·	Allowance for doubtful accounts,
	·	Depreciation and amortization of property and equipment and intangible and other assets,
	·	Impairment of property and equipment, intangible and other assets, and goodwill,
	·	Litigation settlement accrual,
	·	Contingent payment liability,
	·	Share-based	·	Allowance for doubtful accounts,
	·	Depreciation and amortization of property and equipment and intangible and other assets,
	·	Impairment of property and equipment and intangible and other assets,
	·	Litigation settlement accruals,
	·	Stock-based compensation, and
	·	Income taxes.

The Company analyzes its estimates based on historical experience and various other indicative assumptions that it believes to be reasonable under the circumstances. Under different assumptions or conditions, the actual results could differ, possibly materially, from those previously estimated. Many of the conditions impacting these assumptions are outside of the Company’s control.

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Reclassifications

Certain reclassifications have been made to prior period condensed consolidated financial statements to conform to the current period presentations. These reclassifications had no effect on our consolidated financial position, results of operations or cash flows.

NOTE 2 — LONG-LIVED ASSETS

Property and Equipment

Major classifications of property and equipment are as follows (in thousands):

		March 31, 2018				December 31, 2017
		(unaudited)
Machinery and equipment		$	33,213			$	33,024
Vehicles, trucks and trailers			4,260				4,288
Office furniture, fixtures and equipment			566				560
Buildings			212				212
Leasehold improvements			61				105
			38,312				38,189
Less: Accumulated depreciation and amortization			(11,994	)			(11,374	)
			26,318				26,815
Assets not yet placed in service			131				73
Property and equipment, net		$	26,449			$	26,888

Depreciation and amortization expense related to property and equipment for the three months ended March 31, 2018 and 2017 was $0.7 million.

Intangible Assets

Intangible assets consist of the following (in thousands):

		Customer Relationships				Tradename				Total
As of March 31, 2018 (unaudited):
Cost		$	5,323			$	2,174			$	7,497
Less: Accumulated amortization			(2,565	)			(1,020	)			(3,585	)
Net book value		$	2,758			$	1,154			$	3,912
As of December 31, 2017:
Cost		$	5,323			$	2,174				7,497
Less: Accumulated amortization			(2,432	)			(966	)			(3,398	)
Net book value		$	2,891			$	1,208			$	4,099

Total amortization expense for the three months ended March 31, 2018 and 2017 was approximately $0.2 million.

Certain reclassifications have been made to prior period consolidated financial statements to conform to the current period presentations. These reclassifications had no effect on our consolidated financial position, results

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Table of operations or cash flows. Subsequent EventsContents We conducted our subsequent events review through the date these condensed consolidated financial statements were filed with the U.S. Securities and Exchange Commission (“SEC”). NOTE 2 — RECENT DEVELOPMENTS Operational Restructuring Our activity is tied directly to the rig count and, even though we instituted significant cost cutting measures beginning in 2015, we were unable to cut costs enough to match the decline in our business. As a result, as of December 31, 2015, we were in default of our credit agreement with Wells Fargo Bank, National Association (“Wells Fargo”). Throughout 2015, in an effort to mitigate the significant declines in pricing and utilization of our equipment, we committed to a reorganization initiative to strengthen our sales and marketing efforts, consolidate support functions, and operate more efficiently. The reorganization effort included, but was not limited to, training our salesforce to enable the cross-selling of our product lines in certain geographical markets, sharing a common support services infrastructure across all reporting units, reducing headcount and wage rates, and rebranding and launching a new web site to increase awareness of our service lines. We recognized some benefit from these measures in late 2015 resulting in increased gross margins and lower selling, general and administrative expenses when compared to the first half of 2015. During the year ended December 31, 2016, we entered into a series of forbearance agreements with our lender. Under the forbearance agreements, among other provisions, the lenders agreed to forbear from exercising their remedies under the credit agreement. These forbearance agreements permitted us to operate within the parameters of our normal course of business despite the continuing default under the credit agreement. Without these forbearance agreements, our outstanding debt would have been immediately due and payable. Throughout 2016, we remained in default and we did not have sufficient liquidity to repay all of the outstanding debt to the lender at any point during the year ($20.1 million as of December 31, 2015). As such, we may have been forced to file for protection under Chapter 11 of the U.S. Bankruptcy Code.

