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United States
Securities and Exchange Commission
Washington, D. C. 20549

Form 10-Q
 
x Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 for the
Period Ended September 30, 2013
 
or
 
o Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 for the
Transition Period From _______to _______
 
Commission File Number 33-92894
 
ALY ENERGY SERVICES, INC.
 
Delaware   75-2440201
(State or other jurisdiction of incorporation or organization)
  (I.R.S. Employer Identification No.)
     
3 Riverway, Suite 920
Houston, TX
  77056
(Address of Principal Executive Offices)
  (Zip Code)
 
(713)-333-4000
(Registrant’s Telephone Number, including area code.)
 
Not Applicable
(Former name, Former Address and Former Fiscal year, if changed since last report.)
 
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 the filing requirements for at least the past 90 days. Yes x  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 x  No 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 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
Smaller reporting company
x
(Do not check if a smaller reporting company)
   
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No x
 
Applicable Only to Corporate Issuers

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date.
 
Common Stock, $0.001 Par Value – 74,297,047 shares as of November 14, 2013.
 


 
 

 
INDEX
 
ALY ENERGY SERVICES, INC.
 
Part I.
Financial Information
       
           
Item 1.
Condensed Consolidated Financial Statements
    3  
           
 
Condensed Consolidated Balance Sheets
    3  
 
Condensed Consolidated Statement of Operations
    4  
 
Condensed Consolidated Statement of Stockholders’ Equity
    5  
 
Condensed Consolidated Statements of Cash Flows
    6  
 
Notes to Condensed Consolidated Financial Statements
    7  
           
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
    14  
           
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
    21  
           
Item 4.
Controls and Procedures
    21  
 
         
Part II.
Other Information
       
           
Item 1.
Exhibits
    22  
           
Signatures
    23  
 
 
2

 
 
ALY ENERGY SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except shares and per share data)
 
   
September 30,
2013
   
December 31,
2012
 
   
(Unaudited)
       
             
Assets
           
Current Assets
           
Cash and Cash Equivalents
  $ 647     $ 1,660  
Accounts Receivable, net of allowance for doubtful accounts of $13 and $13, respectively
    3,633       4,492  
Inventory
    45       -  
Deferred Tax Benefit
    425       -  
Prepaid Expenses and Other Current Assets
    149       299  
                 
Total Current Assets
    4,899       6,451  
                 
Property and Equipment, Net
    21,288       13,456  
                 
Intangible Assets, Net
    4,251       4,643  
Goodwill
    8,834       8,834  
Deferred Loan Costs, Net
    560       520  
Deferred Tax Benefit - Long-Term
    263       -  
Other Assets
    17       -  
                 
Total Assets
  $ 40,112     $ 33,904  
                 
Liabilities and Stockholders' Equity
               
Current Liabilities
               
Accounts Payable
  $ 1,133     $ 632  
Accrued Expenses
    869       1,031  
Accounts Payable - Affiliates
    -       761  
Deferred Income Taxes
    230       279  
Current Portion of Long-Term Debt
    2,606       2,062  
                 
Total Current Liabilities
    4,838       4,765  
                 
Long-Term Debt, Net of Current Portion
    10,602       6,188  
Deferred Income Taxes
    6,899       6,068  
Other Long-Term Liabilities
    -       1,943  
                 
Total Liabilities
    22,339       18,964  
                 
Commitments and Contingencies (See Note 5)
               
                 
Series A Preferred Stock, $0.01 par value, 4,000,000 shares authorized, 4,000,000 and 2,000,000 shares issued and outstanding, respectively
    4,068       1,943  
                 
Stockholders' Equity
               
Common Stock, $0.001 par value, 100,000,000 shares authorized, 74,297,047 and 67,967,763 shares issued and outstanding, respectively
    76       68  
Treasury Stock, At Cost
    (2 )     -  
Additional Paid-In-Capital
    12,484       12,377  
Retained Earnings
    1,147       552  
                 
Total Stockholders' Equity
    13,705       12,997  
                 
Total Liabilities and Stockholders' Equity
  $ 40,112     $ 33,904  
 
See accompanying notes to condensed consolidated financial statements.
 
