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

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2014

Commission File No. 000-54417

Integrated Drilling Equipment Holdings Corp.

(formerly Empeiria Acquisition Corp.)

(Exact name of registrant as specified in its charter)


Delaware		27-5079295
(State of incorporation)		(I.R.S. employer identification no.)

25311 I-45 North
Woodpark Business Center, Bldg 6
Spring, Texas 77380
281-465-9393

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

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Title of Class

Common Stock, $0.0001 par value per share
Warrants to purchase shares of Common Stock
Units, each comprised of one share of Common Stock and one Warrant

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No þ

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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.


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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o Noþ

The aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates as of June 30, 2014 was approximately $8.7 million.

The number of shares outstanding of the registrant’s common stock, $0.0001 par value, as of March 27, 2015 was 8,809,917.

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	Page
PART I.
Item 1. Business		3
Item 1A. Risk Factors		15
Item 1B. Unresolved Staff Comments		30
Item 2. Properties		30
Item 3. Legal Proceedings		30
Item 4. Mine Safety Disclosures		31
PART II.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		32
Item 6. Selected Financial Data		35
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations		36
Item 7A. Quantitative and Qualitative Disclosures About Market Risk		44
Item 8. Consolidated Financial Statements and Supplementary Data		45
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures		75
Item 9A. Controls and Procedures		75
Item 9B. Other Information		76
PART III.
Item 10. Directors, Executive Officers, and Corporate Governance		77
Item 11. Executive Compensation		82
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		85
Item 13. Certain Relationships and Related Transactions, and Director Independence		88
Item 14. Principal Accounting Fees and Services		93
PART IV.
Item 15. Exhibits and Financial Statement Schedules		95
EXHIBIT INDEX		96
SIGNATURES		101

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical fact, included or incorporated by reference in this Annual Report on Form 10-K, including, but not limited to, those under “Business” in Item 1, “Risk Factors” in Item 1A, “Legal Proceedings” in Item 3, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7, are forward-looking statements. These forward-looking statements can be identified by the use of forward-looking terminology, including the words “believes,” “estimates,” “anticipates,” “expects,” “intends,” “plans,” “may,” “potential,” “projects,” “could,” “forecast,” “foresee,” “scheduled,” “predicts,” “continue,” or “should,” or, in each case, their negative or other variations or comparable terminology. These statements are based on management’s belief and assumptions using currently available information, and expectations, as of the date hereof, are not guarantees of future performance and involve certain risks and uncertainties (some of which are beyond our control). Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot provide assurance that our expectations will prove to be correct. Therefore, actual outcomes and results could materially differ from what is expressed, implied, or forecasted in these statements. Any differences could be caused by a number of factors, including, but not limited to:

•

Our ability to obtain additional financing and comply with restrictive covenants under our existing and future debt agreements.

•

Our ability to generate consistent cash flows.

•

Trends in the oil and gas industry, including changes in oil and natural gas prices and consolidation in this industry.

•

Our ability to maintain existing customers and timely deliver our backlog.

•

Our ability to manage growth, develop new products and services and integrate future acquisitions and joint ventures.

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Intense competition and availability and cost of materials, equipment and supplies.

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Our ability to retain and compete for the services of management and highly-trained technical or trade personnel.

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Instability in international economic and political conditions and severe weather.

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Complying with U.S. laws and regulations while competing with foreign companies not subject to such laws and regulations.

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Losses on fixed-price contracts or loss of any of our major customers.

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Our ability to service our debt and pay dividends.

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The complexity of percentage-of-completion accounting and the fact that we may be required to recognize a charge against current earnings under these accounting rules.

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Our officers, directors and principal stockholders, who hold a significant percentage of our stock, may have interests that are different or adverse to other stockholders.

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That we may issue additional debt securities or otherwise incur substantial indebtedness.

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Impact of litigation and the availability and cost of insurance.

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Compliance with environmental laws and regulations.

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Increased burdens of being a public company, including complying with the Sarbanes Oxley Act and the Dodd-Frank Act.

•

Lack of an active, liquid market for our common stock, which may impact our stock price.

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Fluctuations in our quarterly operating reports.

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•

Impact of qualifying as a controlled company and smaller reporting company.

•

Effect of anti-takeover provisions in our charter documents and Delaware law.

•

Our warrants may be amended or redeemed at a time that disadvantages warrant holders or our warrants may expire without any value.

•

Dilutive impact of registration rights granted to Empeiria Investors LLC, our sponsor, our officers and directors and other parties.

These risks and others described under “Risk Factors” may not be exhaustive.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and developments in the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this Annual Report on Form 10-K (this “report”). In addition, even if our results of operations, financial condition and liquidity, and developments in the industry in which we operate are consistent with the forward-looking statements contained in this report, those results or developments may not be indicative of future results or developments in subsequent periods.

These forward-looking statements are subject to numerous risks, uncertainties and assumptions. The forward-looking events described in this report speak only as of the date of such statement and might not occur in light of these risks, uncertainties and assumptions. Except as required by applicable law, we undertake no obligation and disclaim any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Unless otherwise provided in this report, references to the “Company,” “we,” “us” and “our” refer to Integrated Drilling Equipment Holdings Corp. (formerly Empeiria Acquisition Corp.) and its subsidiaries.

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PART I.

Item 1. Business

General

Empeiria Acquisition Corp. (“EAC”) was incorporated in Delaware in January 2011, for the purpose of acquiring one or more operating businesses or assets. On June 21, 2011, we completed our initial public offering. On October 19, 2012, we entered into a merger agreement (the “Merger Agreement”) with Integrated Drilling Equipment Company Holdings Inc., a Delaware corporation (“IDE”), and Stephen Cope, in his capacity as representative of IDE’s stockholders (the “Representative”). On December 14, 2012, we consummated the merger with IDE (the “Merger”).

The Merger was accounted for under the purchase method of accounting as a reverse acquisition. Under this method of accounting, for accounting and financial purposes, we were treated as the acquired company, and IDE was treated as the acquiring company. Accordingly, historical information, including historical financial information and the historical description of our business, for periods and dates prior to December 14, 2012, include information for IDE only.

On April 11, 2013, EAC changed its name to Integrated Drilling Equipment Holdings Corp.

We maintain an Internet website at www.ide-rig.com on which we intend to make available, free of charge, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to those reports, as soon as reasonably practicable after these reports are electronically filed with, or furnished to, the Securities Exchange Commission (“SEC”). We also intend to provide access to the reports filed by our directors, executive officers and certain significant stockholders pursuant to Section 16 of the Securities Exchange Act of 1934 on our website. These materials are also available on the SEC’s website at www.sec.gov. Any materials we file with the SEC can be read and copied at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549, on official business days during the hours of 10:00 a.m. to 3:00 p.m. Information on the operation of the Public Reference Room is available by calling the SEC at 1-800-SEC-0330. The information contained on our website does not constitute part of this Annual Report on Form 10-K nor shall it be deemed incorporated by reference into this Annual Report on Form 10-K.

Our executive offices are located at 25311 I-45 North, Woodpark Business Center, Building 6, Spring, Texas 77380 and our telephone number at that location is (281) 465-9393.

The Merger

On October 19, 2012, we entered into the Merger Agreement. Pursuant to the Merger Agreement, on October 19, 2012, we commenced a tender offer to purchase up to 5,520,000 shares of our issued and outstanding common stock for $10.20 per share (the “Offer”). The Offer expired at 5:00 p.m. on December 13, 2012. We purchased 5,448,971 shares of our common stock tendered in the Offer for an aggregate purchase price of $55.6 million.

On December 14, 2012, we completed the transactions contemplated by the Merger Agreement (the “Closing”). At Closing, we issued 4,825,671 shares of common stock and paid $20.0 million in cash to the former IDE stockholders. We are holding 750,000 additional shares on behalf of the former IDE stockholders to satisfy any indemnification claims we may have under the Merger Agreement. Depending on the amount of the indemnification claims we may make, we will distribute the remaining 750,000 additional shares to the former IDE stockholders. The former IDE stockholders may also be entitled to receive an additional 5,250,000 shares of common stock that we hold, distributed ratably if our stock price exceeds $12.00, $13.50, $15.00 and $17.00 respectively before December 14, 2017, or if a change of control transaction occurs following the Merger that values the Company’s common stock at more than the stock price thresholds. For example, if our stock price exceeds $13.50 per share or if a change of control transaction occurs following the Merger that values the shares at more than $13.50 per share, the former IDE stockholders will receive 2,625,000 shares.

For more information regarding the Merger, see “Certain Relationship and Related Transactions — Merger.”

In connection with the Closing, we entered into the following financing transactions:

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•

A new $20.0 million four year secured second-lien term loan facility with Elm Park Credit Opportunities Fund, L.P. and Elm Park Credit Opportunities Fund (Canada), L.P., as lenders, and Elm Park Capital Management, LLC, as administrative agent.

•

A $20.0 million amended and restated revolving credit facility with PNC Bank, National Association (which amended and restated IDE’s prior facility).

•

A stock purchase agreement pursuant to which Empeiria Investors, LLC (our “Sponsor”) purchased an aggregate of $2.5 million of our series A preferred stock (the “Preferred Stock”).

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” for more information regarding our financing transactions.

Business Overview

Based in Houston, Texas, we are an established manufacturer of drilling rigs, rig control systems, rig components and provider of rig refurbishment and reconfiguration services to contract drilling companies worldwide. Substantially all of our operations are conducted through our wholly owned subsidiary, IDE which has been in business since 1981. Our principal service and product offerings consist of:

•

Constructing new land rigs based on our designs or customizing rigs to customers’ specifications. We believe we are one of a small number of vertically-integrated land focused rig manufacturers in the United States.

•

Providing a range of extensive reconfiguration and refurbishment services for land rigs to repair and extend the useful life or to adapt rigs for different drilling environments (e.g., upgrade for horizontal/unconventional drilling, international use, cold weather use, etc.).

•

Providing offshore rig upgrade packages, refurbishment services and related components for existing offshore platforms.

•

Supplying, through our IEC Electrical Products and Services division (“IEC”), automated controls and electrical systems for a wide range of land and offshore drilling rigs.

•

Providing engineered hydraulic rig solutions, including hydraulic power units and related components, for all rig functions.

Our primary manufacturing operations are based at three facilities in Houston, Texas. The first facility is 53,000 square feet and includes a surrounding 30-acre rig yard used to manufacture and assemble new rigs as well as execute reconfiguration and refurbishment services. The second facility is approximately 50,000 square feet and is used by our IEC division to manufacture drilling rig electrical components and rig power systems. Our third facility is 12,000 square feet and is used by our hydraulics group. We also maintain a spare parts warehouse from where we ship parts worldwide, 24 hours a day, seven days a week.

We manufacture the masts and substructures of our rigs to conform to the standards of the American Petroleum Institute (“API”). Additionally, our management systems conform with international API standards as well as the standards of the International Organization for Standardization.

Our products and services are sold and marketed primarily in North America by our own sales teams. We also use independent sales representatives for international sales.

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Products and Services

We are a full service, vertically-integrated provider of services and products covering virtually all aspects of the design, manufacture, refurbishment, reconfiguration, assembly and testing and field servicing of land-based and offshore drilling rigs, rig parts, and rig control systems.

Our range of services includes:

•

Rig refurbishment and reconfiguring

•

Rig assembly and testing

•

Rig field services

•

Full rig electrical control system services

•

Automation

•

Hydraulic systems

Our product suite consists of:

•

Complete drilling rig packages

•

Major rig components

•

Rig subsystems and parts

•

Rig electrical, control systems, instrumentation, communication and automation

•

Rig fabrication

•

Hydraulic systems

•

Walking systems

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Complete Drilling Rig Manufacturing

We manufacture complete land-based drilling rigs on a turnkey basis to meet specific customer specifications. Many of our rigs are custom-made to meet specific customer’s demands and are delivered in a fully-functional condition with all subsystems integrated and tested. We are vertically integrated, giving us the ability to manufacture and assemble the majority of the key components of a land rig. The following diagram illustrates the key components of a land drilling rig.

[GRAPHIC MISSING]

Components manufactured and services provided by us and our IDE and IEC divisions include:


IDE Division (Drilling Products and Services)	IEC Division (Electrical Products and Services)
• Rig Fabrication	• Rig Power Systems	• Hydraulic Power Units
• Rig Construction/Rig Up	• AC and DC Drive Systems and MCC	• Other Rig Related Hydraulic Solutions
• Testing and Commissioning	• Electrical Rig Up	• System Integration
• Complete Mud Systems	• Engine Generators	• Hydraulic System Design
• Field Service	• Automation	• Testing
	• Controls/Sensors	• Rig Up/Support

We have a broad line of land-based drilling rigs as described below:

SPARTA. The fast-moving, self-erecting rig, brand-named “SPARTA,” is our latest rig design targeting drilling in situations in which numerous wells are drilled in fast succession and in geographically remote regions. The SPARTA is a 1,000 to 2,000 HP diesel-electric rig used for intermediate drilling depths at locations with limited or restricted local infrastructure. The SPARTA rig uses our hydraulics system to raise

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and lower the mast and rig floor without having to rely on heavy equipment. This is a self-contained drilling system developed in response to customer demand for rigs that require less support and are move-friendly. These rigs are ideal for conditions common in the rapidly developing North American shale oil and gas basins, where the local drilling support, such as roads, access, and heavy equipment, may be insufficient for operators to move a rig. The SPARTA is designed to be transported in a limited number of highway loads and can be configured as an exploration rig or a development rig. Since its inception and through December 31, 2014, we have manufactured and delivered 17 SPARTA rigs for five customers.

SEDS. Our Standard, Self-Elevating Drilling System (“SEDS”) is a diesel-electric rig designed for conventional drilling sites, where rig moving equipment is readily available. This rig is based on established, proven designs and provides a cost-effective solution to conventional drilling applications due to its simplicity to rig up, disassemble, transport and operate. Our SEDS rigs can be manufactured with a broad range of options, from 1,000 HP to 3,000 HP, and can be designed to target drilling depths of up to 30,000 feet. The modular design can be custom-winterized to work in colder environments, such as the North American Rocky Mountains, or custom-fitted to work in warmer environments, such as the Middle East, Africa and South America. Since its inception and through December 31, 2014, we have manufactured and delivered seven highly customized SEDS rigs for two customers. The SEDS design has also been modified for use as a helicopter rig, custom designed to be moved by helicopter from one remote drilling site to another in locations where access or infrastructure is limited. Target markets for our helicopter rig, which can be manufactured with a broad range of options and powered to target drilling depths from 8,500 feet to 20,000 feet, include the Amazonas region in South America and Papua New Guinea in Asia.

Our rig designs offer customers a wide range of options when acquiring a rig. A complete manufactured rig can range in price from $12 million to over $25 million, depending on the design and the options selected. Most complete rigs currently manufactured by us sell for approximately $15 million.

The following table sets forth the number of refurbished rigs, rig-ups and complete rig packages completed and delivered by us along with variable frequency drive (“VFD”) and silicon-controlled rectifier (“SCR”) control systems built by our IEC division for the past 10 years. Also shown are the annual changes in the average annual global land rig fleet as estimated by Baker Hughes.


Year	Annual Change in Global Rig Fleet		Rigs Put Into Service By IDE⁽¹⁾		VFD and SCR Control Systems Built by IEC Division
2005		396		—		8
2006		102		4		36
2007		72		12		14
2008		-242		4		28
2009		-272		13		5
2010		672		5		7
2011		241		4		14
2012		-249		22		16
2013		88		9		9
2014		92		1		7
Total		900		74		144

Sources: Baker Hughes, Management.

(1)

Includes refurbished rigs, rig-ups and complete rig packages.

Offshore

We are actively pursuing opportunities in delivering complete modular offshore platform and tender assist rig packages, including fabrication, equipment installation, testing and commissioning. We are working on opportunities in Mexico, Russia, Nigeria, Alaska, and the Gulf of Mexico and building relationships with major shipyards to integrate our rig work with their hull work for jack-ups, barges and semisubmersibles.

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Rig Services

We provide a comprehensive range of rig-related services, including rig refurbishment, rig reconfiguration, rig assembly or “rig up” and testing, and rig field service.

Rig Reconfiguration and Refurbishment. A large portion of the existing land rig fleet is over 20 years old. As a result, the existing land rig fleet will need increasing amounts of repair, refurbishment and reconfiguration. We offer a broad range of rig refurbishment services, including:

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Fabrication of new mud tanks and mud systems.

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Replacement and upgrading of the electrical and power systems.

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Refurbishment and modification of the structural components.

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Retrofitting and reconfiguration of existing rigs for harsh environmental conditions, such as for desert or cold climate operation.

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Fabrication of substructure boxes to raise the floor height and the skidding systems to convert conventional land rigs to pad drilling rigs.

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Modification and refurbishment services for offshore drilling rigs related to electrical upgrades and structural modifications.

Rig-Up and Rig Testing. Once we have designed a rig and procured all the necessary components, the components are shipped to our 30-acre rig-up facility in Houston, Texas, where up to 14 rigs can be assembled and tested simultaneously. During this “rig-up” process, all of the components, including the VFD control system and electrical systems, are assembled for the first time. During the testing process, each system of the rig undergoes a series of tests to ensure safe and efficient operation in compliance with the original design. Once the rig-up and testing are complete, the rig is typically disassembled and packed by us and shipped by the customer to the customer’s drilling site.

Field Services. We provide drill site services such as diagnostic support, modification and repair services to rigs manufactured both by us and by others. Our service teams are based in Houston, Texas and Oklahoma City, Oklahoma. Our designs, repairs and retrofits integrate electrical systems and VFD control systems for a wide range of drilling rigs and also provide a comprehensive collection of services in support of our I-Drive VFD control system. For our field service business, we maintain a staff of mobile technicians who provide on-sight repair of rig control systems as well as remote diagnostics. This team is capable of handling a wide range of on-site electronic and power problems and typically can be deployed to any location within 24 hours. The I-Drive certified technicians are deployed worldwide for a variety of field modifications, from the update of an electronic drive system to the preparation of a drive for an alternate utilization.

Equipment Installation. Once a system has been designed and manufactured, we are typically retained by the customer to install all of the electrical equipment in the customer’s rig. Our I-Drive installations include full start-up and testing procedures.

System Start-Up. Our team is also trained and experienced in electrical system rig start-up services, including the inspection of all installed electrical equipment and system start-up, as well as pulling, running and terminating all cables for the entire drilling rig.

Retrofit and Rebuild of Existing Equipment. We retrofit and rebuild existing systems to industry specifications and standards. Our personnel have significant experience in developing retrofit systems that meet the market’s current demands.

IEC — Rig Electrical and Control Systems

Through our IEC division, we are an established manufacturer of integrated electrical control systems for a wide range of drilling rigs. We believe we hold approximately 10% of the market share for integrated electrical systems and control systems land rigs.

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Electrical Systems. Our electrical systems include all the major electrical components that enable a rig to function safely and efficiently, including rig power systems, electrical cabling, lighting systems, closed circuit video systems, gas and fire detection systems and communications systems and fire alarms.

AC/VFD Control Systems. In 2007, we introduced our IEC Centurion Vari-Drive, a variable frequency drive (“VFD”) control system based on the latest digital technology and controls. Today, the IEC Centurion Vari-Drive system represents approximately 75% of control systems that we sell. Our Vari-Drive systems control large horsepower AC motors that are used to power many of the larger drilling machinery components. These AC/VFD systems were introduced to the offshore drilling industry in 1994 and have become more popular on land rigs, initially for controlling top drives, where lower weight and more precise rotational control over direct current systems was desirable, and, more recently, for controlling the drawworks and mud pumps. The key features of the IEC Centurion Vari-Drive are:

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Drives offer front accessible components for ease of maintenance and less downtime.

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Drive horsepower range from 300-2400HP per drive with load share capabilities up to 6000HP.

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Controls offer fully integrated digital controls of all drilling loads and peripherals.

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Open source architecture allows for integration of third party auto-drill algorithms.

We believe that IEC is one of the three major manufacturers of houses and control systems for AC motors.

SCR or “DC” Control Systems. We also produce a control system that controls and directs the electrical power to key rig components that are powered by large horsepower DC electric motors, including mud pumps, drawworks, rotary tables and top drives. We have expertise in designing, manufacturing, installing and integrating customized direct current silicon-controlled rectifier (“DC SCR”) control systems that monitor and control electrical power distribution from DC motors throughout the drilling rig. These control system are typically housed in a portable trailer, also known as the electrical control house, located near the rig’s substructure.

Our flagship control system is the I-Drive DC SCR, which is based on an established design that we believe has a strong reputation for durability, reliability and versatility. The I-Drive is available in five models and offers a broad selection of power options to suit our wide selection of rig designs and configurations. After our design engineers meet with a customer to determine the optimal DC SCR configuration and design for a specific rig, we draft an engineering plan that is developed with the assistance of the customer and the customer approves the plan prior to the start of production. The key features of our I-Drive Control System are:

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The control electronics are housed in a single plug-in module, which reduces troubleshooting time by minimizing replacement time of the control module.

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Testing of all components are based on military specifications.

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The modular design allows removal and replacement in less than 10 minutes.

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State of the art electrical technology and system design features that extend component life significantly.

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All components are readily accessible from the front of the unit.

Sales and Marketing

Our sales and marketing efforts are conducted primarily by in-house personnel and, to a lesser extent, by independent manufacturers’ representatives. Our in-house sales and marketing employees, with the support of our sales engineers and sales estimators, are responsible for implementing marketing plans and sales programs, providing technical advice and customer service, handling customer inquiries, following up on shipments to customers, informing customers of special promotions, coordinating our trade shows and providing other types of customer service. Generally, our in-house sales personnel receive a base salary and manufacturers’ representatives receive a commission on sales.

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We believe that direct senior management involvement is crucial to establishing and maintaining long-term customer relationships. Accordingly, our senior management is actively involved in our marketing activities, particularly with major international drilling contractors. In addition, because a significant portion of products are customized to suit specific customer needs, our team works directly with most of our customers to modify and customize our products to meet their specific requirements.

As of December 31, 2014, we employed 8 individuals in our sales and marketing department, which is based at our corporate headquarters in Houston, Texas. We also retain, on a case-by-case basis, independent sales agents who sell to countries around the world.

Customers

Most exploration and production companies do not own drilling rigs but instead rely on drilling contractors to supply the rigs and crews required to drill oil and gas wells. As a result, the principal customers for our products and services are land and offshore drilling contractors.

We have an active customer base. Over the past three years, we have sold our products to over 150 unique customers. The number of customers has ranged from 75 to 100 individual customers during any year. Despite our range of customers, the majority of our sales are concentrated to five customers. During the year ended December 31, 2014, our five largest customers, Nabors Industries, Ensign Energy Services, Lewis Energy Group, Patterson UTI and Savanna Energy Services, accounted for 73% of our total sales. During the year ended December 31, 2013, our five largest customers, Nabors Industries, Lewis Energy Group, Kenai Drilling Limited, Sidewinder Drilling and Felderhoff Drilling, accounted for 82% of our total sales.

Sales by Region

We sell our products and services throughout the world. We categorize our sales geographically based on the location to which our products are shipped or we have been informed they will be shipped or at which our services are performed. The geographical distribution of our revenue during the periods indicated was as follows:


	For the Year Ended December 31,
	2014			2013
U.S. & Canada		91.4	%		99.5	%
Mexico, Central & South America		3.2	%		0.2	%
Europe, Russia & Asia		0.5	%		0.1	%
Africa & Middle East		4.0	%		0.2	%
Australia		0.9	%		—

Suppliers and Materials

The principal materials required for our operations include steel, electrical wire/cable, rig lighting products, miscellaneous electrical components and other components, such as valves and pipes. We obtain these materials from a variety of suppliers. Despite purchasing some materials from a few sources, we do not believe we are overly dependent on any of our suppliers. We believe that purchasing larger volumes from a single source can provide pricing advantages. We typically purchase our materials as needed and generally have been able to obtain adequate supplies of raw materials for our operations. We typically provide our customers with a quote after obtaining an estimate of the cost of the materials from our suppliers. To mitigate any risk of a material price increase, we purchase all of the inventory needed to fulfill the order at or around the time the customer contract is signed.

Intellectual Property

In connection with the Merger, we acquired intellectual property from International Drilling Equipment Company, LLC (“International”). The intellectual property we received included four patents covering the design and assembly of drilling rigs and all other related intellectual property and know-how International possessed. We are required to pay International royalties of $12,500 for each mast and $12,500 for each substructure that we manufacture or cause to be manufactured using the engineering and designs provided by International. While our Vice Chairman of the Board of Directors (and former Chief Executive Officer) owns

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50% of International, as part of the merger agreement, he agreed to waive his right to receive any royalty payments from us. Any royalty payments will be distributed to the other shareholder of International.

While we own certain trademarks and logos, we primarily rely upon trade secrets, know-how and other unpatented proprietary information. Management believes patent and trademark protection are not material to our business.

We require all key employees to enter into confidentiality and non-competition agreements to protect our proprietary information. Certain of our key employees are also party to employment agreements that provide for the assignment of rights to innovations developed by them while employed by us. However, there is no assurance that those agreements will be enforceable if they are breached or, if enforceable, that they will adequately protect us.

We also have a research and development program related to instrument and measurement control systems. We spent approximately $0.2 million and $0.1 million on this program in fiscal 2014 and 2013 respectively.

Competition

The largest manufacturer in the drilling rig and drilling rig component industry is National Oilwell Varco, Inc. (“NOV”). Based in Houston, Texas, NOV generated approximately $13.0 billion in revenues in 2014 from designing, manufacturing, selling and servicing oil and gas drilling rigs, which amount accounted for approximately 61% of its total revenue. The majority of NOV’s revenue is from offshore rig packages. Because of the wide acceptance of NOV’s products by drilling contractors around the globe, we believe that NOV is able to price its products at a premium.

Other leading rig manufacturers include Aker Solutions ASA, a Norwegian provider of engineering and construction services and technology products, and Abbot Group/Bentec, a German manufacturer of mechanical and electrical components for land-based and offshore drilling rigs. Other key players in the global market include Baoji Oilfield Machinery Company Ltd. (“BOMCO”) and Honghua Group Ltd., which together dominate the land-rig manufacturing market in China. Due to cheaper labor and raw material costs, we believe both BOMCO and Honghua are able to price their products at a 30 to 40% discount to NOV’s prices. A number of smaller U.S.-based rig manufacturers compete across different rig types and regions. A few offer complete rig packages, such as Applied Machinery Corporation and TNT Crane & Rigging, Inc., but the majority of the larger service companies only offer specialized rig components. The major rig component manufacturers are Cameron International Corporation, Forum Energy Technologies, Inc., Oil States International Inc., and GE Oil & Gas. The global land rig manufacturing industry is comprised of hundreds of relatively small regional players, including some that we view as potential acquisition candidates.

In addition to the manufacturing-focused companies mentioned above, a number of land drillers manufacture complete rigs or rig components in-house, including Nabors Industries, Ltd., Patterson-UTI Energy, Inc. and Helmerich & Payne, Inc. These companies do not rely entirely on third-party service providers to fabricate and construct new-build rigs, although they frequently buy certain components from third-party suppliers or contract out some portion of the new-build process. For example, a company may manufacture top drives, floor wrenches, catwalks and rig control systems, but not manufacture or fabricate all the components necessary for a complete rig package. This provides us with an opportunity to manufacture and market additional components that are not within the drilling contractors’ manufacturing capabilities. These land drillers also typically do not manufacture or fabricate rigs for third-party customers or compete directly with our complete rig business.

We believe that competition in the drilling rig industry is based on performance, price, delivery times, reputation, quality and customer service. As noted above, Chinese companies tend to compete mainly on price while NOV has a strong brand recognition and reputation for quality. We believe we are well positioned to compete in this industry because we believe we have the advantages of speed, quality service, proven designs and quality components as a vertically integrated rig manufacturer and established provider of refurbishment and reconfiguration services. However, some of our competitors may possess greater financial and other resources than us. We also differentiate ourselves by delivering both standardized and customized products and services to our global customers on an expedited basis. Our client service teams offer a comprehensive range

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of services on par with those provided by the industry leader, NOV, and our repair teams can be deployed worldwide generally within 24 hours. Our major rig models are based on established designs, we also offer a range of innovative rigs to meet changing client needs, and we have longstanding relationships with established third-party providers of high-quality rig components.

Industry Background

Drilling rig manufacturing companies manufacture drilling rigs and other components that are used by oilfield services companies to drill wells for exploration and production companies, or E&P companies, in connection with the exploration for and the development and production of hydrocarbons. Demand for onshore drilling rigs 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 rig manufacturers. Likewise, significant decreases in the prices of those commodities such as the recent trends, typically lead E&P companies to reduce their capital expenditures, which decreases the demand for drilling rigs.

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. Since 2011 and through November 2014, oil has generally fluctuated in a range from $85 per barrel to $105 per barrel. In December 2014, oil prices have rapidly plummeted and as of March 30, 2015 are just under $50 per barrel. Gas prices trended upwards in the latter half of 2013 and continued to rise in early 2014. In the summer of 2014, due to excess US production of natural gas, prices started falling from approximately $4.00 per mmbtu to $3.50 per mmbtu by the end of 2014. Consistent with the drop in oil prices, gas prices have continued their downward trend in early 2015 and as of March 31, 2015 are at $2.64 per mmbtu.

In response to the current commodity environment of low oil and gas prices, a number of E&P companies have announced that they are reducing their capital spending.

Drilling Industry Dynamics

Drilling is part of the oilfield services group within the energy industry. Drilling contractors provide the rig and the operating crews to E&P companies on a dayrate 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 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. The dramatic growth in the development of unconventional shale and tight sand formations, primarily in North America, is placing increased demands on service equipment. In the U.S., 75% of the active land rigs, as of March 6, 2015, were drilling horizontal wells, the well path best suited to developing shale and tight sands, compared to 50% of the active land rigs five years ago, according to data from Baker Hughes. Horizontal wells are typically used in conjunction with hydraulic fracturing, which is used even more frequently as the number of fracturing stages increases.

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 that have been designed and engineered with these new challenges in mind.

Most oil and gas operators do not own their own rigs and instead rely on specialized land rig contractors to provide the rig and the crew. The industry is highly fragmented and highly dependent on the level of drilling activity. Globally, Nabors Industries, Ltd., Patterson-UTI Energy, Inc. and Helmerich & Payne, Inc.

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are the three largest land drilling contractors by revenues, with reported 2014 revenues of $6.8 billion, $3.2 billion and $3.9 billion, respectively. Despite the fact that there are between 200 and 300 land drilling contractors in North America, the top six contractors account for 49% of the well starts according to RigData website’s annual data through March 1, 2015. 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.

The requirements of the various regional rig markets tend to be driven by well types (gas vs. oil), well depth and environment. For example, remote international or frontier locations may require special equipment or features, such as crew quarters, water desalinization equipment, enclosed and heated drilling floors or even helicopter transportable rigs, which are required for extreme remote areas of exploration. Likewise, deep gas wells in the U.S. require powerful rigs while less powerful rigs may be suitable for shallow oil and gas wells.

Operators require newer technology to meet increasingly challenging drilling conditions, with a focus on mobility, drilling efficiency, power and safety. The emergence of more complex horizontal oil wells has sparked a need for higher specification, more capable land rig technology, and thus, a need for newbuilds. E&P operators are demanding rigs that can efficiently drill longer, lateral horizontal wells. Due to these trends, the drilling market has moved away from conventional mechanical rigs and direct current powered rigs with an industry movement towards alternating current powered rigs. We believe that this is a long-term trend. The following table sets forth a short description of the main types of land drilling rigs.

Land Drilling Rig Types


Mechanical	SCR/DC Electric	AC Electric
• The components of a mechanical rig are powered directly by its diesel engines	• Diesel engines generate DC power that is used to power the rig’s components	• The newest generation of land rigs are driven by AC power
• Still used to drill conventional wells, but demand is falling	• Up to six engines may be required to operate the rig	• AC power allows variable frequency drive (VFD)
• The majority of mechanical rigs cannot drill unconventional wells economically	• SCR rigs are a modernized subset of DC rigs that provide operators with more precise control over the DC power flow to the rig’s components	• The ability to digitally adjust the frequency of the power to the motor has led to increases in control, fewer downhole failures and cost savings to the operator
• Earlier generation rigs are now being scrutinized for retirement	• SCR-DC systems can accomplish stepless speeds when operating the drawworks, rotary table and mud pumps	• Hoisting speeds, rotary speeds and pump strokes can be adjusted

Direct current powered rigs that have silicon controlled rectifier drive and alternating current powered rigs have been used more than conventional mechanical rigs because of higher activity in unconventional resource plays. This has resulted in greater investments in new equipment to address the unique demands of these resource plays, which drives not only the demand for new drilling rigs, but also the demand for maintenance and refurbishment activity.

