Notes
to Condensed Consolidated Financial Statements (Unaudited)
September
30, 2021
NOTE
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
and Nature of Operations
Superior
Drilling Products, Inc. (the “Company”, “SDPI”, “we”, “our” or “us”) is an
innovative drilling and tool technology company providing cost saving solutions that drive production efficiencies for the oil and natural
gas drilling industry. Our headquarters and manufacturing operations are located in Vernal, Utah. Our drilling solutions include the
patented Drill-N-Ream® well bore conditioning tool (“Drill-N-Ream tool”) and the patented Strider™ Drill String
Oscillation System technology (“Strider technology” or “Strider”). In addition, the Company is a manufacturer
and refurbisher of PDC (polycrystalline diamond compact) drill bits and other tools for a leading oil field services company and other
customers including other oil field service companies and operators. We operate a state-of-the-art drill tool fabrication facility, where
we manufacture solutions for the drilling industry, as well as customers’ custom products for other applications.
Our
subsidiaries include (a) Superior Drilling Solutions, LLC (previously known as Superior Drilling Products, LLC), a Utah limited liability
company (“SDS”), together with its wholly owned subsidiary Superior Design and Fabrication, LLC, a Utah limited liability
company (“SDF”), (b) Extreme Technologies, LLC, a Utah limited liability company (“ET”), (c) Meier Properties
Series, LLC, a Utah limited liability company (“MPS”), (d) Meier Leasing, LLC, a Utah limited liability company (“ML”),
and (e) Hard Rock Solutions, LLC (“HR” or “Hard Rock”).
Basis
of Presentation
The
Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the
United States of America (“GAAP”). The consolidated financial statements include the accounts of Superior Drilling Products
Inc. and all of its wholly-owned subsidiaries. All significant intercompany accounts have been eliminated in consolidation. The Company
does not have investments in any unconsolidated subsidiaries.
Unaudited
Interim Financial Presentation
These
interim consolidated condensed financial statements for the three and nine months ended September 30, 2021 and 2020, and the related
footnote disclosures included herein, are unaudited. However, in the opinion of management, these unaudited interim financial statements
have been prepared on the same basis as the audited financial statements, and reflect all adjustments necessary to fairly state the results
for such periods. The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of
the results of operations expected for the year ended December 31, 2021. These interim consolidated condensed financial statements should
be read in conjunction with the audited consolidated financial statements of the Company for the years ended December 31, 2020 and 2019
and the notes thereto, which were included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed
with the Securities and Exchange Commission (the “SEC”).
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported
amounts in the financial statements and accompanying notes. Actual results could differ from those estimates. Significant items subject
to estimates and assumptions include the carrying amount and useful lives of property and equipment and intangible assets, impairment
assessments, share-based compensation expense, and valuation allowances for accounts receivable, inventories, and deferred tax assets.
Concentrations
of Credit Risk
The
Company has two significant customers that represented 86% and 81% of its revenue for the nine months ended September 30, 2021 and 2020,
respectively. These customers had approximately $1,081,000 and $432,000 in accounts receivable at September 30, 2021 and 2020, respectively.
The
Company had two vendors that represented 12% of its purchases for the nine months ended September 30, 2021. These vendors had approximately
$176,000 in accounts payable at September 30, 2021 and purchases in the nine months of 2021 from these vendors totaled approximately
$546,000. The Company had one vendor that represented 14% of its purchases for the nine months ended September 30, 2020. This vendor
had approximately $218,000 in accounts payable at September 30, 2020 and purchases in the nine months ended September 30, 2020 from this
vendor totaled approximately $772,000.
Impact
of COVID-19
The
COVID-19 pandemic has impacted and may further impact the Company’s operations, and the operations of the Company’s suppliers
and vendors, as a result of quarantines, facility closures, and travel and logistics restrictions. The extent to which the COVID-19 pandemic
will continue to impact the Company’s business, financial condition and results of operations will depend on future developments,
which are highly uncertain and depend on, among other things, the duration, spread, severity, and impact of the COVID-19 pandemic and
the success and speed of vaccination efforts both in the United States and globally, the effects of the COVID-19 pandemic on the Company’s
customers, suppliers, and vendors and the remedial actions and stimulus measures adopted by local and federal governments, and to what
extent normal economic and operating conditions can resume. Therefore, the Company cannot reasonably estimate future impacts of the COVID-19
pandemic at this time.