 
3

 
 
ALY ENERGY SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except shares and per share data)
 
   
Successor
   
Predecessor
   
Successor
   
Predecessor
 
   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2013
   
2012
   
2013
   
2012
 
                         
Revenue
  $ 4,372     $ 4,354     $ 13,562     $ 11,012  
                                 
Cost of Revenue
    1,536       964       4,586       2,302  
                                 
Gross Profit
    2,836       3,390       8,976       8,710  
                                 
Selling, General and Administrative Expenses
    2,446       1,694       7,597       3,857  
                                 
Operating Income
    390       1,696       1,379       4,853  
                                 
Interest Expense, Net
    182       -       450       12  
Other Expense/(Income)
    -       (48 )     (3 )     (49 )
                                 
Income Before Income Tax
    208       1,744       932       4,890  
                                 
Income Tax Expense
    107       55       383       95  
                                 
Net Income
    101       1,689       549       4,795  
                                 
Preferred Stock Dividends
    53       -       155       -  
Accretion of Preferred Stock
    9       -       27       -  
                                 
Net Income Available to Common Stockholders
  $ 39     $ 1,689     $ 367     $ 4,795  
                                 
Basic and Diluted Earnings per Share
  $ 0.00     $ 0.02     $ 0.01     $ 0.07  
                                 
Basic and Diluted Average Common Shares Outstanding
    74,293,584       67,967,763       71,168,268       67,967,763  
 
See accompanying notes to condensed consolidated financial statements.
 
 
4

 
 
ALY ENERGY SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except shares and per share data)
 
   
Common
Shares
   
Common
Stock
   
Additional
Paid-In-Capital
   
Treasury
Stock
   
Retained
Earnings
   
Total
 
                                     
Balance at December 31, 2012
    6,130,184     $ 6     $ 20,482     $ (2 )   $ (20,220 )   $ 266  
                                                 
Reverse Merger Transaction
    67,967,763       68       (7,890 )     -       20,818       12,996  
Stock-Based Compensation
    199,100       2       74       -       -       76  
Preferred Stock Dividends
    -       -       (155 )     -       -       (155 )
Preferred Stock Accretion
    -       -       (27 )     -       -       (27 )
                                                 
Net Income
    -       -       -       -       549       549  
                                                 
Balance at September 30, 2013
    74,297,047     $ 76     $ 12,484     $ (2 )   $ 1,147     $ 13,705  
 
See accompanying notes to condensed consolidated financial statements.
 
 
5

 
 
ALY ENERGY SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except shares and per share data)
 
   
Successor
   
Predecessor
 
   
Nine Months Ended September 30,
 
   
2013
   
2012
 
             
Cash Flows from Operating Activities
           
  Net Income   $ 549     $ 4,795  
  Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities          
Depreciation Expense
    1,244       731  
Amortization of Deferred Loan Costs
    123       -  
Amortization of Intangible Assets
    392       -  
Stock-Based Compensation Expense
    76       -  
Deferred Taxes
    94       -  
Changes in Operating Assets and Liabilities
               
Accounts Receivable
    859       (1,944 )
Inventory
    (45 )     -  
Prepaid Expenses and Other Assets
    133       (7 )
Accounts Payable
    501       242  
Accounts Payable - Affiliates
    (761 )     -  
Accrued Expenses
    (162 )     309  
                 
Net Cash Provided by Operating Activities
    3,003       4,126  
                 
Cash Flows from Investing Activities
               
Purchase of Property and Equipment
    (8,167 )     (2,496 )
Cash Acquired from Reverse Merger
    266       -  
                 
Net Cash Used in Investing Activities
    (7,901 )     (2,496 )
                 
Cash Flows from Financing Activities
               
Proceeds on Borrowing on Debt
    6,725       -  
Repayment of Debt
    (2,677 )     (112 )
Distributions to Owner
    -       (1,306 )
Payment of Deferred Financing Costs
    (163 )     -  
                 
Net Cash Provided By/(Used In) Financing Activities
    3,885       (1,418 )
                 
Net Increase/(Decrease) in Cash and Cash Equivalents
  $ (1,013 )   $ 212  
                 
Cash and Cash Equivalents, Beginning of Period
  $ 1,660     $ 1,769  
Cash and Cash Equivalents, End of Period
  $ 647     $ 1,981  
                 
Supplemental Disclosure of Cash Flow Information
               
Cash Paid for Interest
  $ 422     $ 13  
Cash Paid for State and Federal Income Taxes
  $ 531     $ 504  
                 
Non-Cash Financing and Investing Activities
               
Purchase of Equipment through a Capital Lease Obligation
  $ 910     $ -  
 
See accompanying notes to condensed consolidated financial statements.
 