Land Rig Equipment Market

The demand for drilling rigs, rig parts and related services is dependent on specific drivers in the oil and gas industry, including the level of capital expenditures by E&P companies, the overall level of service intensity required to drill and complete wells, and the capabilities of the existing fleet to meet the drilling requirements of operators.

Decreased capital spending by E&P companies. Based on a recent survey of 186 companies, U.S. exploration and drilling spending in 2015 is expected to decline 22% from 2014 levels according to Oil and Gas Journal, dated March 8, 2015. This decreased level of spending is driven by the lower expected prices for oil as well as the perceived volatility of those current and expected prices.

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Growing service intensity associated with unconventional resources. 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, principally in North America, is placing increasing demands on drilling rigs. Greater demand and wear on drilling equipment resulting from increased horizontal and hydraulic fracturing activity requires investment in new equipment to address these unique demands and results in shorter replacement cycles for capital equipment, driving maintenance and refurbishment activity.

Recovery in global drilling activity and new rig replacement cycle. 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. In addition to these increased requirements for drilling rigs, a large portion of the existing land rig fleet is over 20 years old, making these rigs candidates for replacement or refurbishment in the near future.

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 prices below $60/bbl 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 1A. Risk Factors.

Environmental Matters

We are subject to environmental laws and regulations concerning emissions to the air, discharges to waterways, and generation, handling, storage, transportation, treatment and disposal of waste materials. We are subject to other federal and state laws and regulations regarding health and safety matters. While we believe we are currently in compliance with applicable environmental and health and safety laws and regulations, these laws and regulations are constantly evolving, generally becoming more stringent and costing more to comply with, and it is impossible to predict whether compliance with these laws and regulations may have a material adverse effect on our business in the future.

Employees

As of December 31, 2014, we had approximately 270 permanent, full-time employees, located primarily in Houston, Texas. This includes (a) approximately 181 individuals employed in our IEC division, with 164 in Texas and 17 at a service location in Oklahoma, (b) approximately 81 employees employed by our Rig Up Services in Houston, Texas and (c) 8 employees in corporate offices and sales in Houston, Texas. Approximately 73 additional contract workers are employed for various roles primarily in Houston, Texas. We are not subject to any collective bargaining agreements. We believe we have good relations with our employees.

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Item 1A. RISK FACTORS

The nature of our business activities subjects us to certain hazards and risks. The following is a summary of some of the material risks relating to our business activities. These risks are not the only risks we face. Our business could also be affected by additional risks and uncertainties not currently known to us or that we currently deem to be immaterial. The occurrence of one or more of these events could significantly and adversely affect our business, prospects, financial condition, results of operations, cash flows and impair the Company’s ability to implement business plans or complete development activities as scheduled. In that case, the market price of the Company’s common stock could decline.

Our failure to comply with restrictive covenants under our credit facilities or the ability to amend these facilities could trigger prepayment obligations.

We have experienced difficulty complying with the restrictive covenants in our credit facilities. As of February 28, 2013, we were not in compliance with certain covenants of our existing credit facilities. On April 9, 2013, we amended both of our existing credit agreements and as of that date, we were in compliance with our credit facilities. As of June 30, 2013, we were not in compliance with certain covenants of our existing credit facilities. On October 17, 2013, we amended both of our existing credit agreements and as of that date, we are in compliance with our credit facilities. On March 31, 2014 and again on December 31, 2014, we amended both of our existing credit agreements principally to extend the maturity dates on the respective debt instruments but also to modify the financial covenants and reporting requirements. In the future, we may seek to amend existing or enter into new credit facilities. Our failure to comply with the restrictive covenants under our existing or future credit facilities could result in an event of default under such facilities, which, if not cured or waived, would give the lender the right to declare the debt immediately due and payable. In the event of an acceleration of amounts due under our debt facilities as a result of an event of default, we may not have sufficient funds or may be unable to arrange for additional financing to repay our indebtedness or to make any accelerated payments, and the lenders could seek to enforce their security interests in the collateral securing such indebtedness, which would have a material adverse effect on our business, prospects and financial condition.

Our ability to finance our business activities will require us to generate substantial cash flow.

Our business activities require substantial capital. We intend to finance our operations and growth in the future through cash flows from operations (including customer deposits), available cash, proceeds from warrant exercises, the incurrence of additional indebtedness and/or the issuance of additional equity securities. We cannot be sure that our business will continue to generate cash flow at or above current levels.

If we are unable to generate sufficient cash to fund our business and service our debt, we may have to obtain additional financing through the issuance of additional debt and/or equity securities. We cannot be sure that any additional financing will be available to us on acceptable terms, or at all. Issuing equity securities to satisfy our financing requirements could cause substantial dilution to our stockholders.

If our revenues were to decrease due to lower demand for our products and services as a result of lower oil and nature gas prices or for other reasons, and if we could not obtain capital through our revolving credit facility or otherwise, our ability to operate and grow our business could be materially adversely affected.

Demand for our products and services depends on oil and natural gas industry activity and expenditure levels that are directly affected by trends in oil and natural gas prices.

Demand for our products and services is particularly sensitive to the level of exploration, development and production activity of, and the corresponding capital spending by, oil and natural gas companies, including national oil companies. 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 U.S. The price of oil and gas may continue to fluctuate in the near- and long-term. Any prolonged

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reduction in oil and natural gas prices may depress the immediate levels of exploration, development and production activity. Perceptions of longer-term lower oil and natural gas prices by oil and gas companies may result in the reduction or deferral of major expenditures given the long-term nature of many large-scale development projects. Lower levels of activity may result in a corresponding decline in the demand for our products and services that could have a material adverse effect on our revenue and profitability. Many factors affect the supply and demand for oil and natural gas and therefore influence the demand for our products and services, including:

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The level of production.

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The levels of oil and natural gas inventories.

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Domestic and worldwide demand for oil and natural gas.

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The expected cost of developing new reserves.

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The actual cost of finding and producing oil and natural gas.

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The availability of attractive oil and gas field prospects, which may be affected by governmental actions and regulations or environmental activists.

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The availability of transportation infrastructure and refining capacity.

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The level of drilling activity.

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Global weather conditions and natural disasters.

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Worldwide political, military and economic conditions and economic activity, including growth in underdeveloped countries.

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National government political objectives, including the ability of the Organization of Petroleum Exporting Countries to set and maintain production levels and prices for oil.

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The cost and timing of the development of alternate energy sources.

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Tax policies.

If demand for drilling services or drilling rig utilization rates decreases significantly, demand for our products and services may decrease, which could affect our result of operations.

Our international business operations expose us to potentially rapid changes in economic and political conditions and other risks inherent in operating internationally, which could result in a material adverse effect on our operations or financial condition.

Approximately 1% and 9% of our revenues classified as outside the United States in 2013 and 2014, respectively, based on the location to which our products are shipped or we have been informed will be shipped or at which our services are performed. We market our products and services in all of the significant oil and gas producing areas in the world. As a result, we are subject to the risks customarily related to international operations and investments in foreign countries. Risks associated with our international operations include:

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Volatility in general economic, social and political conditions.

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Renegotiation or nullification of existing contracts.

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Foreign taxation, including changes in law or interpretation of existing law.

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Attacks on property or personnel.

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Restrictive action by local governments.

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Foreign monetary policies.

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Limitations on repatriation of earnings.

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Travel limitations or operational problems caused by public health threats.

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Extended payment terms and their related financing.

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Terrorist acts, war and civil disturbances.

We do business in countries with regulatory and compliance regimes that differ from those in the United States. Our business may suffer because our efforts to comply with United States laws and regulations could restrict our ability to effectively compete with companies that are not subject to United States laws and regulations.

Our international business includes projects in countries where governmental corruption has been known to exist and where our competitors who are not subject to United States laws and regulations, such as the U.S. Foreign Corrupt Practices Act, may have competitive advantages by securing business awards, licenses or other preferential treatment in those jurisdictions using methods that U.S. law prohibits us from using. For example, our non-U.S. competitors may not be subject to the anti-bribery restrictions of the U.S. Foreign Corrupt Practices Act, which make it illegal to give anything of value to foreign officials or employees or agents of nationally owned oil companies in order to obtain or retain any business or other advantage. We may be subject to competitive disadvantages to the extent that our competitors are able to secure business, licenses or other preferential treatment by making payments to government officials and others in positions of influence.

While we are committed to conducting business in a legal and ethical manner, there is a risk of violating the U.S. Foreign Corrupt Practices Act or other applicable anti-corruption regulations that generally prohibit the making of improper payments to foreign officials for the purpose of obtaining or retaining business. Violations of these laws could result in monetary penalties against us and could damage our reputation and, therefore, our ability to do business.

Additionally, to the extent we export products and services outside of the United States, we are subject to U.S. and international laws and regulations governing international trade and exports, including the Export Administration Regulations and trade sanctions against embargoed countries, which are administered by the Office of Foreign Assets Control with the Department of Treasury. These violations may include, for example, transfers without required governmental authorization. A failure to comply with these laws and regulations could result in civil or criminal sanctions, including the imposition of fines and the denial of export privileges.

The Company has received notices from PEMEX terminating its four purchase agreements for modular drilling units and may be liable for liquidated damages.

On August 9, 2013, we received notices from PEMEX Procurement International, Inc. (“PII”) (formerly Integrated Trade Systems, Inc.), an agent for PEMEX-Exploración y Producción (“PEMEX”) terminating its four purchase agreements for modular drilling units. The collective value of the four agreements was approximately $354.0 million. As a result of their decision to exercise their right to terminate the purchase agreements, under the terms of the agreements, PEMEX may seek liquidated damages from us in the amount of 12% of the purchase price of each of the modular drilling units. As of March 31, 2015, no provision has been made for any potential liability that could arise should PEMEX seek liquidating damages as a result of the terminated purchase agreements.

Our inability to deliver our products to customers on time could affect our future sales and profitability and our relationships with our customers.

The ability to meet customer delivery schedules for our products is dependent on a number of factors, including:

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Access to the raw materials required for production.

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An adequately trained and capable workforce.

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Project engineering expertise for certain large projects.

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Sufficient manufacturing plant capacity.

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Appropriate planning and scheduling of manufacturing and personnel resources.

Our failure to deliver in accordance with customer expectations may harm our existing customer relationships and result in the loss of future business. Failure to deliver any backlog in accordance with

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expectations could also negatively impact our financial performance. In addition, the cancellation by our customers of existing backlog orders, as a result of an economic downturn or otherwise, could adversely affect our business.

If we are unable to successfully manage our anticipated future growth, we may not be able to maintain or increase our revenues and profitability and our business reputation could be harmed.

Past and future growth will continue to place significant demands on our management, financial and accounting systems, information technology systems, real estate and other components of our infrastructure. To meet our growth and related demands, we continue to invest in enhanced or new systems, including our accounting, billing and information technology systems. We may acquire or lease additional real estate to increase the number of rig pads we have available. In addition, we may need to hire additional personnel, particularly in our sales, marketing, professional services, finance, administrative and information technology groups. Our success will depend in part upon the activities of our current management team to effectively manage this growth and transition to being a public company. Our management will be required to devote considerable time to this process, which will reduce the time our management will have to implement our business and expansion plans.

If we do not correctly anticipate our needs as we grow, if we fail to successfully implement our enhanced or new systems and other infrastructure improvements effectively and timely or if we encounter delays or unexpected costs in hiring, integrating, training and guiding our new employees, we may be unable to maintain or increase our revenues and profitability and our business reputation could be materially adversely affected. Furthermore, if we are unable to effectively manage our growth, our expenses may increase more than expected, our revenues could decline or grow more slowly than expected and we may be unable to implement our business strategy.

If we do not develop and commercialize new products or expand our service offerings, our revenues may decline.

To remain competitive in the market for oil field products and services, we must continue to develop new products and expand our service offerings. If we are not able to develop commercially competitive products in a timely manner or expand our service offerings in response to industry demands, our business and revenues will be adversely affected. Our ability to develop new products and expand services depends on, among other things, our ability to:

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Design and commercially produce products that meet the needs of our customers.

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Incorporate and implement services that meet the needs of our customers.

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Expand into new facilities and expand existing infrastructure.

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Successfully market new products and services.

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Protect our proprietary designs.

We may encounter resource constraints or technical or other difficulties that could delay the introduction of new products and services. Our competitors may introduce new products and services before we do and achieve a competitive advantage. Additionally, the time and expense invested in product development may not result in commercial products or provide revenues. Moreover, we may experience operating losses after new products are introduced and commercialized because of high start-up costs, unexpected manufacturing costs or problems, lack of demand, or increased costs, including materials, labor and overhead.

We plan to pursue acquisitions and joint ventures that by their nature present risks and that may not be successful.

Acquisition Strategy. Our growth strategy includes the acquisition of, and formation of joint ventures with, additional manufacturers of drilling rigs, oilfield products and providers of services to the oil and gas industry, both domestically and internationally. Our ability to accomplish our acquisition strategy will depend upon a number of factors, including our ability to:

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Identify acceptable acquisition and joint venture candidates.

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Obtain adequate financing.

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Complete the acquisition of or joint venture with such businesses on terms that we find acceptable.

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Retain, hire and train professional management and sales personnel at each such business.

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Promptly and profitably integrate the acquired business operations into our then-existing business.

We cannot assure you that our acquisition strategy will be successful or that any acquired operations will be profitable or be successfully integrated into our then-existing business without substantial costs, delays or other problems. In addition, to the extent that consolidation becomes more prevalent in the oilfield products and services industry, the prices for attractive acquisition candidates may increase. In any event, there can be no assurance that businesses acquired in the future will achieve sales and profitability levels that justify the investments we make. Acquisitions also could result in the accumulation of substantial goodwill and intangible assets, which may result in substantial impairment charges that could reduce our reported earnings.

Capital Requirements of Acquisitions. Acquiring additional businesses in the oil and gas products and services industries will require additional capital and may have a significant impact on our financial position. We may finance future acquisitions by using our common stock for all or a portion of the consideration to be paid. In the event our common stock does not maintain sufficient value, or potential acquisition candidates are unwilling to accept our common stock as consideration for the sale of their businesses, we may be required to utilize more of our cash resources, if available, in order to continue our acquisition program. If we do not have sufficient cash resources, our growth could be limited unless we are able to obtain capital through the issuance of additional debt or the issuance of one or more series or classes of our equity securities, which could have a dilutive effect on our then-outstanding capital stock. There can be no assurance that we will be able to obtain such an arrangement on terms we find acceptable or sufficient for our needs, if at all, should we determine to do so. We may also seek debt, equity or seller financing in order to pursue other strategic transactions under consideration.

Environmental Risks Associated with Acquisitions. Although we intend to perform an investigation of each business that we acquire, there may nevertheless be liabilities that we fail or are unable to discover, including liabilities arising from non-compliance with environmental laws by prior owners, and for which we, as a successor owner, may be responsible. We will seek to minimize the impact of these liabilities by obtaining indemnities and warranties from the seller that may be supported by deferring payment of a portion of the purchase price. However, these indemnities and warranties, if obtained, may not fully cover the liabilities due to their limited scope, amount or duration, the financial limitations of the indemnitor or warrantor, or other reasons.

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 derive a significant portion of our revenues from a small number of customers. We may be unable to maintain and expand our current customer relationships. During 2014, our five largest customers by revenue represented approximately 73% of our total revenues. Our largest customer represented approximately 34% of our total revenues. While we expect to expand our client base in the future, in the near term we expect we will continue to depend on a relatively small number of customers for a significant portion of our sales volume and revenues. If we lose any of our major customers for any reason, including, for example, if our reputation declines, a customer materially reduces its orders from us, our relationship with one or more of our major customers deteriorates, or a major customer becomes insolvent or otherwise unable to pay for our products, our business and results of operations may be materially adversely affected.

We may lose money on fixed-price contracts.

A significant portion of our business consists of designing, manufacturing, selling and installing equipment for major projects on a fixed-price basis. Under these contracts, we are typically responsible for all cost overruns, other than the amount of any cost overruns resulting from requested customer revisions in order specifications. Our actual costs and any gross profit on these fixed-price contracts will often vary from the estimated amounts on which these contracts were originally based. This may occur for various reasons, including:

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Errors in estimates or bidding.

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Design changes that are not reimbursable by the customer.

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Changes in availability and cost of labor and materials.

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Variations in productivity from our original estimates.

These variations and the related risks inherent in our projects may result in reduced profitability or losses on projects. Depending on the size of a project, variations from estimated contract performance could have a material adverse impact on our operating results.

We may experience fluctuations in our quarterly operating results.

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

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The timing of our announcements for the distribution of new products and any such announcements by our competitors.

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The acceptance of the products we manufacture and sell in the oil and gas equipment and services marketplace.

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General economic conditions.

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. Operating expenses are based on management’s expectations of future revenues and are relatively fixed in the short term.

If our revenues do not increase our business could be seriously harmed 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 required to recognize a charge against current earnings because of percentage-of-completion accounting.

Revenues and profits on long-term project contracts are recognized on a percentage-of-completion method based on the ratio of costs incurred to the total estimated costs. Accordingly, purchase order price and cost estimates are reviewed periodically as the work progresses, and adjustments proportionate to the percentage completed are reflected in the period when those estimates are revised. To the extent that these adjustments result in a reduction or elimination of previously reported profits, we would have to recognize a charge against current earnings, which could be significant depending on the size of the project or the adjustment.

Our businesses and our customers’ businesses are subject to environmental laws and regulations that may increase our costs, limit the demand for our products and services or restrict our operations.

Our operations and the operations of our customers are subject to federal, state and local and foreign laws and regulations relating to the protection of the environment. These environmental laws and regulations affect the products and services we design, market and sell, as well as the facilities where we manufacture our products. In addition, environmental laws and regulations could limit our customers’ exploration and production activities. We are required to invest financial and managerial resources to comply with environmental laws and regulations and anticipate that we will continue to be required to do so in the future. These laws and regulations change frequently, which makes it impossible for us to predict the cost or impact on our future operations. The modification of existing laws or regulations or the adoption of new laws or regulations imposing more stringent environmental restrictions could adversely affect our operations.

These laws may provide for “strict liability” for damages to natural resources or threats to public health and safety, rendering a party liable for environmental damage without regard to negligence or fault on the part of such party. Sanctions for noncompliance may include revocation of permits, corrective action orders,

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administrative or civil penalties, and criminal prosecution. Some environmental laws and regulations provide for joint and several strict liability for remediation of spills and releases of hazardous substances. In addition, we may be subject to claims alleging personal injury or property damage as a result of alleged exposure to hazardous substances as well as damage to natural resources. These laws and regulations also may expose us to liability for the conduct of or conditions caused by others or for our acts that were in compliance with all applicable laws and regulations at the time such acts were performed. Any of these laws and regulations could result in claims, fines or expenditures that could be material to our earnings, financial condition or cash flow.

Hydraulic fracturing has been regulated at the state level through permitting and compliance requirements. State level initiatives have been or may be proposed or implemented to further regulate hydraulic fracturing practices, limit water withdrawals and water use, require disclosure of fracturing fluid constituents, restrict which additives may be used, or implement temporary or permanent bans on hydraulic fracturing. In addition, the U.S. Congress has considered, but not enacted, legislation that would require regulation affecting the hydraulic fracturing process. In 2010, the EPA announced its intention to conduct a comprehensive research study on the potential effects that hydraulic fracturing may have on water quality and public health. The EPA issued a progress report in December 2012 and expects to issue a final report in 2015.

Increased regulation and attention given to hydraulic fracturing could lead to greater opposition to oil and gas production activities using these techniques, which may increase the costs associated with or otherwise cause our customers to reduce the use of hydraulic fracturing. Additional legislation or regulation could also lead to operational delays or increased operating costs in the production of oil and natural gas from the developing shale plays or could make it more difficult to perform hydraulic fracturing. The adoption of any federal or state laws or the implementation of regulations regarding hydraulic fracturing could reduce its use and lead to a decline in demand for our drilling rigs used for hydraulic fracturing, which could have a material adverse effect on our business and results of operations.

The adoption of climate change legislation or regulations restricting emissions of greenhouse gases could increase our operating costs or reduce demand for our products.

Concern over climate change has led to legislative and regulatory initiatives aimed at limiting carbon dioxide and other greenhouse gas emissions. The adoption of laws and regulations to implement controls on greenhouse gases, including the imposition of fees or taxes, could adversely impact our operations and financial condition. Additionally, changes in the legal and regulatory environment could reduce oil and natural gas drilling activity and result in a corresponding decline in the demand for our products and services, which could have a material adverse effect on our business and results of operations.

Uninsured or underinsured claims or litigation or an increase in our insurance premiums could adversely impact our results.

We maintain insurance to cover potential claims and losses, including claims for personal injury or death resulting from the use of our products. We carry comprehensive insurance, including business interruption insurance, subject to deductibles, at levels we believe are sufficient to cover existing and future claims. It is possible 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. Significant increases in the cost of insurance and more restrictive coverage may have an adverse impact on our results of operations. In addition, we may not be able to maintain adequate insurance coverage at rates we believe are reasonable.

We could be subject to substantial liability claims that could harm our financial condition.

Our operations involve hazardous activities that involve an extraordinarily high degree of risk. Hazardous operations are subject to accidents resulting in personal injury and the loss of life or property, environmental mishaps and mechanical failures. Litigation arising from these or similar events may result in us being named a defendant in lawsuits asserting large claims. We may be held liable in certain circumstances, including if we fail to exercise reasonable care in connection with our activities, and we may also be liable for injuries to agents, employees and contractors who are acting within the course and scope of their duties. We currently maintain liability insurance coverage with aggregate policy limits that we believe are adequate for our operations. However:

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We may not be able to continue to obtain insurance on commercially reasonable terms.

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We may be faced with types of liabilities that will not be covered by our insurance, such as damages from environmental contamination.

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The dollar amount of any liabilities may exceed our policy limits.

A loss for which we are not fully insured could have a material adverse effect on us. No assurance can be given that we will not be subject to future claims in excess of the amount of insurance coverage that we deem appropriate to maintain.

We may be faced with product liability claims.

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 generally attempt to contractually disclaim responsibility for consequential damages, but our disclaimers may not be effective. We carry commercial general liability insurance coverage which includes products liability coverage. The limits under our general liability insurance are $1 million per occurrence and $2 million in the aggregate. We also have an umbrella policy for $20 million over our general liability policy. This umbrella policy also covers product liability coverage. Our insurance may not adequately cover our costs arising from defects in our products or otherwise.

The loss of the services of one or more of our executive officers or key employees could harm our business. We are a small company that relies upon a few key employees to ensure our business operates efficiently.

Our success is dependent to a significant degree upon the business expertise and continued contributions of our senior management team. Because we are a small 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 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. The loss of the services of any of our senior officers, or an inability to attract and retain other qualified personnel, may adversely affect our business and prospects.

In addition, our senior management team may not be able to successfully manage our business as it grows larger. If they are unable to handle these increased responsibilities and we are unable to identify, hire and integrate new personnel, our business, results of operations and financial condition could suffer. Even if we are able to identify new personnel, the integration of new personnel into our business will inevitably occur over an extended period of time. During that time, the lack of sufficient senior management personnel could cause our results of operations to suffer as well as impact our growth and other operational initiatives.

Being a public company could place a strain on our management.

The requirements of being a public company could place a strain on our senior management team. We may hire additional persons to assist with investor relations or outsource this function, either of which will increase our costs. Further, management’s attention may be diverted from other business concerns, which could adversely affect our business. We have made changes and may need to make additional changes to our corporate governance, disclosure controls and financial reporting and accounting systems to meet our reporting obligations. However, the measures we take may not be sufficient to satisfy our obligations as a public company. 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, which could cause our stock price to suffer.

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

The oil and gas industry is rapidly consolidating. As a result, some of our largest customers have consolidated and are using their size and purchasing power to seek economies of scale and pricing concessions. This consolidation may result in reduced capital spending by some of our customers or the

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acquisition of one or more of our primary customers, which may lead to decreased demand for our products and services. Additionally, our 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 cannot assure you that we will be able to maintain our current level of sales to a customer that has consolidated or replace that revenue with increased business activity with other customers. As a result, the acquisition of one or more of our primary customers or competitors may have a significant negative impact on our results of operations or our financial condition. We are unable to predict what effect consolidation in the industry may have on price, capital spending by our customers, our selling strategies, our competitive position, our ability to retain customers or our ability to negotiate favorable agreements with our customers.

We must successfully compete for the services of highly-trained technical or trade personnel.

Many of the services that we provide are complex, require a high level of expertise and often must be performed in harsh conditions. Our success depends in part upon our ability to employ and retain technical personnel with the ability to perform these services. In addition, our ability to expand our operations depends in part on our ability to expand our skilled labor force. The demand for skilled workers in our industry is high and the supply is limited. A 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 these events were to occur, our cost structure could increase, our margins could decrease, and our growth potential could be impaired.

The intense competition in our industry could result in our reduced profitability and loss of market share.

We compete with the energy industry’s largest equipment and service providers, including, National Oilwell Varco, Inc. (“NOV”). NOV is the largest manufacturer in the industry and has reported segment revenues in 2014 of approximately $13.0 billion. Some of our competitors have substantially greater financial resources and larger operations than we do. In addition, some of these companies may be better able to compete because of their broader geographic dispersion, their product and service diversity or longer operating history. As a result, we could lose customers and market share to those competitors. These companies may also be better positioned to successfully manage downturns in the energy industry. Our operations may be adversely affected if our current competitors or new market entrants introduce new products or services with better prices, features, performance or other competitive characteristics than our products and services. Competitive pressures or other factors also may result in significant price competition that could harm our revenue and our business. We also face competition in our efforts to acquire other businesses.

The high cost or unavailability of materials, equipment, supplies and personnel could adversely affect our ability to execute our operations on a timely basis.

Our manufacturing operations are dependent on having sufficient raw materials, component parts and manufacturing capacity available to meet our manufacturing plans and customer demand at a reasonable cost while minimizing inventories. Our ability to effectively manage our manufacturing operations to meet these goals can have a significant impact on our business, including our ability to meet our manufacturing plans and revenue goals, control costs and avoid shortages of raw materials and component parts. Raw materials, component parts and equipment of particular concern include steel, copper, engine generator sets, drill pipe and electronic components. A lack of manufacturing capacity could result in increased backlog, which may limit our ability to respond to short lead-time orders or opportunities.

People are a key resource to developing, manufacturing and delivering our products and services to our customers around the world. Our ability to manage the recruiting, training and retention of this highly-skilled workforce could impact our business. Rapid growth and the resulting need for additional skilled employees would present a challenge to us as well as the impact of wage inflation and the potential lack of available qualified labor in our market. Labor-related actions, including strikes, work slowdowns and facility occupations, can also have a negative impact on our business.

We depend on third-party suppliers for timely deliveries of raw materials at a reasonable cost. Our results of operations could be adversely affected if we are unable to obtain adequate supplies in a timely manner.

Our manufacturing operations depend upon obtaining adequate supplies of raw materials from third parties. The ability of these third parties to deliver raw materials may be affected by events beyond their

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control. Any interruption in the supply, restrictions on third party credit, or increase in the prices of raw materials needed to manufacture our products could adversely affect our business, results of operations and reputation with our customers. Fluctuations in commodity prices may affect our margins and our earnings.

If our existing arrangements with our suppliers were adversely affected, our equipment sales and parts and service businesses may suffer.

We currently depend on a limited number of suppliers for important components of our products. Our purchases from most of these suppliers are not made pursuant to long-term contracts. Some of our arrangements require notification before they may be terminated and, others terminate upon the occurrence of certain events, many of which may be beyond our control. The loss of any of these suppliers could have a material adverse effect on our business, financial condition and results of operations.

Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC promulgated final rules regarding disclosure of the use of certain minerals, known as conflict minerals (columbite-tantalite, cassiterite (tin), wolframite (tungsten) and gold), which are mined from the Democratic Republic of the Congo and adjoining countries, as well as procedures regarding a manufacturer’s efforts to prevent the sourcing of such minerals and metals produced from those minerals. The disclosure obligations are complex, and there is little formal guidance with respect to their application. These new disclosure obligations will require due diligence efforts to support our disclosure requirements. We will incur costs associated with complying with such disclosure requirements, including costs associated with implementing new systems and processes and canvassing our supply chain to determine the source country of any conflict minerals incorporated in our products, in addition to the cost of remediation and other changes to products, processes, or sources of supply as a consequence of such verification activities. To the extent that the information that it receives from its suppliers is inaccurate or inadequate or its processes in obtaining that information do not fulfill the SEC's requirements, the Company could face both reputational and SEC enforcement risks. In addition, the implementation of these rules could adversely affect the sourcing, supply, and pricing of materials used in our products.

Our business may be adversely affected by severe weather.

Our operations are located in Houston, Texas and are directly affected by seasonal differences in the weather, as well as hurricanes and other storms prevalent in the region. Repercussions of severe weather conditions may include:

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Evacuation of personnel and curtailment of services.

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Suspension of operations.

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Damage to our facilities.

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Increase in insurance costs and reduction in its availability.

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Inability to receive or delays in receiving required equipment or materials at our facilities.

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Loss of productivity.

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

We rely on 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, there can be no assurance that any such failures, interruptions or security breaches will not occur or, if they do occur, that they will be adequately addressed. The occurrence of any failures, interruptions or security breaches of our information systems could damage our reputation, result in a loss of customer business, subject us to additional regulatory scrutiny, 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.

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Future forecasts 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 our operating history is limited, we may face greater difficulties in accurately projecting 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.

Although we are required to use our best efforts to have an effective registration statement covering the issuance of the shares of common stock underlying the warrants at the time that our warrant holders exercise their warrants, a registration statement may not be effective, in which case our warrant holders may not be able to exercise their warrants and therefore the warrants could expire worthless.

Holders of our warrants will be able to exercise the warrants for cash only if we have an effective registration statement covering the shares of common stock issuable upon exercise of the warrants and a current prospectus relating to such shares of common stock and, even in the case of a cashless exercise which is permitted in certain circumstances, such shares of common stock are qualified for sale or exempt from qualification under the applicable securities laws of the states in which the various holders of warrants reside. Although we have contractual obligations under the warrant agreement to use our best efforts to maintain an effective registration statement covering the shares of common stock issuable upon exercise of the warrants, we may not be able to do so. Factors such as an unexpected inability to remain current in our SEC reporting obligations or other material developments concerning our business could present difficulties in maintaining an effective registration statement. Holders of warrants will not be entitled to a cash settlement for their warrants if we fail to have an effective registration statement relating to the shares of common stock issuable upon exercise of the warrants. The expiration of warrants prior to exercise would result in each unit holder paying the full unit purchase price solely for the shares of common stock underlying the units.

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.

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 an independent registered public accounting firm provide an attestation report on the effectiveness of our 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.

We intend to list our common stock on the New York Stock Exchange (“NYSE”) or on the Nasdaq Stock Market (“Nasdaq”). Upon listing on either the NYSE or Nasdaq, we would expect to be a controlled company within the meanings of the NYSE or Nasdaq rules and, as a result, would qualify for, and intend to rely on, exemptions from certain corporate governance requirements that may not provide as many protections as those afforded to stockholders of other public companies.

Upon listing on either the NYSE or Nasdaq, we would expect to be a controlled company under the NYSE or Nasdaq rules. As a controlled company, we would be exempt from the provisions of the NYSE and Nasdaq rules requiring that (1) a majority of our board or directors consists of independent directors; (2) we have a nominating committee composed entirely of independent directors and governed by a written charter addressing the nominating committee’s purpose and responsibilities; and (3) we have a compensation committee composed entirely of independent directors with a written charter addressing the compensation committee’s purpose and responsibilities. We intend to use certain of these exemptions upon listing on either.