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In early 2016, we were hopeful that a successful operational restructuring would facilitate negotiations to modify the terms of our existing credit facility with Wells Fargo. Our operational restructuring in 2016 consisted of severe cost cuts which were incremental to the year-over-year cost cuts already achieved in 2015 when compared to 2014. In 2016, significant cost savings were primarily generated by:NOTE 3 — LONG-TERM DEBT – RELATED PARTY

	·	reductions of our employee base, both field employees and sales and administrative employees, to a headcount of approximately 50 as of December 31, 2016 from approximately 125 as of December 31, 2015,
	·	reduction in employer contributions to employee benefits,
	·	closures of certain operating yards and administrative facilities,
	·	strategic decision to cease operations in the northeast which resulted in the reduction of costs related to operating in an incremental market,
	·	modifications to insurance policies, including general liability and workers’ compensation policies, resulting in a $0.5 million or 15.5% reduction in the cost of insurance to $0.6 million for the year ended December 31, 2016 from $1.1 million for the year ended December 31, 2015,
	·	minimization of repair and maintenance activities, resulting in a $0.4 million or 50.0% reduction of repair and maintenance expenses to $0.4 million for the year ended December 31, 2016 from $0.8 million for the year ended December 31, 2015, and
	·	elimination of investments in equipment, unless required to service an existing customer, resulting in a reduction of capital expenditures to $0.4 million for the year ended December 31, 2016 from $2.5 million for the year ended December 31, 2015.

We also achieved significant cost savings from the decrease in third party costs, such as sub-rental equipment and trucking, and other variable costs which declined with the decrease in activity.

In order to further support our working capital needs, we identified and sold idle and underutilized assets. During 2016, we realized aggregate proceeds from sales of approximately $0.8 million of which $0.5 million and $0.3 million was used to fund working capital needs and pay down debt, respectively.

Capital Restructuring

Despite our successful operational restructuring efforts, particularly during the first half of 2016, the decline in our activity levels and the declines in customer pricing outpaced the impact of our cost reductions and it became evident that a capital restructuring would also be necessary to continue operations and position our business for an industry turnaround.

In the second quarter of 2016, certain of the Company’s principal stockholders (“Shareholder Group”) began negotiations with Wells Fargo with the objective of consummating a recapitalization transaction (the “Recapitalization”) whereby our obligations under the credit agreement and the outstanding capital leases in favor of Wells Fargo’s equipment finance affiliate and certain other obligations of Aly Energy (collectively the “Aly Senior Obligations”) would be restructured. In August 2016, the Shareholder Group was introduced to a third party, Tiger Finance, LLC (“Tiger”), to provide bridge financing and to extend forbearance until such date as sufficient capital could be raised to complete the Recapitalization.

In September 2016, the Shareholder Group formed Permian Pelican, LLC (“Pelican”) with the objective of raising capital and executing the steps necessary to complete the restructuring, inclusive of successfully effecting the exchange of the Aly Operating redeemable preferred stock, Aly Centrifuge redeemable preferred stock, Aly Centrifuge subordinated debt and liability for a contingent payment into approximately 10% of our common stock on a fully diluted basis.