 
6

 
 
ALY ENERGY SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 1 - NATURE OF OPERATIONS

Aly Energy Services Inc. (“Aly Operating”) was incorporated in Delaware on July 17, 2012, for the purpose of creating a worldwide oilfield manufacturing, distribution and services company that services exploration and production companies from well planning to plug and abandonment.

On October 26, 2012, Aly Operating acquired all the stock of Austin Chalk Petroleum Services Corp. ("Austin Chalk", “ACPS”, or “Predecessor”). ACPS provides surface rental equipment as well as roustabout services which include the rig-up and rig-down of equipment and the hauling of equipment to and from the customer's location.

On May 14, 2013, Aly Operating and Preferred Voice, Inc. (“Preferred Voice”) entered into a Share Exchange Agreement (the “Exchange Agreement”), pursuant to which the holders of common stock of Aly Operating surrendered all of their shares in exchange for approximately 68 million newly issued shares of common stock of Preferred Voice (the “Share Exchange”), representing approximately 92% of the outstanding common stock of Preferred Voice after giving effect to the Share Exchange. Shares were exchanged at the ratio of 19.91 shares of Preferred Voice common stock for each one share of Aly Operating common stock. Following the Share Exchange, Aly Operating (which changed its name from Aly Energy Services Inc. to Aly Operating, Inc.) became a subsidiary of Preferred Voice, with Preferred Voice (which changed its name to Aly Energy Services, Inc., or “Aly Energy”, “the Company”, or “Successor”) owning all of the outstanding shares of common stock of Aly Operating.

For financial accounting purposes, this acquisition (referred to as the “Merger”) was a reverse acquisition of Preferred Voice by Aly Operating under the acquisition method of accounting and was treated as a recapitalization with Aly Operating as the accounting acquirer. Accordingly, the financial statements have been prepared to give retroactive effect of the merger completed on May 14, 2013 and represent the operations of Aly Operating.

Aly Operating is a wholly-owned subsidiary of Aly Energy and Aly Operating has one wholly-owned subsidiary, Austin Chalk.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation: The accompanying condensed consolidated financial statements of the Company have not been audited by the Company’s independent registered public accounting firm, except that the consolidated balance sheet at December 31, 2012 is derived from audited consolidated financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for fair presentation have been included.
 
These condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements. Therefore, these condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2012, which are included in the Company’s Current Report on Form 8-K, as amended, originally filed with the SEC on May 14, 2013. The operating results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year.
 
These condensed consolidated financial statements include the accounts of Aly Energy and its subsidiaries. All significant inter-company transactions and accounts have been eliminated upon consolidation.

Revenue Recognition: The Company provides rental equipment, oilfield services and drilling services to its customers at per-day contractual rates. Revenue is recognized when it is realized or realizable and earned.
 
 
7

 
 
ALY ENERGY SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Financial Instruments: Financial instruments consist of cash and cash equivalents, accounts receivable and payable, and debt. The carrying value of cash and cash equivalents and accounts receivable and payable approximate fair value due to their short-term nature.

Property, Plant and Equipment: Property, plant and equipment are recorded at cost less accumulated depreciation. Maintenance and repairs, which do not improve or extend the life of the related assets, are charged to expense when incurred. Refurbishments and renewals are capitalized when the value of the equipment is enhanced for an extended period. When property and equipment are sold or otherwise disposed of, the asset account and related accumulated depreciation account are relieved, and any gain or loss is included in operating income.
 
The cost of property and equipment currently in service is depreciated, on a straight-line basis, over the estimated useful lives of the related assets, which range from one to 12 years. A residual value of 20% is used for asset types deemed to have a minimum salvage value, normally these assets contain a large amount of iron in their construction. Major classifications of property, plant and equipment and their respective useful lives are as follows (in thousands):
 
 
Estimated Useful
Lives
 
September 30,
2013
   
December 31,
2012
 
               
Machinery and Equipment
1-12 years
  $ 22,445     $ 13,680  
Office Furniture, Fixtures and Equipment
3-7 years
    78       15  
Leasehold Improvements
Remaining Term
    14       9  
                   
        22,537       13,704  
Less: Accumulated Depreciation
      (1,562 )     (327 )
                   
        20,975       13,377  
Assets Not Yet Placed In Service
      313       79  
                   
Property, Plant and Equipment, Net
    $ 21,288     $ 13,456  
 
Depreciation expense for the nine months ended September 30, 2013 and 2012 was $1.2 million and $0.7 million, respectively.