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the NYSE or Nasdaq and, as a result, our stockholders may not have the same protections as stockholders of companies that are subject to all of the NYSE or Nasdaq rules.

Our officers, directors and their affiliates may in the future become affiliated with entities engaged in business activities that are similar to those intended to be conducted by us and, accordingly, may have conflicts of interest in determining to which entity a particular business opportunity should be presented.

Certain of our officers, directors or their affiliates may in the future become affiliated with other entities engaged in business activities similar to those intended to be conducted by us. Accordingly, they may have conflicts of interest in determining to which entity a particular business opportunity should be presented. These conflicts may not be resolved in our favor. Our certificate of incorporation provides that the corporate opportunity doctrine does not apply to us or any of our officers or directors or where the application of the doctrine would conflict with any fiduciary duties or contractual obligations the officers or directors may have currently or in the future.

Our securities are quoted on the OTC Bulletin Board, which may limit the liquidity and price of our securities more than if our securities were quoted or listed on a national securities exchange.

Our common stock, units and warrants are traded on the over-the-counter market and are quoted on the OTC Bulletin Board, a FINRA-sponsored and operated inter-dealer automated quotation system for equity securities. Quotation of our securities on the OTC Bulletin Board may limit the liquidity and price of our securities more than if our securities were quoted or listed on a national securities exchange. Lack of liquidity will limit the price at which you may be able to sell our securities or your ability to sell our securities at all.

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

The price of our securities may vary significantly due to operating losses, one or more potential business transactions, changes in market conditions for the oil and gas products and services we provide and general market and economic conditions. An active trading market for our securities may never develop or, if developed, it may not be sustained. You may be unable to sell your securities unless an active market for our securities can be established or sustained.

We incurred substantial debt to complete our initial business transaction, which may adversely affect our financial condition and results of operations.

The incurrence of debt could result in:

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Default and foreclosure on our assets if our operating cash flow after a business transaction is insufficient to pay our debt obligations.

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Acceleration of our obligations to repay the indebtedness, even if we have made all principal and interest payments when due because our debt contains covenants that require the maintenance of certain financial ratios or reserves and we could breach these covenants without a waiver or renegotiation of that covenant.

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Our immediate payment of all principal and accrued interest, if any, if the debt security is payable on demand.

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Covenants that limit our ability to acquire capital assets or make additional acquisitions.

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Our inability to obtain additional financing in the future, if necessary, if the debt security contains covenants restricting our ability to obtain additional financing while such security is outstanding.

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Using a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for dividends on our common stock if declared, expenses, capital expenditures, acquisitions and other general corporate purposes.

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Limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate.

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Increased vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation.

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Limitations on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements, execution of our strategy and other purposes and other disadvantages compared to our competitors who have less debt.

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Our inability to pay dividends on our common stock.

As of March 27, 2015, our Sponsor, officers and directors beneficially owned 5,737,136 shares (or 65%) of our issued and outstanding common stock. This ownership interest, together with any other acquisitions of our common stock (or warrants which are subsequently exercised), could allow our Sponsor, officers and directors to influence the outcome of matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. Our board of directors is divided into two classes, each of which will generally serve for a term of two years with only one class of directors being elected in each year. Our classified board as well as the concentration of ownership with our Sponsor, officers and directors may also have the effect of delaying or preventing a change in control and may adversely affect the market price of our common stock. The interests of our Sponsor, officers and directors and your interests may not always align and taking actions which require approval of a majority of our stockholders, such as selling the company, may be more difficult to accomplish.

We may choose to redeem our outstanding public warrants at a time that is disadvantageous to our public warrant holders.

As part of the units sold in our initial public offering, we issued warrants to purchase up to 6,000,000 shares of our common stock (the “Public Warrants”). We may redeem the outstanding Public Warrants at any time after they become exercisable, in whole and not in part, at a price of $0.01 per warrant, if the last sales price of our shares of common stock equals or exceeds $17.50 per share for any 20 trading days within a 30 trading day period ending three business days before we send the notice of redemption. We may not redeem the Public Warrants unless on the date we give notice of redemption and during the entire period thereafter until the time we redeem the Public Warrants we have an effective registration statement covering the shares of common stock issuable upon the exercise of the Public Warrants and a current prospectus relating to those shares of common stock is available.

We will likely redeem the Public Warrants if the market price of our common stock reaches $17.50 per share for the necessary trading period since doing so would allow us to decrease the dilutive effect of the Public Warrants. Redemption of the Public Warrants could encourage the warrant holders to exercise the Public Warrants, whether by paying the exercise price in cash or through a cashless exercise at a time when it may be disadvantageous for the holders to do so, to sell the Public Warrants at the then current market price when they might otherwise wish to hold the Public Warrants, or to accept the nominal redemption price, which, at the time the Public Warrants are called for redemption, is likely to be substantially less than the market value of the Public Warrants. We expect most purchasers of our Public Warrants hold their securities through one or more intermediaries, and, consequently, you are unlikely to receive notice directly from us that the Public Warrants are being redeemed. If you fail to receive notice of redemption from a third party and your Public Warrants are redeemed for nominal value, you will have no recourse against us.

An investor will only be able to exercise a Public Warrant if the common stock issuable upon such exercise has been registered or qualified or is deemed exempt under the securities laws of the state of residence of the holder of the Public Warrants.

No Public Warrants will be exercisable and we will not be obligated to issue shares of common stock unless the common stock issuable upon such exercise has been registered or qualified or deemed to be exempt under the securities laws of the state of residence of the holder of such Public Warrants. A Public Warrant may be held by a holder in a state where an exemption is not available for issuance of shares of common stock upon an exercise, and the holder will be precluded from exercising the Public Warrant. As a result, the

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Public Warrant may be deprived of any value, the market for the Public Warrant may be limited and the holder of the Public Warrant may not be able to exercise the Public Warrant if the common stock issuable upon such exercise is not qualified or exempt from qualification in the state in which the holder of the Public Warrant resides.

With the approval of 65% of the holders of the then outstanding Public Warrants, we may amend the terms of our Public Warrants in a manner that may be adverse to some holders.

Our Public Warrants were issued in registered form under a warrant agreement between Continental Stock Transfer & Trust Company, as warrant agent, and us. The warrant agreement provides that the terms of the Public Warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision, but requires the approval by the holders of at least 65% of the then outstanding Public Warrants in order to make any change that adversely affects the interests of the registered holders. Accordingly, we may amend the terms of the Public Warrants in an adverse way to a holder if holders of at least 65% of the then outstanding Public Warrants approve such amendment. Examples of such adverse amendments could be amendments to increase the exercise price of the Public Warrants, shorten the exercise period, provide for redemption of Public Warrants or decrease the number of shares of common stock purchasable upon exercise of a Public Warrant.

Provisions in our certificate of incorporation and bylaws and Delaware law may inhibit a takeover of us, which could limit the price investors might be willing to pay in the future for our shares of common stock and could entrench management.

Our certificate of incorporation and bylaws contain provisions that may discourage unsolicited takeover proposals that stockholders may consider to be in their best interests. Our board of directors is divided into two classes, each of which will generally serve for a term of two years, with only one class of directors being elected in each year. As a result, at any given annual meeting only half of the board of directors may be considered for election. Since our staggered board of directors may prevent our stockholders from replacing a majority of our board of directors at any given annual meeting, it may entrench management and discourage unsolicited stockholder proposals that may be in the best interests of stockholders. Moreover, our certificate of incorporation provides that our board of directors has the ability to designate the terms of any new series of preferred stock without stockholder approval.

We are also subject to anti-takeover provisions under Delaware law, which could delay or prevent a change of control. Together these provisions may make the removal of management more difficult and may discourage transactions that otherwise could involve payment of a premium over the prevailing market prices of our securities.

Compliance with the Sarbanes-Oxley Act of 2002 will require substantial financial and management resources and may increase the time and costs of completing an acquisition.

Section 404 of the Sarbanes-Oxley Act of 2002 requires that we evaluate and report on our system of internal controls. If we fail to maintain the adequacy of our internal controls, we could be subject to regulatory scrutiny, civil or criminal penalties and/or stockholder litigation. Any inability to provide reliable financial reports could harm our business. We may not be in compliance with the provisions of the Sarbanes-Oxley Act regarding the adequacy of our internal controls. The development of the internal controls necessary to achieve compliance with the Sarbanes-Oxley Act may increase the time and costs associated with our acquisition of IDE. Furthermore, any failure to implement required new or improved controls, or difficulties encountered in the implementation of adequate controls over our financial processes and reporting in the future, could harm our operating results or cause us to fail to meet our reporting obligations. Inferior 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.

Pursuant to a registration rights agreement, our Sponsor, officers and directors and their permitted transferees can demand that we register their shares of common stock. The registration rights will be

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exercisable with respect to such securities at any time commencing upon the date that such shares are released from transfer restrictions. Additionally, in connection with the Merger, we granted certain registration rights to former IDE stockholders and, in connection with entering into a common stock warrant agreement, we granted certain registration rights to Elm Park.

We will bear the entire cost of registering these securities. If such persons or entities exercise their registration rights in full, there will be an additional 8,134,671 shares of common stock and up to 142,484 shares of common stock issuable on exercise of warrants eligible for trading in the public market. The registration and availability of such a significant number of securities for trading in the public market may have an adverse effect on the market price of our common stock.

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Item 1B.

UNRESOLVED STAFF COMMENTS

Not applicable.

Item 2.

PROPERTIES

As of December 31, 2014, we leased the following manufacturing, service, warehouse and administrative facilities:


Location	Description	Building Size	Lease Termination Date
Houston, Texas	Principal office of IDE – covered fabrication facility, rig yard and offices (used primarily by our drilling segment)	49,500 square feet of manufacturing/warehouse space and 3,500 square feet of office space	December 31, 2017⁽¹⁾
Houston, Texas	Principal office of IEC – warehouse and office facilities (used primarily by our electrical segment)	40,500 square feet of manufacturing/warehouse space and 8,300 square feet of office space	February 14, 2017
Spring, Texas	Executive, sales, and finance offices	7,200 square feet of office space	December 31, 2017⁽¹⁾
Houston, Texas	Principal offices of IDE Hydraulics – office and warehouse facilities (used primarily by our hydraulics group)	3,270 square feet of office space and 8,730 square feet of warehouse space	May 31, 2015
Oklahoma City, Oklahoma	IEC service and warehouse (used primarily by our electrical segment)	10,000 square feet of office/warehouse space	Month to month pending lease renewal

(1)

This facility is currently owned by our Vice Chairman of our Board of Directors and former Chief Executive Officer, Stephen Cope, and his affiliates. See “Certain Relationships and Related Party Transactions — Leases and Lease Amendments.”

We believe that our facilities are suitable and adequate and that they have sufficient capacity to meet our current business requirements.

Item 3.

LEGAL PROCEEDINGS

On May 6, 2013, Drillmec, Inc. filed a lawsuit in the 281^st Judicial District Court in Harris County, Texas (Drillmec, Inc. v. Integrated Drilling Equipment Company, et. al.) against Integrated Drilling Equipment Company Holdings, Inc., Integrated Drilling Equipment Company Holdings, LLC, Integrated Drilling Equipment, LLC, Integrated Drilling Equipment Company, Stephen D. Cope and SDC Management Services, LLC. Drillmec alleges that the defendants acquired Drillmec’s drawings and technical specifications through an unrelated bidding process for offshore drilling rigs. In the pleadings, Drillmec claims that the defendants used this proprietary information in connection with our successful bid for certain PEMEX contracts and asserts causes of action for misappropriation of trade secrets, conversion, interference with prospective relations, conspiracy, unjust enrichment and unfair competition. Drillmec is seeking damages in the form of IDE’s actual profits from the PEMEX contracts and the development costs that Drillmec incurred in developing the proprietary information in question.

In March 2015, the Company and Drillmec entered into a Compromise Settlement and Release of All Claims agreement. Pursuant to the agreement, the Company paid Drillmec $100 thousand and has been released from all claims relating to this lawsuit. In connection with our assessment that it was probable that a settlement would be reached in 2015, we recorded a net charge in the accompanying consolidated statement of operations in the amount of $25 thousand for the year ended December 31, 2014, consisting of a $100 thousand litigation accrual, partially offset by a $75 thousand insurance recovery receivable.

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On February 28, 2014, Sidewinder Drilling Inc. filed a lawsuit in the 269th Judicial District Court in Harris County, Texas (Sidewinder Drilling Inc. v. Oil County Engineering Services, LTD., HYCO Canada U.L.C., and Integrated Drilling Equipment Company Holdings, Inc.). In the lawsuit, Sidewinder is seeking a judicial declaration that IDE is contractually responsible for all of the damages caused by the dropped mast on Rig 103 because “Delivery” of Rig 103 had not occurred at the time of the Rig 103 dropped mast incident. We intend to defend this litigation vigorously. This case is in the preliminary stages and it is too early to predict an outcome and therefore no provision has been recorded at December 31, 2014, for any potential liability arising from this litigation.

On March 26, 2015, Steve Cope, the Vice Chairman of our Board of Directors and our former CEO, filed a lawsuit in the 410th Judicial District Court in Montgomery County, Texas (Steve Cope v. Integrated Drilling Equipment Company Holdings, Inc. a/k/a Integrated Drilling Equipment Company Holdings Corp.) against Integrated Drilling Equipment Company Holdings, Inc. Mr. Cope alleges that the Company has defaulted on three separate payment obligations owed to him. These payment obligations were entered into in connection with the Settlement Agreement and General Release (the “Settlement Agreement”) that we entered into with Mr. Cope on April 7, 2014, that settled any and all disagreements between the parties, including any claims arising from Mr. Cope’s employment agreement as it related to his service as Chief Executive Officer of the Company. In connection with the Settlement Agreement, we issued two promissory notes dated April 7, 2014 to Mr. Cope, one in the amount of approximately $2.1 million and one in the amount of approximately $400,000, and we also agreed to pay him approximately $300,000 in satisfaction of certain deferred payments upon satisfaction of certain conditions. Mr. Cope seeks recovery of all principal and past due interest on these payment obligations as well as attorneys’ fees and costs.

Pursuant to our current forbearance agreements with the lenders under our revolving credit facility and term loan facility, we are prohibited from making any payments on the two promissory notes issued to Mr. Cope. Payments on the two promissory notes issued to Mr. Cope would create an event of default and the lenders under our revolving credit facility and term loan facility could demand payment in full on their outstanding loans. Mr. Cope’s promissory notes are subordinated to the debt under our revolving credit facility and term loan facility. As for the payment of $300,000 for certain deferred items that Mr. Cope is seeking, the Settlement Agreement states that such payment shall not be made unless the Company has received a specific amount of contracted rig orders. The Company has not achieved these conditions and therefore payment has not been made. We intend to defend this litigation vigorously.

From time to time, we may be involved in other litigation matters arising in the ordinary course of our business. Although the ultimate liability for these matters cannot be determined, based on the information currently available to us, we do not believe that the resolution of these other litigation matters to which we are currently a party would have a material adverse effect on our business, financial condition or results of operation. We maintain liability insurance against certain risks arising out of the normal course of our business, subject to certain self-insured retention limits. We have accruals for certain legal and self-insurance exposures.

Item 4.

MINE SAFETY DISCLOSURES.

Not applicable.

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PART II.

Item 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock, warrants and units are each traded on the OTC Bulletin Board under the ticker symbols IRIG, IRIGW, IRIGU, respectively. Our units commenced public trading on June 16, 2011, and our common stock and warrants commenced public trading on August 12, 2011.

The table below sets forth, for the calendar quarter indicated, the high and low bid prices of our common stock, warrants and units as reported on the OTC Bulletin Board. These bid quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.


	Common Stock				Warrants				Units
2014	Low		High		Low		High		Low		High
Fourth Quarter		$0.25		$1.50		$0.04		$0.04		$0.90		$2.10
Third Quarter		$1.01		$3.15		$0.04		$0.04		$2.10		$4.00
Second Quarter		$2.50		$4.70		$0.04		$0.04		$4.00		$4.00
First Quarter		$3.00		$5.00		$0.04		$0.04		$4.00		$4.00


	Common Stock				Warrants				Units
2013	Low		High		Low		High		Low		High
Fourth Quarter		$2.50		$4.05		$0.05		$0.10		$4.00		$4.00
Third Quarter		$2.50		$6.90		$0.10		$0.32		$4.00		$5.30
Second Quarter		$5.50		$8.75		$0.28		$0.45		$5.30		$10.50
First Quarter		$7.50		$10.02		$0.25		$0.38		$10.45		$10.50

Holders

On March 10, 2015, there were 53 holders of record of our common stock, 1 holder of record of our warrants and 1 holder of record of our units.

Dividends

We have not paid any cash dividends on our common stock to date.

The payment of cash dividends on our common stock in the future will be at the discretion of our board of directors and dependent upon our revenues and earnings, if any, capital requirements and general financial conditions. We presently intend to retain all earnings, if any, for use in our business operations.

Pursuant to the certificate of designation for our Preferred Stock, the holders of our Series A, B, and C Preferred Stock are entitled to receive, in preference to holders of our common stock, dividends that accrue at the rate of 16%, 20%, and 14%, respectively, per year. The dividends are payable in additional shares of Preferred Stock. These dividends are cumulative from the date that the Preferred Stock was issued, whether or not we have earnings or profits, whether or not there are funds legally available for the payment of such dividends and whether or not such dividends are declared or paid.

In addition, our debt agreements contain restrictions on the payment of dividends. Our term loan and security agreement provides that we may not pay or make any distribution to our equity holders, subject to certain exceptions, until we have satisfied in full our obligations under the agreement and the agreement has been terminated. In the future, we may incur additional indebtedness, and our ability to declare dividends may be further limited by restrictive covenants that we may agree to in connection with such debt.

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Sales of Unregistered Securities

On January 24, 2011, we issued 4,000,000 shares of common stock (the “Initial Shares”) to our Sponsor, an entity controlled by certain of our officers and directors, for $25,000 in cash, or $0.00625 per share. On May 2, 2011, our Sponsor sold, at cost, 1,000,000 Initial Shares to our officers and directors. On June 13, 2011, we effected a 0.75625-for-1 reverse split of our outstanding common stock, leaving our Sponsor, officers and directors with 3,025,000 Initial Shares. On June 15, 2011, we effected a 0.80331-for-1 reverse split of our outstanding common stock, leaving our Sponsor, officers and directors with 2,430,000 Initial Shares. The Initial Shares included 300,000 shares that were forfeited on July 29, 2011 when the underwriters in our initial public offering (“IPO”) did not exercise their over-allotment option in full.

On June 15, 2011, we completed a private placement of 390,000 units to our Sponsor (the “Placement Units”) for proceeds to us of $3.9 million. Each Placement Unit consisted of one share of common stock and one warrant to purchase one share of common stock at $11.50 per share (the “Placement Warrants”). The Placement Warrants became exercisable and transferable 30 days after the completion of our initial business transaction and could be exercised for cash or on a “cashless” basis at the holder’s option. On February 25, 2013, we entered into a Placement Warrant Exchange Agreement with our Sponsor (the “Placement Warrant Exchange Agreement”). Pursuant to this agreement, on February 25, 2013, we issued 39,000 shares of common stock (the “Warrant Cancellation Shares”) to our Sponsor in exchange for the cancellation of our Sponsor’s Placement Warrants.

The issuance of the Initial Shares, the Placement Units and the Warrant Cancellation Shares were exempt from registration pursuant to 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), because none of the transactions involved a public offering.

PrinceRidge Unit Purchase Option

In connection with our IPO, we sold to PrinceRidge, the representative of the underwriters, for $100.00, an option to purchase up to 600,000 units at $15.00 per unit (the “Purchase Option”). The units issuable upon exercise of the Purchase Option consisting of one share of common stock and one warrant to purchase one share of common stock, or the same as the units offered in the IPO. This option is currently exercisable on a cashless basis, in whole or in part, and will expire on June 15, 2016. Although the Purchase Option and its underlying securities have been registered under the IPO registration statement, the Purchase Option grants to holders demand and “piggy back” rights for five and seven years, respectively, from the effective date of the IPO registration statement with respect to the registration under the Securities Act of the securities directly and indirectly issuable upon exercise of the Purchase Option. We will bear all fees and expenses attendant to registering the securities, other than underwriting commissions which will be paid for by the holders themselves. We will have no obligation to net cash settle the exercise of the Purchase Option or the warrants underlying the Purchase Option. The holder of the Purchase Option will not be entitled to exercise the Purchase Option or the warrants underlying the Purchase Option unless a registration statement covering the securities underlying the Purchase Option is effective or an exemption from registration is available. If the holder is unable to exercise the Purchase Option or underlying warrants, the Purchase Option or warrants, as applicable, will expire worthless. The exercise price and number of units issuable upon exercise of the Purchase Option may be adjusted in certain circumstances including in the event of a stock dividend, or our recapitalization, reorganization, merger or consolidation. However, the Purchase Option will not be adjusted for issuances of shares of common stock at a price below its exercise price.

Preferred Stock

On December 14, 2012, we entered into a stock purchase agreement (the “Series A Purchase Agreement”) with our Sponsor pursuant to which our Sponsor purchased 25,000 shares of Series A Preferred Stock at a price per share of $100 for aggregate proceeds to the Company of $2.5 million.

On November 14, 2013, the Company entered into a Stock Purchase Agreement (the “Series B Purchase Agreement”) with our Sponsor, pursuant to which our Sponsor purchased 5,000 shares of Series B Preferred Stock at a price per share of $100 for aggregate proceeds to the Company of $0.5 million.

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On November 14, 2013, the Company also entered into a Stock Purchase Agreement (the “Series C Purchase Agreement”) with Stephen D. Cope, who at the time was our Chief Executive Officer and a director, pursuant to which Mr. Cope purchased 5,000 shares of Series C Preferred Stock at a price per share of $100 for aggregate proceeds to the Company of $0.5 million.

Each issuance of shares of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock was exempt from registration pursuant to Section 4(a)(2) of the Securities Act because the transaction did not involve a public offering.

Elm Park Warrants

On December 14, 2012, we (the “Borrowers”) entered into a term loan agreement, which provides for a $20.0 million four year senior secured second-lien term loan facility (the “Term Facility”). As consideration for the Term Facility, on December 14, 2012, we issued to Elm Park U.S. and Elm Park Canada, the lenders under such facility, warrants (the “Elm Park Warrants”) to purchase up to 142,484 shares of common stock with an exercise price of $0.01 per share. The Elm Park Warrants are immediately exercisable, may be exercised on a net basis and have a term of 10 years from the date of issuance.

The issuance of the Elm Park Warrants was exempt from registration pursuant to Section 4(a)(2) of the Securities Act because the transaction did not involve a public offering.

Shares of Common Stock Issued In Merger

Pursuant to the Merger Agreement, at the closing on December 14, 2012, we issued 4,825,671 shares of our common stock to former IDE stockholders. We are holding 750,000 additional shares on behalf of the former IDE stockholders to satisfy any indemnification claims we may have under the Merger Agreement. Depending on the amount of the indemnification claims we may make, we will distribute the remaining 750,000 additional shares to the former IDE stockholders. In addition, if the trading price of our common stock exceeds certain thresholds before December 14, 2017, we will distribute up to 5,250,000 shares of our common stock that we hold to the former IDE stockholders. Specifically:

•

If, before December 14, 2017, (a) the trading price of our common stock exceeds $12.00 per share for any 20 trading days within any period of 30 consecutive trading days or (b) a Change of Control Transaction (as defined in the Merger Agreement) occurs that values each share of our common stock at more than $12.00 per share, we will issue to the former IDE stockholders 1,312,500 shares of our common stock.

•

If, before December 14, 2017, (a) the trading price of our common stock exceeds $13.50 per share for any 20 trading days within any period of 30 consecutive trading days or (b) a Change of Control Transaction occurs that values each share of our common stock at more than $13.50 per share, we will issue to the former IDE stockholders an additional 1,312,500 shares of our common stock.

•

If, before December 14, 2017, (a) the trading price of our common stock exceeds $15.00 per share for any 20 trading days within any period of 30 consecutive trading days or (b) a Change of Control Transaction occurs that values each share of our common stock at more than $15.00 per share, we will issue to the former IDE stockholders an additional 1,312,500 shares of our common stock.

•

If, before December 14, 2017, (a) the trading price of our common stock exceeds $17.00 per share for any 20 trading days within any period of 30 consecutive trading days or (b) a Change of Control Transaction occurs that values each share of our common stock at more than $17.00 per share, we will issue to the former IDE stockholders an additional 1,312,500 shares of our common stock.

The issuance of shares to the former IDE stockholders was exempt from registration pursuant to Section 4(a)(2) of the Securities Act because the transaction did not involve a public offering.

On October 31, 2013, we issued 124,217 shares of common stock to TerraNova Capital Partners Inc. and its related parties to satisfy a $1.2 million obligation for financial advisory services provided to us in connection with the December 14, 2012 merger with EAC.

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The issuance of shares to TerraNova Capital Partners Inc. and its related parties was exempt from registration pursuant to Section 4(a)(2) of the Securities Act because the transaction did not involve a public offering.

Placement Warrant Exchange Shares

On February 25, 2013, we entered into a Placement Warrant Exchange Agreement with our Sponsor. Pursuant to this Agreement, we issued 39,000 shares of common stock to our Sponsor in exchange for cancelling our Sponsor’s Placement Warrants.

The issuance of the 39,000 shares was exempt from registration pursuant to Section 4(a)(2) of the Securities Act because the transaction did not involve a public offering.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

We made no purchases of any shares of our common stock, warrants to purchase shares of common stock, or Units in the fourth quarter of 2014.

Item 6.

SELECTED FINANCIAL DATA

Not Applicable.

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Item 7.

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided to assist readers in understanding the Company’s financial performance during the periods presented and significant trends which may impact the future performance of the Company. This discussion should be read in conjunction with the financial statements of the Company and the notes to those statements included in Part II, Item 8 of this report. MD&A contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements, see Risk Factors in “Item 1A.” of this report.

Overview

We provide products and services to customers in the oil and gas industry both domestically and internationally. The majority of our business is conducted through two operating segments: (1) Electrical Products and Services and (2) Drilling Products and Services.

Our electrical segment designs, manufactures, installs and services electrical and control systems for drilling rigs including SCR (silicon-controlled rectifier) units and VFD (variable frequency drive) units, as well as electrical cabling, lighting systems, closed circuit video systems, gas and fire detection systems, and communication systems.

Our drilling segment is a full service provider of drilling rigs and their components. We design, manufacture, and service complete land-based drilling rigs, as well as rig subsystems and parts. We also provide drilling rig services including mechanical services, assembly testing (rig-up/final construction and commission), rig refurbishment and inspection, new rig fabrication and completion of land rig packages. Additionally, we fabricate mud tanks, masts and substructures, dog houses and other drilling rig related products.

The increased use of horizontal drilling and hydraulic fracturing, or fracking, has increased the demand for drilling rigs capable of drilling under these conditions. Since fracking has become more widespread, we believe more than 1,000 rigs have been manufactured or refurbished for that purpose. By 2009, our rig electrical and control systems were gaining market acceptance and we had started installing our proprietary electrical systems in customer’s existing drilling rigs. Because these electrical systems are the key component that enable the rig to operate with greater efficiency in horizontal shale drilling situations versus other competitive electrical systems, management decided to offer customers a complete rig package, including our unique electrical and control systems. Later in 2009, we sold our first complete rig package.

The Company is currently finalizing new rig designs for offshore platforms that it expects will enable the Company to capture more bids for new drilling equipment on newly constructed platforms as well as replacing drilling equipment on existing shallow offshore platforms that may be 25 or more years’ old. On these older platforms, drilling operators are potentially looking to upgrade their platforms with newer equipment that encompass the latest drilling techniques and efficiencies. The Company is currently using their new offshore platform rig designs for current bids with offshore drilling contractors. If the Company is successful in obtaining this additional offshore platform rig business, it will expand the Company’s current offerings beyond our existing land rig offerings. The size and scope of these projects will help to solidify our existing land rig backlog.

Management is currently focused on improving the production process for complete rig packages and continuing to implement lean manufacturing processes. We also plan to leverage our IEC division’s established customer base to expand the products and services we offer to our customers and are evaluating strategies to further serve offshore and international markets.

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Consolidated Results of Operations


	For the Years Ended December 31,
(Dollars in thousands)	2014					2013
Statement of Operations Data:
Revenue:
Products	$	52,240		59.8	%	$	64,373		62.0	%
Services		35,054		40.2	%		39,375		38.0	%
Total revenue		87,294		100.0	%		103,748		100.0	%
Cost of goods sold and services:
Products		39,550		75.7	%		48,672		75.6	%
Services		20,136		57.4	%		25,993		66.0	%
Total cost of goods sold and services		59,686		68.4	%		74,665		72.0	%
Selling, general and administrative expense		20,954		24.0	%		25,039		24.1	%
Impairment of intangible assets		—		0.0	%		858		0.8	%
Depreciation and amortization expense		2,117		2.4	%		2,162		2.1	%
Income (loss) from operations		4,537		5.2	%		1,024		1.0	%
Other (income) expense:
Interest expense		5,922		6.8	%		5,561		5.4	%
Other (income) expense		(584	)	(0.7	%)		(820	)	(0.8	%)
Total other (income) expense		5,338		6.1	%		4,741		4.6	%
Income (loss) before income taxes		(801	)	(0.9	%)		(3,717	)	(3.6	%)
Income taxes:
Current		65		0.1	%		70		0.1	%
Deferred		—		0.0	%		3,873		3.7	%
Total income taxes		65		0.1	%		3,943		3.8	%
Net income (loss)	$	(866	)	(1.0	%)	$	(7,660	)	(7.4	%)

Except for the components of cost of goods sold and services, the percentages above represent line item values expressed as a percentage of total revenue. For the components of cost of goods sold and services, the percentages represent cost of goods sold and services related to products and services expressed as a percentage of revenue for products and services, respectively.

Year Ended December 31, 2014 Compared to Year Ended December 31, 2013

Revenues

Revenues were $87.3 million and $103.7 million for the fiscal years 2014 and 2013, respectively, a decrease of $16.4 million or 16%. This decrease was driven by a $12.1 million decrease in products revenue and a $4.3 million decrease in services revenue. The significant decrease in products revenue was driven by a $29.8 million decrease in complete rig product revenues. This decline was partially offset by increases in fabrication revenues of $9.0 million, power systems and rig up electrical revenues of $6.6 million and increases in hydraulics revenues of $2.4 million. The $4.3 million decrease in services revenue was driven by a $5.5 million decrease in power system services offset by a $1.3 million increase in automation services revenues.

Cost of Sales

Cost of Sales were $59.7 million and $74.7 million for the fiscal years 2014 and 2013, respectively, a decrease of $15.0 million or 20%. This decrease was primarily driven by the decreased revenues as noted above. As a percent of revenue, cost of sales were 68% of revenue in 2014 versus 72% of revenue in the comparable 2013 fiscal year. The decrease in cost of sales as a percentage of revenue was due to a decreased

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cost of sales of the Company’s services sales which decreased to 57% of revenue in 2014 versus 66% of revenue in 2013. This significant reduction in services cost of sales was due to improved gross margins in all of our service revenue functions. Power systems and rig up electrical services cost of sales declined from 58% of revenues in 2013 to 52% in 2014, automation services cost of sales declined from 70% of revenues in 2013 to 60% in 2014, and rig up and refurbishment service cost of sales declined from 84% of revenues in 2013 to 79% in 2014.

Selling, General and Administration Expenses

Selling, general and administration expenses were $21.0 million and $25.0 million in 2014 and 2013 respectively, a decrease of $4.1 million or 16%. Professional fees decreased $1.8 million in fiscal year 2014 versus 2013 primarily as a result of lower legal fees. In 2014 versus 2013, the Company also incurred approximately $0.9 million in reduced equipment rentals as a result of reduced production volumes and improved manufacturing efficiencies. Bad debt expense also declined $0.5 in 2014 as compared to 2013. The aforementioned expense declines were partially offset by a $0.9 million increase in salary expenses. This increase was due to $2.3 million expense charge related to the Settlement Agreement entered into with our former CEO in April 2014, partially offset by $1.4 million in lower salary expense due to headcount reductions. As the result of the significant revenue declines, selling, general and administration expenses were 24% of total revenue in both 2014 and 2013 fiscal years.