Uncertain
Tax Matters
The
Company believes it has appropriately accrued for the expected outcome of uncertain tax matters and believes such liabilities represent
a reasonable provision for taxes ultimately expected to be paid; however, these liabilities may need to be adjusted as new information
becomes known and as tax examinations continue to progress, or as settlements or litigations occur.
Reclassifications
Certain
prior year amounts have been reclassified to the balance sheet to conform to the current year presentation. The reclassifications were
within accounts payable and income tax payable and did not impact net income.
Recent
Accounting Pronouncements
There
are no recently issued accounting pronouncements that we have not yet adopted that we believe will have a material effect on our financial
statements.
Income
Tax Expense
The
Company recorded income tax expense during the quarter of $39,327 with income before income taxes of only $. The reason The Company
has income tax expense greater than income before income taxes is due to the Company having taxable income in a foreign tax jurisdiction.
In the U.S. the Company is not subject to U.S. taxes due to having a taxable loss.
NOTE
2. LIQUIDITY
We
believe that our cash on hand, cash generated from operations and our borrowing capacity under our current credit facility will be sufficient
to fund our operations for the next 12 months. To enhance liquidity, our operational and financial strategies include managing our operating
costs, accelerating collections of international receivables, and reducing working capital requirements. If we are unable to do this,
we may not be able to, among other things, (i) maintain our revised general and administrative spending levels; (ii) fund certain obligations
as they become due; and (iii) respond to competitive pressures or unanticipated capital requirements. We cannot provide any assurance
that financing will be available to us in the future on acceptable terms, if at all.
In
2020, the Company filed a Form S-3 Shelf Registration that will allow the Company to offer and sell, from time to time, up to $20,000,000
of securities. We believe maintaining an active Shelf Registration provides additional financial flexibility to access the capital markets.
In October 2021, the Company completed an equity offering of 1,739,131 shares of common stock at a price of $1.15 per share. Net proceeds
from the equity offering were $1,739,103 (See Note 13 – Subsequent Events).
Also
in 2020, the Company received notification from the NYSE American to the Company indicating that, as a result of the Company’s
stockholders’ equity of $4.7 million as of September 30, 2020, and reported losses for each of the last five fiscal years, the
Company was not in compliance with the stockholders’ equity standards for continued listing on the NYSE American. On January 28,
2021, the Company received notice that the NYSE American had accepted the Company’s plan that was submitted on December 18, 2020,
to regain compliance with the continued listing standards of the NYSE American.
NYSE
American Regulations staff will review the Company periodically for compliance with the initiatives outlined in the plan. If the Company
does not make progress consistent with the plan during the plan period, NYSE Regulation staff may initiate delisting proceedings as appropriate.
The Company’s first quarterly plan update was submitted to the NYSE American in April 2021 and was subsequently approved by the
NYSE compliance committee on May 21, 2021. On August 16, 2021, the Company submitted its second quarterly plan update which was approved
by the NYSE on September 10, 2021.
NOTE
3. REVENUE
Our
revenue is derived from short-term contracts. Revenue is recognized when we satisfy a performance obligation by transferring control
of the promised goods or services to our customers at a point in time, in an amount that reflects the consideration the Company expects
to be entitled to in exchange for those goods or services. We also assess our customer’s ability and intention to pay, which is
based on a variety of factors including our customer’s historical payment experience and financial condition. Payment terms and
conditions vary, although terms generally include a requirement of payment within 30 days.
Revenue
generally does not include right of return or other significant post-delivery obligations. Revenue is recognized net of any taxes collected
from customers, which are subsequently remitted to governmental authorities. We elected to treat shipping and handling costs as a fulfillment
cost instead of as a separate performance obligation. We recognize the cost for shipping and handling when incurred as an expense in
cost of sales.