Intangible Assets: Intangible assets consist of the following (in thousands):
 
 
Estimated Useful
Lives
 
September 30,
2013
   
December 31,
2012
 
               
Customer Relationships
10 years
  $ 3,141     $ 3,141  
Trade Name
10 years
    1,098       1,098  
Non-Compete
5 years
    491       491  
                   
        4,730       4,730  
Less: Accumulated Amortization
      (479 )     (87 )
                   
Intangible Assets, Net
    $ 4,251     $ 4,643  
 
 
8

 
 
ALY ENERGY SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
Total amortization expense for the nine months ended September 30, 2013 and 2012 was $0.4 million and $0 respectively.
 
Income Taxes: The Company accounts for income taxes utilizing the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the 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 as income or expense in the period that includes the enactment date.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. In assessing the likelihood and extent that deferred tax assets will be realized, consideration is given to projected future taxable income and tax planning strategies. A valuation allowance is recorded when, in the opinion of management, it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized.
 
The Company recognizes the financial statement effects of a tax position when it is more-likely-than-not, based on the technical merits, that the position will be sustained upon examination. A tax position that meets the more-likely-than-not recognition threshold is measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with a taxing authority. Previously recognized tax positions are reversed in the first period in which it is no longer more-likely-than-not that the tax position would be sustained upon examination. Income tax related interest and penalties, if applicable, are recorded as a component of the provision for income tax expense. However, there were no amounts recognized relating to interest and penalties in the consolidated statements of operations for the three and nine months ended September 30, 2013 and 2012, respectively.

The Predecessor was an S Corporation and in lieu of corporate income taxes, the shareholders of an S Corporation are taxed on their proportionate share of the company’s taxable income. Therefore, no provision or liability for federal income taxes has been included in the Predecessor’s financial statements. 

Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

NOTE 3 - BUSINESS COMBINATION

On October 26, 2012, ACPS was acquired by Aly Operating for total consideration of approximately $22.5 million, net of cash acquired of approximately $58,000. The business combination resulted in a change in control and was accounted for using the acquisition method of accounting. As a result, at the date of the acquisition the purchase price was allocated to the net assets acquired upon their estimated value, as follows (in thousands):

Current Assets
  $ 3,672  
Property and Equipment
    13,373  
Goodwill
    8,834  
Other Intangible Assets
    4,730  
         
Total Assets Acquired
    30,609  
         
Current Liabilities
    1,649  
Deferred Tax Liabilities
    6,449  
         
Total Liabilities Assumed
    8,098  
         
Net Assets Acquired
  $ 22,511  
 
 
9

 
 
ALY ENERGY SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
Other intangible assets have a total value of $4.7 million with a weighted average amortization period of 9 years. Other intangible assets consist of customer relationships of $3.1 million, amortizable over 10 years, trade name of $1.1 million, amortizable over 10 years, and a non-compete agreement of $0.5 million, amortizable over 5 years. The amount allocated to goodwill represents the excess of the purchase price over the fair value of the net assets acquired.
 
NOTE 4 - LONG-TERM DEBT

Long-term debt consists of the following:
 
   
September 30,
2013
   
December 31,
2012
 
             
Term Loan
  $ 6,600     $ 8,250  
Delayed Draw Term Loan
    4,375       -  
Revolving Credit Facility
    1,350       -  
Capital Leases
    883       -  
                 
      13,208       8,250  
Less: Current Portion
    (2,606 )     (2,062 )
                 
Total Long-Term Debt
  $ 10,602     $ 6,188  
 
The terms of the term loan and revolving credit facility are described within Note D of the Company's consolidated financial statements for the year ended December 31, 2012, which are included in the Company's Current Report on Form 8-K, as amended, originally filed with the SEC on May 14, 2013.
 
On April 19, 2013, we obtained an amendment to our credit agreement in order to, among other things, provide for a $5.0 million delayed draw term loan facility for purposes of financing capital expenditures. We are permitted to borrow under the facility from time to time until December 31, 2013 in order to fund up to 80% of the cost of capital expenditures, subject to a $5.0 million limit on aggregate borrowings thereunder. The delayed draw term loan facility is subject to the same covenants and restrictions, and bears the same interest rate, as the existing term loan and revolving credit facilities provided by the credit agreement. Borrowings under the delayed draw term loan facility are repayable quarterly, commencing with the fiscal quarter ending March 31, 2014, in an amount per quarter equal to 6.25% of the aggregate amount of delayed draw term loan borrowings outstanding as of December 31, 2013.
 