Depreciation and Amortization Expense

Depreciation and amortization expense was $2.1 million and $2.2 million in 2014 and 2013, respectively, a slight decrease of $0.1 million or 2%.

Income from Operations

Income from operations increased to $4.5 million in 2014 from $1.0 million in 2013. The $3.5 million increase primarily resulted from a $4.1 million reduction in selling, general and administration expenses (as noted above) and an impairment charge in 2013 of $0.9 million. These improvements were offset by $1.5 million decline in gross margin dollars generated in 2014 versus 2013 ($27.6 million versus $29.1 million respectively in 2014 versus 2013).

Other (Income) Expense and Income Taxes

Total other expense was $5.3 million and $4.7 million in 2014 and 2013, respectively. Net interest expense (interest expense less interest income) was $5.9 million and $5.6 million in 2014 and 2013 respectively, an increase of $0.4 million. This slight increase in net interest expense was principally due to slightly higher interest rates in 2014 versus 2013. Other income/expense was $0.6 million of net other income in the 2014 fiscal year versus net other income of $0.8 million in the comparable 2013 fiscal year.

Income tax expense was $0.1 million and $3.9 million in 2014 and 2013, respectively. During 2014, the Company increased our valuation allowance by an additional $0.4 million for a total valuation of $5.1 million as of December 31, 2014. In 2013, the Company recorded a non-cash charge to establish a valuation allowance of $4.7 million. The valuation allowance is calculated in accordance with the provisions of Accounting Standards Codification 740, Income Taxes (ASC 740) which requires an assessment of both positive and negative evidence when measuring the need for a valuation allowance.

Currently, the Company has a declining backlog of revenue projects, which has created a greater degree of uncertainty that a sufficient level of future profitability will be generated to realize the deferred tax assets. This declining backlog, along with the present downturn in the oil and gas industry, represents sufficient negative evidence to require a valuation allowance. The Company intends to maintain a valuation allowance until sufficient positive evidence exists to support its reversal.

Segment Results of Operations

Year Ended December 31, 2014 Compared to Year Ended December 31, 2013

Electrical Products & Services segment revenues were $61.5 million and $61.1 million for fiscal years 2014 and 2013, respectively, an increase of $0.4 million. Drilling Products & Services segment revenue was $28.4 million and $49.2 million for fiscal years 2014 and 2013, respectively, a decrease of $20.8 million, or

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42%. The 2014 decrease in Drilling Products & Services segment revenues was primarily driven by the significantly lower production levels of complete new rigs.

Electrical Products & Services segment profit was $16.0 million and $12.6 million for fiscal years 2014 and 2013, respectively, a increase of $3.4 million or 27%. Segment profits were 26% and 21% of 2014 and 2013 respective segment revenues. The $3.4 million increase in 2014 versus 2013 segment profits was primarily driven by the improved margins in 2014 as noted above. Drilling Products & Services segment profit or loss was $0.6 million loss and $1.3 million profit for fiscal years 2014 and 2013, respectively, a decrease of $1.9 million. Segment profits (losses) were (2%) and 3% of the respective 2014 and 2013 segment revenues. The decrease in 2014 profits expressed as a percentage of revenue was due to significantly lower revenue volumes as compared to 2013.

Liquidity and Capital Resources

Our primary source of liquidity is cash generated from the sales of our products and services. Most of the Company’s fixed-price contracts for new land-based drilling rigs provide for progress payments throughout the manufacturing process. Most of the Company’s other revenue producing contracts are billed monthly to customers for actual costs plus an agreed margin. Assuming consistent volumes, these contracts typically do not require extensive working capital resources. Our primary use of cash is cost of sales, operating expenses, interest expense, working capital needs, purchases of intangibles, capital expenditures, and repayment of our debt obligations.

As of December 31, 2014, the Company had cash and cash equivalents of approximately $1.3 million. In addition, in December 2014, the Company entered into amendments to both its Term Facility and its Revolving Facility (as described further below) which, among other things, extended the maturities of these facilities to September 30, 2015 and March 31, 2015, respectively.

On December 14, 2012, Integrated Drilling Equipment Holdings Corp., a Delaware corporation (the “Company”), Integrated Drilling Equipment, LLC and Integrated Drilling Equipment Company Holdings, LLC (collectively with the Company, the “Borrowers”) entered into a term loan and security agreement with Elm Park Credit Opportunities Fund, L.P. and Elm Park Credit Opportunities Fund (Canada), L.P., as lenders, and Elm Park Capital Management, LLC, as administrative agent (the “Term Loan Agreement”). The Term Loan Agreement provided for a $20.0 million four year senior secured second-lien term loan facility (as amended, the “Term Facility”). On the same date, the Borrowers also entered into an amended and restated revolving credit and security agreement with PNC Bank, National Association, as administrative agent and the initial lender (the “Revolving Credit Agreement”). The Revolving Credit Agreement provides for a $20 million committed asset-based revolving credit facility, with a sublimit for letters of credit (as amended, the “Revolving Facility”).

On October 17, 2013, the Borrowers entered into the Second Amendment to the Term Facility and the Second Amendment to the Revolving Facility to, among other things, (1) reduce the Revolving Facility to $15.0 million (from $20.0 million), (2) amend the maturity date of the Term Facility from December 14, 2016 to September 30, 2014 and the maturity date of the Revolving Facility from June 30, 2016 to March 31, 2014, (3) delete (a) the net worth financial covenant, (b) the fixed charge coverage ratio, (c) the minimum liquidity test and (d) the total leverage ratio and (4) amend (a) the minimum EBITDA financial covenant and (b) the capital expenditures financial covenant.

In connection with the Second Amendments described above, the Borrowers were required to (1) implement and comply with a cost reduction plan and (2) obtain (a) purchase orders or contracts with a value of not less than $28.0 million for the design, manufacture or servicing of one or more drilling rigs by October 31, 2013 or (b) at least $1.0 million in proceeds from the issuance of preferred stock by November 14, 2013. An event of default would have occurred under both the Term Facility and Revolving Facility if the Borrowers were unable to satisfy one of these requirements. As of October 1, 2014, the Company had implemented and was in compliance with the cost reduction plan and as of November 14, 2014, the Company had received net cash proceeds from a preferred stock investment in an aggregate amount of $1.0 million. As a result of the foregoing events, the Company was in compliance with the terms of its credit agreements.

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On March 31, 2014, the Borrowers entered into the Third Amendment to the Term Facility and the Third Amendment to the Revolving Facility to, among other things, (1) amend the maturity date of the Term Facility from September 30, 2014 to June 30, 2015 and the maturity date of the Revolving Facility from March 31, 2014 to December 31, 2014; (2) add a covenant regarding the fixed charge coverage ratio in the Credit Facilities; (3) amend (a) the minimum EBITDA financial covenant and (b) the capital expenditures financial covenant in the Credit Facilities; (4) amend the term loan repayment schedule in the Term Facility; (5) amend the PIK interest provision in the Term Facility to increase such interest from 2.00% to 4.00% (unless the Borrower’s total leverage ratio is less than 3:50:1:00, in which case such interest shall accrue at a rate of 2:00%); and (6) amend the calculation of the amount of revolving advances lenders are required to make under the Revolving Facility.

On December 31, 2014, the Borrowers entered into the Fourth Amendment to Term Loan and Security Agreement and Forbearance Agreement (the “Fourth Term Loan Amendment”) to, among other things, (1) amend the maturity date of the Term Facility from June 30, 2015 to September 30, 2015; (2) amend the capital expenditures covenant to limit capital expenditures to not greater than (a) $2,000,000 for the twelve months ended December 31, 2014, (b) $300,000 for the three months ended March 31, 2014 and (c) $500,000 for the nine months ended September 30, 2015; and (3) add a new covenant requiring that with respect to the Borrowers’ rig yard division business, for the period of 90 consecutive days ending March 31, 2015, and for each period of 90 consecutive days ending on the last day of any month ending thereafter, the Borrowers not incur operating losses in an aggregate amount exceeding $400,000 in any such 90 consecutive day period.

In addition, the Fourth Term Loan Amendment provides that during the period beginning December 31, 2014 and ending on the earlier of (a) the occurrence of a Termination Event (as defined in the Fourth Term Loan Amendment) or (b) 5:00 pm Dallas time on March 31, 2015, the lenders under the Term Facility agree to forbear from commencing any Enforcement Action (as defined in the Fourth Term Loan Amendment) as a result of certain Existing Defaults (as defined in the Fourth Term Loan Amendment) or the Borrowers’ failure to comply with either the fixed charge coverage ratio covenant or minimum EBITDA covenant in the Term Loan Agreement for the quarters ended December 31, 2014 or March 31, 2015, so long as the Borrowers (1) have at least $5,000,000 in EBITDA, measured monthly on a trailing twelve-month basis (with an add-back for a one-time severance payment of $2,520,120, less principal payments, made to Stephen Cope); (2) have a fixed charge coverage ratio of at least 1.0 to 1.0, measured monthly on a trailing twelve-month basis (with an add-back for a one-time severance payment of $2,520,120, less principal payments, made to Stephen Cope); (3) furnish the agent and lenders with a Forbearance Compliance Certificate, in form and substance reasonably satisfactory to the agent and lenders, within thirty days after the end of each month; (4) diligently pursue a financing commitment from a third party financing source, the proceeds of which will be used to repay all obligations under the Revolving Facility; and (5) deliver a weekly status report to the agent regarding the status of all actions taken to seek such financing commitment.

On April 6, 2015, the Borrowers entered into the Fifth Amendment to Term Loan and Security Agreement and Forbearance Agreement (the “Fifth Term Loan Amendment”) to, among other things, (1) amend the maturity date of the Term Facility from September 30, 2015 to November 30, 2015; and (2) amend the capital expenditures covenant to limit capital expenditures to $350,000 for the period January 1, 2015 through May 31, 2015.

In addition, the Fifth Term Loan Amendment provides that during the period beginning March 31, 2015 and ending on the earlier of (a) the occurrence of a Termination Event (as defined in the Fifth Term Loan Amendment) or (b) 5:00 pm Houston time on May 31, 2015, the lenders under the Term Facility agree to forbear from commencing any Enforcement Action (as defined in the Fifth Term Loan Amendment) as a result of certain Existing Defaults (as defined in the Fifth Term Loan Amendment) or the Borrowers’ failure to comply with either the fixed charge coverage ratio covenant or minimum EBITDA covenant in the Term Loan Agreement for the quarter ended March 31, 2015, so long as the Borrowers (1) have at least $5,000,000 in EBITDA, measured monthly on a trailing twelve-month basis (with an add-back for a one-time severance payment of $2,520,120, less principal payments, previously made to Stephen Cope); (2) have a fixed charge coverage ratio of at least 1.0 to 1.0, measured monthly on a trailing twelve-month basis (with an add-back for a one-time severance payment of $2,520,120, less principal payments, previously made to Stephen Cope); (3) furnish the agent and lenders with a Forbearance Compliance Certificate, in form and substance reasonably

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acceptable to the agent and lenders, within thirty days after the end of each month; and (4) diligently pursue options that would cause or enable the repayment in full of all obligations under the Revolving Facility, including by pursuing a financing commitment from a third party financing source.

The Fifth Term Loan Amendment also provides that the agent under the Term Facility may take action to preserve its rights in the collateral securing the Term Facility.

In connection with the Fourth and Fifth Term Loan Amendments described above, the Borrowers are required to continue to comply with the 2015 cost reduction plan approved by the Company’s Board of Directors.

On December 31, 2014, the Borrowers entered into the Fourth Amendment to Amended and Restated Revolving Credit and Security Agreement and Forbearance Agreement (the “Fourth Revolving Facility Amendment”) to, among other things, (1) amend the maturity date of the Revolving Facility from December 31, 2014 to March 31, 2015; (2) amend the capital expenditures covenant to limit capital expenditures to not greater than (a) $2,000,000 for the twelve months ended December 31, 2014 and (b) $300,000 for the three months ended March 31, 2014; (3) increase the Applicable Margin for revolving advances to 5.50% (from 4.50%); (4) reduce the Letter of Credit Sublimit to $500,000 (from $2,000,000); and (5) decrease the fee applicable to the average daily face amount of each outstanding letter of credit to 3.50% (from 4.50%).

In addition, the Fourth Revolving Facility Amendment provides that during the period beginning December 31, 2014 and ending on the earlier of (a) the occurrence of a Termination Event (as defined in the Fourth Revolving Facility Amendment) or (b) 5:00 pm Houston time on March 31, 2015, the lenders under the Revolving Facility agree to forbear from commencing any Enforcement Action (as defined in the Fourth Revolving Facility Amendment) as a result of certain Existing Defaults (as defined in the Fourth Revolving Facility Amendment) or Borrowers’ failure to comply with either the fixed charge coverage ratio covenant or minimum EBITDA covenant in the Revolving Credit Agreement for the quarters ended December 31, 2014 or March 31, 2015, so long as the Borrowers (1) have at least $5,000,000 in EBITDA, measured monthly on a trailing twelve-month basis (with an add-back for a one-time severance payment of $2,520,120, less principal payments, made to Stephen Cope); (2) have a fixed charge coverage ratio of at least 1.0 to 1.0, measured monthly on a trailing twelve-month basis (with an add-back for a one-time severance payment of $2,520,120, less principal payments, made to Stephen Cope); (3) furnish the agent and lenders with a Forbearance Compliance Certificate, in form and substance reasonably satisfactory to the agent and lenders, within thirty days after the end of each month; (4) diligently pursue a financing commitment from a third party financing source, the proceeds of which will be used to repay all obligations under the Revolving Facility; and (5) deliver a weekly status report to the agent regarding the status of all actions taken to seek such financing commitment.

On April 6, 2015, the Borrowers entered into the Fifth Amendment to Amended and Restated Revolving Credit and Security Agreement and Forbearance Agreement (the “Fifth Revolving Facility Amendment”) to, among other things, (1) amend the maturity date of the Revolving Facility from March 31, 2015 to May 31, 2015; (2) amend the capital expenditures covenant to limit capital expenditures to $350,000 for the period January 1, 2015 through May 31, 2015; (3) increase the Applicable Margin for revolving advances to 6.50% (from 5.50%); and (4) reduce the maximum amount for revolving advances to $13,500,000 (from $15,000,000).

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Cope); (2) have a fixed charge coverage ratio of at least 1.0 to 1.0, measured monthly on a trailing twelve-month basis (with an add-back for a one-time severance payment of $2,520,120, less principal payments, previously made to Stephen Cope); (3) furnish the agent and lenders with a Forbearance Compliance Certificate, in form and substance reasonably acceptable to the agent and lenders, within thirty days after the end of each month; and (4) diligently pursue options that would cause or enable the repayment in full of all obligations under the Revolving Facility, including by pursuing a financing commitment from a third party financing source.

The Fifth Revolving Facility Amendment also provides that the agent under the Revolving Facility may take action to preserve its rights in the collateral securing the Revolving Facility, decrease or increase any advance rates from time to time in agent’s credit judgment, or increase, modify the amount, timing or purpose of any reserves as agent deems proper from time to time in agent’s credit judgment.

In connection with the Fourth and Fifth Revolving Facility Amendments described above, the Borrowers (1) are required to continue to comply with the 2015 cost reduction plan approved by the Company’s Board of Directors and (2) were required to affirm and acknowledge the imposition of a $500,000 reserve against availability under the Revolving Facility (as of November 13, 2014) and the imposition of an additional reserve in the amount of $50,000 on November 17 and each week thereafter until such time as the agent may determine in its sole Credit Judgment (as defined in the Revolving Credit Agreement).

The Company’s ability to obtain additional external debt financing will be limited by the amount and terms of its existing borrowing arrangements and the fact that substantially all of its assets have been pledged as collateral for these existing arrangements. In addition, a failure to comply with the covenants under its existing debt instruments could result in an event of default. Furthermore, there are cross-default provisions in certain of the Company’s existing debt instruments such that an event of default under one agreement or instrument could result in an event of default under another. If an event of default resulted in the acceleration of all of its payment obligations under its debt instruments as of December 31, 2014, it would be required to pay its lenders an aggregate of $33.1 million. In the event of an acceleration of amounts due under its debt instruments as a result of an event of default, the Company may not have sufficient funds or may be unable to arrange for additional financing to repay its indebtedness or to make any accelerated payments, and the lenders could seek to enforce their security interests in the collateral securing such indebtedness. The Company’s failure to obtain additional external financing to fund its cash requirements would further cause noncompliance with its existing debt covenants which would have a material adverse effect on its business, prospects and financial condition. The Company also has negative working capital of $39.1 million at December 31, 2014. As a result of these factors there is substantial doubt about the Company’s ability to continue as a going concern.

Preferred Stock Purchase Agreements

On December 14, 2012, we entered into a stock purchase agreement with our Sponsor pursuant to which our Sponsor purchased 25,000 shares of Series A Preferred Stock at a price per share of $100 for aggregate proceeds to the Company of $2.5 million.

On November 14, 2013, the Company entered into a Stock Purchase Agreement with our Sponsor, pursuant to which our Sponsor purchased 5,000 shares of Series B Preferred Stock at a price per share of $100 for aggregate proceeds to the Company of $0.5 million.

On November 14, 2013, the Company also entered into a Stock Purchase Agreement with Stephen D. Cope, who at the time was our Chief Executive Officer and a director, pursuant to which Mr. Cope purchased 5,000 shares of Series C Preferred Stock at a price per share of $100 for aggregate proceeds to the Company of $0.5 million. On April 7, 2014, Mr. Cope sold all of these shares to our Sponsor at a price per share of $100, plus accrued interest.

Cash Flows for the Years Ended December 31, 2014 and 2013

Net cash provided by operating activities was $1.1 million in fiscal year 2014 versus $2.2 million in fiscal year 2013. The $1.1 decline in cash flow from operations in 2014 versus 2013 was primarily due to a $4.2 million decline in cash generated from working capital in 2014 versus a $0.9 million increase in cash generated from working capital in 2013. This net decline in cash generated from working capital of

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$5.1 million and the decrease of $2.8 million of lower adjustments to net income were offset by a $6.8 million lower net loss in 2014 versus 2013.

The net decline in cash generated from working capital of $5.1 million primarily came from higher accounts payable and customer advanced billing and payments of $21.2 million offset by lower accounts receivable and inventories of $26.3 million in 2014 versus 2013 as compared to their respective previous year’s December balances.

The Company invested approximately $0.5 million in intangibles during fiscal year 2013. Capital expenditures were approximately $0.2 million during both 2014 and 2013 fiscal years.

For financing activities, in the 2014 fiscal year, the Company incurred additional net long-term of borrowing $87.8 million versus net repayments of long-term debt in fiscal year 2014 of $88.4 million. In the 2013 fiscal year, the Company incurred additional net long-term of borrowing $103 million versus net repayments of long-term debt in fiscal year 2013 of $105 million.

As a result of the foregoing activities, in the 2014 fiscal year, the Company’s cash increased by $0.3 million versus a decrease of cash of $0.6 million in the comparable 2013 fiscal year.

In 2014 and 2013, the Company paid cash interest of $3.3 million and $3.0 million, respectively. Cash income tax payments were $0.04 million in the 2014 fiscal year versus $0.3 million in the comparable 2013 fiscal year.

Contractual Obligations

We are a party to various contractual obligations. A portion of these obligations are reflected in our financial statements, such as long-term debt, while other obligations, such as operating leases and purchase obligations, are not reflected on our balance sheet. The following is a summary of our contractual obligations as of December 31, 2014 (in thousands):

Payments by Period
(in thousands)


	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Long-term debt		$39,161		$34,364		$4,797		$—		$—
Capital leases		227		95		132		—		—
Noncancellable operating leases		3,795		1,349		2,446		—		—
Purchase commitments		7,398		7,398		—		—		—
		$50,581		$43,206		$7,375		$—		$—

We believe that we will have the working capital resources necessary to meet our projected operational needs for fiscal year 2015 provided that we are successful in extending our current debt maturities and/or are able to obtain additional working capital through credit arrangements, debt, or additional equity. There can be no assurance that we will be able to extend our debt maturity dates and/or whether additional financing sources will be available.

Critical Accounting Policies and Management Estimates

The SEC defines critical accounting policies as those that are, in management’s view, important to the portrayal of our financial condition and results of operations and demanding of management’s judgment. Our discussion and analysis of financial condition and results of operation are based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates on experience and on various assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates.

Revenue Recognition

We report earnings from firm-price and modified firm-price long-term contracts on the percentage-of-completion method. Earnings are recorded based on the ratio of costs incurred to-date to total

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estimated costs. Costs include direct material, direct labor, and job related overhead. Losses expected to be incurred on contracts are charged to operations in the period such losses are determined. A contract is considered complete when its manufacturing process is complete, the customer has been provided with all proper inspection and other required documentation, title and risk of loss has passed to the customer, collectability is reasonably assured and the product has been delivered.

The percentage-of-completion method requires us to make estimates regarding the total costs of the project, progress against the project schedule and the estimated completion date, all of which impact the amount of revenue and gross margin we recognize in each reporting period. Significant projects and their related costs and profit margins are updated and reviewed at least quarterly by our senior management. Factors that may affect future project costs and margins include weather, production inefficiencies, availability and cost of labor, materials and subcomponents and other factors. These factors can impact the accuracy of our estimates and materially impact our future reported earnings. The cumulative impact of any revisions to estimates and the full impact of anticipated losses on contracts are recognized in the period in which they become known. Losses expected to be incurred on jobs in progress, are charged to income as soon as such losses are known.

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We review our allowance for doubtful accounts on a quarterly basis. Reserves for potential losses are based on our estimate of the probability of collection for certain accounts, our historical experience of bad debt expense and the aging of its accounts receivable balances. Accounts are written-off when an account is determined to no longer be collectable, based on our past collection history, or after we have exhausted all possible means of collection.

We have typically not experienced unanticipated bad debt losses as a result of our business practices of securing advance payments for a large percentage of our projects during the construction process, and securing final payments from customers that may present collectability issues prior to shipment.

Inventories

Inventories consist of raw materials and finished goods and work-in-process (see Revenue Recognition). Inventories of raw materials and finished goods are stated at the lower of cost or market using the average method. Allowances for excess and obsolete inventories are determined based on our historical usage of inventory on-hand as well as our future expectations related to our manufacture of product.

Recent Accounting Pronouncements

In May 2014, the FASB issued an ASU relating to the revenue recognition from contracts with customers that creates a common revenue standard for GAAP and IFRS. The core principle will require recognition of revenue to represent the transfer of promised goods or services to customers in an amount that reflects the consideration, including costs incurred, to which the entity expects to be entitled in exchange for those goods or services. These changes are effective for interim and annual periods that begin after December 15, 2016. Early application is not permitted. We are currently evaluating the impact this will have on our consolidated financial statements.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Item 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable.

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Item 8.

CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Integrated Drilling Equipment Holdings Corp.
Index
December 31, 2014 and 2013


	Page(s)
Reports of Independent Registered Public Accounting Firms		46
Consolidated Financial Statements
Consolidated Balance Sheets		48
Consolidated Statements of Operations		49
Consolidated Statements of Stockholders’ Deficit		50
Consolidated Statements of Cash Flows		51
Notes to Consolidated Financial Statements		52
Schedule II — Valuation and Qualifying Accounts		95

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders
Integrated Drilling Equipment Holdings Corp.

We have audited the accompanying consolidated balance sheet of Integrated Drilling Equipment Holdings Corp. (the “Company”), as of December 31, 2014, and the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for the year then ended. Our audit of the consolidated financial statements included the financial statement schedule listed in the index appearing under Item 15. The Company’s management is responsible for these financial statements and the financial statement schedule. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2014, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company’s current liabilities exceed its current assets by $39.1 million and the Company incurred a net loss of $866 thousand as of and for the year ended December 31, 2014, respectively. These conditions, along with other matters as set forth in Note 3, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Whitley Penn LLP
Houston, Texas
April 10, 2015

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of
Integrated Drilling Equipment Holdings Corp.

In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, of stockholders’ deficit, and of cash flows present fairly, in all material respects, the financial position of Integrated Drilling Equipment Holdings Corp. and its subsidiaries at December 31, 2013, and the results of their operations and their cash flows for the year ended December 31, 2013 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule for the year ended December 31, 2013 listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and the financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP
Houston, Texas
April 16, 2014, except for Note 2, as to which the date is April 10, 2015

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Integrated Drilling Equipment Holdings Corp.

Consolidated Balance Sheets
December 31, 2014 and 2013


	December 31,
(in thousands, except share and par value)	2014			2013
Assets
Current assets
Cash and cash equivalents	$	1,263		$	981
Restricted cash		—			83
Accounts receivable, net		20,170			13,333
Inventories, net		7,950			7,039
Deferred tax assets		50			133
Prepaid expenses and other current assets		878			782
Total current assets		30,311			22,351
Intangibles, net		1,508			2,798
Property, equipment and improvements, net		2,217			2,686
Deferred financing costs, net		364			1,517
Deposits		91			91
Total assets	$	34,491		$	29,443
Liabilities and Stockholders’ Deficit
Current liabilities
Current maturities of long-term debt	$	37,814		$	12,974
Current portion of capital lease obligations		90			64
Trade accounts and other payables		14,201			14,482
Accrued liabilities		7,425			8,654
Customer advanced billings and payments, and other		9,892			5,877
Total current liabilities		69,422			42,051
Long-term debt, less current maturities		1,346			22,746
Capital lease obligations, net of current		124			98
Deferred tax liability		50			133
Total liabilities		70,942			65,028
Commitments and contingencies (see Note 15)
Stockholders’ deficit
Common stock $0.0001 par value Authorized shares 100,000,000 Issued shares 8,809,917		1			1
Accumulated deficit		(36,452	)		(35,586	)
Total stockholders’ deficit		(36,451	)		(35,585	)
Total liabilities and stockholders’ deficit	$	34,491		$	29,443

The accompanying notes are an integral part of these consolidated financial statements.

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Integrated Drilling Equipment Holdings Corp.

Consolidated Statements of Operations
December 31, 2014 and 2013


	December 31,
(in thousands, except share and per share amounts)	2014			2013
Revenue
Products	$	52,240		$	64,373
Services		35,054			39,375
Total revenue		87,294			103,748
Cost of goods sold and services
Products		39,550			48,672
Services		20,136			25,993
Total cost of goods sold and services		59,686			74,665
Selling, general and administrative expense		20,954			25,039
Impairment of intangible assets		—			858
Depreciation and amortization expense		2,117			2,162
Income from operations		4,537			1,024
Other (income) expense
Interest expense		5,922			5,561
Other expense (income)		(584	)		(820	)
Loss before income taxes		(801	)		(3,717	)
Income taxes
Current		65			70
Deferred		—			3,873
Total income taxes		65			3,943
Net loss	$	(866	)	$	(7,660	)
Weighted average shares outstanding:
Basic		8,809,917			8,703,986
Diluted		8,951,650			8,846,198
Loss per share:
Basic	$	(0.10	)	$	(0.88	)
Diluted	$	(0.10	)	$	(0.88	)

The accompanying notes are an integral part of these consolidated financial statements.

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Integrated Drilling Equipment Holdings Corp.

Consolidated Statements of Stockholders’ Deficit
December 31, 2014 and 2013


	Shares Issued				Stock				Accumulated Deficit			Total Stockholders’ Deficit
(in thousands, except share data)	Common		Preferred		Common		Preferred		Accumulated Deficit			Total Stockholders’ Deficit
Balances at December 31, 2012		8,646,700		—	$	1	$	—	$	(29,168	)	$	(29,167	)
Net loss		—		—		—		—		(7,660	)		(7,660	)
Issuance of common shares in exchange for warrants		39,000		—		—		—		—			—
Issuance of common shares in exchange for obligations		124,217		—		—		—		1,242			1,242
Balances at December 31, 2013		8,809,917		—	$	1	$	—	$	(35,586	)	$	(35,585	)
Net loss		—		—		—		—		(866	)		(866	)
Balances at December 31, 2014		8,809,917		—	$	1	$	—	$	(36,452	)	$	(36,451	)

The accompanying notes are an integral part of these consolidated financial statements.

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Integrated Drilling Equipment Holdings Corp.

Consolidated Statements of Cash Flows
December 31, 2014 and 2013


	December 31,
(in thousands)	2014			2013
Operating activities
Net loss	$	(866	)	$	(7,660	)
Adjustments to reconcile net loss to cash provided by operating activities
Depreciation and amortization expense		2,117			2,162
Deferred income tax		—			3,873
Provision for bad debts		(222	)		281
Provision for inventory obsolescence		(125	)		150
Amortization of deferred financing costs		1,153			1,494
Impairment of intangible assets		—			858
Loss on sale of fixed assets		—			53
Unrealized gain on warrant valuation		(546	)		(778	)
Paid in-kind interest expense		1,480			856
Compensation expense in form of note payable		2,254			—
Changes in operating assets and liabilities
Trade accounts receivable		(6,615	)		13,778
Inventories		(786	)		5,150
Other current assets		(96	)		259
Trade accounts and other payables		(211	)		(9,230	)
Accrued liabilities		(486	)		(860	)
Customer advanced billings and payments		4,014			(8,172	)
Net cash provided by operating activities		1,065			2,214
Investing activities
Capital expenditures for intangibles		—			(479	)
Capital expenditures for property, plant and equipment		(202	)		(204	)
Proceeds from sales of property, equipment and improvements		—			40
Restricted cash		83			420
Net cash used in investing activities		(119	)		(223	)
Financing activities
Issuance of long-term debt		87,809			102,615
Repayments of long-term debt		(88,369	)		(105,181	)
Payment of capital lease		(104	)		(46	)
Net cash (used in) financing activities		(664	)		(2,612	)
Increase (decrease) in cash and cash equivalents		282			(621	)
Cash and cash equivalents
Beginning of year		981			1,602
End of year	$	1,263		$	981
Supplemental cash flow disclosure
Cash paid for interest	$	3,299		$	2,977
Cash paid for income taxes		41			305
Noncash activity
Property and equipment acquired through capital leases	$	182		$	142
Equity issued in exchange for obligations		—			1,242

The accompanying notes are an integral part of these consolidated financial statements.

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Integrated Drilling Equipment Holdings Corp.

Notes to Consolidated Financial Statements
December 31, 2014 and 2013

1. Nature of Business

Integrated Drilling Equipment Holdings Corp. (the “Company”) provides products and services to customers in the oil and gas industry both domestically and internationally. The majority of the Company’s business is conducted through two operating segments: (1) Electrical Products and Services (the “electrical segment”) and (2) Drilling Products and Services (the “drilling segment”). Unless otherwise provided, references to the “Company,” “IDE,” “we,” “us” and “our” refer to Integrated Drilling Equipment Holdings Corp. and its subsidiaries.

Our electrical segment designs, manufactures, installs and services rig electrical and control systems including SCR (silicon controlled rectifier) units and VFD (variable frequency drive) units, as well as electrical cabling, lighting systems, closed circuit video systems, gas and fire detection systems, and communication systems.

Our drilling segment is a full service provider of drilling rigs and their components. We design, manufacture, and service complete land-based drilling rigs, as well as rig subsystems and parts. We provide drilling rig services including: mechanical services, assembly testing (rig-up/final construction and commission), rig refurbishment and inspection, new rig fabrication and completion of land rig packages. Additionally, we fabricate mud tanks, masts and substructures, dog houses and other products.

The accompanying consolidated financial statements and related footnotes are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

2. Revision of Previously Issued Financial Statements

Management identified an error in our previously issued consolidated financial statements resulting in the revision of the consolidated financial statements for the year ended December 31, 2013. As a result of the error, beginning accumulated deficit at January 1, 2013 and ending accumulated deficit at December 31, 2013 were understated by approximately $729 thousand. Additionally, accrued and total liabilities were understated by the same amount at December 31, 2013. The error was the result of an overestimate of revenue from a customer deposit that impacted the year ended December 31, 2012. Management concluded that the error was not material but has revised these financial statements to reflect the error.

The schedule below provides a summary of the impact of the adjustment on our consolidated financial statements (in thousands).


