ability to obtain suitable quality raw materials and components, such as PDC’s, steel and flux, solder, heating elements, is critical to our ability to remanufacture Baker Hughes drill bits, and to manufacture the Drill N Ream tool and other pending drill line products. In order to purchase raw materials and components in timely and cost effective manner, we have developed both domestic and international sourcing connections and arrangements. We maintain quality assurance and testing programs to analyze and test these raw materials and components in order to assure their compliance with our rigorous specifications and standards. We generally try to purchase our raw materials from multiple suppliers so we are not dependent on any one supplier, but this is not always possible.

One of the challenges with our new drilling tool manufacturing division has been getting steel at a good price, accurate specifications, and on time delivery. We have experienced increased costs in recent years due to rising steel prices. Since Baker Hughes pays the cost of materials and supplies used in our drill bit remanufacturing process, cost increases are not as critical a short-term financial component for that line of business. We cannot assure that we will be able to continue to purchase these raw materials on a timely basis or at historical prices.

Employees

As of January 1, 2014, we had 54 full-time employees. Our employee turn over rate for 2013 was approximately 2%. We generally have been able to locate and engage highly qualified employees as needed and do not expect our growth efforts to be constrained by a lack of qualified personnel. None of our employees is covered by an ongoing collective bargaining agreement, and we have experienced no work stoppages. We consider our employee relations to be good.

Properties

Manufacturing Facility.  Our principal executive offices and manufacturing facilities are currently in three buildings located at 1583 South 1700 East in Vernal, Utah, which are owned by MPS. MPS leases those buildings to SDP and SDF under the terms of two five-year leases, at an approximately market rate, with annual one-year extensions after expiration of the initial term. After completion of the Reorganization, all lease payments will be eliminated in our consolidated financial statements. In 2012, we purchased one acre with a commercial building that is contiguous to our manufacturing facility, and which we currently use for storage. However, that facility would be usable for expansion of portions of our business operations. Also see “MD&A — Contractual Obligations — Real Estate Loans”.

Bakersfield Facility.  In 2012, we acquired property and a facility in Bakersfield, California on which to develop a second remanufacturing facility. The Bakersfield location was chosen for its proximity to Baker Hughes’ western and foreign customer base, in order to provide faster turn-around times, easier access to seaports, and reduced shipping costs for that customer base than is possible from our primary Vernal Utah manufacturing facility. However, due to local construction permitting issues for needed renovations to accommodate our production processes, and to subsequent internal cash constraints, our development of the Bakersfield facility was put on hold. In February 2013, we leased the Bakersfield facility to an unrelated party for $7,500 month on a 1-year 8 month term, and with an option to purchase the property for $1,650,000 at the conclusion of the initial lease term.

Investment Properties.  Through MPS, we own several properties acquired in connection with projects with related parties. Those properties are (a) the Superior Auto Body facility in Riverton, Utah, which MPS owns and leases to a related party, (b) an 11-acre parcel in Naples, Utah acquired for an oil well site that was subsequently determined to be non-productive, and (c) 47 acres of raw land contiguous to the Meiers’ personal residence. See “MD&A — Contractual Obligations — Real Estate Loans”.

Proprietary Rights

We rely primarily on a combination of patent, trade secret, copyright and trademark laws, confidentiality procedures, and other intellectual property protection methods to protect our proprietary technology. Mr. Meier currently has a number of U.S. patent applications pending, and related international patent applications

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pending, both (a) as co-inventor with respect to the patents pending that relate to the Drill N Ream, which will we will aquire upon closing the acquisition of Hard Rock upon completion of this offering, and (b) individually with respect to our pending line of other horizontal drilling tools. There is no assurance that our patent applications will result in issued patents, that the existing patents or that any future patents issued to us will provide any competitive advantages for their products or technology, or that, if challenged, the patents issued to us will be held valid and enforceable. Despite our precautions, unauthorized parties may attempt to copy aspects of the our products or obtain and use information that we regard as proprietary. Existing intellectual property laws afford only limited protection and policing violations of such laws is difficult. The laws of certain countries in which the Company’s products are or may be used by our customers do not protect our products and intellectual property rights to the same extent as do the laws of the United States. There is no assurance that these protections will be adequate or that our competitors will not independently develop similar technology, gain access to our trade secrets or other proprietary information, or design around our patents.