The Company is required to satisfy certain financial and reporting covenants in conjunction with our debt facilities. Our lenders have waived the application of the leverage ratio requirement for the fiscal quarter ending September 30, 2013. We are in discussions with our lenders regarding an amendment to our credit facility.
 
The Company leases five winch trucks, with the intent to purchase, under non-cancelable capital leases. The lease terms are 60 months and with monthly payments.
 
 
10

 
 
ALY ENERGY SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 5 – COMMITMENTS AND CONTINGENCIES

Contractual Commitments — The Company has numerous contractual commitments in the ordinary course of business including debt service requirements and operating leases. The Company leases land and other facilities from an affiliate and leases equipment from non-affiliates, which expire through 2018.

Litigation — The Company is subject to certain claims arising in the ordinary course of business. Management does not believe that any claims will have a material adverse effect on the Company’s financial position or results of operations.

NOTE 6 - PREFERRED STOCK

As part of the acquisition of ACPS, Aly Operating agreed to issue up to 4 million shares of Series A Preferred Stock, with a par value of $0.01, to the seller. The shares were issued in two tranches. The first tranche of 2 million shares was issued on December 31, 2012 and the second tranche of 2 million shares was issued on March 31, 2013.

The Series A Preferred Stock is entitled to a cumulative dividend of 5% per year on its liquidation preference, compounded quarterly. The liquidation preference was $4.0 million on the closing date and will increase by the amount of dividends paid in kind. Aly Operating is not required to pay cash dividends.

The holder of the preferred stock and Aly Operating have the option to redeem the preferred stock for cash, at either’s option, on the fourth anniversary of the closing date of the sale or October 26, 2016. There is no requirement for either party to redeem the preferred stock.

The preferred stock agreement also provides for conversion into shares of Company common stock or redemption should the Company transact a liquidity event, as defined in the agreement, or if the Company transacts an initial public offering.

The Series A Preferred Stock is classified outside of permanent equity in the Company’s condensed consolidated balance sheet because the settlement provisions provide the holder the option to require Aly Operating to redeem the Series A Preferred Stock at the liquidation price plus any accrued dividends.
 
The following table describes the changes in temporary equity, currently consisting of Series A Preferred Stock (in thousands, except for shares, and per share amounts):

   
Carrying Value of Series A Preferred Stock
   
Number of Outstanding Series A Preferred Shares
   
Liquidation Value of Series A Preferred Stock
 
                   
December 31, 2012
  $ 1,943       2,000,000     $ 4,036  
                         
Issuance
    1,943       2,000,000       -  
Accrued Dividends
    155       -       155  
Accretion
    27       -       -  
                         
September 30, 2013
  $ 4,068     $ 4,000,000     $ 4,191  
 
 
11

 
 
ALY ENERGY SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 7 - EARNINGS PER SHARE
 
Basic earnings per share is based on the weighted average number of shares of common stock (“common shares”) outstanding during the applicable period and excludes shares subject to outstanding stock options and shares of restricted stock. Diluted earnings per share is computed based on the weighted average number of common shares outstanding during the period plus, when their effect is dilutive, incremental shares consisting of shares subject to outstanding stock options and restricted stock as appropriate. A reconciliation of the denominator used in the basic and diluted per share calculations for the period ending September 30, 2013 is as follows:
 
   
Successor
   
Predecessor
   
Successor
   
Predecessor
 
   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2013
   
2012
   
2013
   
2012
 
                         
Denominator for Basic Earnings Per Share
    74,293,584       67,967,763       71,168,268       67,967,763  
Effect of Potentially Dilutive Securities
    -       -       -       -  
                                 
Denominator for Diluted Earnings per Share
    74,293,584       67,967,763       71,168,268       67,967,763  
 
The denominator calculated for the three and nine months ended September 30, 2012, the outstanding shares of Aly Operating, prior to the reverse merger with Preferred Voice, was used, and the conversion rate of 19.91 per Aly Operating share was applied to the outstanding common stock.
 
There were no securities excluded from the earnings per share calculation for the three and nine months ended September 30, 2013, because their inclusion would be anti-dilutive.
 
NOTE 8 – STOCK-BASED COMPENSATION

Share-Based Payments – The Company has issued 159,280 shares of company stock during the three months ended September 30, 2013, and 199,100 shares of company stock during the nine months ended September 30, 2013, as part of compensation of an officer of the Company. The Company recognized share-based compensation expense of approximately $68,000 and $0 for the three months ended September 30, 2013 and 2012, respectively. The Company recognized share-based compensation expense of approximately $76,000 and $0 for the nine months ended September 30, 2013 and 2012, respectively. 