Performance
Obligations
A
performance obligation is a promise in a contract to transfer a distinct good or service to the customer under Topic 606. A contract’s
transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation
is satisfied. The majority of our contracts with customers contain a single performance obligation to provide agreed-upon products or
services. For contracts with multiple performance obligations, we allocate revenue to each performance obligation based on its relative
standalone selling price. In accordance with Topic 606, we do not assess whether promised goods or services are performance obligations
if they are immaterial in the context of the contract with the customer.
All
of our contracts are less than one year in duration. We do not disclose the value of unsatisfied performance obligations for (i) contracts
with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have
the right to invoice for services performed.
Disaggregation
of Revenue
Approximately
85% of our revenue is from North America and approximately 15% is from the Middle East for the three months ended September 30, 2021.
For the nine months ended September 30, 2021, approximately 86% of our revenue was from North America and approximately 14% was from
the Middle East.
Revenue
disaggregated by revenue source are as follows:
SCHEDULE OF REVENUE DISAGGREGATED BY REVENUE
|
|
Three months ended
September 30,
|
|
|
Nine months ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tool Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tool and product sales
|
|
|
315,000
|
|
|
|
294,464
|
|
|
$
|
1,470,000
|
|
|
$
|
971,520
|
|
Tool rental
|
|
|
521,228
|
|
|
|
254,574
|
|
|
|
1,318,135
|
|
|
|
1,716,210
|
|
Other related revenue
|
|
|
1,510,006
|
|
|
|
641,891
|
|
|
|
3,495,326
|
|
|
|
3,459,550
|
|
Total Tool Revenue
|
|
|
2,346,234
|
|
|
|
1,190,929
|
|
|
|
6,283,461
|
|
|
|
6,147,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract Services
|
|
|
1,215,685
|
|
|
|
356,513
|
|
|
|
3,102,219
|
|
|
|
2,782,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$
|
3,561,919
|
|
|
$
|
1,547,442
|
|
|
$
|
9,385,680
|
|
|
$
|
8,929,593
|
|
Contract
Costs
We
do not incur any material costs of obtaining contracts.
Contract
Balances
Under
our sales contracts, we invoice customers after our performance obligations have been satisfied, at which point payment is unconditional.
Accordingly, our contracts do not give rise to contract assets or liabilities under Topic 606.
NOTE
4. INVENTORIES
Inventories
are comprised of the following:
SCHEDULE OF INVENTORIES
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
Raw material
|
|
$
|
568,904
|
|
|
$
|
733,734
|
|
Work in progress
|
|
|
208,369
|
|
|
|
50,631
|
|
Finished goods
|
|
|
290,465
|
|
|
|
235,643
|
|
Inventories,
net
|
|
$
|
1,067,738
|
|
|
$
|
1,020,008
|
|
NOTE
5. PROPERTY, PLANT AND EQUIPMENT
Property,
plant and equipment are comprised of the following:
SCHEDULE OF PROPERTY, PLANT AND EQUIPMENT
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
Land
|
|
$
|
880,416
|
|
|
$
|
880,416
|
|
Buildings
|
|
|
4,764,441
|
|
|
|
4,764,441
|
|
Building improvements
|
|
|
755,039
|
|
|
|
755,039
|
|
Machinery and equipment
|
|
|
11,859,879
|
|
|
|
11,298,642
|
|
Office equipment, fixtures and software
|
|
|
628,358
|
|
|
|
628,358
|
|
Transportation assets
|
|
|
265,760
|
|
|
|
265,760
|
|
Property, plant and equipment,
gross
|
|
|
19,153,893
|
|
|
|
18,592,656
|
|
Accumulated depreciation
|
|
|
(12,190,116
|
)
|
|
|
(11,057,558
|
)
|
Property,
plant and equipment, net
|
|
$
|
6,963,777
|
|
|
$
|
7,535,098
|
|
The
Company sold its airplane for a gain of approximately $142,000 in February 2020 and the Company sold its hangar for a gain of $10,000
in March 2021, both of which were in assets held for sale at the end of 2019. The increase in machinery and equipment was mostly the
result of the Company’s increased rental tool fleet for the Middle East operations.
Depreciation
expense related to property, plant and equipment for the three and nine months ended September 30, 2021 was $363,558 and $1,139,137,
respectively and for the three and nine months ended September 30, 2020 was $401,592 and $1,259,398, respectively.