We may be required to enter into costly litigation to enforce its intellectual property rights or to defend infringement claims by others. Such infringement claims could require us to license the intellectual property rights of third parties. There is no assurance that such licenses would be available on reasonable terms, or at all.

Environmental, Health and Safety Regulation

While our operations are subject to numerous stringent and complex laws and regulations governing the discharge of materials into the environment, health and safety aspects of our operations, or otherwise relating to human health and environmental protection, we have put a strong focus on these issues.

We designed and build our Vernal facility as a fully-contained business park, except for the city sewer connection. Underlying our entire facility, including parking lots and runoff storage areas, is a complete capture and containment field that collects all building drainage and ground run off in isolated tanks. Captured drainage and runoff, as well as all hazardous waste generated in our manufacturing processes is regularly removed from our facility by a certified hazardous waste disposal company. However, the trend in environmental regulation has been to impose increasingly stringent restrictions and limitations on activities that may impact the environment, and thus, any changes in environmental laws and regulations or in enforcement policies that result in more stringent and costly waste handling, storage, transport, disposal, or remediation requirements could have a material adverse effect on our operations and financial position. Moreover, accidental releases or spills of regulated substances may occur in the course of our operations, and we cannot assure you that we will not incur significant costs and liabilities as a result of such releases or spills, including any third-party claims for damage to property, natural resources or persons. Failure to comply with these laws or regulations or to obtain or comply with permits may result in the assessment of administrative, civil and criminal penalties, imposition of remedial or corrective action requirements, and the imposition of orders or injunctions to prohibit or restrict certain activities or force future compliance.

The following is a summary of the more significant existing environmental, health and safety laws and regulations to which our business operations are subject and for which compliance could have a material adverse impact on our capital expenditures, results of operations or financial position.

Hazardous Substances and Waste.  The Resource Conservation and Recovery Act (“RCRA”) and comparable state statutes, regulate the generation, transportation, treatment, storage, disposal and cleanup of hazardous and non-hazardous wastes. Under the auspices of the EPA, the individual states administer some or all of the provisions of RCRA, sometimes in conjunction with their own, more stringent requirements. We are required to manage the transportation, storage and disposal of hazardous and non-hazardous wastes in compliance with RCRA.

The Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), also known as the Superfund law, imposes joint and several liability, without regard to fault or legality of conduct, on classes of persons who are considered to be responsible for the release of a hazardous substance into the environment. These persons include the owner or operator of the site where the release occurred, and anyone who disposed or arranged for the disposal of a hazardous substance released at the site. We currently own, lease, or operate numerous properties that have been used for manufacturing and other operations for many

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years. We also contract with waste removal services and landfills. These properties and the substances disposed or released on them may be subject to CERCLA, RCRA and analogous state laws. Under such laws, we could be required to remove previously disposed substances and wastes, remediate contaminated property, or perform remedial operations to prevent future contamination. In addition, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by hazardous substances released into the environment.

Environmental reviews done in connection with a new housing project contiguous to our Vernal facility identified some petroleum incursions. However, it has been determined that the source of the incursions is not from our property.

Water Discharges.  The Federal Water Pollution Control Act (the “Clean Water Act”) and analogous state laws impose restrictions and strict controls with respect to the discharge of pollutants, including spills and leaks of oil and other substances, into waters of the United States. The discharge of pollutants into regulated waters is prohibited, except in accordance with the terms of a permit issued by the EPA or an analogous state agency. A responsible party includes the owner or operator of a facility from which a discharge occurs. The Clean Water Act and analogous state laws provide for administrative, civil and criminal penalties for unauthorized discharges and, together with the Oil Pollution Act of 1990, impose rigorous requirements for spill prevention and response planning, as well as substantial potential liability for the costs of removal, remediation, and damages in connection with any unauthorized discharges.