The Company has a stock-based compensation plan available to grant incentive stock options, non-qualified stock options and restricted stock to employees and non-employee members of the Board of Directors.
 
The Omnibus Incentive Plan (the “Plan”) was approved by the board of directors on May 2, 2013. A maximum of 6,769,400 shares of common stock may be awarded. As of September 30, 2013, options to purchase 6,769,400 shares of common stock were granted from the Plan, of which 6,769,400 were outstanding.
 
 
12

 
 
ALY ENERGY SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
The option contract term is 10 years and the exercise price is $0.20. The options vest and are exercisable if a “Liquidity Event” occurs and certain conditions are met. A Liquidity Event is defined as an IPO or a change of control, as defined in the plan. Pursuant to the plan, an IPO is defined as an underwritten public offering of shares. If the first Liquidity Event is an IPO, then the options vest and are exercisable immediately if the IPO is effected at $0.40 per share. If the stock price post-IPO reaches $0.40 per share during the six month period immediately following the IPO, then the options vest and are exercisable. If the share price does not reach $0.40 per share prior to the sixth month anniversary of the IPO the options do not vest and expire. If the first Liquidity Event to occur is a change of control, then the options vest if the change of control takes place at a price of $0.40 per share or more. If such change in control occurs at a price less than $0.40 per share, the options do not vest and expire.
 
The fair value of each option award granted under the Plan is estimated on the date of grant using the Monte Carlo simulation method. The same Monte Carlo simulation method is used to determine the derived service period of five years. In addition, expected volatilities have been based on comparable public company data, with consideration given to the Company’s limited historical data. The Company makes estimates with respect to employee termination and forfeiture rates of the options within the valuation model. The risk-free rate is based on the approximate U.S. Treasury yield rate in effect at the time of grant. For options granted prior to the Company’s acquisition of Preferred Voice, which closed on May 14, 2013, the calculation of the Company’s stock price involved the use of different valuation techniques, including a combination of an income and/or market approach. Determination of the fair value was a matter of judgment and often involved the use of significant estimates and assumptions. The following table presents the assumptions used in determining the fair value of option awards during the period:
 
Expected Volatility
    80.00 %
Expected Forfeiture Rate
    0.00 %
Risk-Free Interest Rate
    1.66 %
Fair Value of Company Stock on May 2, 2013
  $ 0.171  
 
At September 30, 2013, there is approximately $494,200 of total unrecognized compensation cost related to non-vested stock option awards. Such amount will be recognized in the future upon occurrence of a Liquidity Event that results in a vesting of the options. No options vested during the nine months ended September 30, 2013, as no vesting events occurred during the period.
 
 
13

 
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

As used in the discussion below, “we,” “our,” and “us” refers to Austin Chalk prior to the acquisition of Austin Chalk by Aly Operating on October 26, 2012, to the combined operations of Aly Operating and Austin Chalk from October 26, 2012 until the reverse acquisition of Preferred Voice by Aly Operating on May 14, 2013, and the combined operations of Aly Operating, Austin Chalk and Preferred Voice from and after May 14, 2013.
 
Overview of Our Business
 
We are a provider of surface rental equipment and a roustabout service which is responsible for delivery of equipment and rig-up on well sites. Our primary products include mud circulating tanks (400 and 500 barrel capacity), mud pumps (diesel and electric), oil skimming systems, secondary containment systems and stairs, mud mixing plants, and 3” polyethylene pipe. We fabricate several of our products in-house. We service the Eagle Ford shale, the Permian Basin, and other areas in Texas from operating yards in Giddings, Texas (headquarters), San Angelo, Texas, and Dilley, Texas.
 
We derive the majority of our operating revenues from rates per day for the rental of equipment. The remainder of our operating revenues are generated by delivery and rig-up services which we provide in conjunction with the rental of equipment. We bill customers for these services at either a flat rate per job or an hourly rate. The price we charge for our services depends on both the level of activity within the geographic area in which we operate and also the competitive environment.
 
Our operating costs do not fluctuate in direct proportion to changes in revenue. Our operating expenses consist of both fixed and variable costs. Although variable costs are highly correlated with revenue and activity, variable costs such as sub-rental equipment expenses and third party trucking expenses can be reduced during times of increased activity by our investment in new rental and transportation equipment.
 
Current and anticipated oil and natural gas prices and the related level of drilling activity and general production spending in the areas in which we have operations primarily influence the demand for our services. The level of oil and natural gas exploration and production activity in the United States is volatile, and may vary based on oil prices, governmental regulation, governmental limitations on exploration and drilling activity and other factors.
 