NOTE
6. INTANGIBLE ASSETS
Intangible
assets are comprised of the following:
SCHEDULE OF INTANGIBLE ASSETS
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
Developed technology
|
|
$
|
7,000,000
|
|
|
$
|
7,000,000
|
|
Customer contracts
|
|
|
6,400,000
|
|
|
|
6,400,000
|
|
Trademarks
|
|
|
1,500,000
|
|
|
|
1,500,000
|
|
Intangible assets, gross
|
|
|
14,900,000
|
|
|
|
14,900,000
|
|
Accumulated amortization
|
|
|
(14,622,222
|
)
|
|
|
(14,080,556
|
)
|
Intangible
assets, net
|
|
$
|
277,778
|
|
|
$
|
819,444
|
|
Amortization
expense related to intangible assets for the three and nine months ended September 30, 2021 was $41,667 and $541,667, respectively, and
for the three and nine months ended September 30, 2020 was $291,667 and $875,000, respectively. Full amortization was realized for the
Company’s patent at the end of April 2021. This decreases the 2021 expense compared to 2020.
NOTE
7. RELATED PARTY NOTE RECEIVABLE
In
January 2014, we entered into a Note Purchase and Sale Agreement under which we agreed to purchase a loan made to Tronco Energy Corporation
(“Tronco”), a party related to us through common control, in order to take over the legal position as Tronco’ s senior
secured lender. Tronco is an entity owned by Troy and Annette Meier. Effective August 2017, the Company fully reserved the related party
note receivable of $6,979,043, which reduced the related party note receivable balance to $0. The Company continues to hold the 8,267,860
shares of the Company’s common stock as collateral. The Company will record a recovery of the loan if and when consideration or
payments of the loan are made in the future. On July 7, 2020, the Company entered into an amended and restated loan agreement and note
with Tronco changing the payment terms on the note. As amended, the interest rate on the note is fixed at 2% per annum. Interest only
is due December 31, 2021, with a balloon payment of all unpaid interest and principal due upon maturity on December 31, 2022.
NOTE
8. LONG-TERM DEBT
Long-term
debt is comprised of the following:
SCHEDULE OF LONG-TERM DEBT INSTRUMENTS
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
Hard Rock Note
|
|
$
|
750,000
|
|
|
$
|
1,500,000
|
|
Credit Agreement
|
|
|
1,390,881
|
|
|
|
825,366
|
|
Machinery loans
|
|
|
386,144
|
|
|
|
466,448
|
|
Transportation loans
|
|
|
37,158
|
|
|
|
56,572
|
|
|
|
|
2,564,183
|
|
|
|
2,848,386
|
|
Less:
|
|
|
|
|
|
|
|
|
Current portion
|
|
|
(1,445,230
|
)
|
|
|
(1,397,337
|
)
|
Long-term debt, net
|
|
$
|
1,118,953
|
|
|
$
|
1,451,049
|
|
Hard
Rock Note
In
2014, the Company purchased all of the interests of Hard Rock Solutions, LLC (“Hard Rock”). Consideration consisted of $12.5
million paid in cash at closing and a $12.5 million seller’s note (the “Hard Rock Note”). The Hard Rock Note and subsequent
amendments are secured by all of the patents, patents pending, other patent rights, and trademarks transferred to Hard Rock.
The
Hard Rock Note has a remaining balance of $750,000 as of September 30, 2021, accrues interest at 8.00% per annum and is due in full by
October 5, 2022. In October 2021, the Company made a payment of $15,123 related to accrued interest. Under the amended terms of the Hard
Rock Note, we are required to make the following additional payments: accrued interest on January 5, April 5, July 5 and October 5 in
2022; with the remaining balance of principal and accrued interest on the Hard Rock Note due on October 5, 2022. For the nine months
ended September 30, 2021, the Company has made a total of $89,754 in interest payments related to the Hard Rock Note.