Employee Health and Safety.  We are subject to a number of federal and state laws and regulations, including OSHA and comparable state statutes, establishing requirements to protect the health and safety of workers. In addition, the OSHA hazard communication standard, the EPA community right-to-know regulations under Title III of the federal Superfund Amendment and Reauthorization Act and comparable state statutes require that information be maintained concerning hazardous materials used or produced in our operations and that this information be provided to employees, state and local government authorities and the public. Substantial fines and penalties can be imposed and orders or injunctions limiting or prohibiting certain operations may be issued in connection with any failure to comply with laws and regulations relating to worker health and safety.

There is no assurance that any present or future noncompliance with Environmental Laws will not have a material adverse effect on the Company’s results of operations or financial condition. See “Risk Factors — Environmental Matters.”

Insurance and Risk Management

We maintain insurance coverage of types and amounts that we believe to be customary and reasonable for companies of our size and with similar operations. In accordance with industry practice, however, we do not maintain insurance coverage against all of the operating risks to which our business is exposed. Therefore, there is a risk our insurance program may not be sufficient to cover any particular loss or all losses.

Currently, our insurance program includes, among other things, general liability, umbrella liability, sudden and accidental pollution, personal property, vehicle, workers’ compensation, and employer’s liability coverage. Our insurance includes various limits and deductibles or retentions, which must be met prior to or in conjunction with recovery.

Legal Proceedings

From time to time, we are subject to various legal proceedings that arise in the normal course of our business activities. As of the date of this prospectus, we are not a party to any litigation the outcome of which, if determined adversely to us, would individually or in the aggregate be reasonably expected to have a material adverse effect on our results of operations or financial position, 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, against the following co-defendants (a) Tronco Ohio, LLC (“TO”) and Tronco Energy Corporation (“Tronco”), (b) the lender on the Tronco Loan, ACF Property Management, Inc. (p.k.a. Fortuna Asset Management, LLC, ) (“ACF”), (c) the Meiers personally, and several of their family

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trusts, (d) Meier Family Holding Company, LLC and Meier Management Company, LLC, and (e) SDP and MPS. That suit is currently pending in the Eighth Judicial District Court, Unitah County, Utah under Cause # 130800125.

Tronco and Del-Rio are the sole owners and managers of Philco Exploration, LLC (“Philco”). Philco served as the exploration operator. Part of the collateral for the Tronco Loan was 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 quiet title to those leases in Philco. 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, SDP’s 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. In addition, since we plan to pay off the Tronco loan with the proceeds of this offering, we believe that the basis of Del-Rio’s damages claims will be nullified. Consequently, we do not believe that Del-Rio’s purported claims against SDP and MPS will have any material adverse effect on our cash flow, business, or operations.

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MANAGEMENT

Executive Officers, Directors, and Director-Nominees

The following table sets forth information regarding our executive officers, directors, and director-nominees.

Name		Age		Position
Troy Meier		52		Board Chair and Chief Executive Officer
Annette Meier		51		Director, President, and Chief Operating Officer
Rich Mahoney		50		VP of Finance and Chief Financial Officer
David Gale		38		VP of Operations
Joshua J Smith		32		VP of Manufacturing
Terrance Cryan		51		Director — Nominee
Robert Iversen		59		Director — Nominee

Troy Meier, Co-Founder, Board Chair and Chief Executive Officer. Mr. Meier has over 33 years of experience in the oil and gas industry. Over the course of the 33 years, Mr. Meier has been responsible for setting up state of the art manufacturing facilities around the world for several prominent Fortune 500 corporations. Mr. Meier has proven to be an effective business manager having successfully operated a drilling tool service business for a major oil field service company for more than 18 years. Mr. Meier is also our Chief Innovator, responsible for not only inventing, but also designing, engineering and manufacturing industry specific machinery and processes and has several patent applications pending. Under his guidance, we have pioneered new repair technology that supports the global drilling bit market and has grown to be recognized as a leader in the drilling and manufacturing industry.

Annette Meier, Co-Founder, Director, President, and Chief Operating Officer. Ms. Meier has over 20 years of experience in the oil and gas industry. Ms. Meier has been responsible for the day to day operations of the Company. Under her management, Superior Drilling has grown and developed into one of the most advanced drilling tool manufacturing and repair facilities in the world. In 2005, Ms. Meier served as the creator and chief architect of the Ropers Business Park, that houses the Superior Drilling repair and manufacturing today. Ms. Meier’s strong understanding of our business processes resulted in her designing and facilitating the SMART FACILITY layout, process and control systems within the manufacturing plant in Vernal, Utah. In 2008, Ms. Meier envisioned and co-created “CHUCK,” a shop management and inventory program software. Ms. Meier was also instrumental to the development of the “nucleus grinding system,” that is currently utilized in the manufacturing facilities. Ms. Meier has been recognized for her innovation and leadership over the years and has been the recipient of multiple Business awards.