During the three months ended September 30, 2013, our top 3 customers accounted for approximately 59% of total revenues. Our largest customer accounted for approximately 35% of total revenue. Revenue generated by our largest customer as a percentage of total revenue has decreased significantly during the three months ended September 30, 2013 due to the addition of new revenue-generating customers and due to a decrease in revenue dollars generated by our largest customer. For the months ended August 31, 2013 and September 30, 2013, our largest customer accounted for only 31% and 22% of total revenue, respectively.
 
During the nine months ended September 30, 2013, our top 3 customers accounted for approximately 68% of total revenues. Our largest customer accounted for approximately 44% of total revenue.
 
Inception of Aly Operating
 
On July 17, 2012, Aly Operating was incorporated with the strategic objective of acquiring, integrating and growing a global oilfield services operation.
 
Acquisition of Austin Chalk
 
On October 26, 2012, Aly Operating acquired Austin Chalk for a total purchase price of $22.5 million, net of cash acquired of approximately $58,000. Total consideration included $17.9 million cash, a payable of $0.8 million and the issuance of 4.0 million shares of preferred stock, $0.01 par value, at fair value of $3.8 million.
 
 
14

 

Results of Operations
 
The results in the tables below represent the results of Austin Chalk for the three and nine months ended September 30, 2012 and the results of Aly Energy consolidated for the three and nine months ended September 30, 2013.
 
Comparison of the Three Months Ended September 30, 2013 and the Three Months Ended September 30, 2012
 
   
Successor
   
Predecessor
       
   
Three Months Ended September 30,
       
   
2013
   
2012
   
Variance ($)
 
                   
Revenue
  $ 4,372     $ 4,354     $ 18  
                         
Direct Costs
    997       720       277  
Depreciation Expense
    408       244       164  
Amortization Expense
    131       -       131  
                         
Gross Profit
    2,836       3,390       (554 )
                         
Selling, General and Administrative Expenses
    1,963       1,694       269  
Corporate Expenses
    483       -       483  
                         
Operating Income
    390       1,696       (1,306 )
                         
Other Expense/(Income)
                       
Interest Expense
    136       -       136  
Amortization of Deferred Loan Costs
    46       -       46  
Other Expense/(Income)
    -       (48 )     48  
                         
Total Other Expense/(Income)
    182       (48 )     230  
                         
Income Before Income Tax
    208       1,744       (1,536 )
                         
Income Tax Expense
    107       55       52  
                         
Net Income
    101       1,689       (1,588 )
                         
Accretion of Preferred Stock
    9       -       9  
Preferred Stock Dividends
    53       -       53  
                         
Net Income Available to Common Stockholders
  $ 39     $ 1,689     $ (1,650 )
 
 
15

 
 
Our revenues for the three months ended September 30, 2013 were $4.4 million, a slight increase of 0.4% over $4.4 million for the three months ended September 30, 2012. A significant revenue contribution from secondary containment systems and stairs, a new product offering in 2013, was offset by a decrease in rental revenue generated by oil skimming systems and mud circulating tanks. The decrease in rental revenue from mud circulating tanks was due primarily to pricing pressure which was offset slightly by the increase in the number of mud circulating tanks in our inventory which were available for rental. We added a significant number of new customers during the three months ended September 30, 2013 resulting in a decrease in our customer concentration. Due to the timing of the addition of customers throughout the quarter, the full benefit of customer diversification will be realized in the fourth quarter of 2013 and in 2014 when our larger customer base is generating revenue throughout the period.
 
Our direct costs for the three months ended September 30, 2013 increased 38.5% to $1.0 million, or 22.8% of revenues, compared to $0.7 million, or 16.5% of revenues for the three months ended September 30, 2012. The increase is primarily due to an increase in third party trucking expense and an increase in fuel expense offset by a decrease in sub-rental expense. The increases in third party trucking expense and fuel expense relate to an increase in activity in sections of the Eagle Ford shale which are a greater distance from the Austin Chalk yard than the areas serviced during the three months ended September 30, 2012 and the start-up of a new operating yard in San Angelo. Throughout the three months ended September 30, 2013, the San Angelo yard was serviced out of the pre-existing Giddings yard. As revenue generated in San Angelo increases, we will obtain the equipment and hire the personnel to enable San Angelo to operate independently which will result in decreases in third-party trucking expense and fuel expense. In addition, we have invested a significant amount of capital into expanding our trucking fleet which will enable us to reduce third-party trucking expense going forward. Austin Chalk increased its number of sub-rented 500 bbl capacity mud circulating tanks throughout the three months ended September 30, 2012 in response to customer demand resulting in significant sub-rental expense as compared to the three months ended September 30, 2013 during which we reduced our sub-rental fleet of tanks to zero as we replaced all sub-rented tanks with the 100 tanks we invested in during 2013. No payroll, or related burden, is included in direct costs.
 