Effective January 31, 2017, the Recapitalization was completed through the execution and delivery of a Securities Exchange Agreement and a Second Amended and Restated Credit Agreement, and, as a result, the new credit facility, now with Pelican, consisted of a term loan of $5.1 million and a revolving facility of up to $1.0 million as of January 31, 2017. Availability under the revolving credit facility is determined by a borrowing base calculated as 80% of eligible receivables (receivables less than 90 days old). See further discussion in “Note 3 – Recapitalization”.Long-term debt – related party consists of the following (in thousands):

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Subsequent to the Recapitalization, we entered into several further amendments to capitalize on improved market conditions and increased activity in our business:

		March 31, 2018				December 31, 2017
		(unaudited)
Credit facility
Term loan		$	5,027			$	5,027
Revolving credit facility			1,000				750
Delayed draw term loan			575				575
Total		$	6,602			$	6,352

	·	Amendment No. 1, effective March 1, 2017, provided for a delayed draw term loan to be added to the credit facility for the purpose of financing capital expenditures. The agreement permitted us to draw on the delayed draw term loan from time-to-time upAs of December 31, 2017, subsequent to multiple amendments, the Company’s credit facility with Pelican consisted of a term loan, a revolving credit facility and a delayed draw term loan. The obligations under the credit facility are guaranteed by all of our subsidiaries and secured by substantially all of our assets. The credit facility contains customary events of default and covenants including restrictions on our ability to incur additional indebtedness, pay dividends or make other distributions, grant liens and sell assets. The credit facility does not include any financial covenants. We were in full compliance with the credit facility as of March 31, 2018. Borrowings under the credit facility are subject to monthly interest payments at an annual base rate of the six-month LIBOR rate on the last day of the calendar month plus a margin of 3.0%. To the extent the Company generates free cash flow, as defined in the credit agreement, during a given calendar year, principal payments of 50% of such free cash flow are due on the earlier of (i) 60 days after the end of such year or, (ii) the date on which the Company’s independent auditors have completed their audit of the financial statements for such year. If the Company does not generate free cash flow, there are no required principal payments until the maturity date of the facility matures on December 31, 2019 at which time all amounts outstanding under the facility become immediately due and payable. On January 22, 2018, the Company entered into Amendment No. 4 to the credit facility which provided for a swing line without changing the aggregate available borrowings under the facility. The Company can borrow up to $0.6 million under the swing line and, to the extent amounts are drawn under the line, such amounts may be repaid and reborrowed without penalty until June 30, 2018 at which time the swing line matures and all outstanding amounts are immediately due and payable. Interest on the swing line is charged at the lower of the (i) highest lawful rate or (ii) 7.0% per annum. There are no outstanding borrowings under the swing line as of March 31, 2018. As of March 31, 2018, the Company had the ability to borrow up to $0.6 million under the swing line and the ability to draw up to $75,000 under the delayed draw term loan to finance 90% of eligible capital expenditures. We are currently in discussions with Pelican to enter into a fifth amendment to the credit facility which will transfer the availability under both the delayed draw term loan and the swing line to the revolving facility simultaneous with the maturity of the swing line. As of May 15, 2018, the Company has no remaining availability under the term loan or the revolving credit facility. NOTE 4 — STOCK-BASED COMPENSATION As of March 31, 2018 and December 31, 2017, we had two stock-based compensation plans with outstanding options. Only one of our plans is currently available to grant incentive stock options, non-qualified stock options and restricted stock to employees and non-employee members of the board of directors. 2017 Stock Option Plan Effective April 4, 2017, the 2017 Stock Option Plan (the “2017 Plan”) was approved by the board of directors. On May 30, 2017, we granted options to purchase approximately 16.9 million shares of common stock under the 2017 Plan which was the maximum amount authorized. The option contract term is 10 years and the exercise price is $0.10. The options vested and became exercisable immediately upon grant. The fair value of the award was estimated using a Black-Scholes fair value model. The valuation of stock options requires us to estimate the expected term of award, which was estimated using the simplified method, as the Company does not have sufficient historical exercise information. Additionally, the valuation of stock option awards is also dependent on historical stock price volatility. In view of our limited trading volume, volatility was calculated based on historical stock price volatility of the Company’s peer group. Options to purchase 16.9 million common shares under the 2017 Plan were outstanding and fully vested as of March 31, 2018 and December 31, 2017. We expensed stock-based compensation of $0.6 million for the full fair value of the award in order to fund up to 80% of the cost of capital expenditures subject to a $0.5 million limit on aggregate borrowings.
	·	Amendment No. 2, effective May 23, 2017, increased the maximum revolving credit amount from $1.0 million to $1.8 million and extended the final maturity date of the facility to December 31, 2019. In consideration of the increase in the revolving credit facility and the extension of the final maturity date, we agreed to issue to Pelican, the lender, as an amendment fee, 1,200 shares of our Series A convertible preferred stock. See further discussion in “Note 7 – Controlling Shareholder and Other Related Party Transactions”.
	·	Amendment No. 3, effective June 15, 2017, modified maximum potential borrowings under each of the revolving credit facility and the delayed draw term loan without changing the aggregate available borrowings under the credit facility. The amendment reduced the maximum revolving credit amount from $1.8 million to $1.0 million and increased the maximum delayed draw loan borrowings from $0.5 million to $1.3 million and the amendment also increased permitted draws on the delayed draw loan from 80% of the cost of capital expenditures being funded to 90% of the cost of capital expenditures being funded.