Credit
Agreement
In
February 2019, the Company entered into a Loan and Security Agreement (the “Credit Agreement”) with Austin Financial Services,
Inc. (“AFS”). The Credit Agreement provides a $4,500,000 credit facility, which includes a $1,000,000 term loan (the “Term
Loan”) and a $3,500,000 revolver (the “Revolving Loan”). As of September 30, 2021, we had $416,662 outstanding on the
Term Loan and $1,000,462 outstanding on the Revolving Loan. Amounts outstanding under the Revolving Loan at any time may not exceed the
sum of: (a) up to 85% of accounts receivable or such lesser percentage as AFS in its sole discretion may deem appropriate if it determines
that there has been a material adverse effect (less a dilution reserve as determined by AFS in its sole good faith discretion), plus
(b) the lesser of (i) up to 50% of inventory or such lesser percentage as AFS in its sole discretion may deem appropriate if it determines
that there has been a material adverse effect, or (ii) the inventory sublimit, minus (c) the borrowing base reserve as may be determined
from time to time by AFS. Amounts outstanding on the Revolving Loan as of September 30, 2021, may not exceed $1,000,000, which is based
on a calculation applying 85% of accounts receivable and 50% of inventory.
The
Credit Agreement contains various restrictive covenants that, among other things, limit or restrict the ability of the Company to incur
additional indebtedness; incur additional liens; make dividends and other restricted payments; make investments; engage in mergers, acquisitions
and dispositions; make optional prepayments of other indebtedness; engage in transactions with affiliates; and enter into restrictive
agreements. The Credit Agreement does not include any financial covenants. If an event of default occurs, the lenders are entitled to
accelerate the advances made thereunder and exercise rights against the collateral. Borrowing under the Revolving Loan is classified
as current debt as a result of the required lockbox arrangement and the subjective acceleration clause. At September 30, 2021, we were
in compliance with the covenants in the Credit Agreement.
The
interest rate for the Term Loan and the Revolving Loan is prime plus 2%. At September 30, 2021, the interest rate for the Term Loan was
8.85%, which includes a 3.6% management fee rate. The effective interest rate for the Revolving Loan for the quarter ending September
30, 2021 was 9.78%. Even if our borrowings are less than $1,000,000, we still pay interest as if we had borrowed $1,000,000. At September
30, 2021, we had approximately $12,000 of accrued interest. The obligations of the Company under the Credit Agreement are secured by
a security interest in substantially all of the tangible and intangible assets of the Company, other than any assets owned by the Company
that constitute real property (and fixtures affixed to such real property), certain excluded equipment, intellectual property, or aircraft.
A collateral management fee is payable monthly on the used portion of the Revolving Loan and Term Loan. The Credit Agreement matures
on February 20, 2023, subject to early termination pursuant to the terms of the agreement or extension as may be agreed by the parties.
NOTE
9. FINANCING OBLIGATION
On
December 7, 2020, the Company entered into a sale agreement (the “Sale Agreement”). Pursuant to the terms of the Sale Agreement,
the Company sold land and property related to the Company’s headquarters and manufacturing facility in Vernal, Utah (the “Property”)
for a purchase price of $4,448,500. Concurrent with the sale of the Property, the Company entered into a fifteen-year lease agreement
(the “Lease Agreement”), whereby the Company will lease back the Property at an annual rate of $311,395 with payments made
monthly, subject to annual rent increases of 1.5%. Under the Lease Agreement, the Company has an option to extend the term of the lease
and to repurchase the Property. Due to the repurchase option, the Company accounted for the transaction as a financing transaction and
not as a sale under ASC Topic 842, Leases.
The
Company received cash of $1,622,106, retired real estate debt of $2,638,773 and recorded a financing obligation liability of $4,260,879
related to the transaction. There was no gain recorded since sale accounting was precluded. The financing obligation has an implied interest
rate of 6.0%. At the conclusion of the fifteen-year lease period, the financing obligation residual will be $2,160,242, which will correspond
to the carrying value of the property. The Company paid $25,950 of principal in 2020 that was prorated for the month of December.