	December 31, 2013
	As Previously Reported			Adjustments			As Revised
Balance Sheet:
Customer advanced billings and payments	$	5,148		$	729		$	5,877
Total liabilities		64,299			729			65,028
Accumulated deficit		(34,857	)		(729	)		(35,586	)
Total stockholders’ deficit		(34,856	)		(729	)		(35,585	)
Total liabilities and stockholders’ deficit		29,443			—			29,443
Consolidated Statement of Stockholders’ Deficit
Beginning accumulated deficit		(28,439	)		(729	)		(29,168	)
Ending accumulated deficit		(34,857	)		(729	)		(35,586	)

3. Company Financing

As of December 31, 2014, the Company had cash and cash equivalents of approximately $1.3 million. In addition, in December 2014, the Company entered into amendments to both its Term Facility and its Revolving Facility (as described in note 11 below) which, among other things, extended the maturities of

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Integrated Drilling Equipment Holdings Corp.

Notes to Consolidated Financial Statements
December 31, 2014 and 2013

3. Company Financing – (continued)

these facilities to September 30, 2015 and March 31, 2015, respectively. The Company believes its existing cash and cash equivalents, $1.4 million available from its revolving facility, expected revenues from its contractual backlog of $30.4 million, and future orders will enable it to meet its material liquidity needs for the next twelve months from the balance sheet date provided that we are successful in extending or refinancing our current debt maturities and/or are able to obtain additional working capital through credit arrangements, debt, or additional equity. There can be no assurance that we will be able to extend our debt maturity dates and/or whether additional financing sources will be available.

The Company’s ability to obtain additional external debt financing will be limited by the amount and terms of its existing borrowing arrangements and the fact that substantially all of its assets have been pledged as collateral for these existing arrangements. In addition, a failure to comply with the covenants under our Term Facility and Revolving Facility (the “Credit Facilities”) is an event of default which could lead to an acceleration of the debt. Furthermore, there are cross-default provisions in certain of the Company’s existing debt instruments such that an event of default under one agreement or instrument could result in an event of default under another. If an event of default resulted in the acceleration of all of its payment obligations under its Credit Facilities as of December 31, 2014, it would be required to pay its lenders an aggregate of $33.1 million. In the event of an acceleration of amounts due under its Credit Facilities as a result of an event of default, the Company may be unable to arrange for additional financing to repay its indebtedness or to make any accelerated payments, and the lenders could seek to enforce their security interests in the collateral securing such indebtedness.

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

The Company’s failure to obtain additional external financing to fund its cash requirements would further cause noncompliance with its existing debt covenants which would have a material adverse effect on its business, operations and financial condition. The Company incurred a net loss of $866 thousand and $7.66 million for the years ended December 31, 2014 and 2013, respectively. The Company also has negative working capital of $39.1 million at December 31, 2014. As a result of these factors there is substantial doubt about the Company’s ability to continue as a going concern.

4. PEMEX Contract Termination

On August 9, 2013, the Company received notices from PEMEX Procurement International, Inc. (“PII”) (formerly Integrated Trade Systems, Inc.), an agent for PEMEX-Exploración y Producción (“PEMEX”) terminating the four purchase agreements for modular drilling units. The collective value of the four agreements was approximately $354.0 million. The Company, through its subsidiaries Integrated Drilling Equipment LLC and IDE Perforación Mexico, S. de R.L. de C.V., entered into these four purchase agreements with PII, an agent for PEMEX, on March 22, 2013.

Pursuant to each purchase agreement, the Company was required to deliver to PII within 20 business days of signing the purchase agreement: (1) a stand-by letter of credit for 12% of the purchase price; and (2) a bond for 20% of the purchase price (together with the letter of credit, the “guarantees”).

The Company was unable to secure the necessary guarantee obligations within the time period contemplated by the purchase agreements. On June 14, 2013, PEMEX notified IDE that they were in default of its guarantee obligations under the contracts signed on March 22, 2013 because IDE had failed to provide the required letters of credit and performance bonds within the time period as required under Articles 21.1 and 21.2, respectively, under the contract. Subsequently, on August 9, 2013, PEMEX notified the Company that it terminated these purchase agreements due to the Company’s default.

As a result of their decision to exercise its right to terminate the purchase agreements, under the terms of the agreements, PEMEX may seek liquidated damages from the Company in the amount of 12% of the

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Integrated Drilling Equipment Holdings Corp.

Notes to Consolidated Financial Statements
December 31, 2014 and 2013

4. PEMEX Contract Termination – (continued)

purchase price of each of the modular drilling units. As of December 31, 2014, no provision has been made for any potential liability that could arise should PEMEX seek liquidating damages as a result of the terminated purchase agreements.

5. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements in this Annual Report on Form 10-K have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). These financial statements include the financial position, results of operations, and cash flows of Integrated Drilling Equipment Holdings Corp. and its subsidiaries, all of which are wholly-owned. All inter-company accounts and transactions have been eliminated in consolidation.

Use of Estimates

In preparing financial statements, we make informed judgments and estimates that affect the reported amounts of assets and liabilities as of the date of the financial statements and affect the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we review our estimates, including those related to percentage of completion and related revenue recognition, deferred revenues, and inventory valuation and reserves. Changes in facts and circumstances may result in revised estimates and actual results may differ from these estimates.

Cash and Cash Equivalents

We consider all highly liquid investments with an original maturity of three months or less at the time of purchase to be a cash equivalent We maintain cash in bank deposit accounts, which, at times, may exceed federally insured limits. We have not experienced any losses in such accounts.

Restricted Cash

Restricted cash primarily consists of cash proceeds set aside for payment of medical claims relating to our self-insurance group health program.

Fair Value of Financial Instruments

The Company’s financial instruments consist primarily of cash and cash equivalents, trade receivables, trade payables, and long-term debt. We believe the carrying values of cash and cash equivalents, trade receivables, and trade payables to be representative of their respective fair values because of short-term maturities or expected settlement dates. The carrying value of the term debt approximates fair value due to the variable interest rate.

Accounts Receivable

We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. Reserves for potential losses are based on our estimate of the probability of collection for certain accounts, our historical experience of bad debt expense and the aging of our accounts receivable balances. Accounts are written-off when the account is determined to no longer be collectible, based on our past collection history or after we have exhausted all possible means of collection.

Inventories

Inventories consist of raw materials, finished goods, and work-in-process. Inventories of raw materials and finished goods are stated at the lower of cost or market using the average cost method. Allowances for excess and obsolete inventories are determined based on our historical usage of inventory as well as our future manufacturing

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Integrated Drilling Equipment Holdings Corp.

Notes to Consolidated Financial Statements
December 31, 2014 and 2013

5. Summary of Significant Accounting Policies – (continued)

needs. Inventories are disclosed net of reserves for excess and obsolete inventory of $225 thousand and $350 thousand at December 31, 2014 and 2013, respectively.

Intangibles

Intangibles are stated at cost, less accumulated amortization, and consist of technical drawings and engineering work relating to our rig technology and product design. Amortization is computed on a straight-line method over five years.

The carrying value of these assets is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. An impairment loss is recorded in the period in which it is determined that the carrying amount is not recoverable. Factors we consider important that could trigger an impairment review include significant underperformance relative to historical or projected future operating results, significant negative industry or economic trends or unanticipated competition. No impairment of intangible assets were recorded for the year ended December 31, 2014. Impairment of intangibles assets amounted to $858 thousand for the year ended December 31, 2013.

Property, Equipment and Improvements

Property, equipment and improvements are stated at cost, less accumulated depreciation. Expenditures for maintenance and repairs that do not extend the useful life of equipment are charged to expense as incurred. Replacements of significant items and major renewals and betterments are capitalized. When property and equipment is sold or otherwise disposed of, the related cost and accumulated depreciation or amortization are removed from the respective accounts and the resulting gain or loss on disposition is reflected in the statement of operations.

Depreciation is computed using useful lives under the straight-line method as follows:


Buildings		30 years
Leasehold improvements		Shorter of useful life or lease term
Machinery and equipment		5 years
Software		5 years
Vehicles		5 years
Furniture and fixtures		5 years

Assets acquired under capital leases are amortized over the shorter of the estimated useful lives or the respective lease term.

We review our property, equipment and improvements for impairment whenever events or changes in business circumstances indicate that the carrying amount of assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Each impairment test is based on a comparison of the undiscounted future cash flows to the recorded value of the asset. If impairment is indicated, the asset is written down to its estimated fair value. No impairment was recorded for the years ended December 31, 2014 or 2013, respectively.

Deferred Financing Costs

Deferred financing costs associated with long-term debt are carried at cost and expensed using the effective interest rate method over the term of the notes. If the related debt is prepaid, the Company accelerates the recognition of an appropriate amount of the costs as interest expense.

In December 2012, in connection with the Term Facility, the Company recorded warrants issued as deferred financing costs. The Company carries these warrants at fair value, which is based upon our closing stock price at the end of a reporting period, and is re-measured on a recurring basis. The estimated fair value

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Integrated Drilling Equipment Holdings Corp.

Notes to Consolidated Financial Statements
December 31, 2014 and 2013

5. Summary of Significant Accounting Policies – (continued)

of these warrants, was $57 thousand and $603 thousand as of December 31, 2014 and 2013, respectively. The deferred financing costs are being amortized over the amended term of the loan.

Accumulated amortization for all deferred financing costs as of December 31, 2014 and 2013 totaled $2.1 million and $1.6 million, respectively.

Revenue Recognition

We report earnings from firm-price and modified firm-price long-term contracts on the percentage-of-completion method. Earnings are recorded based on the ratio of costs incurred to date to total estimated costs. Costs include direct material, direct labor, and job related overhead. Losses expected to be incurred on contracts are charged to operations in the period such losses are determined.

The percentage-of-completion method requires us to make estimates regarding the total costs of the project, progress against the project schedule and the estimated completion date, all of which impact the amount of revenue and gross margin we recognize in each reporting period. Significant projects and their related costs and profit margins are updated and reviewed at least quarterly by our senior management members. Factors that may affect future project costs and margins include weather, production inefficiencies, availability and cost of labor, materials and subcomponents and other factors. These factors can impact the accuracy of our estimates and materially impact our future reported earnings. The cumulative impact of any revisions to estimates and the full impact of anticipated losses on contracts are recognized in the period in which they become known. Losses expected to be incurred on jobs in progress, are charged to income as soon as such losses are known.

The asset, “unbilled revenue,” which is included in accounts receivable, represents revenues recognized in excess of amounts billed. The liability, “customer advanced billings and payments,” represents billings in excess of revenues recognized. The asset, “work-in-process,” which is included in inventories, represents the cost of labor, material, and overhead in excess of amounts billed on jobs accounted for under the completed-contract method. Where we believe that we are unable to reasonably forecast cost-to-complete at start-up, our policy is to account for fixed-priced contracts under the completed contact method. Under this method, income is recognized only when a contract is completed or substantially complete and collection is reasonably assured.

Revenues derived from “time and material” contracts are recognized as the work is performed and collection is reasonably assured. We record revenue from our field and technical service and repair operations on a completed service basis after customer acknowledgement that the service has been completed and accepted and collection is reasonably assured.

In addition, we sell certain purchased parts and products. These revenues are recorded when the product is shipped and title passes to the customer and collection is reasonably assured.

Basic earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that would share in the net income of the Company.

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Integrated Drilling Equipment Holdings Corp.

Notes to Consolidated Financial Statements
December 31, 2014 and 2013

5. Summary of Significant Accounting Policies – (continued)

The following table (in thousands, except share and per share amounts) sets forth the computation of basic and diluted loss per share:


	2014			2013
Basic:
Net loss	$	(866	)	$	(7,660	)
Weighted average common shares		8,809,917			8,703,986
Basic loss per share	$	(0.10	)	$	(0.88	)
Diluted:
Net loss	$	(866	)	$	(7,660	)
Basic weighted average common shares		8,809,917			8,703,986
Potential common shares		141,733			142,212
Diluted weighted average common shares		8,951,650			8,846,198
Diluted loss per share⁽¹⁾	$	(0.10	)	$	(0.88	)

(1)

There were no dilutive shares included in the computation of diluted loss per share for the years ended December 31, 2014 and 2013, because their inclusion would be anti-dilutive.

Advertising Costs

Advertising costs are expensed as incurred and are included in selling expenses. Advertising costs for the years ended December 31, 2014 and 2013 amounted to $10 thousand and $63 thousand, respectively.

Income Taxes

Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

In assessing the reliability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the future generation of taxable income during the periods in which those temporary differences become deductible. Management has considered the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. During 2013, the Company recorded a non-cash charge to establish a valuation allowance of $4.7 million against our gross deferred tax assets of $5.3 million. The valuation allowance is based on an assessment of both positive and negative evidence when measuring the need for a valuation allowance.

Currently, the Company has a reduced backlog which has created a greater degree of uncertainty that a sufficient level of future profitability will be generated to realize the deferred tax assets. This, along with the losses incurred year to date, represented sufficient negative evidence to require a valuation allowance. The Company intends to maintain a valuation allowance until sufficient positive evidence exists to support its reversal.

Concentration of Credit Risks

Current energy prices are important contributors to positive cash flow for our customers as well as expectations about future spending levels. However, any prolonged increase or decrease in oil and natural gas

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Integrated Drilling Equipment Holdings Corp.

Notes to Consolidated Financial Statements
December 31, 2014 and 2013

5. Summary of Significant Accounting Policies – (continued)

prices affects the levels of exploration, development and production activity within the oil and natural gas industry, and can negatively impact spending by our customers.

The Company’s customers also take into account the volatility of energy prices and other risk factors by requiring higher returns for individual projects if there is a high perceived risk. Any of these factors could affect the demand for oil and natural gas and could have an adverse effect on our results of operations. The Company mitigates its exposure to credit risk by performing ongoing credit evaluations of its customer base.

For the year ended December 31, 2014, revenues from two customers individually exceeded 10% of revenues, and aggregated to $44.3 million or 51% of total revenues. For the year ended December 31, 2013, revenues from four customers individually exceeded 10% of revenues, and aggregated to $77.4 million or 75% of total revenues.

As of December 31, 2014, three customers individually exceeded 10% of trade accounts receivable, and aggregated to $8.8 million or 56% of trade accounts receivable outstanding. As of December 31, 2013 two customers individually exceeded 10% of trade accounts receivable, and aggregated to $6.9 million or 69% of trade accounts receivable outstanding.

Capital Resource Risks

The Company derives all its revenues from companies in the oil and gas exploration and production industry, a historically cyclical industry with levels of activity that are significantly affected by the levels and volatility in oil and gas prices. The Company competes with larger national and multi-national companies that have longer operating histories, greater financial, technical and other resources and greater name recognition. The Company’s results of operations, cash flows and financial condition may be affected by these factors. Additionally, these factors could impact the Company’s ability to obtain additional debt and equity capital required to implement the Company’s rig construction and growth strategy, and the cost of that capital.

Our primary source of liquidity is cash generated from the sales of our products and services. Assuming consistent volumes, these contracts typically do not require extensive working capital resources. Our primary use of cash is cost of sales, operating expenses, interest expense, working capital needs, purchases of intangibles, capital expenditures, and repayment of our debt obligations.

Contingencies

Liabilities for loss contingencies, arising from claims, assessments, litigation, fines, and penalties and other sources, are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.

Reclassifications

Certain reclassifications have been made in prior period financial statements to conform with current period presentation. The reclassifications have no impact on the Company’s financial position, results of operations, or cash flows.

6. Accounts Receivable

Accounts Receivable consists of the following (in thousands):


	December 31,
	2014			2013
Trade accounts receivable	$	15,725		$	10,081
Unbilled revenue and other		4,918			3,996
Less: Allowance for doubtful accounts		(473	)		(744	)
	$	20,170		$	13,333

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Integrated Drilling Equipment Holdings Corp.

Notes to Consolidated Financial Statements
December 31, 2014 and 2013

7. Uncompleted Contracts

Costs, estimated earnings and billings on uncompleted contracts are summarized below (in thousands):


	December 31,
	2014			2013
Costs incurred on uncompleted contracts	$	24,650		$	30,354
Earned margin		7,790			6,123
Earned revenue		32,440			36,477
Less: Billings to date		36,343			38,195
	$	(3,903	)	$	(1,718	)
Included in the accompanying balance sheets under the following captions:
Accounts receivable	$	5,071		$	3,390
Customer advanced billings and payments		(8,974	)		(5,108	)
	$	(3,903	)	$	(1,718	)

8. Inventories

Inventories consist of the following (in thousands):


	December 31,
	2014			2013
Raw materials and finished goods	$	4,248		$	5,193
Work in process		3,927			2,196
Reserve		(225	)		(350	)
	$	7,950		$	7,039

9. Intangibles

Intangibles consist of the following (in thousands):


	December 31,
	2014			2013
Rig technology and product design	$	4,642		$	4,642
Less: Accumulated amortization		(3,134	)		(1,844	)
	$	1,508		$	2,798

Amortization expense for the years ended December 31, 2014 and 2013 amounted to $1.3 million and $1.3 million, respectively.

Our estimated amortization expense relating to these intangibles for the next five years is summarized in the following table (in thousands):


2015	$	1,007
2016		430
2017		71
2018		—
	$	1,508

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Integrated Drilling Equipment Holdings Corp.

Notes to Consolidated Financial Statements
December 31, 2014 and 2013

10. Property, Equipment and Improvements

Property, equipment and improvements, including capital leases, consists of the following (in thousands):


	December 31,
	2014			2013
Machinery and equipment	$	3,236		$	3,142
Leasehold improvements		4,557			4,544
Assets held under capital leases		385			275
Less: Accumulated depreciation and amortization		(5,961	)		(5,275	)
	$	2,217		$	2,686

Depreciation expense relating to machinery and equipment and leasehold improvements for the years ended December 31, 2014 and 2013 amounted to $722 thousand and $868 thousand, respectively.

Amortization expense relating to assets held under capital leases for the years ended December 31, 2014 and 2013 amounted to $104 thousand and $43 thousand, respectively.

11. Debt and Redeemable Preferred Stock

Debt and redeemable preferred stock consisted of the following (in thousands):


	December 31,
	2014				2013
	Short-Term		Long-Term		Short-Term		Long-Term
$2.5 million redeemable preferred stock, Series A	$	3,450	$	—	$	—	$	2,949
$0.5 million redeemable preferred stock, Series B		—		620		—		514
$0.5 million redeemable preferred stock, Series C		—		581		—		509
$20.0 million revolving credit facility		13,484		—		11,774		—
$20.0 million term loan facility		19,620		—		1,200		18,774
$2.1 million promissory note		1,056		98		—		—
$0.4 million promissory note		204		47		—		—
	$	37,814	$	1,346	$	12,974	$	22,746

$2.5 Million Redeemable Preferred Stock

On December 14, 2012, the Company issued 25,000 shares of Series A Preferred Stock to our Sponsor at a purchase price of $100 per share or $2.5 million. The holders of the Series A Preferred Stock do not have the right to vote on matters submitted to our stockholders. The Series A Preferred Stock is not convertible into common stock and accrues cumulative dividends at a rate of 16% per year. The dividends are payable in additional shares of Series A Preferred Stock. The shares have a liquidation preference equal to the purchase price of the Series A Preferred Stock plus all accrued and unpaid dividends at the date of liquidation. The Series A Preferred Stock is redeemable at our option at any time on 15 days' notice, at any time after the first anniversary of the date on which all indebtedness for borrowed money is repaid in full. The optional redemption price is equal to the purchase price, plus all accrued and unpaid dividends to the date of redemption, subject to compliance with any restrictions in our then-outstanding indebtedness. The Series A Preferred Stock will be subject to mandatory redemption on the date which is 181 days following the latest maturity date of our indebtedness outstanding on December 14, 2012.

$0.5 Million Redeemable Preferred Stock

On November 14, 2013, the Company issued 5,000 shares of Series B Preferred Stock to our Sponsor at a purchase price of $100 per share or $0.5 million. The holders of the Series B Preferred Stock do not have the right to vote on matters submitted to our stockholders. The Series B Preferred Stock is not convertible into common stock and accrues cumulative dividends at a rate of 20% for the first year and 25% per year

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Integrated Drilling Equipment Holdings Corp.

Notes to Consolidated Financial Statements
December 31, 2014 and 2013

11. Debt and Redeemable Preferred Stock – (continued)

thereafter. The dividends are payable in additional shares of Series B Preferred Stock. The shares have a liquidation preference equal to the purchase price of the Series B Preferred Stock plus all accrued and unpaid dividends at the date of liquidation. The Series B Preferred Stock is redeemable at our option at any time on 15 days' notice, at any time after the first anniversary of the date on which all indebtedness for borrowed money is repaid in full. The optional redemption price is equal to the purchase price, plus all accrued and unpaid dividends to the date of redemption, subject to compliance with any restrictions in our then-outstanding indebtedness. The Series B Preferred Stock will be subject to mandatory redemption on the date which is 181 days following the latest maturity date of our indebtedness outstanding on November 14, 2013.

$0.5 Million Redeemable Preferred Stock

On November 14, 2013, the Company issued 5,000 shares of Series C Preferred Stock to Stephen D. Cope at a purchase price of $100 per share or $0.5 million. Subsequently, Mr. Cope sold these shares to our Sponsor. The holders of the Series C Preferred Stock do not have the right to vote on matters submitted to our stockholders. The Series C Preferred Stock is not convertible into common stock and accrues cumulative dividends at a rate of 14% per year. The dividends are payable in additional shares of Series C Preferred Stock. The shares have a liquidation preference equal to the purchase price of the Series C Preferred Stock plus all accrued and unpaid dividends at the date of liquidation. The Series C Preferred Stock is redeemable at our option at any time on 15 days' notice, at any time after the first anniversary of the date on which all indebtedness for borrowed money is repaid in full. The optional redemption price is equal to the purchase price, plus all accrued and unpaid dividends to the date of redemption, subject to compliance with any restrictions in our then-outstanding indebtedness. The Series C Preferred Stock will be subject to mandatory redemption on the date which is 181 days following the latest maturity date of our indebtedness outstanding on November 14, 2013.

$20.0 Million Revolving Credit Facility

In October 2011, we entered into a $20.0 million revolving credit facility with PNC Bank (the “Revolving Facility”). On December 14, 2012, this revolving credit facility was amended and restated. Borrowings under the line of credit bear interest at a rate determined by the lending institution, with a minimum rate of 1.5%. This revolving credit and security agreement was amended on April 9, 2013.

On October 17, 2013, the Borrowers entered into the Second Amendment to the Revolving Facility to, among other things, (1) reduce the Revolving Facility to $15.0 million (from $20.0 million), (2) amend the maturity date of the Revolving Facility from June 30, 2016 to March 31, 2014, (3) delete (a) the net worth financial covenant, (b) the fixed charge coverage ratio, (c) the minimum liquidity test and (d) the total leverage ratio and (4) amend (a) the minimum EBITDA financial covenant and (b) the capital expenditures financial covenant.

In connection with the Second Amendment described above, the Borrowers were required to (1) implement and comply with a cost reduction plan and (2) obtain (a) purchase orders or contracts with a value of not less than $28.0 million for the design, manufacture or servicing of one or more drilling rigs by October 31, 2013 or (b) at least $1.0 million in proceeds from the issuance of preferred stock by November 14, 2013. An event of default would have occurred under both the Term Facility and Revolving Facility if the Borrowers were unable to satisfy one of these requirements. As of October 1, 2013, the Company had implemented and was in compliance with the cost reduction plan and as of November 14, 2014, the Company had received net cash proceeds from a preferred stock investment in an aggregate amount of $1.0 million. As a result of the foregoing events, the Company was in compliance with the terms of its credit agreements.

On March 31, 2014, the Borrowers entered into the Third Amendment to the Revolving Facility to, among other things, (1) amend the maturity date of Revolving Facility from March 31, 2014 to December 31,

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Integrated Drilling Equipment Holdings Corp.

Notes to Consolidated Financial Statements
December 31, 2014 and 2013

11. Debt and Redeemable Preferred Stock – (continued)

2014, (2) insert a covenant regarding the fixed charge coverage ratio, (3) amend (a) the minimum EBITDA financial covenant and (b) the capital expenditures financial covenant and (4) amend the calculation of the amount of revolving advances lenders are required to make under the Revolving Facility.

In addition, the Fourth Revolving Facility Amendment provides that during the period beginning December 31, 2014 and ending on the earlier of (a) the occurrence of a Termination Event (as defined in the Fourth Revolving Facility Amendment) or (b) 5:00 pm Houston time on March 31, 2015, the lenders under the Revolving Facility agree to forbear from commencing any Enforcement Action (as defined in the Fourth Revolving Facility Amendment) as a result of certain Existing Defaults (as defined in the Fourth Revolving Facility Amendment) or Borrowers’ failure to comply with either the fixed charge coverage ratio covenant or minimum EBITDA covenant in the Revolving Facility for the quarters ended December 31, 2014 or March 31, 2015, so long as the Borrowers (1) have at least $5,000,000 in EBITDA, measured monthly on a trailing twelve-month basis (with an add-back for a one-time severance payment of $2,520,120 previously made to Stephen Cope); (2) have a fixed charge coverage ratio of at least 1.0 to 1.0, measured monthly on a trailing twelve-month basis (with an add-back for a one-time severance payment of $2,520,120 previously made to Stephen Cope); (3) furnish the agent and lenders with a Forbearance Compliance Certificate, in form and substance reasonably satisfactory to the agent and lenders, within thirty days after the end of each month; (4) diligently pursue a financing commitment from a third party financing source, the proceeds of which will be used to repay all obligations under the Revolving Facility; and (5) deliver a weekly status report to the agent regarding the status of all actions taken to seek such financing commitment.

In addition, the Fifth Revolving Facility Amendment provides that during the period beginning March 31, 2015 and ending on the earlier of (a) the occurrence of a Termination Event (as defined in the Fifth Revolving Facility Amendment) or (b) 5:00 pm Houston time on May 31, 2015, the lenders under the Revolving Facility agree to forbear from commencing any Enforcement Action (as defined in the Fifth Revolving Facility Amendment) as a result of certain Existing Defaults (as defined in the Fifth Revolving Facility Amendment) or Borrowers’ failure to comply with either the fixed charge coverage ratio covenant or minimum EBITDA covenant in the Revolving Credit Agreement for the quarter ended March 31, 2015, so long as the Borrowers (1) have at least $5,000,000 in EBITDA, measured monthly on a trailing twelve-month basis (with an add-back for a one-time severance payment of $2,520,120, less principal payments, previously made to Stephen Cope); (2) have a fixed charge coverage ratio of at least 1.0 to 1.0, measured monthly on a trailing twelve-month basis (with an add-back for a one-time severance payment of $2,520,120, less principal payments, previously made to Stephen Cope); (3) furnish the agent and lenders with a Forbearance Compliance Certificate, in form and substance reasonably acceptable to the agent and lenders, within thirty days after the

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Integrated Drilling Equipment Holdings Corp.

Notes to Consolidated Financial Statements
December 31, 2014 and 2013

11. Debt and Redeemable Preferred Stock – (continued)

end of each month; and (4) diligently pursue options that would cause or enable the repayment in full of all obligations under the Revolving Facility, including by pursuing a financing commitment from a third party financing source.

As of December 31, 2014, the outstanding borrowings and amount available under the revolving credit facility was $13.5 million and $1.4 million, respectively. The interest rate at December 31, 2014 was 7.75%.

Additionally, the lender assesses a “Lenders fee” of 0.375% on the unused portion of the revolving credit facility.

The Company is permitted to make voluntary prepayments with respect to the Revolving Facility at any time and may terminate or reduce the commitments under the Revolving Facility after meeting certain notice requirements. However, in connection with any voluntary reduction or termination of the commitments the Company are required to pay a fee in an amount equal to 3.0% of any reduction during the first year of the Revolving Facility, 2.0% of any reduction during the second year of the Revolving Facility and 1.0% of any reduction during the third year of the Revolving Facility.

The Company is required to use insurance proceeds and the net cash proceeds from any asset sale to prepay revolving loans made under the Revolving Facility. In addition, if a default exists under the Revolving Facility, the Company is required to use the net cash proceeds of certain equity and debt issuances and certain receipts received outside of the ordinary course of business to prepay revolving loans made under the Revolving Facility. Such prepayments do not result in a mandatory reduction of the commitments and can be reborrowed to the extent that borrowings are then permitted under the Revolving Facility.

The Company is jointly and severally liable for the obligations owing under the Revolving Facility and any future subsidiaries of the Company shall be required to guarantee the payment and performance of the obligations of the Company under the Revolving Facility. The Revolving Facility is secured, subject to certain permitted liens, on a first priority basis by a security interest in substantially all of the Company’s tangible and intangible assets.

The Revolving Facility contains representations and warranties and affirmative and negative covenants, including restrictions on indebtedness, investments, sales of assets, mergers and consolidations, liens and dividends and other distributions. In addition, the Revolving Facility includes certain financial covenants, including minimum net worth, minimum fixed charge coverage ratio, minimum liquidity test, minimum EBITDA, maximum total leverage ratio and a limitation on capital expenditures. The Revolving Facility also includes customary events of default, including upon a change of control.

$20.0 Million Term Loan Facility

On December 14, 2012, we entered into a four year term loan and security agreement with Elm Park Credit Opportunities Fund, L.P. and Elm Park Credit Opportunities Fund (Canada), L.P., as lenders, and Elm

TABLE OF CONTENTS

Integrated Drilling Equipment Holdings Corp.

Notes to Consolidated Financial Statements
December 31, 2014 and 2013

11. Debt and Redeemable Preferred Stock – (continued)

Park Capital Management, LLC, as administrative agent, which provides for a $20.0 million four year senior secured second-lien term loan facility (the “Term Facility”). This term loan and security agreement was amended on April 9, 2013.

On October 17, 2013, the Borrowers entered into the Second Amendment to the Term Facility to, among other things, (1) amend the maturity date of the Term Facility from December 14, 2016 to September 30, 2014, (2) delete (a) the net worth financial covenant, (b) the fixed charge coverage ratio, (c) the minimum liquidity test and (d) the total leverage ratio and (3) amend (a) the minimum EBITDA financial covenant and (b) the capital expenditures financial covenant.

In connection with the Second Amendments described above, the Borrowers were required to (1) implement and comply with a cost reduction plan and (2) obtain (a) purchase orders or contracts with a value of not less than $28.0 million for the design, manufacture or servicing of one or more drilling rigs by October 31, 2013 or (b) at least $1.0 million in proceeds from the issuance of preferred stock by November 14, 2013. An event of default would have occurred under both the Term Facility and Revolving Facility if the Borrowers were unable to satisfy one of these requirements. As of October 1, 2013, the Company had implemented and was in compliance with the cost reduction plan and as of November 14, 2014, the Company had received net cash proceeds from a preferred stock investment in an aggregate amount of $1.0 million. As a result of the foregoing events, the Company was in compliance with the terms of its credit agreements.

On March 31, 2014, the Borrowers entered into the Third Amendment to the Term Facility to, among other things, (1) amend the maturity date of the Term Facility from September 30, 2014 to June 30, 2015, (2) insert a covenant regarding the fixed charge coverage ratio, (3) amend (a) the minimum EBITDA financial covenant and (b) the capital expenditures financial covenant, (4) amend the term loan repayment schedule in the Term Facility and (5) amend the PIK interest provision in the Term Facility to increase such interest from 2.00% to 4.00% (unless the Borrower’s total leverage ratio is less than 3:50:1:00, in which case such interest shall accrue at a rate of 2:00%).

In addition, the Fourth Term Loan Amendment provides that during the period beginning December 31, 2014 and ending on the earlier of (a) the occurrence of a Termination Event (as defined in the Fourth Term Loan Amendment) or (b) 5:00 pm Dallas time on March 31, 2015, the lenders under the Term Facility agree to forbear from commencing any Enforcement Action (as defined in the Fourth Term Loan Amendment) as a result of certain Existing Defaults (as defined in the Fourth Term Loan Amendment) or the Borrowers’ failure to comply with either the fixed charge coverage ratio covenant or minimum EBITDA covenant in the Term Loan Agreement for the quarters ended December 31, 2014 or March 31, 2015, so long as the Borrowers (1) have at least $5,000,000 in EBITDA, measured monthly on a trailing twelve-month basis (with an add-back for a one-time severance payment of $2,520,120 previously made to Stephen Cope); (2) have a fixed charge coverage ratio of at least 1.0 to 1.0, measured monthly on a trailing twelve-month basis (with an add-back for a one-time severance payment of $2,520,120 previously made to Stephen Cope); (3) furnish the agent and lenders with a Forbearance Compliance Certificate, in form and substance reasonably satisfactory to the agent and lenders, within thirty days after the end of each month; (4) diligently pursue a financing commitment from a third party financing source, the

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Integrated Drilling Equipment Holdings Corp.