Rich Mahoney. Vice President of Finance, and Chief Financial Officer. Mr. Mahoney has over 28 years of experience in the field of accounting and finance. Mr. Mahoney has worked in various positions over the past 28 years including serving as Staff Accountant, Accounting Manager, Controller and Operations Manager. Mr. Mahoney has worked in multiple industries, as well as served as an accountant for publicly traded companies. Mr. Mahoney joined Superior Drilling in 2011 as the Chief Financial Officer. As the Chief Financial Officer for Superior Drilling, Mr. Mahoney was able to streamline financial processes, implement financial strategies to curb costs and oversee the day-to-day accounting issues. Mr. Mahoney received a Bachelor of Science in Accounting followed by a Master in Science in Taxation from California State University. Mr. Mahoney was subsequently certified as a Chartered Public Accountant in the State of Washington.

David Gale. Vice President of Operations. Mr. Gale joined Superior Drilling in 2007 as the Information Technology Manager. During his short tenure at Superior Drilling he has successfully managed and updated the technology in the Company, including servers, SQL databases, in-house software, computer hardware, and peripherals. Additionally, Mr. Gale, with Ms. Annette Meier, co-created, designed, and programmed “CHUCK”, a complete shop management and inventory program. Mr. Gale is also the principal designer for Superior Drilling’s paperless system using SQL database server networking and touch monitors and web services, including a real-time customer-driven inventory tracking system web-based satellite access for customer base. Mr. Gale has also successfully been able to utilize his media background to develop marketing

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campaigns and materials for Superior Drilling in various mediums including but not limited to: web sites, long and short form commercials, instructional video, brochures, business cards, power point presentations. Mr. Gale graduated from Brigham Young University with a Bachelors of Arts degree in Journalism and is the recipient of the Edward R. Murrow journalism award.

Joshua J Smith. Vice President of Manufacturing. Mr. Smith is the Vice President of Manufacturing for Superior Drilling Products. Mr. Smith joined Superior Drilling in 2011 and has been an integral part of building our manufacturing facility. Mr. Smith has significant experience transitioning existing machine shops to become state of the art manufacturing facilities. Mr. Smith has a background in CNC machining, application engineering, and “lights out” operation. Mr. Smith frequently advises on challenging applications for customers and third parties.

Terence J. Cryan, Director Nominee. Mr. Cryan has over 20 years of international business experience as an investment banker based in both the United States and Europe. In 2001, Mr. Cryan co-founded Concert Energy Partners, an investment banking and private equity firm based in New York City, and continues to serve as Managing Director. He also served as President and Chief Executive Officer of Medical Acoustics LLC from April 2007 through April 2010. Prior to 2001, Mr. Cryan was a Senior Managing Director in the Investment Banking Division at Bear Stearns. Earlier in his career, Mr. Cryan served as a Managing Director, Energy & Natural Resources Industry Group and member of the Investment Banking Operating Committee at Paine Webber. Mr. Cryan joined Paine Webber following its acquisition of Kidder, Peabody in 1994. Mr. Cryan has been an adjunct professor at the Metropolitan College of New York Graduate School of Business and serves as a director of a number of international companies, including public companies such as Uranium Resources, Inc. (October 2006 to present) and Ocean Power Technologies Corporation (October 2012 to present). During the past five years, Mr. Cryan also served as a director of The Providence Service Corporation (May 2009 to May 2011) and Gryphon Gold Corporation (August 2009 to December 2012). Mr. Cryan is also a frequent speaker at finance and energy industry gatherings. Mr. Cryan is also a member of the National Association of Corporate Directors. Mr. Cryan holds a Master of Science in Economics from the London School of Economics and a Bachelor of Arts degree from Tufts University.