To the extent there is free cash flow as defined in the credit agreement, principal payments of 50% of such free cash flow are due annually. The maturity date of all remaining outstanding balances under the credit facility is December 31, 2019.

The obligations under the credit facility are guaranteed by all of our subsidiaries and secured by substantially all of our assets. The credit agreement contains customary events of default and covenants including restrictions on our ability to incur additional indebtedness, make capital expenditures, pay dividends or make other distributions, grant liens and sell assets. The credit facility does not include any financial covenants. We are in full compliance with the credit facility as of September 30, 2017.

As

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Table of September 30, 2017, there were outstanding borrowings of $5.0 million, $0.8 million, and $0.4 million on the term loan, revolving credit facility, and delayed draw term loan, respectively. As of September 30, 2017, we have the availability to borrow an incremental $0.3 million under the revolving credit facility and, if we have capital expenditures which are eligible to be financed, an incremental $0.9 million under the delayed draw term loan to finance 90% of such expenditures. Severance Expense – Operational RestructuringContents During 2016 and 2015, the Company recorded $0.5 million and $0.3 million, respectively, in charges relating to severance due to the significant downturn in the industry. The accrued severance liability balance of $0.7 million as of December 31, 2016 was reduced to $0.5 million as a result of the settlement of certain obligations during the three months ended September 30, 2017. There have been no incremental severance charges during 2017. NOTE 3 — RECAPITALIZATION Summary To complete the transaction, the Company’s directors and principal stockholders formed and organized Pelican. Pursuant to the Recapitalization, Pelican agreed to acquire the Aly Senior Obligations, provided the Company was successful in effecting the exchange of the Aly Operating redeemable preferred stock, Aly Centrifuge redeemable preferred stock, Aly Centrifuge subordinated debt and liability for a contingent payment into approximately 10% of our common stock on a fully diluted basis. The Recapitalization consisted of three restructuring events which took place in the period beginning October 26, 2016 and ending on January 31, 2017. The first two restructuring events occurred before January 1, 2017 and any impact is presented in the Company’s historical consolidated financial statements for the year ended December 31, 2016. Below is a description of each event: The first restructuring event occurred on October 26, 2016 when Tiger acquired the Aly Senior Obligations from Wells Fargo and its equipment affiliate. Simultaneously, Tiger entered into an assignment agreement with Pelican whereby it agreed to sell the Aly Senior Obligations to Pelican on the conditions that (i) Pelican provide $0.5 million of unsecured working capital financing to the Company pending the closing and (ii) the Company transfer to Tiger (in consideration of Tiger’s reduction of the Aly Senior Obligations in the amount of $2.0 million) certain excess equipment and vehicles which the Company was not utilizing and considered unnecessary for its continuing operations.