Notes to Consolidated Financial Statements
December 31, 2014 and 2013

11. Debt and Redeemable Preferred Stock – (continued)

proceeds of which will be used to repay all obligations under the Revolving Facility; and (5) deliver a weekly status report to the agent regarding the status of all actions taken to seek such financing commitment.

The Fifth Term Loan Amendment also provides that the agent under the Term Facility may take action to preserve its rights in the collateral securing the Term Facility.

Loans under the Term Facility bear interest, at the Borrowers' option, at a rate equal to the adjusted LIBOR rate or an alternate base rate, in each case, subject to a floor and a spread. This interest is paid in cash and the cash interest rate at December 31, 2014 was 12%. In addition to the cash interest rate, all loans bear additional pay-in-kind (PIK) interest, which was 4% and 2% per annum, at December 31, 2014 and 2013, respectively.

The Company is permitted to make voluntary principal prepayments with respect to the Term Facility at any time. However, in connection with any voluntary prepayment (and in certain instances, mandatory prepayments) during the first year of the Term Facility, the Company will be required to pay a make whole premium in an amount equal to the present value of all interest that but for such prepayment would have accrued through the first anniversary of the Term Facility, plus an amount equal to 3.0% of the amount being prepaid. Any principal prepayment made thereafter will be subject to a prepayment penalty in an amount equal to 3.0% in the second year of the Term Facility, 1.0% in the third year of the Term Facility and 0.0% thereafter.

The Company is required to make quarterly principal payments with respect to the Term Facility of $300,000 for each of the first two quarters of 2015 with a final balloon payment (inclusive of PIK interest) of $19.3 million on November 30, 2015. In addition, the Company is required to make mandatory prepayments in connection with specified events, including certain asset sales, debt issuances, equity issuances, casualty and condemnation events and the receipt of extraordinary proceeds, as well as an annual mandatory prepayment in an amount equal to 50% of certain excess cash flow for the previous year.

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Integrated Drilling Equipment Holdings Corp.

Notes to Consolidated Financial Statements
December 31, 2014 and 2013

11. Debt and Redeemable Preferred Stock – (continued)

The Company is jointly and severally liable for the obligations under the Term Facility and any future subsidiaries of the Company will be required to guarantee the payment and performance of the obligations of the Company under the Term Facility. The Term Facility is secured, subject to certain permitted liens, on a second priority basis by a security interest in substantially all of the Company's tangible and intangible assets.

The Term Facility contains representations and warranties and affirmative and negative covenants, including restrictions on indebtedness, investments, sales of assets, mergers and consolidations, liens and dividends and other distributions. In addition, the Term Facility includes financial covenants, including minimum net worth, minimum fixed charge coverage ratio, minimum liquidity test, minimum EBITDA, maximum total leverage ratio and a limitation on capital expenditures. The Term Facility has cross-default provisions with the $20.0 million Revolving Credit Facility and also includes customary events of default, including upon a change of control.

$2.1 Million Promissory Note

On April 7, 2014, we issued a $2.1 million promissory note to Stephen Cope, our former CEO, which provided for bi-weekly installment payments of $40,614 until the note is paid in full. Interest accrues on the note at the rate of 9% per annum and interest on all past due amounts at the rate of 18% per annum. All interest shall accrue and be paid at maturity. Notwithstanding the foregoing, upon the earlier of (i) April 7, 2016 or (ii) the later to occur of (x) the date the Company determines that it would have had, after paying the note in full, liquidity of at least $5 million on each of two consecutive months’ end and (y) the date the Company has contracted backlog for drilling rigs and related equipment (1) of at least $75 million or (2) of $60 million (excluding the electrical segment’s contracted backlog), then the entire amount of such note shall become due and payable. In addition, a mandatory prepayment on the note in the amount of $250,000 was due on the date, after March 31, 2014, when the Company has received deposits of at least $5.0 million for contracted backlog for drilling related equipment. During the third quarter of 2014, the Company met the criteria requiring the mandatory prepayment in the amount of $250,000 and such payment was made on August 21, 2014. This note is prepayable at any time without payment of any premium or fee.

$0.4 Million Promissory Note

On April 7, 2014, we issued a $0.4 million promissory note to Stephen Cope, our former CEO, which provides for bi-weekly installment payments of $7,849 until the note is paid in full. Notwithstanding the foregoing, on April 8, 2016, all unpaid principal shall be due and payable. The note does not accrue interest and is prepayable at any time without payment of any premium or fee.

Compliance with Debt Covenants

At December 31, 2014 we were in compliance with all of our debt covenants related to our long term debt and financing arrangements.

As of December 31, 2014, future principal payments of debt are as follows (in thousands):


Years Ending December 31,	Debt
2015	$	37,814
2016		1,346
2017		—
	$	39,160

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Integrated Drilling Equipment Holdings Corp.

Notes to Consolidated Financial Statements
December 31, 2014 and 2013

12. Income Taxes

The Company is organized as a corporation and files a consolidated income tax return.

Income tax expense consisted of (in thousands):


	December 31,
	2014		2013
Current
State	$	49	$	2
Federal		16		68
		65		70
Deferred
State		—		30
Federal		—		3,843
		—		3,873
Total	$	65	$	3,943

Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as operating loss and tax credit carryforwards. The tax effects of these temporary differences and carryforwards were (in thousands):


	December 31,
	2014			2013
Deferred tax assets
Deferred tax asset-current
Allowance for bad debt	$	164		$	258
Warranty reserve		142			87
Accrued wages		652			554
Vacation allowance		31			93
Inventory allowance		78			121
Deferred tax asset – current		1,067			1,113
Valuation allowance		(1,017	)		(980	)
Deferred tax asset-current, net of valuation allowance		50			133
Deferred tax asset – long term
Intangibles		1,748			1,512
Paid in-kind interest		417			—
Fixed assets		(175	)		(289	)
Unrealized gain on warrants		—			(293	)
Other		28			26
Net operating loss carryforwards and credits		2,016			2,637
Deferred tax asset – long term		4,034			3,593
Valuation allowance		(4,084	)		(3,726	)
Deferred tax assets (liabilities) – long-term, net of valuation allowance	$	(50	)	$	(133	)

We have a tax benefit of US net operating loss (“NOL”) carryforwards of $5.9 million that is available to offset future taxable income through December 31, 2034. The US NOL carryforwards may be subject to annual limitations under Section 382 of the Internal Revenue Code.

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Integrated Drilling Equipment Holdings Corp.

Notes to Consolidated Financial Statements
December 31, 2014 and 2013

12. Income Taxes – (continued)

The following table summarizes the differences between income tax expense based on the Company’s effective tax rate and the federal statutory rate of 34%:


	December 31,
	2014			2013
Income tax benefit at statutory rate	$	(272	)	$	(1,264	)
State taxes, net of benefit		13			(8	)
Non-deductible transactions costs		—			502
Permanent differences and other		(71	)		7
Valuation allowance		395			4,706
Tax expense	$	65		$	3,943

13. Defined Contribution Plans

The Company has a 401k plan for eligible employees; however during the years ended December 31, 2014 and 2013, we did not make any contributions to the plan.

We have engaged in related party transactions with entities owned by our principal stockholder who is also our Vice Chairman of the Board of Directors. The Company has an operating lease for a 51,000 square foot facility/20 acre yard for its production and rig-up facility with SDC Black Hole, LP (“Black Hole”) which commenced on May 31, 2006. Black Hole is 100% owned by our principal stockholder and Vice Chairman of the Board of Directors. The initial monthly lease rate is $30 thousand and increases approximately 9.5% per year. The lease is for a five year term and expired on May 31, 2011. On June 1, 2011, the operating lease was renewed for 5 additional years. The initial monthly rate is $45 thousand and increases approximately 7.6% per year. On December 14, 2012, the term of the lease was amended and currently expires on December 31, 2017. Total expense relating to this lease agreement amounted to $593 thousand and $608 thousand for the years ended December 31, 2014 and 2013.

The Company has an operating lease for an additional 12 acres of land adjacent to our facility with Ideco, LLC (“Ideco”) which commenced on April 1, 2008 for a five year term. Ideco is 33% owned by our principal stockholder and Vice Chairman of the Board of Directors and 67% owned by other stockholders. The initial monthly lease rate is $21 thousand and increases approximately 9.5% per year. On December 14, 2012, the term of the lease was amended and currently expires on December 31, 2017. Total expense relating to this lease agreement amounted to $392 thousand and $382 thousand for the years ended December 31, 2014 and 2013, respectively.

The Company entered into an operating lease for 7,230 square foot facility for its corporate office with 9^th Green LLC (“9^th Green”) which commenced on February 1, 2011. 9^th Green is 50% owned by our principal stockholder and Vice Chairman of the Board of Directors and 50% owned by a second stockholder. The initial monthly lease rate is $15 thousand and increases approximately 9.3% per year. On December 14, 2012, the term of the lease was amended and currently expires on December 31, 2017. Total expense relating to this lease agreement amounted to $226 thousand and $212 thousand for the years ended December 31, 2014 and 2013, respectively.

The Company is required to pay International Drilling Equipment Company, LLC (“International”) royalties for each mast and each substructure that we manufacture. International is 50% owned by our principal stockholder and Vice Chairman of the Board of Directors and the other 50% is owned by a second stockholder. On December 14, 2012, International agreed to reduce the royalty payments from $25,000 to $12,500 for each mast and for each substructure. While our Vice Chairman of the Board of Directors owns 50% of International, he agreed to waive his right to receive any royal payments from us. Any royalty

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Integrated Drilling Equipment Holdings Corp.

Notes to Consolidated Financial Statements
December 31, 2014 and 2013

payments to International will be distributed to the other stockholder of International. Total royalty payments made by the Company to International for the years ended December 31, 2014 and 2013 were $27 thousand and $13 thousand, respectively.

15. Commitments and Contingencies

Self-Insured Health Program

The Company maintains a self-insured health benefits plan, which provides medical benefits to employees selecting coverage under the plan. The Company maintains a reserve for incurred but not reported medical claims. The reserve is an estimate based on historical experience, as well as the number of participants and other assumptions, some of which are subjective. As any of these factors change, the Company will adjust its self-insurance medical benefits reserve accordingly. Effective May 1, 2014, we have stop loss insurance for claims in excess of $70 thousand per individual and claims in excess of $2.1 million aggregate group loss. For the period May 1, 2013 through April 30, 2014, we had stop loss coverage for claims in excess of $65 thousand per individual and claims in excess of $2.6 million aggregate group loss. The Company believes its self-insurance reserves are adequate.

Legal Proceedings

On May 6, 2013, Drillmec, Inc. filed a lawsuit in the 281st Judicial District Court in Harris County, Texas (Drillmec, Inc. v. Integrated Drilling Equipment Company, et. al.) against Integrated Drilling Equipment Company Holdings, Inc., Integrated Drilling Equipment Company Holdings, LLC, Integrated Drilling Equipment, LLC, Integrated Drilling Equipment Company, Stephen D. Cope and SDC Management Services, LLC. Drillmec alleges that the defendants acquired Drillmec’s drawings and technical specifications through an unrelated bidding process for offshore drilling rigs. In the pleadings, Drillmec claims that the defendants used this proprietary information in connection with its successful bid for the PEMEX contracts and asserts causes of action for misappropriation of trade secrets, conversion, interference with prospective relations, conspiracy, unjust enrichment and unfair competition. Drillmec is seeking damages in the form of the Company’s actual profits from the PEMEX contracts and the development costs that Drillmec incurred in developing the proprietary information in question.

On February 28, 2014, Sidewinder Drilling Inc. filed a lawsuit in the 269^th Judicial District Court in Harris County, Texas (Sidewinder Drilling Inc. v. Oil County Engineering Services, LTD., HYCO Canada U.L.C., and Integrated Drilling Equipment Company Holdings, Inc.). In the lawsuit, Sidewinder is seeking a judicial declaration that IDE is contractually responsible for all of the damages caused by the dropped mast on Rig 103 because “Delivery” of Rig 103 had not occurred at the time of the Rig 103 dropped mast incident. We intend to defend this litigation vigorously. This case is in the preliminary stages and it is too early to predict an outcome and therefore no provision has been recorded at December 31, 2014, for any potential liability arising from this litigation.

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Integrated Drilling Equipment Holdings Corp.

Notes to Consolidated Financial Statements
December 31, 2014 and 2013

15. Commitments and Contingencies – (continued)

with the Settlement Agreement and General Release (the “Settlement Agreement”) that the Company entered into with Mr. Cope on April 7, 2014, that settled any and all disagreements between the parties, including any claims arising from Mr. Cope’s employment agreement as it related to his service as Chief Executive Officer of the Company. In connection with the Settlement Agreement, we issued two promissory notes dated April 7, 2014 to Mr. Cope, one in the amount of approximately $2.1 million and one in the amount of approximately $400,000, and we also agreed to pay him approximately $300,000 in satisfaction of certain deferred payments upon satisfaction of certain conditions. Mr. Cope seeks recovery of all principal and past due interest on these payment obligations as well as attorneys’ fees and costs.

From time to time, the Company may be involved in other litigation matters arising in the ordinary course of business. Although the ultimate liability for these matters cannot be determined, based on the information currently available to us, we do not believe that the resolution of these other litigation matters to which we are currently a party would have a material adverse effect on our business, financial condition or results of operation. We maintain liability insurance against certain risks arising out of the normal course of our business, subject to certain self-insured retention limits. We have accruals for certain legal and self-insurance exposures.

Leases

We lease office and production facilities under operating lease agreements with related parties and unrelated third party lessors. Additionally, we lease certain office equipment under capital lease agreements.

Future minimum commitments under the capital lease agreements are as follows (in thousands):


Year Ending December 31,	Capital Leases
2015	$	95
2016		87
2017		40
2018		5
Total minimum lease payments		227
Less: Amounts representing interest		13
Present value of minimum lease payments		214
Less: Current portion		90
Total long term portion	$	124

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Integrated Drilling Equipment Holdings Corp.

Notes to Consolidated Financial Statements
December 31, 2014 and 2013

15. Commitments and Contingencies – (continued)

Future minimum commitments under the operating lease agreements are as follows (in thousands):


Year Ending December 31,	Operating Leases
2015	$	1,349
2016		1,316
2017		1,130
2018		—
Total minimum lease payments	$	3,795

The future minimum commitments above include lease payments of $3.3 million between us and related parties (See Note 14).

Rent expense for the years ended December 31, 2014 and 2013 totaled $1.8 million and $2.8 million, respectively.

Employment Agreements

The Company has employment agreements with certain key executives. Two of the employment agreements have a term of three years and one has a term of two years. All of the agreements have a minimum base salary, annual incentive bonuses, and severance provisions. One agreement has an auto allowance. Bonuses are determined based on the Company achieving certain performance objectives. As of December 31, 2014, the total salary compensation and auto allowance due over the remaining term of the agreements was approximately $1.6 million.

16. Segment Information

We have two reportable operating segments: (1) Electrical Products & Services and (2) Drilling Products & Services. Electrical Products & Services: We design, manufacture, install and service rig electrical and control systems including SCR’s and VFD’s, as well as electrical cabling, lighting systems, closed circuit video systems, gas and fire detection systems, and communication systems. Drilling Products & Services: We design, manufacture, and service complete land-based drilling rigs, as well as rig subsystems and parts.

The accounting policies of our reporting segments are the same as those used to prepare our consolidated financial statements as of December 31, 2014 and 2013 (in thousands):


	December 31,
	2014			2013
Revenues
Electrical⁽¹⁾	$	61,478		$	61,110
Drilling⁽²⁾		28,383			49,210
Intersegment eliminations		(2,567	)		(6,572	)
Total revenues		87,294			103,748
Segment profit (loss)
Electrical		16,034			12,610
Drilling		(648	)		1,262
Total segment profit		15,386			13,872
Corporate expenses		8,732			9,828
Depreciation and amortization expense		2,117			2,162
Impairment of intangible assets		—			858
Interest expense		5,922			5,561
Other		(584	)		(820	)
Loss before income taxes	$	(801	)	$	(3,717	)

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Integrated Drilling Equipment Holdings Corp.

Notes to Consolidated Financial Statements
December 31, 2014 and 2013

16. Segment Information – (continued)


	December 31,
	2014		2013
Assets
Electrical	$	20,935	$	19,291
Drilling		10,703		6,168
Total segment assets		31,638		25,459
Corporate assets		2,853		3,984
Total assets	$	34,491	$	29,443
Capital expenditures
Electrical	$	323	$	184
Drilling		60		117
Total segment capital expenditures		383		301
Corporate capital expenditures		—		45
Total capital expenditures	$	383	$	346

(1)

Includes $2.6 million and $6.4 million of intersegment transactions for the years ended December 31, 2014 and 2013, respectively.

(2)

Includes $2 thousand and $202 thousand of intersegment transactions for the years ended December 31, 2014 and 2013, respectively.

Revenues by Geographic Area:


	Years Ended December 31,
	2014		2013
United States	$	79,648	$	103,224
Outside the United States		7,646		524
Total revenues	$	87,294	$	103,748

The Company categorizes its revenues geographically based on the location to which our products are shipped or services are performed.

Assets by Geographic Area:

We do not have any foreign offices or facilities and all of our assets are geographically located in the United States.

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Integrated Drilling Equipment Holdings Corp.

Notes to Consolidated Financial Statements
December 31, 2014 and 2013

17. Common Stock and Warrants

Common Stock

On December 14, 2012, we issued 5,575,671 shares of our common stock to the former IDE stockholders. We have withheld 750,000 of these shares on behalf of the former IDE stockholders to satisfy any indemnification claims we have under the Merger Agreement. Depending on the amount of the indemnification claims that we may make, we will distribute the remaining 750,000 additional shares to the former IDE stockholders. In addition, if the trading price of our common stock exceeds certain thresholds before December 14, 2017, we will distribute up to 5,250,000 shares to the former IDE stockholders. Specifically:

•

The issuance of shares to the former IDE stockholders was exempt from registration pursuant to Section 4(a)(2) of the Securities Act because the transaction did not involve a public offering.

On October 31, 2013, the Company issued 124,217 shares of common stock to TerraNova Capital Partners Inc. and its related parties to satisfy a $1.2 million obligation for financial advisory services provided to the Company in connection with the December 14, 2012 merger with Empeiria Acquisition Corp.

Common Stock Warrants

In connection with the $20.0 million Term Facility entered into on December 14, 2012, the Company issued Elm Park warrants to purchase 142,484 shares of the Company’s common stock at an exercise price of $0.01 per share. The warrants are exercisable upon issuance and expire ten years from the issuance date. As of the issuance date the fair value of these warrants was estimated to be $1.5 million and has been recorded as deferred financing costs. The deferred financing costs are being amortized to expense over the term of the loan. The warrants were valued on the issuance date using the following assumptions: a risk-free interest rate of 1%, expected volatility of 50%, no expected dividend yield and a term of ten years. Based upon the terms of the Elm Park warrants, they have been classified as a liability at fair value and are adjusted for changes in fair value at each reporting date. All of the warrants issued in connection with the Term Facility were still outstanding as of December 31, 2014.

As part of the units sold in our initial public offering, the Company issued warrants to purchase up to 6,000,000 shares of our common stock (the “Public Warrants”). The Public Warrants have an exercise price of $11.50 per share and if unexercised, expire on December 14, 2017. We may redeem the outstanding Public

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Integrated Drilling Equipment Holdings Corp.

Notes to Consolidated Financial Statements
December 31, 2014 and 2013

17. Common Stock and Warrants – (continued)

Warrants at any time after they become exercisable, in whole and not in part, at a price of $0.01 per warrant, if the last sales price of our shares of common stock equals or exceeds $17.50 per share for any 20 trading days within a 30 trading day period ending three business days before we send the notice of redemption. All of the Public Warrants issued in connection with our IPO were still outstanding as of December 31, 2014.

Unit Purchase Option

In connection with our IPO, we sold to the representative of the underwriters, for $100.00, an option to purchase up to 600,000 units at $15.00 per unit (the “Purchase Option”). The units issuable upon exercise of the Purchase Option consist of one share of common stock and one warrant to purchase one share of common stock at an exercise price of $11.50. This option is currently exercisable on a cashless basis, in whole or in part, and will expire on June 15, 2016. All of the Purchase Options issued in connection with our IPO were still outstanding as of December 31, 2014.

18. Subsequent Events

Legal Proceedings

In March 2015, the Company and Drillmec entered into a Compromise Settlement and Release of All Claims agreement. Pursuant to the agreement, the Company paid Drillmec $100 thousand and has been released from all claims relating to the lawsuit filed by Drillmec against the Company and other parties on May 6, 2013, in the 281^st Judicial District Court in Harris County, Texas (Drillmec, Inc. v. Integrated Drilling Equipment Company, et al.). In connection with our assessment that it was probable that a settlement would be reached in 2015, we recorded a net charge in the accompanying consolidated statement of operations in the amount of $25 thousand for the year ended December 31, 2014, consisting of a $100 thousand litigation accrual, partially offset by a $75 thousand insurance recovery receivable.

On March 26, 2015, Steve Cope, the Vice Chairman of our Board of Directors and our former CEO, filed a lawsuit in the 410th Judicial District Court in Montgomery County, Texas (Steve Cope v. Integrated Drilling Equipment Company Holdings, Inc. a/k/a Integrated Drilling Equipment Company Holdings Corp.) against Integrated Drilling Equipment Company Holdings, Inc. (See Note 15).

Amendments to Credit Facilities

On April 6, 2015, the Company entered into the Fifth Amendment to the Revolving Facility and the Fifth Amendment to the Term Facility (See Note 11).

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Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

None.

Item 9A.

Controls and Procedures

Disclosure Controls and Procedures

As of December 31, 2014, we carried out an evaluation, under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) adopted by the Securities Exchange Commission (the “SEC”) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Our disclosure controls and procedures were developed through a process in which our management applied its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding the control objectives. Such disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and includes controls and procedures designed to ensure that the information we disclose in our reports is accumulated and communicated to our management to allow timely decisions regarding required disclosure. The design of any system of disclosure controls and procedures is based in part upon various assumptions about the likelihood of future events, and we cannot provide assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

Based on the evaluation referred to above, our Principal Executive Officer and Principal Financial Officer concluded that the design and operation of our disclosure controls and procedures were effective as of December 31, 2014 to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and such information is accumulated and communicated to management, including our principal executive and principal financial officers or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) and for our assessment of the effectiveness of internal control over financial reporting.

Internal control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, and effected by the Company’s board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of our consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of the unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Our management, including our Chief Executive Officer and Chief Financial Officer, has conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2014, based on the criteria in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on our assessment under the criteria described above, management has concluded that our internal control over financial reporting was effective as of December 31, 2014.

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This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report due to the Company being a “smaller reporting company”.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.

Other Information

None.

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PART III.

Item 10.

Directors, Executive Officers, and Corporate Governance


Name	Age	Position
Jim Terry	61	Chief Executive Officer and Director⁽³⁾
N. Michael Dion	57	Chief Financial Officer
James N. Mills	77	Chairman of the Board⁽¹⁾⁽²⁾⁽⁴⁾
Stephen Cope	62	Vice Chairman of the Board⁽⁴⁾
Alan B. Menkes	55	Director⁽⁴⁾
Richard Borstmayer	44	Director⁽¹⁾⁽²⁾⁽⁴⁾
Richard N. Marshall	57	Director⁽¹⁾⁽²⁾⁽⁴⁾

(1)

Member of Audit Committee.

(2)

Member of Compensation Committee.

(3)

Class I Director.

(4)

Class II Director.

Biographies of Directors and Executive Officers

Jim Terry has been Chief Executive Officer and a director since July 21, 2014. My. Terry is a Class I director whose term will expire at our 2015 annual meeting of stockholders. Prior to joining the Company, Mr. Terry served as the CEO and President, and was a member of the board of directors of, Particle Drilling Technologies (“PDT”) from January 23, 2006 to August 15, 2014. PDT is a manufacturer of innovative well drilling bits and surface equipment used in drilling hard rock formations. This technology allows the well driller to cut through hard rock formations up to 6X faster than conventional drill bits. Prior to PDT, Mr. Terry served as a consultant to the oil and gas drilling services industry from September 2005 to January 2006, and was the Vice President of Drilling Services at Weatherford International from January 2003 to September 2005. Weatherford International is one of the largest global providers of innovative mechanical solutions, technology and services for the drilling and production sectors of the oil and gas industry. At Weatherford, Mr. Terry led the effort to consolidate, develop and improve the performance of well construction products and services by strategically aligning synergistic product lines in order to improve both their financial and operational performance. From March 1994 until January 2003, Mr. Terry was employed by Halliburton Company, the last three of those years as Director — Advanced Well Construction Systems where he was the lead inventor of a step change advanced well construction system. Prior to joining Halliburton in March 1994, Mr. Terry served as Regional Vice President for Smith International in Singapore. He was responsible for all of Smith’s activities in the Asia Pacific, Middle East and East Africa regions. Mr. Terry began his career at Eastman Whipstock, which was acquired by Baker Hughes in 1990. Following Baker Hughes’ acquisition of Eastman Whipstock in 1990, Mr. Terry joined Smith International. Mr. Terry holds a BA in Business from San Francisco State University. Mr. Terry was appointed to our board of directors pursuant to the Amended and Restated Voting Agreement, dated April 7, 2014, entered into by and among us, our Sponsor and the former IDE stockholders (the “Voting Agreement”).

N. Michael Dion has been Chief Financial Officer since December 2012. Prior to the Merger, he served as our Executive Vice President and a member of our board of directors since April 2011. Over a 32-year career in the consumer products industry, Mr. Dion has played a lead role in executing financial performance turnaround plans, implementing cost-cutting strategies, and managing post-acquisition integration. From 2007 to April 2011, Mr. Dion was a business consultant working with a variety of companies and investors on acquisition transactions. From 2001 to 2007, he was Executive Vice President and Chief Financial Officer of Pinnacle Foods Corporation, a consumer products corporation formed from the purchased assets of Vlasic Foods International, with brands including Swanson Frozen Foods, Vlasic Pickles, and Open Pit. Mr. Dion joined Pinnacle Foods after its formation by Hicks, Muse, Tate & Furst in 2001 and continued in this role after the company was acquired in 2003. In 2003, Pinnacle Foods purchased the brands of Aurora Foods, including, among others, Duncan Hines, Mrs. Paul’s, Aunt Jemima Frozen Breakfast, and Mrs. Butterworth’s Syrups. From 1999 to 2004, he was Vice President of Finance of Hillsdown Holdings, PLC and Mumm and Perrier-Jouet (1999 to 2001). From 1996 to 1999, Mr. Dion was Executive Vice President and Chief Financial

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Officer of International Home Foods, a consumer products company, with brands such as Chef Boyardee, PAM Cooking Spray, Polaner All-Fruit, and Crunch n’ Munch. From 1994 to 1997, he was Vice President of Finance of Morningstar Dairy Group. From 1990 to 1994, Mr. Dion was Vice President of Finance for International Cheese Company. From 1989 to 1990, he was Vice President of Finance of Aquatec, Inc. From 1984 to 1989, Mr. Dion was Chief Financial Officer of Karl Suss America, an industrial technology supplier. From 1979 to 1983, he was a Senior Auditor of Coopers and Lybrand, LLC. Mr. Dion received a B.S. in Business Administration from University of Vermont in 1979.

James N. Mills has been Chairman of our board of directors since January 2011. Mr. Mills is a Class II director whose term was scheduled to expire at our 2014 annual meeting of stockholders, however, since we did not hold an annual meeting in 2014 Mr. Mills has remained a member of the board of directors. Mr. Mills also serves as Chairman of the Board and Chief Executive Officer of Mills & Partners, Inc., a management and investment firm that specializes in the acquisition and operation of commercial and industrial manufacturing companies. He has served in this role since the formation of Mills & Partners, Inc. in 1985. At various times Mr. Mills has served as Chairman of the Board and Chief Executive Officer of each of the Mills & Partners portfolio companies, including Clarke Floor Equipment, Palco Industries, Wirekraft Industries, Berg Electronics, Jackson Products, Crain Holdings, International Wire Group, and Viasystems Group. Mr. Mills also previously served on the board of directors of Conner Steel Products, a manufacturer of equipment for the oil and gas industry from June 2006 to May 2011. Mr. Mills has over 40 years of operating experience in senior and corporate level positions with a variety of successful major manufacturing companies. From 1978 to 1985 Mr. Mills was a senior executive of McGraw-Edison Company, a company engaged in the electronic, industrial, commercial, and automotive industries. At McGraw-Edison, he served as Executive Vice President of the Industrial, Power Systems and Service sectors, where he was responsible for $1.1 billion of corporate revenue, President of the Industrial Group and President of the Bussmann Division, where he led a major corporate divestiture program that resulted in the sale of 15 operating companies with combined sales of over $1 billion. From 1977 to 1978, Mr. Mills served as Executive Vice President of the Admiral Group of Rockwell International and as President and Chief Executive Officer of Litton Industries’ Royal Typewriter Division. He attended the University of Missouri, majoring in Business Administration. Following the Merger, Mr. Mills serves as a Class II director pursuant to the Voting Agreement.

Stephen Cope has been a director since December 2012 and Vice Chairman of our board of directors since April 14, 2014. Mr. Cope is a Class II director whose term was scheduled to expire at our 2014 annual meeting of stockholders, however, since we did not hold an annual meeting in 2014 Mr. Cope has remained a member of the board of directors. Mr. Cope served as our Chief Executive Officer from December 14, 2012 until April 14, 2014. Prior to the Merger, Mr. Cope was IDE’s Chairman and Chief Executive Officer since the founding of IEC, a division of IDE, in 1991. Under his leadership, IDE grew to almost $300 million in revenue while enhancing and developing new product lines and global strategies. Mr. Cope began his oilfield career in 1976 with Rig-A-Lite Co. where he was responsible for worldwide products and distributor sales. Mr. Cope has extensive contacts and experience in both the U.S. drilling industry and in international drilling operations. Mr. Cope served four years in the United States Marine Corps from 1969 to 1971. Mr. Cope attended San Jacinto College in Houston, Texas. Mr. Cope was appointed to our board of directors pursuant to the Voting Agreement.

Alan B. Menkes has been a director since January 2011. Mr. Menkes is a Class II director whose term was scheduled to expire at our 2014 annual meeting of stockholders, however, since we did not hold an annual meeting in 2014 Mr. Menkes has remained a member of the board of directors. Prior to the Merger, he served as our Chief Executive Officer since January 2011. Over a 25-year career in the private equity business, Mr. Menkes has played a lead role in 21 platform transactions and more than 50 add-on acquisitions totaling approximately $1 billion in equity capital and almost $7 billion in total enterprise value. From 2009 to 2011, Mr. Menkes was a Managing Partner of G2 Investment Group, a diversified financial services firm. From 2007 to 2009, he was a partner at Enterprise Infrastructure Ventures, a real estate investment firm focused on acquiring and developing data centers and other mission-critical real estate assets. From 2002 to the present, Mr. Menkes has also been the Managing Partner of Empeiria Capital LLC, a private equity firm he co-founded. From 1999 to 2002, he was Co-Director of Private Equity and a member of the Executive Committee of Thomas Weisel Partners, an investment banking and investment management firm focused on

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growth sectors. From 1992 to 1998, Mr. Menkes was a Vice President and partner at Hicks, Muse, Tate & Furst Inc., a leveraged buyout firm. Prior to Hicks Muse, he was with The Carlyle Group, a global alternative investment manager, from its founding in 1987 to 1992. Mr. Menkes currently serves on the board of directors of CS Technology, a private IT consulting firm focused on data centers and physical IT infrastructure. He previously served on the board of directors of Conner Steel Products, a private manufacturer of equipment for the oil and gas industry, from June 2006 to May 2011, and Stellent, Inc., a publicly-traded software company, from January 2004 to December 2006. Since August 2011, Mr. Menkes has served on the board of directors of BGS Acquisition Corp, a blank check company. He graduated Phi Beta Kappa from the University of Virginia, where he earned his B.A. in Economics with Highest Distinction. Mr. Menkes earned an M.B.A. with Distinction from the Wharton School at the University of Pennsylvania. Following the Merger, Mr. Menkes serves as a Class II director pursuant to the Voting Agreement.