Robert E. Iversen, Director Nominee. Mr. Iversen has broad executive and operational management experience in the sales, service, and manufacturing sectors of the global upstream oil and gas industry. Currently a partner and president of C T I Energy Services, LLC of Springtown, Texas, a drilling services company he started in 2011, Mr. Iversen has strong experience in the development and commercialization of new technology products and in-company marketing and advertising programs. Previously, Mr. Iversen collaborated with Troy Meier as a partner and senior vice president in Tronco Energy Services from 2008 –  2011. From 2002 to 2008, he served as President and other C-level positions with Ulterra Drilling Technologies (Fort Worth, Texas), INRG (Houston, Texas), and NQL Energy Services (Nisku, Alberta). In 1994, Mr. Iverson and partners purchased the U.S. division of DBS Stratabit, a small, underperforming diamond bit company, where, as President until 2002, he built it into a top tier provider of high technology products. Mr. Iversen previously held numerous executive positions in marketing, technology and engineering at various divisions of the Baker Hughes companies, and their predecessors, from 1980 through 1994. Mr. Iversen holds a Bachelor of Science Petroleum Engineering, Montana Tech, as well as numerous technical and executive post-graduate certifications.

Board Composition

Our board of directors directs the management of our business and affairs, as provided by the Utah Revised Business Corporation Act. Mr. Meier and Ms. Meier serve as our initial board of directors. Our board of directors has approved amended and restated Bylaws, to be effective immediately before closing of this offering, that authorize no less than four and no more than seven directors, a majority of whom, at any given time, must qualify as “independent” under NYSE MKT’s listing standards. See “— Director Independence”, below. Our initial shareholders have approved resolutions specifying that our post-offering board of directors will consist of four directors, comprised of Mr. Meier, Ms. Meier and our two director-nominees, Messrs. Cryan and Iversen, effective upon the closing of this offering with one vacant Board seat to be filled as soon as practicable following completion of this offering.

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Classified Board of Directors.  Our initial shareholders and Board of Directors have also approved amended and restated Articles of Incorporation, to be effective immediately before closing of this offering. Those amended and restated Articles of Incorporation specify that our board of directors will be divided into three classes with staggered three-year terms, after initial terms of one year, two years, and three years, respectively. Only one class of directors will be elected at each annual meeting of shareholders, with the other classes continuing for the remainder of their respective three-year terms. Our current directors will be divided among the three classes as follows:

Each director’s term will continue until the election and qualification of the director’s successor, or earlier death, resignation or removal. Any increase or decrease in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of our directors. This classification of our board of directors may have the effect of delaying or preventing changes in control of our company.

Director Independence.  Our board of directors has undertaken a review of the independence of each director nominee and has affirmatively determined that each of them is “independent”, as defined by the Rules of the NYSE MKT Stock Market (“Rules”). Under the Rules, a director can be independent only if (a) the director does not trigger a categorical bar to independence and (b) our board of directors affirmatively determines that the director does not have a relationship which, in the opinion of our board of directors, would interfere with the exercise of independent judgment by the director in carrying out the responsibilities of a director. Based on information provided by each director concerning his background, employment and affiliations, our board of directors has determined that Messrs. Cryan, and Iversen do not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is “independent” as that term is defined under NYSE MKT’s listing standards. In making these determinations, our board of directors considered the current and prior relationships that each non-employee director has with us, and all other facts and circumstances our board of directors deemed relevant in determining independence, including any beneficial ownership of our capital stock by each non-employee director, and any transactions involving them as described in “Certain Relationships and Related Party Transactions.”

Lead Independent Director.  We do not currently separate the roles of Chief Executive Officer and Board Chair. Our board of directors has determined, in connection with our adoption of certain corporate governance principles in connection with this offering, that one of our independent directors should serve as a lead director at any time when the title of Board Chair is held by an employee director or there is no current Board Chair.

Prior to the completion of this offering, our board of directors will adopt corporate governance guidelines. Our corporate governance guidelines will provide that one of our independent directors should serve as our Lead Independent Director at any time when our Chief Executive Officer serves as the Chairman of our board of directors, or if the Chairman is not otherwise independent. Because Mr. Meier is our Chairman, our board of directors intends to appoint Mr. Cryan to serve as our Lead Independent Director effective upon the closing of this offering. As Lead Independent Director, Mr. Cryan will preside over periodic meetings of our independent directors, serve as a liaison between our Chairman and our independent directors and perform such additional duties as our board of directors may otherwise determine and delegate.