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Table of ContentsOmnibus Incentive Plan

As a result of the above, we transferred property and equipment with an estimated fair value of $2.6 million, inclusive of $0.4 million of assets associated with discontinued operations, to Tiger and recognized a corresponding reduction in the Aly Senior Obligations of $2.0 million and debt modification fee of $0.6 million. Property and equipment transferred had an aggregate net book value of $18.6 million resulting in our recording an impairment charge of $16.0 million, inclusive of a $0.4 million impairment associated with discontinued operations. As part of this transaction and upon satisfaction of such conditions, Tiger extended the forbearance period to December 9, 2016.

The second restructuring event occurred on December 12, 2016 when Pelican acquired the Aly Senior Obligations from Tiger. As the new holder of the Aly Senior Obligations, Pelican further extended the forbearance period for the obligations to January 31, 2017, provided the Company was successful in completing the third and final restructuring event on or before such date.

Effective January 31, 2017, the final restructuring event occurred and the Recapitalization was completed which resulted in the following:

	·	an exchange of certain of the Company’s outstanding obligations (namely, Aly Operating redeemable preferred stock, Aly Centrifuge redeemable preferred stock, Aly Centrifuge subordinated debt and its contingent payment liability) for approximately 10% of our common stock, or 7,111,981 common shares, on a fully diluted basis;
	·	an exchange of certain amendments to the Aly Senior Obligations (namely, a $16.1 million principal reduction, removal of restrictive covenants and extended maturity of payment obligations) for shares of our Series A convertible preferred stock which represents approximately 80% of our common stock, or 53,628,842 common shares, on a fully diluted basis (liquidation preference of $16.1 million or $1,000 per share); and
	·	the formation of a new credit agreement with Pelican (consisting of a $5.1 million term loan and $1.0 million revolving credit facility) with an extended maturity date of December 31, 2018.

The Recapitalization had a significant impact to our capital structure and to our consolidated financial statements and there was a significant dilutive effect to those shareholders who held common stock immediately before the transaction was completed. The Recapitalization has been accounted for in accordance with ASC 470, including (i) the exchange of debt and equity securities accounted for as a troubled debt restructuring and (ii) the issuance of preferred shares in exchange for the extinguishment of debt and other liabilities and for the issuance of a new credit facility.

Troubled Debt Restructuring

Except for the Pelican exchange, each exchange was accounted for as a troubled debt restructuring (“TDR”) since an equity interest in the Company was issued to fully satisfy each debt. A gain on TDR is recognized for the excess of the carrying amount of the debt over the fair value of each equity interest granted. The impact of the Recapitalization includes a “gain on the extinguishment of debt and other liabilities” from the debtors of Aly Centrifuge subordinated debt and the contingent payment liability and a “gain on the extinguishment of redeemable preferred stock” from the holders of Aly Operating redeemable preferred stock and Aly Centrifuge redeemable preferred stock. The share price of common stock as of January 31, 2017 of $0.12 per share was used as the basis of fair value for each equity interested granted.

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The impact of the TDR is as follows:

Extinguishment of Debt and Other Liabilities. The exchange of subordinated debt and contingent payment liability for common stock resulted in a gain of $2.4 million, or $0.36 per share, on the condensed consolidated statement of operations and was recorded as an “Issuance of common stock in exchange for the extinguishment of debt and other liabilities” on the condensed consolidated statement of changes in stockholders’ equity (deficit). The table below summarizes stock issued and the resulting gain for each extinguishment:

Gain on the Extinguishment of Debt and Other Liabilities
Debt and Other Obligations Extinguished		Common Stock Issued				Gain Included in Other Expense (Income)
Subordinated Debt and accrued interest of $1.5 million and $0.3 million, respectively			1,200,000			$1.6 million
Contingent payment liability of $0.8 million			457,494			$0.8 million