Richard Borstmayer has been a director since August 2013. Mr. Borstmayer is a Class II director whose term was scheduled to expire at our 2014 annual meeting of stockholders, however, since we did not hold an annual meeting in 2014 Mr. Borstmayer has remained a member of the board of directors. From April 2010 to present, Mr. Borstmayer served as the General Manager of Engineering and Operations at GeoSouthern Energy Company, an oil and gas exploration company located in The Woodlands, Texas. Mr. Borstmayer also served on the Board of Directors at GeoSouthern until its sale to Devon Energy in March 2014. From March 2008 to March 2010, Mr. Borstmayer was the Director of Drilling operations at Milagro Exploration Company, an oil exploration company located in Houston Texas. From March 2001 to February 2008, Mr. Borstmayer held drilling manager operational roles with increasing responsibilities at Anadarko Petroleum Corporation, a Houston, Texas based energy company. From May 1998 to March 2001, Mr. Borstmayer was the Drilling Operations Superintendent for Basic Resources International, an oil and gas exploration company located in Guatemala, Central America. From May 1990 to May 1998, Mr. Borstmayer held drilling operational roles with increasing responsibilities for Union Pacific Resources at various operations in Texas. Mr. Borstmayer received a Bachelor of Science in petroleum engineering from Texas A&M University in 1992. Mr. Bortsmayer was appointed to our board of directors pursuant to the Voting Agreement.

Richard N. Marshall has been a director since August 2013. Mr. Marshall is a Class II director whose term was scheduled to expire at our 2014 annual meeting of stockholders, however, since we did not hold an annual meeting in 2014 Mr. Marshall has remained a member of the board of directors. From November 2006 through March, 2012, Mr. Marshall served as the Senior Vice President and Chief Financial Officer of Southern Union Company, a diversified natural gas company headquartered in Houston, Texas and engaged primarily in the transportation, storage, gathering, processing and distribution of natural gas. From 2001 through November, 2006, Mr. Marshall served as Vice President and Treasurer of Southern Union Company. Prior to 2001, Mr. Marshall served as Vice President and Treasurer of PG Energy, a natural gas local distribution company located in Northeastern Pennsylvania. Mr. Marshall received a Bachelor of Science in accounting from Wilkes University in 1980. Mr. Marshall was appointed to our board of directors pursuant to the Voting Agreement.

Board of Directors

Classes of Directors

Our board of directors is divided into two classes with each class serving two-year terms, such that the term of one class expires at each annual meeting of stockholders. Our Class I director is Jim Terry. His term is scheduled to expire at our 2015 annual meeting of stockholders. Our Class II directors are Richard Borstmayer, Richard N. Marshall, Alan B. Menkes, James N. Mills and Stephen Cope. Their terms were scheduled to expire at our 2014 annual meeting of stockholders, however, since we did not hold an annual meeting in 2014 Messrs. Borstmayer, Marshall, Menkes, Mills and Cope have remained as members of the board of directors. At the next annual meeting of stockholders, all of the Class I and Class II director positions will be put up for nomination. However, the term of the Class I director elected at such meeting is expected to expire at the 2017 annual meeting of stockholders whereas the terms of the Class II directors elected at such meeting will expire at the 2016 annual meeting of stockholders.

Effective April 14, 2014, our board of directors was expanded from six to seven members. There is currently a vacancy on the board of directors as a result of the death of Richard Dodson. Mr. Dodson was a

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valued member of the Company and was serving as our President, Chief Operating Officer and a director at the time of his death. When this vacant board position is filled, such person will be a Class I director.

Director Independence

We have adopted the independence standard of the NYSE MKT marketplace rules. Currently, Richard Borstmayer, Richard N. Marshall and James N. Mills are our independent directors.

Board Committees and Meetings

Our board of directors has two standing committees, the Audit Committee and the Compensation Committee. Our board of directors does not have a nominating committee or a committee performing the functions of a nominating committee.

If we were to list on either the NYSE or Nasdaq, we would expect to be considered a “controlled company” under the NYSE or Nasdaq rules. Under NYSE and Nasdaq rules, a company in which an individual or group holds more than 50% of the voting power is a controlled company. Currently, the group created by the Voting Agreement beneficially owns approximately 78% of our common stock. As a “controlled company,” we would expect to be exempt from, among other things, the provisions of the NYSE and Nasdaq rules requiring that (1) we have a nominating committee composed entirely of independent directors and (2) we have a compensation committee composed entirely of independent directors. If we were to list on either the NYSE or Nasdaq, we intend to use certain of these exemptions.

Audit Committee

In connection with the Merger, we formed our Audit Committee and adopted a written charter for the committee. Our Audit Committee met five times during the year ended December 31, 2014. The principal duties and responsibilities of our Audit Committee are:

•

Engaging, retaining and terminating the Company’s independent registered public accounting firm, conducting an annual review of the independence and quality control of that firm and ensuring required rotation of the lead partner.

•

Establishing, monitoring and assessing the Company’s policies and procedures with respect to business practices, including the adequacy of the Company’s internal controls over accounting and financial reporting.

•

Establishing guidelines and procedures for approval of and pre-approving any non-audit services to be performed by the Company’s independent registered public accounting firm.

•

Reviewing the annual audited financial statements and quarterly financial information with management and the independent registered public accounting firm, including Management’s Discussion and Analysis, the disclosures regarding internal controls and earnings releases.

•

Reviewing with the independent registered public accounting firm the scope and the planning of the annual audit.

•

Reviewing the findings and recommendations of the independent registered public accounting firm and management’s response to the recommendations of that firm.

•

Overseeing compliance with applicable legal and regulatory requirements.

•

Establishing procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters.

•

Establishing procedures for the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.

•

Reviewing related party transactions.

•

Reviewing the adequacy of the Audit Committee charter on an annual basis.

•

Preparing the Audit Committee report to be included in our proxy statement.

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Our Audit Committee is required to be composed of directors who are “financially literate,” meaning they are able to read and understand fundamental financial statements, including our balance sheet, income statement and cash flow statement. In addition, the Audit Committee must have at least one member who qualifies as an “audit committee financial expert” as defined in the rules and regulations of the SEC. Currently, Richard Borstmayer, Richard N. Marshall and James N. Mills are members of our Audit Committee. Our board of directors has determined that Mr. Mills qualifies as an “audit committee financial expert,” as defined in the rules and regulations of the SEC. Our board of directors has also determined that Mr. Borstmayer, Mr. Marshall and Mr. Mills are independent under applicable SEC and NYSE MKT rules.

Compensation Committee

In connection with the Merger, we formed our Compensation Committee and adopted a written charter for the committee. The Compensation Committee charter’s was amended and restated effective April 14, 2014. Our Compensation Committee met once during the year ended December 31, 2014. The principal duties and responsibilities of our Compensation Committee are:

•

Evaluating the performance of and determining the compensation for the Company’s executive officers, including its chief executive officer.

•

Administering and making recommendations to the board of directors with respect to the Company’s equity incentive plans.

•

Assisting in succession planning.

•

Overseeing regulatory compliance with respect to compensation matters.

•

Reviewing and approving employment or severance arrangements with senior management.

•

Reviewing director compensation policies and making recommendations to the board of directors.

•

Reviewing and approving the Compensation Discussion and Analysis and the Compensation Committee Report to be included in our annual proxy statement.

•

Reviewing the adequacy of the Compensation Committee charter on an annual basis.

Currently, Richard Borstmayer, Richard N. Marshall and James N. Mills are members of our Compensation Committee. Our board of directors has determined that Mr. Borstmayer, Mr. Marshall and Mr. Mills are independent under applicable SEC and NYSE MKT rules.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our directors and officers, and persons who beneficially own more than 10% of any class of our equity securities registered pursuant to Section 12 of the Exchange Act, to file reports of ownership and changes in ownership of our equity securities with the SEC. We believe that, during the year ended December 31, 2014, all Section 16(a) filing requirements applicable to our directors, officers and more than 10% beneficial owners were satisfied except that:

•

Empeiria Investors LLC was late in reporting one transaction and filing one Form 4.

•

Stephen Cope was late in reporting one transaction and filing one Form 4.

•

Richard Bortsmayer was late filing his Form 3 upon being appointed a director of the Company on August 16, 2013.

•

Richard N. Marshall was late filing his Form 3 upon being appointed a director of the Company on August 16, 2013.

•

James N. Mills filed a late Form 4 reporting four transactions.

•

Alan B. Menkes filed a late Form 4 reporting four transactions.

•

N. Michael Dion filed a late Form 4 reporting eight transactions.

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Code of Conduct

We have adopted a code of conduct and ethics applicable to our directors, officers and employees in accordance with applicable federal securities laws.

Item 11.

Executive Compensation

We are currently evaluating the executive compensation structures and systems that will be provided to our executive officers. We have not yet determined a specific formula for allocating total compensation between current and long-term compensation or between cash and non-cash compensation. However, we intend to vary the mix of our executive officers’ compensation elements based on competitive practices and their relative management level to recognize each individual’s operating responsibilities and reward his or her ability to impact short- and long-term results.

We expect to pay our executive officers using the following forms of compensation:

Base Salary. We pay base salaries in order to attract executive officers and provide a basic level of financial security. We establish base salaries for our executives based on the scope of their responsibilities, taking into account competitive market compensation paid by other companies for similar positions. We will review base salaries (a) at the time of renewal of an executive’s employment agreement or (b) annually, with adjustments based on the individual’s responsibilities, performance and experience during the year.

Short-Term Incentives. Our board of directors expects to adopt a formal process for determining and awarding discretionary and performance-based annual bonuses.

We intend to utilize annual incentive bonuses to reward officers and other employees for achieving financial and operational goals and for achieving individual annual performance objectives. These objectives will vary depending on the individual executive and employee, but are expected to relate generally to revenue, gross margin, cash flow and EBITDA and may include strategic factors, including maintenance of key strategic relationships and development of new products or services.

Long-Term Incentive Program. We are examining establishing, subject to shareholder approval, an equity awards program for officers, directors and key employees pursuant to which we would reserve up to 10% of our common stock for the making of such awards.

Retirement Benefits. We provide employees with the ability to contribute to a 401(k) retirement plan.

Other Benefits and Perquisites. Consistent with our compensation philosophy, we provide medical, dental, vision and life and disability insurance coverage to our executive officers. Our board of directors will retain the discretion to revise, amend or add to the executive officer benefits that we provide if it deems it advisable.

Recoupment of Incentive Payments. We do not have a formal policy regarding adjusting or recovering discretionary or performance-based bonuses or long-term incentive plan awards or payments if the relevant performance metrics upon which such awards or payments are based are later restated or otherwise adjusted in a manner that reduces the actual size of the award or payment. We will consider making such adjustments on a case-by-case basis if any such situation arises.

General Tax Deductibility of Executive Compensation. We strive to structure our compensation program to comply with Internal Revenue Code Section 162(m). Under Internal Revenue Code Section 162(m), a limitation is placed on tax deductions of any publicly-held corporation for individual compensation to executives of such corporation exceeding $1,000,000 in any taxable year, unless the compensation is performance-based. We intend for our board of directors and compensation committee to generally manage our incentive programs to qualify for the performance-based exemption. Our board of directors also reserves the right to provide compensation that does not meet the exemption criteria if, in its sole discretion, it determines that doing so advances our business objectives.

Travel and Expense Reimbursement Policy. The Company has a travel and expense reimbursement policy. The policy provides for reimbursement of expenses upon terms and conditions generally consistent with market practices.

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Summary Compensation Table

The following table sets forth the compensation paid to our named executive officers during the fiscal years ended December 31, 2014 and 2013.


Name and principal position	Fiscal Year		Salary ($)		Bonus ($)		Stock awards ($)		Option awards ($)		Nonequity incentive plan compensation ($)		Nonqualified deferred compensation earnings ($)		All other compensation⁽²⁾⁽⁴⁾ ($)		Total ($)
Jim Terry⁽¹⁾ *Chief Executive Officer*		2014		148,282		—		—		—		—		—		—		148,282
Jim Terry⁽¹⁾ *Chief Executive Officer*		2013		—		—		—		—		—		—		—		—
Richard Dodson⁽³⁾ *Former President and Chief Operating Officer*		2014		196,990		—		—		—		—		—		—		196,990
		2013		237,959		—		—		—		—		—		8,308		246,267
N. Michael Dion *Chief Financial Officer*		2014		175,000		—		—		—		—		—		—		175,000
N. Michael Dion *Chief Financial Officer*		2013		196,154		—		—		—		—		—		—		196,154
Stephen Cope⁽⁵⁾ *Former Chief Executive Officer*		2014		104,201		—		—		—		—		—		1,219,277		1,323,478
Stephen Cope⁽⁵⁾ *Former Chief Executive Officer*		2013		498,729		—		—		—		—		—		11,077		509,806

(1)

Mr. Terry was appointed Chief Executive Officer of the Company effective July 18, 2014.

(2)

All other compensation in 2013 consisted of auto allowances.

(3)

Mr. Dodson was appointed President and Chief Operating Officer in December 2012, and served in such position until his death on February 25, 2015.

(4)

All other compensation in 2014 consisted of principal payments in connection with the $2.1 million and $0.4 million promissory notes owed to Mr. Cope.

(5)

Mr. Cope was appointed Chief Executive Officer of the Company following the Merger on December 14, 2012, and served in such position until April 14, 2014. Prior to the Merger, Mr. Cope served as Chief Executive Officer of the acquired company, IDE.

Jim Terry began serving as our Chief Executive Officer, effective July 21, 2014. Mr. Terry has an employment agreement for an initial term of three years with automatic annual one-year renewals thereafter unless a written notice of nonrenewal is provided by either party in accordance with the terms of the agreement. Under the terms of his employment agreement, Mr. Terry’s base salary was $360,000 with a guaranteed bonus for 2014 of $65,000 and target annual bonuses of 50% of base salary for 2015 and 2016. All annual bonuses pursuant to his agreement is subject to the formal bonus process and the performance objectives described above in “Short-Term Incentives.”

Pursuant to their employment agreements, Mr. Cope served as our Chief Executive Officer until his employment was terminated on April 14, 2014, and Mr. Dodson served as our President and Chief Operating Officer until his death on February 25, 2015. The agreements provided for an initial term of three years with automatic annual one-year renewals thereafter unless a written notice of nonrenewal was provided by either party in accordance with the terms of the agreement.

Under his employment agreement, Mr. Cope’s base salary was $600,000 and his target annual bonus was 100% of base salary, with guaranteed bonuses of $300,000 for each of 2013, 2014 and 2015. Under his employment agreement, Mr. Dodson’s base salary was $285,000 and his target annual bonus was 100% of base salary. Mr. Cope and Mr. Dodson took voluntary salary reductions in 2013. Therefore, the reported salary in the above table was less than the base salaries as per their respective employment agreements. All annual bonuses pursuant to these agreements are subject to the formal bonus process and the performance objectives described above in “Short-Term Incentives.”

Subject to our board’s subjective assessment of each executive’s individual performance and overall corporate performance, our executives will also be eligible to receive an award of options. Any options are expected to vest ratably over a four year period and to be restricted from being exercised until the closing price of our common stock exceeds $12 for any 20 trading days within a 30-trading day period. Notwithstanding the foregoing, it is expected that any options granted would vest fully and be exercisable upon a change-in-control. No options were granted in 2014 or 2013.

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Each executive is entitled to four weeks of paid vacation per year under these employment agreements, and each executive is eligible to participate in company-sponsored major medical, dental, vision, life insurance, 401(k) and other employee welfare benefit plans. The executives will be reimbursed for reasonable and necessary business expenses in accordance with the terms of our travel and expense policy.

Outstanding Equity Awards at Fiscal Year-End

As of December 31, 2014, our named executive officers did not hold any outstanding equity awards.

Potential Payments upon Termination or Change-In-Control

Subject in part to Mr. Terry’s release of claims against the Company, upon a termination without “cause” or a resignation by Mr. Terry for “good reason”, Mr. Terry is entitled to the following severance payments and benefits: one year’s base salary, his target annual bonus, and a cash payment equal to 12 months of company COBRA costs, payable in a lump sum, along with accelerated vesting of certain equity awards.

“Cause” is generally defined to include a material breach of the employment agreement, a willful failure to perform the executive’s duties, misconduct materially injurious to us or any of our affiliates, conviction of a felony, gross negligence, fraud or violation of securities laws, alcohol or drug use that continually affects work performance, or a material violation of our policies.

“Good reason” is generally defined to include a material diminution in the executive’s base salary or target annual bonus, a material diminution in the executive’s authorities, duties, responsibilities or corporate role, a relocation of more than 50 miles, or a material breach by us of the employment agreement.

Pursuant to the terms of the employment agreements, each executive agrees to maintain the confidentiality of our proprietary information. Each executive also agrees not to compete with us and not to solicit our employees during employment and for a period of two years thereafter for Mr. Cope and one year thereafter for Mr. Terry.

On April 7, 2014, we entered into a Settlement Agreement and General Release (the “Settlement Agreement”) with Mr. Cope. The Settlement Agreement settled any and all disagreements between the parties, including any claims arising from Mr. Cope’s employment agreement as it relates to his service as Chief Executive Officer of the Company. As part of the Settlement Agreement, Mr. Cope’s employment with the Company terminated on April 14, 2014, although he remains a director and Vice Chair of the Company. As part of the Settlement Agreement, we agreed to pay $292,307 to Mr. Cope and certain entities owned by him in full satisfaction of certain deferred payments, which payments will be paid by us once we have received down payments totaling at least $3 million with respect to contracted rig orders totaling at least $15 million. In addition, we also agreed to pay Mr. Cope an additional $45,000 if our financial statements for the year ending December 31, 2014 reflect EBITDA of at least $10 million, which target was not met and therefore payment was not made.

In connection with the Settlement Agreement and the transactions contemplated therein, we issued two promissory notes dated April 7, 2014, to Mr. Cope. These promissory notes are in satisfaction of any severance payments or benefits owing to Mr. Cope under his employment agreement. The first promissory note, in the amount of $2,111,951, provides for bi-weekly installment payments of $40,614 until the note is paid in full. Interest accrues on the note at the rate of 9% per annum and interest on all past due amounts at the rate of 18% per annum. All interest shall accrue and be paid at maturity. Notwithstanding the foregoing, upon the earlier of (i) April 7, 2016 or (ii) the later to occur of (x) the date the Company determines that it would have had, after paying the note in full, liquidity of at least $5 million on each of two consecutive months’ end and (y) the date the Company has contracted backlog for drilling rigs and related equipment (1) of at least $75 million or (2) of $60 million (excluding the contracted backlog at IEC-Systems, LLC), then the entire amount of such note shall become due and payable. In addition, a mandatory prepayment on the note in the amount of $250,000 was due on the date, after March 31, 2014, that we received deposits of at least $5 million for contracted backlog for drilling rigs and related equipment. During the third quarter of 2014, the Company met the criteria requiring the mandatory prepayment in the amount of $250,000 and such payment was made on August 21, 2014. This note is prepayable at any time without payment of any premium or fee.

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The second promissory note, in the amount of $408,169, provides for bi-weekly installment payments of $7,849 until the note is paid in full. Notwithstanding the foregoing, on April 8, 2016, all unpaid principal shall be due and payable. The note does not accrue interest and is prepayable at any time without payment of any premium or fee.

In connection with the Settlement Agreement, we entered into a sales representation agreement, dated April 7, 2014 (the “Sales Representation Agreement”), with Mr. Cope pursuant to which he was appointed an independent sales and marketing consultant for all products and services manufactured or provided by the Company. In general, the Sales Representation Agreement provides that we will pay Mr. Cope a commission of 1% based upon the final net selling price of any products and services by the Company to certain customers for specific projects.

Director Compensation

Since the formation of our Company in January 2011, we have not paid compensation, including finder’s and consulting fees, or awarded any equity to any of our directors or any of their respective affiliates, for their services as directors.

Directors are reimbursed for out-of-pocket expenses incurred in connection with activities on our behalf, such as attending Company board meetings, identifying prospective target businesses and performing due diligence on suitable business transactions.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following tables set forth information regarding the beneficial ownership of our equity securities as of March 27, 2015 for:

•

Each of our named executive officers and directors.

•

All of our executive officers and directors as a group.

•

Each person known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock.

As of March 27, 2015, there were 8,809,917 shares of our common stock issued and outstanding. Unless otherwise indicated, we believe that all persons named in the tables have sole voting and investment power with respect to all shares of common stock beneficially owned by them.

In connection with the completion of the Merger, we entered into a voting agreement with our Sponsor and some of our stockholders (together, the “Voting Group”), dated as of December 14, 2012, which Voting Agreement was subsequently amended and restated on April 7, 2014 (as amended and restated, the “Voting Agreement”), creating a group under Rule 13d-3 of the Exchange Act. Each member of the Voting Group has sole dispositive power over the following number of shares of common stock: our Sponsor (1,278,000); Stephen Cope (3,137,867); Kelly Cook (96,025); Lauren Little (96,025); Stephen K. Cope (96,025); Vicki Cope (96,025); SDC Management Services, LLC (40,269); Ronald Moreau (851,839); Eric Storm (534,644); Jeff Sweet (255,241); Richard Dodson (309,759); Bruce Burnham (30,976); and Greg Kimbrough (30,976). The Voting Group has shared voting power with respect to all the shares subject to the Voting Agreement. As a result of entering into the Voting Agreement, each member of the Voting Group may be deemed to beneficially own all of the shares of common stock owned by the members of the Voting Group. The Voting Agreement will automatically terminate upon the earlier of (a) the affirmative vote of (i) the Sponsor and certain related parties holding at least 51% of the shares of common stock subject to such agreement and (ii) the former IDE stockholders holding at least 51% of the shares of common stock subject to such agreement and (b) the date upon which the Sponsor, certain parties related to the Sponsor and the former IDE stockholders, taken together, hold less than 25% of our outstanding common stock. For additional information about the terms and provisions of the Voting Agreement, see “Certain Relationships and Related Transactions — Voting Agreement.” The following table does not reflect the additional shares of common stock that each member of the Voting Group may be deemed to beneficially own as a result of joining the Voting Group.

Information in the tables:

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•

Reflects the lapse of restrictions on 709,500 shares of common stock upon the completion of Merger.

•

Reflects the exchange of our Sponsor’s Placement Warrants for 39,000 shares of common stock.

•

Reflects the distribution of 748,500 shares by our Sponsor to its members under the terms of its operating agreement.

•

Reflects that none of the up to 5,250,000 shares that we hold on behalf of the former IDE stockholders that are distributable to the former IDE stockholders upon the satisfaction of certain stock price conditions or a change in control (other than the initial business transaction) within the five-year period following the completion of the Merger have been distributed.

Directors and Named Executive Officers



	Number of Shares of Common Stock Beneficially Owned			Approximate Percentage of Outstanding Shares of Common Stock			Number of Shares of Series A Preferred Stock Beneficially Owned			Approximate Percentage of Outstanding Shares of Series A Preferred Stock			Number of Shares of Series B Preferred Stock Beneficially Owned			Approximate Percentage of Outstanding Shares of Series B Preferred Stock			Number of Shares of Series C Preferred Stock Beneficially Owned			Approximate Percentage of Outstanding Shares of Series C Preferred Stock
Jim Terry⁽¹⁾		0			—			0			—			0			—			0			—
Stephen Cope⁽¹⁾		3,178,136	⁽²⁾⁽³⁾		36.1	%		0			—			0			—			0			—
Alan B. Menkes⁽⁴⁾		633,003	⁽⁵⁾		7.2	%		5,256	⁽⁶⁾		21.0	%		1,051	⁽⁶⁾		21.0	%		1,051	⁽⁶⁾		21.0	%
N. Michael Dion⁽¹⁾		374,729	⁽⁷⁾		4.3	%		0			—			0			—			0			—
James N. Mills⁽⁴⁾		180,442	⁽⁸⁾		2.0	%		0			—			0			—			0			—
Richard Borstmayer⁽¹⁾		0			—			0			—			0			—			0			—
Richard Marshall⁽¹⁾		0			—			0			—			0			—			0			—
All directors and executive officers as a group (7 persons)⁽⁹⁾		4,366,310			49.6	%		5,256			21.0	%		1,051			21.0	%		1,051			21.0	%

(1)

The business address of each of these beneficial owners is c/o Integrated Drilling Equipment Company Holdings, LLC, 25311 I-45 North, Woodpark Business Center, Bldg. 6, Spring, TX 77380.

(2)

Amount includes 3,137,867 shares of common stock directly owned by Mr. Cope and 40,269 shares of common stock indirectly owned by Mr. Cope attributable to SDC Management, LLC, a Texas limited liability company, which is solely owned by Mr. Cope. All of these shares are subject to the Voting Agreement.

(3)

Pursuant to the Merger Agreement, a portion of the shares of common stock (“Holdback Shares”) to be issued as consideration to the former IDE stockholders were issued to the Company to hold on behalf of the former IDE stockholders and are subject to forfeiture during the eighteen-month period following the Merger to satisfy indemnification claims. The amounts above reflect 427,500 of Holdback Shares which are being held by the Company for the benefit of Mr. Cope. Mr. Cope does not have voting power with respect to these shares.

(4)

The business address of each of these beneficial owners is c/o Empeiria Investors LLC, 142 W. 57^th Street, 11^th Floor, New York, NY 10019.

(5)

Includes 404,015 shares of common stock owned directly as a result of a transfer made by our Sponsor to Mr. Menkes on May 2, 2011 and the distribution by our Sponsor to Mr. Menkes of shares of common stock that were released from transfer restrictions upon the completion of the Merger. 146,970 of the shares of common stock owned by Mr. Menkes directly are subject to transfer restrictions that will lapse upon the occurrence of any of the following events (the “Restriction Lapse Events”): (a) when the closing price of the shares of common stock exceeds $12.00 for any 20 trading days within a 30-trading day period, (b) when the closing price of the shares of common stock exceeds $13.50 for any 20 trading days within a 30-trading day period, (c) when the closing price of the shares of common stock exceeds $15.00 for any 20 trading days within a 30-trading day period and (d) when the closing price of the shares of common stock exceeds $17.00 for any 20 trading days within a 30-trading day period or earlier, in any case, if we engage in a subsequent transaction (1) resulting in our stockholders having the right to

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exchange their shares for cash or other securities or (2) involving a merger or other change in the majority of our board of directors or management team in which the Company is the surviving entity. With respect to any shares released from transfer restrictions, our Sponsor is required to distribute them to its members within 60 days of such release. Includes 228,988 shares of common stock beneficially owned by Mr. Menkes indirectly through his membership interest in our Sponsor, Empeiria Investors LLC, by virtue of Mr. Menkes being the managing member of such entity and Mr. Menkes may be deemed to have beneficial ownership over all equity securities owned by our Sponsor. Mr. Menkes has shared voting and dispositive power over the shares held by our Sponsor and he disclaims beneficial ownership over the shares held by our Sponsor except to the extent of his pecuniary interest therein.

(6)

These shares are beneficially owned by Mr. Menkes indirectly through his membership interest in our Sponsor, Empeiria Investors LLC, by virtue of Mr. Menkes being the managing member of such entity and Mr. Menkes may be deemed to have beneficial ownership over all equity securities owned by our Sponsor. Mr. Menkes has shared voting and dispositive power over the shares held by our Sponsor and he disclaims beneficial ownership over the shares held by our Sponsor except to the extent of his pecuniary interest therein.

(7)

Amount includes 173,924 shares of common stock directly owned by Mr. Dion, 154,425 shares of common stock indirectly owned by Mr. Dion attributable to NMD Retirement LLC, a limited liability company, which is solely owned by Mr. Dion, and 46,380 shares of common stock indirectly owned by Mr. Dion attributable to the Dion Family 2011 Trust, the trustee of which is Mr. Dion’s brother and the beneficiaries are Mr. Dion’s children. Mr. Dion has shared voting and investment power over the shares held by the Dion Family 2011 Trust. The 154,425 shares of common stock held by NMD Retirement LLC were acquired by NMD Retirement LLC as a result of a transfer made by our Sponsor to NMD Retirement LLC on May 2, 2011. The 173,924 shares of common stock held by Mr. Dion and the 46,380 shares of common stock held by the Dion Family 2011 Trust were acquired by Mr. Dion and the Dion Family 2011 Trust as the result of a distribution to Mr. Dion and the Dion Family 2011 Trust by our Sponsor of shares of common stock that were released from transfer restrictions upon the completion of the Merger. 123,450 of the shares of common stock held by NMD Retirement LLC are subject to transfer restrictions that will lapse upon the occurrence of further Restriction Lapse Events.

(8)

Amount includes 180,442 shares of common stock beneficially owned by Mr. Mills directly as a result of a transfer made by our Sponsor to Mr. Mills on May 2, 2011 and the distribution by our Sponsor to Mr. Mills of shares of common stock that were released from transfer restrictions upon the completion of the Merger. 56,232 of the shares of common stock owned by Mr. Mills directly are subject to transfer restrictions that will lapse upon the occurrence of further Restriction Lapse Events.

(9)

The directors and executive officers group includes Jim Terry, Stephen Cope, Alan B. Menkes, James N. Mills, N. Michael Dion, Richard Borstmayer and Richard Marshall.

Five Percent Holders


	Number of Shares of Common Stock Beneficially Owned			Approximate Percentage of Outstanding Shares of Common Stock			Number of Shares of Series A Preferred Stock Beneficially Owned		Approximate Percentage of Outstanding Shares of Series A Preferred Stock			Number of Shares of Series B Preferred Stock Beneficially Owned		Approximate Percentage of Outstanding Shares of Series B Preferred Stock			Number of Shares of Series C Preferred Stock Beneficially Owned		Approximate Percentage of Outstanding Shares of Series C Preferred Stock
Voting Group⁽¹⁾		6,853,671			77.8	%		0		—			0		—			0		—
Empeiria Investors LLC⁽²⁾		1,278,000	⁽³⁾		14.5	%		25,000		100	%		5,000		100	%		5,000		100	%
Wexford Capital LP⁽⁴⁾		835,500			8.7	%		0		—			0		—			0		—

(1)

According a Schedule 13D filed on January 18, 2013, the Voting Group entered into the Voting Agreement, which created a group under Rule 13d-3 of the Exchange Act. Each member of the Voting Group has sole dispositive power over the following number of shares of common stock: our Sponsor (1,278,000); Stephen Cope (3,137,867); Kelly Cook (96,025); Lauren Little (96,025); Stephen K. Cope (96,025); Vicki Cope (96,025); SDC Management Services, LLC (40,269); Ronald Moreau (851,839); Eric Storm (534,644); Jeff Sweet (255,241); Richard Dodson (309,759); Bruce Burnham (30,976); and Greg Kimbrough (30,976). The Voting Group has shared voting power with respect to all the shares subject to the Voting Agreement. Our Sponsor’s address is c/o Empeiria Investors LLC, 142 W. 57^th Street, 12^th Floor, New York, NY 10019. The business address of the remaining members of the Voting

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Group is c/o Integrated Drilling Equipment Company Holdings, LLC, 25311 I-45 North, Woodpark Business Center, Bldg. 6, Spring, TX 77380.

(2)

The business address of Empeiria Investors LLC, is 142 W. 57^th Street, 12^th Floor, New York, NY 10019.

(3)

Shares held by our Sponsor include 1,278,000 shares of common stock, of which 319,500 will be released from transfer restrictions upon the date of each of the following remaining events: (i) when the closing price of the shares of common stock exceeds $12.00 for any 20 trading days within a 30-trading day period, (ii) when the closing price of the shares of common stock exceeds $13.50 for any 20 trading days within a 30-trading day period, (iii) when the closing price of the shares of common stock exceeds $15.00 for any 20 trading days within a 30-trading day period and (iv) when the closing price of the shares of common stock exceeds $17.00 for any 20 trading days within a 30-trading day period or earlier, in any case, if we engage in a subsequent transaction (1) resulting in our stockholders having the right to exchange their shares for cash or other securities or (2) involving a merger or other change in the majority of our board of directors or management team in which the Company is the surviving entity. With respect to any shares released from transfer restrictions, our Sponsor is required to distribute them to its members within 60 days of such release. All 1,278,000 shares of common stock held by our Sponsor are subject to the Voting Agreement.