Committees of the Board of Directors

Our board of directors has established three standing committees: an audit committee, a compensation committee, and a nominating and corporate governance committee, to be effective upon closing of this offering. In addition, from time to time, special committees may be established under the direction of the

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board of directors when necessary to address specific issues. Members will serve on these committees until their resignation or until as otherwise determined by our board of directors. The composition of the board committees will comply, when required, with the applicable rules of the exchange on which our common stock is listed and applicable law. Our board of directors will adopt a written charter for each of the standing committees. These charters will be available on our website following the completion of the offering.

The composition and responsibilities of each of the standing committees of our board of directors, when effective, will be as follows:

Audit committee.  Our audit committee will be comprised solely of “independent” directors, as defined under and required by Rule 10A-3 of the Exchange Act and the NYSE MKT Rules. Our audit committee will be directly responsible for, among other things, the appointment, compensation, retention, and oversight of our independent registered public accounting firm. The oversight includes reviewing the plans and results of the audit engagement with the firm, approving any additional professional services provided by the firm and reviewing the independence of the firm. Commencing with our first report on internal controls over financial reporting, the committee will be responsible for discussing the effectiveness of the internal controls over financial reporting with our independent registered public accounting firm and relevant financial management. The members of this committee will be Mr. Cryan and Mr. Iversen, with Mr. Iversen initially serving as committee chair. Our board of directors has determined that Mr. Cryan qualifies as an “audit committee financial expert”, as defined by the rules under the Exchange Act.

Compensation committee.  Our compensation committee will consist solely of directors who are “independent”, as defined under and required by NYSE MKT’s Rules, “non-employee directors” under Section 16 of the Exchange Act, and “outside directors” for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). The compensation committee will be responsible for, among other things, supervising and reviewing our affairs as they relate to the compensation and benefits of our executive officers and non-employee directors. In carrying out these responsibilities, the compensation committee will review all components of executive compensation for consistency with our compensation philosophy and with the interests of our shareholders. The members of this committee will be Messrs. Cryan, and Iversen, with Mr. Cryan initially serving as committee chair.

Nominating and governance committee.  Our nominating and governance committee will consist solely of “independent” directors, as defined under and required by NYSE MKT’s Rules. The nominating and governance committee will be responsible for, among other things, identifying individuals qualified to become board members; selecting, or recommending to the board of directors, director-nominees for each election of directors; developing and recommending to the board of directors criteria for selecting qualified director candidates; considering committee member qualifications, appointments, and removals; recommending corporate governance principles, codes of conduct, and compliance mechanisms; providing oversight in the evaluation of the board of directors and each committee; and developing an appropriate succession plan for our chief executive officer. The members of this committee will be Messrs. Cryan, and Iversen, with Mr. Iverson initially serving as committee chair.

Board of Directors’ Role in Risk Oversight

One of the key functions of our board of directors is informed oversight of our risk management process. Our board of directors will not have a standing risk management committee, but rather intends to administer this oversight function directly through our board of directors as a whole, as well as through various board of directors standing committees that address risks inherent in their respective areas of oversight. In particular, our board of directors is responsible for monitoring and assessing strategic risk exposure, and our audit committee will have the responsibility to consider and discuss our major financial risk exposures and the steps our management has taken to monitor and control these exposures. The audit committee also will have the responsibility to issue guidelines and policies to govern the process by which risk assessment and management is undertaken, monitor compliance with legal and regulatory requirements, and oversee the performance of our internal audit function. Our nominating and corporate governance committee will monitor the effectiveness of our corporate governance guidelines, including whether they are successful in preventing illegal or improper liability-creating conduct. Our compensation committee will assess and monitor whether any of our compensation policies and programs have the potential to encourage excessive risk-taking.

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Limitation of Liability and Indemnification

For information concerning limitation of liability and indemnification applicable to our directors, executive officers, and, in certain cases, employees, please see “Description of Capital Stock” located elsewhere in this prospectus.