The
financing obligation is summarized below:
SCHEDULE OF FINANCING OBLIGATION
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
Finance obligations for sale-leaseback transactions
|
|
$
|
4,193,363
|
|
|
$
|
4,239,952
|
|
Current principal portion of finance obligation
|
|
|
(63,561
|
)
|
|
|
(61,691
|
)
|
Non-current portion of finance obligation
|
|
$
|
4,129,802
|
|
|
$
|
4,178,261
|
|
NOTE
10. GEOGRAPHICAL OPERATIONS INFORMATION
The
following summarizes revenue by geographic location:
SCHEDULE OF REVENUE AND PROPERTY, PLANT AND EQUIPMENT BY GEOGRAPHIC LOCATION
|
|
Three months ended
September 30,
|
|
|
Nine months ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
3,040,691
|
|
|
$
|
1,118,404
|
|
|
$
|
8,073,945
|
|
|
$
|
7,387,847
|
|
Middle East
|
|
$
|
521,228
|
|
|
$
|
429,038
|
|
|
$
|
1,311,735
|
|
|
$
|
1,541,746
|
|
|
|
$
|
3,561,919
|
|
|
$
|
1,547,442
|
|
|
$
|
9,385,680
|
|
|
$
|
8,929,593
|
|
The
following summarizes net property, plant and equipment by geographic location:
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
Property, plant and equipment, net:
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
5,590,486
|
|
|
$
|
6,008,431
|
|
Middle East
|
|
|
1,373,291
|
|
|
|
1,526,667
|
|
|
|
$
|
6,963,777
|
|
|
$
|
7,535,098
|
|
NOTE
11. COMMITMENTS AND CONTINGENCIES
We
are subject to litigation that arises from time to time in the ordinary course of our business activities. In February 2019, the Company
filed a patent infringement lawsuit in the United States District Court for the Western District of Louisiana Lafayette Division asserting
Stabil Drill Specialties, LLC (“Stabil Drill”) infringed on our patent that covers the Company’s well bore conditioning
tool, the Drill-N-Ream. The lawsuit was subsequently moved from Louisiana to the United States District Court for the Southern District
of Texas, Houston Division. Additionally, on May 20, 2019, Extreme Technologies, LLC sued Short Bit & Tool Co. and Lot William Short,
Jr. (“Defendants”) in the Northern District of Texas-Dallas Division. Extreme sued for patent infringement based on the same
patents discussed in the Stabil Drill litigation. On December 23, 2019, the Court stayed Extreme’s patent infringement claim against
Defendants pending resolution of the Southern District of Texas Stabil Drill case. The court ordered the Company to serve discovery requests
upon Stabil Drill and gave Stabil Drill deadlines to respond and produce documents and permit product inspection. Stabil Drill filed
a motion for summary judgement for non-infringement. On October 1, 2020, Superior Energy Services, Stabil Drill’s parent company,
filed for bankruptcy, which resulted in a brief, automatic stay of the litigation. Superior Energy Services announced on February 2,
2021 that it successfully completed its financial restructuring and emerged from Chapter 11 bankruptcy. On March 9, 2021, the Court lifted
the automatic bankruptcy stay. On May 12, 2021, the Court denied Stabil Drill’s non-infringement summary judgment motion. The parties
are preparing this case for trial and expect a jury trial setting in 2022. We are not currently involved in any other litigation which
management believes could have a material effect on our financial position or results of operations.
NOTE
12. SHAREHOLDERS’ EQUITY
On
August 9, 2021, the Board of Directors granted 434,641 restricted stock units to Troy Meier, Chairman and Chief Executive Officer, granted
333,333 restricted stock units to Annette Meier, President and Chief Operating Officer, granted 156,863 restricted stock units to Chris
Cashion, Chief Financial Officer, and 98,039 restricted stock units to each of the three independent members of the Board of Directors.
Stock price is based on the average price of the common stock on the date of the grant. In addition, the Board of Directors authorized
250,000 restricted stock units and 75,000 stock options to be granted to employees of the Company other than Mr. and Mrs.
Meier and Mr. Cashion. The 250,000 restricted stock units were to be granted to employees subject to a Board approved performance
based bonus plan. The plan was never developed and implemented nor communicated to the employees. These restricted stock units will
vest over three years.
NOTE
13. SUBSEQUENT EVENTS
On
October 19, 2021, the Company completed an equity offering of 1,739,131 shares of our common stock to certain institutional investors,
at a purchase price of $1.15 per share. The Company paid approximately $261,000 in total offering costs. Net proceeds from the equity
offering were approximately $1,700,000.