(4)

According to a Schedule 13G/A filed with the SEC on February 14, 2014, Wexford Capital LP is the investment manager of Wexford Catalyst Trading Limited and Wexford Spectrum Trading Limited (together, the “Wexford Entities”) and by reason of its status as such may be deemed to beneficially own the interest in the securities of which the Wexford Entities possess beneficial ownership. Wexford GP LLC (“Wex GP”) is the general partner of Wexford Capital and by reason of its status as such may be deemed to beneficially own the interest in the securities of which the Wexford Entities possess beneficial ownership. Each of Charles E. Davidson (“Davidson”) and Joseph M. Jacobs (“Jacobs”) may, by reason of his status as a controlling person of Wex GP, be deemed to beneficially own the interests in the securities of which the Wexford Entities possess beneficial ownership. Each of Wexford Capital, Wex GP, Davidson and Jacobs disclaims beneficial ownership of the securities owned by the Wexford Entities except, in the case of Davidson and Jacobs, to the extent of their interests in each member of the Wexford Entities. Wexford Capital has shared voting and dispositive power over 835,500 warrants that are currently exercisable for one share of common stock per warrant; Wex GP has shared voting and dispositive power over 835,500 warrants that are currently exercisable for one share of common stock per warrant; Wexford Spectrum Trading Limited has shared voting and dispositive power over 626,625 warrants that are currently exercisable for one share of common stock per warrant; Wexford Catalyst Trading Limited has shared voting and dispositive power over 208,875 warrants that are currently exercisable for one share of common stock per warrant; Davidson has shared voting and dispositive power over 835,500 warrants that are currently exercisable for one share of common stock per warrant; and Jacobs has shared voting and dispositive power over 835,500 warrants that are currently exercisable for one share of common stock per warrant. The address of each of these reporting persons is c/o Wexford Capital LP, 411 West Putnam Avenue, Greenwich, Connecticut 06830.

Equity Compensation Plan Information

As of December 31, 2014, we did not have any compensation plans (including any individual compensation arrangements) under which our securities were authorized for issuance. We may adopt an equity compensation plan in the future and intend to submit any equity compensation plan to our stockholders for approval.

Item 13.

Certain Relationships and Related Transactions, and Director Independence

The following is a summary of transactions that occurred on or were in effect after January 1, 2013 to which we have been a party, or which are currently proposed, in which the amount involved exceeded the lesser of (i) $120,000 or (ii) one percent of the average of our total assets at December 31, 2013 and December 31, 2014, and in which any of our executive officers, directors, beneficial holders of more than 5% of our common stock, or any of such persons immediate family members, had or will have a direct or indirect material interest.

On January 24, 2011, we issued 4,000,000 Initial Shares to our Sponsor, an entity controlled by certain of our officers and directors, for $25,000 in cash, or $0.00625 per share. On May 2, 2011, our Sponsor sold,

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at cost, 1,000,000 Initial Shares to our officers and directors. On June 13, 2011, we effected a 0.75625-for-1 reverse split of our outstanding common stock, leaving our Sponsor, officers and directors with 3,025,000 Initial Shares. On June 15, 2011, we effected a 0.80331-for-1 reverse split of our outstanding common stock, leaving our Sponsor, officers and directors with 2,430,000 Initial Shares. The Initial Shares included 300,000 shares that were forfeited when the Underwriters in our IPO did not exercise their over-allotment option in full.

In connection with our IPO, we, our Sponsor and certain of our officers and directors entered into a letter agreement with the underwriters of our IPO which imposed transfer restrictions on the Initial Shares. Upon completion of the Merger, restrictions lapsed on 20% of the Initial Shares. The remaining Initial Shares will not be released from transfer restrictions until (a) with respect to 20% of the Initial Shares, when the closing price of our common stock exceeds $12.00 for any 20 trading days within a 30-trading day period, (b) with respect to 20% of the Initial Shares, when the closing price of our common stock exceeds $13.50 for any 20 trading days within a 30-trading day period, (c) with respect to 20% of the Initial Shares, when the closing price of our common stock exceeds $15.00 for any 20 trading days within a 30-trading day period and (d) with respect to 20% of the Initial Shares, when the closing price of our common stock exceeds $17.00 for any 20 trading days within a 30-trading day period or earlier, in any case, if we engage in a subsequent transaction (1) resulting in our stockholders having the right to exchange their shares for cash or other securities or (2) involving a merger or other change in the majority of our board of directors or management team in which the Company is the surviving entity.

Our Sponsor purchased 390,000 Placement Units at $10.00 per unit for $3.9 million, in a private placement on June 15, 2011. Each Placement Unit consisted of one share of common stock and one Placement Warrant. The Placement Warrants are identical to the warrants sold in our IPO, except that if held by the original holders or their permitted assigns, they (i) may be exercised for cash or on a cashless basis; and (ii) are not subject to being called for redemption.

On February 25, 2013, we entered into a Placement Warrant Exchange Agreement with our Sponsor (the “Placement Warrant Exchange Agreement”). Pursuant to this agreement, on February 25, 2013, we issued 39,000 shares of common stock (the “Warrant Cancellation Shares”) to our Sponsor in exchange for the cancellation of our Sponsor’s Placement Warrants.

On June 15, 2011, we entered into a registration rights agreement with our Sponsor (the “Sponsor Registration Rights Agreement”). At any time and from time to time the parties to the Sponsor Registration Rights Agreement who own at least 25% of then outstanding securities that are subject to the Sponsor Registration Rights Agreement (the “Registrable Securities”) may make a written demand for registration (“Demand Registration”) of at least 15% of the then outstanding number of Registrable Securities. We will notify all holders of Registrable Securities of the Demand Registration and such holders will be entitled to include their Registrable Securities in the Demand Registration statement. We are only obligated to register securities pursuant to a Demand Registration three times. When we become qualified to file registration statements on Form S-3, any party which may demand registration of their securities, may request that the registration be made on Form S-3. However, we are not required to register securities if the aggregate amount to be sold to the public is less than $10,000,000. If we propose to file a registration statement with respect to an offering of equity securities, or securities or other obligations exercisable or exchangeable for, or convertible into equity security, we will provide holders of Registrable Securities with an opportunity to include their shares in the registration statement. These piggy-back registration rights are subject to certain exceptions set forth in the Sponsor Registration Rights Agreement. We will be required to bear the registration expenses, except for incremental selling expenses relating to the sale of the securities, such as underwriting commissions and discounts and brokerage fees, marketing costs and any reasonable fees and expenses of any legal counsel representing an individual holder, associated with any registration of Registrable Securities. The Sponsor Registration Rights Agreement will terminate on June 15, 2021.

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Loans From Directors and Officers

In order to meet our working capital needs, certain of our officers and directors may, but are not obligated to, loan us funds, from time to time, or at any time, in whatever amount the officer or director deems reasonable in his or her sole discretion. The outstanding loan amount may be converted into warrants at a price of $0.75 per warrant at the option of the lender. The warrants would be identical to the Placement Warrants. The holders of a majority of these warrants (or underlying shares) will be entitled to demand that we register these securities pursuant to an agreement to be entered into at the time of the loan. The holders of a majority of these securities would have certain “piggy-back” registration rights with respect to registration statements after the loan was made. We will bear the expense incurred with the filing of any such registration statements. The terms of such loans by our officers and directors, if any, have not been determined and no written agreements exist. There are no loans from our officers or directors currently outstanding.

Merger

On October 19, 2012, we entered into the Merger Agreement. Pursuant to the Merger Agreement and in accordance with the terms of our certificate of incorporation, on October 19, 2012, we commenced a tender offer to purchase up to 5,520,000 shares of IDE’s issued and outstanding common stock for $10.20 per share. The Offer expired at 5:00 p.m. on December 13, 2012. We promptly purchased 5,448,971 shares of IDE’s common stock in the offer for $55.6 million.

On December 14, 2012, we completed the Merger and issued 4,825,671 shares of our common stock to the former IDE stockholders. We are holding 750,000 additional shares on behalf of the former IDE stockholders to satisfy any indemnification claims we have under the Merger Agreement. Depending on the amount of the indemnification claims that we may make, we will distribute the remaining 750,000 additional shares to the former IDE stockholders. In addition, if the trading price of our common stock exceeds certain thresholds before December 14, 2017, we will distribute up to 5,250,000 shares to the former IDE stockholders including Stephen Cope, our Vice Chairman of the board of directors and former Chief Executive Officer, Richard Dodson, our President, Chief Operating Officer and a director, Kelly Cope, Lauren Little, Steven K. Cope and Vicki Cope. Specifically:

•

If, before December 14, 2017, (a) the trading price of our common stock exceeds $12.00 per share for any 20 trading days within any period of 30 consecutive trading days or (b) a change of control transaction (as defined in the Merger Agreement) occurs that values each share at more than $12.00 per share, we will issue to the former IDE stockholders 1,312,500 shares of common stock.

•

If, before December 14, 2017, (a) the trading price of our common stock exceeds $13.50 per share for any 20 trading days within any period of 30 consecutive trading days or (b) a change of control transaction occurs that values each share at more than $13.50 per share, we will issue to the former IDE stockholders an additional 1,312,500 shares of common stock.

•

If, before December 14, 2017, (a) the trading price of our common stock exceeds $15.00 per share for any 20 trading days within any period of 30 consecutive trading days or (b) a change of control transaction occurs that values each share at more than $15.00 per share, the Company will issue to the former IDE stockholders an additional 1,312,500 shares of common stock.

•

If, before December 14, 2017, (a) the trading price of our common stock exceeds $17.00 per share for any 20 trading days within any period of 30 consecutive trading days or (b) a change of control transaction occurs that values each share at more than $17.00 per share, the Company will issue to the former IDE stockholders an additional 1,312,500 shares of common stock.

Additionally, in connection with the closing of the Merger, the former IDE stockholders received $20.0 million in cash. The former IDE stockholders were also entitled to receive an additional cash payment of up to $10.0 million, equal to the amount, if any, by which 2013 EBITDA (as defined in the Merger Agreement) exceeds $30.0 million, multiplied by 0.5. The 2013 EBITDA did not reach $30.0 million and, as a result, the former IDE stockholders did not receive any additional cash payments.

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Preferred Stock Purchase Agreements

On December 14, 2012, the Company issued 25,000 shares of Series A Preferred Stock to our sponsor at a purchase price of $100 per share or $2.5 million.

On November 14, 2013, the Company issued 5,000 shares of Series C Preferred Stock to our sponsor at a purchase price of $100 per share or $0.5 million.

On November 14, 2013, the Company issued 5,000 shares of Series B Preferred Stock to Stephen D. Cope at a purchase price of $100 per share or $0.5 million. Subsequently, Mr. Cope sold these shares to our Sponsor.

The holders of our Series A, B and C Preferred Stock do not have the right to vote on matters submitted to our stockholders. The Series A, B and C Preferred Stock is not convertible into common stock and accrues cumulative dividends at a rate of 16%, 20% and 14%, respectively, per year. The dividends are payable in additional shares of Preferred Stock. The shares have a liquidation preference equal to the purchase price of the Preferred Stock plus all accrued and unpaid dividends at the date of liquidation. The Preferred Stock is redeemable at our option at any time on 15 days’ notice, at any time after the first anniversary of the date on which all indebtedness for borrowed money is repaid in full. The optional redemption price is equal to the purchase price, plus all accrued and unpaid dividends to the date of redemption, subject to compliance with any restrictions in our then-outstanding indebtedness. The Preferred Stock will be subject to mandatory redemption on the date which is 181 days following the latest maturity date of our Term and Revolving Facilities.

Intellectual Property

In connection with the Merger, we acquired intellectual property from International Drilling Equipment Company, LLC (“International”). The intellectual property we received included four patents covering the design and assembly of drilling rigs and all other related intellectual property and know-how International possessed. We are required to pay International royalties of $12,500 for each mast and $12,500 for each substructure that we manufacture or cause to be manufactured using the engineering and designs provided by International. While Stephen D. Cope, our Vice Chairman of the board of directors and former Chief Executive Officer, owns 50% of International, as part of the merger agreement, he agreed to waive his right to receive any royalty payments from us. Any royalty payments will be distributed to the other shareholder of International.

Leases and Lease Amendments

We lease property from SDC Blackhole LP, IDECO LLC and 9^th Green LLC. Stephen D. Cope, our Vice Chairman of the board of directors and former Chief Executive Officer, owns 100%, 33% and 50% of SDC Blackhole LP, IDECO LLC and 9^th Green LLC, respectively. In connection with the Merger, we entered into amendments to these leases to extend the term of each lease to give us the option to purchase these properties for fair market value based on a third-party appraisal. We extended the terms of the leases with SDC Blackhole LP, IDECO LLC and 9^th Green LLC to December 31, 2017. The total value of the lease with SDC Blackhole LP is $2.2 million and, based on Mr. Cope’s sole ownership of SDC Blackhole LP, Mr. Cope’s interest in this lease is $2.2 million. The total value of the lease with IDECO LLC is $1.4 million and, based on Mr. Cope’s 33% interest in IDECO LLC, Mr. Cope’s interest in this lease is $0.5 million. The total value of the lease with 9th Green LLC is $0.8 million and, based on Mr. Cope’s 50% interest in 9th Green LLC, Mr. Cope’s interest in this lease is $0.4 million. The total value of each lease is based on the payments to be made by us during the primary term of the lease.

Merger Lock-up Agreements

In connection with the Merger, the former IDE stockholders entered into lock-up agreements such that, subject to the terms and conditions of such agreements, all of the shares of common stock the former IDE stockholders received in connection with the Merger will not be transferable until December 14, 2013 (subject to certain exceptions, including certain transfers by gift, will or intestate succession).

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IDE Registration Rights Agreement

On December 14, 2012, we entered into a registration rights agreement (the “IDE Registration Rights Agreement”) with the former IDE stockholders including Stephen Cope, our Vice Chairman of the board of directors and former Chief Executive Officer, and Richard Dodson, our former President, Chief Operating Officer and a former director. Former IDE stockholders who own at least 25% of then outstanding securities that are subject to the IDE Registration Rights Agreement (the “IDE Registrable Securities”) are entitled to make a written demand for registration (the “IDE Demand Registration”). The request must be for at least 15% of the then outstanding number of IDE Registrable Securities. We will notify all holders of IDE Registrable Securities of the IDE Demand Registration and such holders will be entitled to include their IDE Registrable Securities in the IDE Demand Registration statement.

We will be required to file the IDE Demand Registration statement within 60 days after receipt of the request and use our reasonable best efforts to cause the registration statement to become effective. When we become qualified to file registration statements on Form S-3, any party which may demand registration of their securities, may request that the registration be made on Form S-3. We will be required to file the Form S-3 within 30 days of the request.

We are only obligated to register securities pursuant to an IDE Demand Registration once. We are also only required to register securities if the amount to be sold to the public is more than $10,000,000.

If we propose to file a registration statement, we will provide holders of the IDE Registrable Securities with the right to include their shares in the registration statement. These piggy-back registration rights are subject to certain exceptions set forth in the IDE Registration Rights Agreement.

We will be required to bear the registration expenses, except for incremental selling expenses relating to the sale of the securities, such as underwriting commissions and discounts and brokerage fees, marketing costs and any reasonable fees and expenses of any legal counsel representing an individual holder, associated with any registration of the IDE Registrable Securities. The IDE Registration Rights Agreement will terminate on the earlier of December 14, 2017 or when there are no more IDE Registrable Securities.

Voting Agreement

The former IDE stockholders, including Stephen Cope, our Vice Chairman of the board of directors and former Chief Executive Officer, Kelly Cope, Lauren Little, Steven K. Cope, Vicki Cope and Richard Dodson, our former President, Chief Operating Officer and a former director, and our Sponsor entered into the Voting Agreement on December 14, 2012. The Voting Agreement was subsequently amended and restated effective April 14, 2014. The agreement provides that the board of directors will consist of two classes of directors. Class I directors have terms that were scheduled to expire at our 2013 annual meeting of stockholders, however, since we did not hold an annual meeting in 2013, such Class I directors have remained members of the board of directors. Jim Terry is currently our only Class I director. Class II directors have terms that were scheduled to expire at our 2014 annual meeting of stockholders, however, since we did not hold an annual meeting in 2014, such Class II directors have remained members of the board of directors. Alan B. Menkes, James N. Mills, Stephen Cope, Richard Borstmayer and Richard N. Marshall are Class II directors. At the next annual meeting of stockholders, all Class I and Class II director positions will be put up for nomination. However, the term of the Class I directors elected at such meeting is expected to expire at the 2017 annual meeting of stockholders and the term of the Class II directors elected at such meeting is expected to expire at the 2016 annual meeting of stockholders. Pursuant to the Voting Agreement, (i) the former IDE stockholders and our Sponsor each have the right to nominate two directors to our board of directors, (ii) the two directors nominated by the former IDE stockholders have the right to nominate an independent director, (iii) the two directors nominated by our Sponsor have the right to nominate an independent director, and (iv) our Chief Executive Officer shall be nominated as a member of our board of directors. Additionally, each of the former IDE stockholders and our Sponsor has agreed to vote for the others’ nominees. The Voting Agreement also provides that the former IDE stockholders and our Sponsor will cause their director nominees to vote for one of the two candidates proposed by the Compensation Committee to fill the position of Chief Executive Officer formerly held by Stephen Cope. The Voting Agreement does not obligate the Voting Group to vote their shares of common stock in any other way. The Voting Agreement also does not restrict the Voting Group from disposing of their shares in any way.

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On April 7, 2014, we entered into a Settlement Agreement and General Release (the “Settlement Agreement”) with Stephen. Cope, who at that time was our Chief Executive Officer and a director. The Settlement Agreement settled any and all disagreements between the parties, including any claims arising from Mr. Cope’s employment agreement as it relates to his service as Chief Executive Officer of the Company. As part of the Settlement Agreement, Mr. Cope’s employment with the Company terminated on April 14, 2014, although he remains a director and Vice Chair of the Company. As part of the Settlement Agreement, we agreed to pay $292,307 to Mr. Cope and certain entities owned by him in full satisfaction of certain deferred payments, which payments will be paid by us once we have received down payments totaling at least $3 million with respect to contracted rig orders totaling at least $15 million. In addition, we also agreed to pay Mr. Cope an additional $45,000 if our financial statements for the year ending December 31, 2014 reflect EBITDA of at least $10 million, which target was not met and therefore payment was not made.

Director Independence

We have adopted the independence standards of the NYSE MKT marketplace rules. Currently, Richard Borstmayer, Richard N. Marshall and James N. Mills are our independent directors.

Item 14.

Principal Accounting Fees and Services

Principal Accounting Firm Fees

Effective September 18, 2014, our Audit Committee notified PricewaterhouseCoopers LLP (“PwC”) that it had been dismissed as our independent registered public accounting firm. PwC had served as our independent registered public accounting firm since February 8, 2013. On September 23, 2014, our Audit Committee appointed Whitley Penn LLP as our independent registered public accounting firm.

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Aggregate fees billed to us for the fiscal years ended December 31, 2014 and 2013 by our current and former independent registered public accounting firms are as follows.


	2014		2013
	(in thousands)
PricewaterhouseCoopers LLP (PwC)⁽¹⁾
Audit fees⁽²⁾	$	403.5	$	557.5
Audit-related fees⁽³⁾		—		—
Tax fees⁽⁴⁾		—		—
All other fees		—		—
	$	403.5	$	557.5
Whitley Penn LLP⁽¹⁾
Audit fees⁽²⁾	$	322.3	$	—
Audit-related fees⁽³⁾		—		—
Tax fees⁽⁴⁾		—		—
All other fees		—		—
	$	322.3	$	—

(1)

PwC served as the Company’s registered public accounting firm from February 8, 2013 to September 18, 2014. Whitley Penn has served as the Company’s registered public accounting firm since September 23, 2014.

(2)

“Audit fees” consist of fees billed for professional services rendered for the audit of our year-end financial statements and review of financial statements included in our Form 10-Q and services that are normally provided in connection with regulatory filings.

(3)

“Audit-related fees” consist of fees billed for assurance and related services that are reasonably related to performance of the audit or review of our financial statements and are not reported under “Audit fees.” These services include attest services that are not required by statute or regulation and consultations concerning financial accounting and reporting standards.

(4)

“Tax fees” consist of fees billed for professional services rendered for tax compliance, tax advice and tax planning.

Pre-Approval Policy and Procedures

In accordance with Section 10A(i) of the Exchange Act, before our Company engaged its registered public accounting firm to render audit or non-audit services, the engagement was approved by our board of directors. All of our registered public accounting firm’s fees were pre-approved by the board of directors. Our engagement of Whitley Penn was approved by our Audit Committee. The Audit Committee utilizes a policy pursuant to which the audit, audit-related, and permissible non-audit services to be performed by the registered public accounting firm are pre-approved prior to the engagement to perform such services. Pre-approval is generally provided annually, and any pre-approval is detailed as to the particular service or category of services and is generally limited by a maximum fee amount. The registered public accounting firm and management are required to periodically report to the Audit Committee regarding the extent of services provided by the registered public accounting firm in accordance with this pre-approval, and the fees for the services performed to date.

The Audit Committee pre-approved 100% of our 2014 and 2013, respectively, audit fees, audit-related fees, tax fees and all other fees.

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PART IV.

Item 15.

Exhibits and Financial Statement Schedules

Financial Statements

A list of the financial statements filed as a part of this Annual Report on Form 10-K is set forth in Part II, Item 8 of this Annual Report on Form 10-K and is incorporated herein by reference.

Financial Statement Schedules

Schedule II – Valuation and Qualifying Account

Financial statement schedules not listed above are omitted because the required information is not present, not present in material amounts or is presented within the financial statements.

Exhibits

The exhibits filed or furnished with this Annual Report on Form 10-K are listed in the Exhibit Index below, which Exhibit Index is incorporated herein by reference.

Integrated Drilling Equipment Holdings Corp.
Schedule II — Valuation and Qualifying Accounts
(In thousands)


	Balance at Beginning of Period		Additions / Charged to Expense		Deductions			Other		Balance at End of Period
Year Ended December 31, 2014
Allowance for doubtful accounts		$744		$90		$(361	)		$—		$473
Valuation allowance — deferred tax assets		$4,706		$395		$—			$—		$5,101
Year Ended December 31, 2013
Allowance for doubtful accounts		$619		$281		$(156	)		$—		$744
Valuation allowance — deferred tax assets		$—		$4,706		$—			$—		$4,706

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EXHIBIT INDEX


Exhibit Number		Description
2.1		Agreement and Plan of Merger, dated as of October 19, 2012, by and among Empeiria Acquisition Corp., IDE Acquisition Co., LLC, Integrated Drilling Equipment Company Holdings, Inc., and Stephen Cope, as representative of the stockholders of Integrated Drilling Equipment Company Holdings, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K as filed with the SEC on October 19, 2012).
3.1		Third Amended and Restated Certificate of Incorporation of the Company, effective as of April14, 2014 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K as filed with the SEC on April 15, 2014).
3.2		Bylaws of the Company (incorporated by reference to Exhibit 3.3 to the Company’s Registration Statement on Form S-1 as filed with the SEC on May 2, 2011).
3.3		Amendment to the Bylaws of the Company (incorporated by reference to Exhibit 3.3 to the Company’s Current Report Form 8-K as filed with the SEC on December 20, 2012).
3.4		Second Amendment to the Bylaws of the Company, effective as of April 14, 2014 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K as filed with the SEC on April 15, 2014).
3.5		Certificate of Designation of Series A Preferred Stock of the Company (incorporated by reference to Exhibit 4.6 to the Company’s Current Report on Form 8-K as filed with the SEC on December 20, 2012).
3.6		Certificate of Designation of Series B Preferred Stock of the Company (incorporated by reference to Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q as filed with the SEC on November 14, 2013).
3.7		Certificate of Designation of Series C Preferred Stock of the Company (incorporated by reference to Exhibit 4.2 to the Company’s Quarterly Report on Form 10-Q as filed with the SEC on November 14, 2013).
4.1		Warrant Agreement, dated as of June 15, 2011, by and between Empeiria Acquisition Corp. and Continental Stock Transfer & Trust Company (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K as filed with the SEC on June 21, 2011).
4.2		Form of Unit Purchase Option (incorporated by reference to Exhibit 4.5 to the Company’s Registration Statement on Form S-1 as filed with the SEC on May 2, 2011).
4.3		Specimen Warrant Certificate (incorporated by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K as filed with the SEC on December 20, 2012).
4.4		Common Stock Warrant Agreement, dated as of December 14, 2012, by and among Empeiria Acquisition Corp., Elm Park Credit Opportunities Fund, L.P. and Elm Park Credit Opportunities Fund (Canada), L.P. (incorporated by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K as filed with the SEC on December 20, 2012).
4.5		Specimen Series A Preferred Stock Certificate of the Company (incorporated by reference to Exhibit 4.5 to the Company’s Current Report on Form 8-K as filed with the SEC on December 20, 2012).
10.1		Investment Management Trust Agreement, dated as of June 15, 2011, by and between Empeiria Acquisition Corp. and Continental Stock Transfer & Trust Company (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K as filed with the SEC on June 21, 2011).
10.2		Registration Rights Agreement, dated as of June 15, 2011, by and among Empeiria Acquisition Corp. and the securityholders named therein (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K as filed with the SEC on June 21, 2011).

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Exhibit Number		Description
10.3		Letter Agreement, dated as of June 15, 2011, by and among Empeiria Acquisition Corp., Cohen & Company Capital Markets, LLC, Empeiria Investors, LLC, and certain directors and officers of the Company (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K as filed with the SEC on June 21, 2011).
10.4		Second Amended and Restated Unit Subscription Agreement, dated as of June 15, 2011, by and between Empeiria Acquisition Corp. and Empeiria Investors LLC (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K as filed with the SEC on June 21, 2011).
10.5		Securities Subscription Agreement, dated as of January 24, 2011, by and between Empeiria Acquisition Corp. and Empeiria Investors LLC (incorporated by reference to Ex

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2014

Integrated Drilling Equipment Holdings Corp.

25311 I-45 North Woodpark Business Center, Bldg 6 Spring, Texas 77380 281-465-9393

None

Title of Class

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

PART I.

Item 1. Business

General

The Merger

Business Overview

Products and Services

Complete Drilling Rig Manufacturing

Offshore

Rig Services

IEC — Rig Electrical and Control Systems

Sales and Marketing

Customers

Sales by Region

Suppliers and Materials

Intellectual Property

Competition

Industry Background

Drilling Industry Dynamics

Land Drilling Rig Types

Land Rig Equipment Market

Environmental Matters

Employees

Item 1A. RISK FACTORS

Our failure to comply with restrictive covenants under our credit facilities or the ability to amend these facilities could trigger prepayment obligations.

Our ability to finance our business activities will require us to generate substantial cash flow.

Demand for our products and services depends on oil and natural gas industry activity and expenditure levels that are directly affected by trends in oil and natural gas prices.

Our international business operations expose us to potentially rapid changes in economic and political conditions and other risks inherent in operating internationally, which could result in a material adverse effect on our operations or financial condition.

The Company has received notices from PEMEX terminating its four purchase agreements for modular drilling units and may be liable for liquidated damages.

Our inability to deliver our products to customers on time could affect our future sales and profitability and our relationships with our customers.

If we are unable to successfully manage our anticipated future growth, we may not be able to maintain or increase our revenues and profitability and our business reputation could be harmed.

If we do not develop and commercialize new products or expand our service offerings, our revenues may decline.

We plan to pursue acquisitions and joint ventures that by their nature present risks and that may not be successful.

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 may lose money on fixed-price contracts.

We may experience fluctuations in our quarterly operating results.

We may be required to recognize a charge against current earnings because of percentage-of-completion accounting.

Our businesses and our customers’ businesses are subject to environmental laws and regulations that may increase our costs, limit the demand for our products and services or restrict our operations.

The adoption of climate change legislation or regulations restricting emissions of greenhouse gases could increase our operating costs or reduce demand for our products.

Uninsured or underinsured claims or litigation or an increase in our insurance premiums could adversely impact our results.

We could be subject to substantial liability claims that could harm our financial condition.

We may be faced with product liability claims.

The loss of the services of one or more of our executive officers or key employees could harm our business. We are a small company that relies upon a few key employees to ensure our business operates efficiently.

Being a public company could place a strain on our management.

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

We must successfully compete for the services of highly-trained technical or trade personnel.

The intense competition in our industry could result in our reduced profitability and loss of market share.

The high cost or unavailability of materials, equipment, supplies and personnel could adversely affect our ability to execute our operations on a timely basis.

We depend on third-party suppliers for timely deliveries of raw materials at a reasonable cost. Our results of operations could be adversely affected if we are unable to obtain adequate supplies in a timely manner.

If our existing arrangements with our suppliers were adversely affected, our equipment sales and parts and service businesses may suffer.

New regulations related to conflict-free minerals may force us to incur additional expenses and may materially adversely affect our financial condition and business operations.

Our business may be adversely affected by severe weather.

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

Future forecasts 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.

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.

Our securities are quoted on the OTC Bulletin Board, which may limit the liquidity and price of our securities more than if our securities were quoted or listed on a national securities exchange.

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

We incurred substantial debt to complete our initial business transaction, which may adversely affect our financial condition and results of operations.

Our Sponsor, officers and directors control a substantial interest in us and thus may influence certain actions requiring a stockholder vote.

We may choose to redeem our outstanding public warrants at a time that is disadvantageous to our public warrant holders.

An investor will only be able to exercise a Public Warrant if the common stock issuable upon such exercise has been registered or qualified or is deemed exempt under the securities laws of the state of residence of the holder of the Public Warrants.

With the approval of 65% of the holders of the then outstanding Public Warrants, we may amend the terms of our Public Warrants in a manner that may be adverse to some holders.

Provisions in our certificate of incorporation and bylaws and Delaware law may inhibit a takeover of us, which could limit the price investors might be willing to pay in the future for our shares of common stock and could entrench management.

Compliance with the Sarbanes-Oxley Act of 2002 will require substantial financial and management resources and may increase the time and costs of completing an acquisition.

We have granted registration rights to our Sponsor, officers and directors and other third parties, and the future exercise of such rights may adversely affect the market price of our common stock.

PART II.

Market Information

Holders

Dividends

Sales of Unregistered Securities

Shares of Common Stock and Units Issued to Our Sponsor and Our Initial Stockholders

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

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

25311 I-45 North
Woodpark Business Center, Bldg 6
Spring, Texas 77380
281-465-9393

Payments by Period
(in thousands)

Integrated Drilling Equipment Holdings Corp.
Index
December 31, 2014 and 2013

Integrated Drilling Equipment Holdings Corp.

Consolidated Balance Sheets
December 31, 2014 and 2013

Integrated Drilling Equipment Holdings Corp.

Consolidated Statements of Operations
December 31, 2014 and 2013

Integrated Drilling Equipment Holdings Corp.

Consolidated Statements of Stockholders’ Deficit
December 31, 2014 and 2013

Integrated Drilling Equipment Holdings Corp.

Consolidated Statements of Cash Flows
December 31, 2014 and 2013

Integrated Drilling Equipment Holdings Corp.

Notes to Consolidated Financial Statements
December 31, 2014 and 2013

Integrated Drilling Equipment Holdings Corp.

Notes to Consolidated Financial Statements
December 31, 2014 and 2013

Integrated Drilling Equipment Holdings Corp.

Notes to Consolidated Financial Statements
December 31, 2014 and 2013

Integrated Drilling Equipment Holdings Corp.

Notes to Consolidated Financial Statements
December 31, 2014 and 2013

Integrated Drilling Equipment Holdings Corp.

Notes to Consolidated Financial Statements
December 31, 2014 and 2013

Integrated Drilling Equipment Holdings Corp.

Notes to Consolidated Financial Statements
December 31, 2014 and 2013

Integrated Drilling Equipment Holdings Corp 10-K