Code of Business Conduct and Ethics

In connection with this offering, our board of directors will adopt a code of business conduct and ethics that will apply to all of our employees, officers, and directors. Upon completion of this offering, the full text of our code of business conduct and ethics will be available on our website at www.sdpteam.com. Following adoption of the code of business conduct and ethics, any change to, or waiver from, that code may be made only by our Board of Directors and will be promptly disclosed as required by applicable U.S. federal securities laws and NYSE MKT’s corporate governance rules.

Corporate Governance Guidelines

Before closing of this offering, our Board of Directors will adopt corporate governance guidelines in accordance with NYSE MKT’s corporate governance rules.

Director Compensation

Following the completion of this offering, we intend to implement a formal policy pursuant to which our non-employee directors would be eligible to receive equity awards and annual cash retainers as compensation for service on our board of directors and committees of our board of directors.

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EXECUTIVE COMPENSATION

Compensation of Named Executive Officers

The following table sets forth the total compensation earned for services rendered during fiscal year 2012 by our named executive officers who consist of our principal executive officers, our principal financial officer, and our two other most highly compensated executive officers. Our named executive officers are set forth in the table below.

		Year				Salary ($)				Bonus ($)				Stock Awards ($)				Option Awards ($)				Non-Equity Incentive Plan Compensation ($)				All Other Compensation ($)				Total ($)
Troy Meier(1)(2) Board Chair and Chief Executive Officer			2012			$	—				—				—				—				—			$	34,589			$	34,589
Annette Meier(1)(3) President and Chief Operating Officer			2012			$	—				—				—				—				—			$	25,863			$	25,863
Rich Mahoney Chief Financial Officer			2012			$	120,000			$	1,000				—				—				—				—			$	121,000
David Gale Manager of Information Technology			2012			$	77,000			$	4,000				—				—				—			$	22,665			$	103,665
Joshua J Smith Vice President of Manufacturing			2012			$	100,000			$	2,000				—				—				—				—			$	102,000

Outstanding Equity Awards

There are currently no outstanding equity awards to any of the named officers or any other employee.

Employment Agreements

We will enter into written employment agreements with Troy Meier, Annette Meier and Rich Mahoney, which will be effective upon completion of this offering. Those Agreements will provide for, among other things, the payment of base salary, reimbursement of certain costs and expenses, and for each named executive officer’s participation in our bonus plan and employee benefit plans.

With the exception of Troy Meier’s and Annette Meier’s employment agreements, each agreement will provide for a term of employment commencing on the date of the agreement and continuing (a) until we or the executive provide 30-days written notice of termination to the other party, (b) upon termination by us for cause, or (c) upon the executive’s death or disability. Except with respect to certain items of compensation, as described below, the terms of each agreement will be similar in all material respects.

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Each of the Meiers’ employment agreements will provide for customary and usual fringe benefits generally available to our executive officers, and reimbursement for reasonable out-of-pocket business expenses, including the use of a company vehicle.

Change of Control Provisions.  Each executive’s Employment Agreement will also provide that in the event of a Change in Control (as defined below), during the term of executive’s employment, (a) we are obligated to pay such executive a single lump sum payment, within 30 days of the termination of such executive’s employment, equal to 1 year, and (b) the executive’s equity awards, if any, shall immediately vest. “Change in Control” means approval by our stockholders of

(1)(a) a reorganization, merger, consolidation or other form of corporate transaction or series of transactions, in each case, with respect to which persons who were our stockholders immediately prior to such transaction do not, immediately thereafter, own more than 50% of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated company’s then outstanding voting securities, in substantially the same proportions as their ownership immediately prior to such transaction, (b) our liquidation or dissolution, or (c) the sale of all or substantially all of our assets (unless such reorganization, merger, consolidation or other corporate transaction, liquidation, dissolution or sale is subsequently abandoned); or

(2) the acquisition in a transaction or series or transactions by any person, entity or “group”, within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act, of more than 50% of either the then outstanding shares of common stock or the combined voting power of our then outstanding voting securities entitled to vote generally in the election of directors (a “Controlling Interest”), excluding any acquisitions by (a) us or our subsidiaries, (b) any person, entity or “group” that as of the date of the amendments to the employment agreements owns beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act of a Controlling Interest, or (c) any of our employee benefit plans.