Extinguishment of Redeemable Preferred Stock. Represents the exchange of Aly Operating redeemable preferred stock and Aly Centrifuge redeemable preferred stock for common stock resulting in a gain of $14.4 million, or $2.14 per share, and recorded as an “Issuance of common stock in exchange for the extinguishment of redeemable preferred stock” on the condensed consolidated statement of changes in stockholders’ equity (deficit). The table below summarizes stock issued and the resulting gain for each extinguishment:

Gain on the Extinguishment of Redeemable Preferred Stock
Redeemable Preferred Stock and Other Obligations		Common Stock Issued				Gain Included in Additional Paid-in-Capital
Aly Centifuge preferred and accrued dividends of $8.9 million and $1.2 million, respectively			3,039,517			$9.8 million
Aly Operating preferred and accrued dividends of $4.0 million and $0.9 million, respectively			2,414,971			$4.6 million

On January 31, 2017, we issued 7,111,981 shares of our common stock to the former holders of Aly Operating redeemable preferred stock, Aly Centrifuge redeemable preferred stock, Aly Centrifuge subordinated debt, and liability for contingent payment in exchange for the above mentioned extinguishments in connection with our TDR.

Credit Facility Restructuring

Given the nature of the related party relationship between the Company and Pelican, the extinguishment of our Aly Senior Obligations was accounted for as a capital transaction whereby we issued Series A convertible preferred stock in exchange for the extinguishment of our Aly Senior Obligations and the issuance of a new credit facility which resulted in a gain on the extinguishment of debt and other liabilities calculated as the amount above the estimated fair value of the equity interest granted. The share price of common stock as of January 31, 2017 of $0.12 per share was used as the basis of fair value for the equity interested granted.

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The impact of the exchange and extinguishment of our Aly Senior Obligations is as follows:

Old Credit Facility. The partial extinguishment and exchange of our Aly Senior Obligations ($16.1 million principal reduction) for shares of our Series A convertible preferred stock resulted in a gain of $9.7 million which is recorded as an “Issuance of preferred shares in exchange for the extinguishment of debt and other liabilities - Pelican” on the condensed consolidated statement of changes in stockholders’ equity (deficit). The components of the Aly Senior Obligations are as follows (in thousands):

Aly Senior Obligations as of January 31, 2017
Debt and Other Obligations Extinguished		Amount
Credit facility		$	17,772
Accrued fees and interest on credit facility			1,414
Capital lease obligations			1,930
Accrued interest on capital lease obligations			26
Line of Credit - Pelican			500
Total		$	21,642

New Credit Facility. Our new credit agreement with Pelican consists of a $5.1 million term loan and $1.0 million revolving credit facility ($5.1 million and $0.5 million outstanding as of January 31, 2017) completing the full extinguishment of our old credit facility.

On January 31, 2017, we issued 16,092 shares of our Series A convertible preferred stock to Pelican in exchange for the above mentioned $16.1 million reduction of the Aly Senior Obligations.

Professional Fees - Recapitalization

During 2016, we recorded $0.2 million of expenses for professionals engaged by our former lender, Wells Fargo, whom the Company was required to pay under the terms of our credit facility. On December 12, 2016, these fees were assumed by Pelican and, on January 31, 2017, included within the Aly Senior Obligations refinanced in connection with the Recapitalization. These fees are included in “Accrued interest and other – Pelican” on our consolidated balance sheet as of December 31, 2016.

NOTE 4 — LONG-LIVED ASSETS

Property and Equipment

Major classifications of property and equipment are as follows (in thousands):

		September 30, 2017				December 31, 2016
		(unaudited)
Machinery and equipment		$	32,691			$	31,541
Vehicles, trucks and trailers			4,275				4,523
Office furniture, fixtures and equipment			547				544
Leasehold improvements			95				203
Buildings			212				212
			37,820				37,023
Less: Accumulated depreciation and amortization			(10,666	)			(8,807	)
			27,154				28,216
Assets not yet placed in service			53				10
Property and equipment, net		$	27,207			$	28,226