Troy Meier’s and Annette Meier’s agreements provide that (a) the non-competition covenant does not apply following the termination of employment if their employment is terminated without cause or for good reason (as defined below), (b) the non-solicitation of employees covenant applies with respect to any current employee or any former employee who was employed by us within the prior six months, and (c) the non-solicitation of customers covenant applies to all actual or targeted prospective clients of ours to the extent solicited on behalf of any person or entity in connection with any business competitive with our business.

As consideration and compensation to our executives for, and subject to each executives’ adherence to, the above covenants and limitations, we have agreed to continue to pay the executive’s base salary in the same manner as if they continued to be employed by us during the one-year non-competition period following the executive’s termination.

Payments on Termination.  Except as noted above, upon termination of employment under these agreements, (a) we are only required to pay each executive that portion of their respective annual base salary that have accrued and remain unpaid through the effective date of the executive’s termination, and (b) we have no further obligation whatsoever to the executive other than reimbursement of previously incurred expenses which are appropriately reimbursable under our expense reimbursement policy. However, if employment termination is due to the executive’s death, we will continue to pay the executive’s annual base salary for the period through the end of the calendar month in which death occurs to the executive’s estate.

Certain Tax Considerations Related to Executive Compensation

As a result of Section 162(m) of the Internal Revenue Code, if the Company pays more than $1,000,000 in compensation to a “covered employee” (the chief executive officer and the next four highest paid employees) in a single year, then the Company’s deduction for such compensation could be limited to $1,000,000.

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Pension Benefits and Nonqualified Deferred Compensation

We do not provide a pension plan for our employees, and none of our named executive officers participated in a nonqualified deferred compensation plan at any time.

Other Change in Control, Severance, and Employment Provisions

We have not adopted a company-wide severance policy. Except for the executive Employment Agreements discussed above, all of our employees are considered at-will and their employment can be terminated by either us or the employee upon 30 days written notice. None of our employment agreements provide for post-termination benefits unrelated to a Change in Control, except for the Meiers’ employment agreements and the payments to other named executive officers during the one-year non-competition period.

The following table sets forth information with respect to the value of payments or vesting acceleration, as applicable, our named executive officers would be entitled to receive assuming a qualifying termination or Change in Control, as applicable, as of September 30, 2013:

		Severance Amount ($)				Early Vesting of Stock Options ($)				Early Vesting of Restricted Stock ($)				Continuation of Benefits ($)				Unused Vacation ($)				Total ($)
Troy Meier		$	0			$	0			$	0			$	780			$	1,327			$	2,107
Board Chair and Chief Executive Officer
Annette Meier		$	0			$	0			$	0			$	780			$	1,327			$	2,107
President and Chief Operating Officer
Rich Mahoney		$	0			$	0			$	0			$	1,561			$	2,308			$	3,869
Chief Financial Officer
David Gale		$	0			$	0			$	0			$	1,213			$	1,481			$	2,694
Manager of Information Technology
Joshua J Smith		$	0			$	0			$	0			$	1,064			$	1,923			$	2,988
Vice President of Manufacturing

Benefit Plans

2014 Employee Stock Incentive Plan.

Our shareholders adopted a 2014 Employee Stock Incentive Plan (the “Employee Plan”) in February 2014. The Employee Plan authorizes and reserves for issuance a maximum of      shares of Common Stock, subject to certain adjustments. However, no person may receive options to purchase more than            shares in any one year. As of the date of this Prospectus, no awards have been made under the Employee Plan.

Administration.  The Employee Plan is administered by the Compensation Committee of our Board of Directors. See “Management — Board of Directors — Board Committees”. However, only our Board of Directors may amend or terminate the Employee Plan. Unless terminated sooner by the Board of Directors, the Employee Plan expires in February 2024.

Eligible Recipients.  The Compensation Committee may award incentive stock options (“ISOs”) to employees, and may award non-qualified stock options (“NSOs”) and restricted stock awards to employees and certain non-employees (other than non-employee directors) who have important relationships with us or our Subsidiaries. Awards are nonassignable and nontransferable, except by will or by the laws of descent and distribution at the time of the recipient’s death in accordance with the Employee Plan.