Depreciation expense for the three months ended September 30, 2013 increased 67.2% to $0.4 million, compared to $0.2 million, for the three months ended September 30, 2012. The increase is due to the significant capital expenditures we have made upgrading and expanding our rental equipment and trucking fleet in 2013 and also the write-up of assets associated with the acquisition of Austin Chalk on October 26, 2012.
 
Amortization expense, resulting from the intangible assets obtained in conjunction with the acquisition of Austin Chalk on October 26, 2012, was $0.1 million for the three months ended September 30, 2013. Austin Chalk did not have any intangible assets on its balance sheet prior to the acquisition.
 
Selling, general and administrative expense increased 15.9% to $2.0 million for the three months ended September 30, 2013, compared to $1.7 million for the three months ended September 30, 2012. The $0.3 million increase in selling, general and administrative expenses is primarily due to increased payroll expense and related burden resulting from the start-up of the San Angelo yard and from the addition of essential personnel such as middle management and support staff to enable efficient growth.
 
Corporate expense was $0.5 million for the three months ended September 30, 2013, consisting primarily of payroll for Aly Operating executives of $0.3 million, which includes approximately $68,000 of stock compensation expense, and $0.1 million of legal and professional fees, including audit and accounting fees. We did not incur corporate expense prior to the acquisition of Austin Chalk on October 26, 2012.
 
Interest expense was $0.1 million for the three months ended September 30, 2013. The interest expense for the three months ended September 30, 2013 relates to debt associated with a credit agreement entered into on October 26, 2012, in relation to the acquisition of ACPS.
 
Our income tax expense for the three months ended September 30, 2013, was $0.1 million, or 51.4% of our income before income taxes, compared to income tax expense of approximately $55,000 for the three months ended September 30, 2012. Prior to the acquisition by Aly Operating on October 26, 2012, Austin Chalk was subject to Texas franchise tax but it was not subject to federal income tax because it operated as an S-corporation.
 
 
16

 
 
Comparison of the Nine Months Ended September 30, 2013 and the Nine Months Ended September 30, 2012
 
   
Successor
   
Predecessor
       
   
Nine Months Ended September 30,
       
   
2013
   
2012
   
Variance ($)
 
                   
Revenue
  $ 13,562     $ 11,012     $ 2,550  
                         
Direct Costs
    2,950       1,571       1,379  
Depreciation Expense
    1,244       731       513  
Amortization Expense
    392       -       392  
                         
Gross Profit
    8,976       8,710       266  
                         
Selling, General and Administrative Expenses
    6,142       3,857       2,285  
Corporate Expenses
    1,455       -       1,455  
                         
Operating Income
    1,379       4,853       (3,474 )
                         
Other Expense/(Income)
                       
Interest Expense, Net
    327       12       315  
Amortization of Deferred Loan Costs
    123       -       123  
Other Expense/(Income)
    (3 )     (49 )     46  
                         
Total Other Expense/(Income)
    447       (37 )     484  
                         
Income Before Income Taxes
    932       4,890       (3,958 )
                         
Income Tax Expense
    383       95       288  
                         
Net Income
    549       4,795       (4,246 )
                         
Accretion of Preferred Stock
    27       -       27  
Preferred Stock Dividends
    155       -       155  
                         
Net Income Available to Common Stockholders
  $ 367     $ 4,795     $ (4,428 )
 
 
17

 
 
Our revenues for the nine months ended September 30, 2013 were $13.6 million, an increase of 23.2% compared to $11.0 million for the nine months ended September 30, 2012. Rental revenue increased primarily due to a significant revenue contribution from secondary containment systems and stairs, a new product offering in 2013, and an increase in revenue from mud circulating tanks and mud mixing plants. Despite pricing pressure on the rental rate of mud circulating tanks in 2013, revenue generated by mud circulating tanks increased by approximately 20% for the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012 due primarily to the increase in the number of mud circulating tanks in our inventory which were available for rental. During the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012, revenue from our rig-up/rig-down and trucking services increased at a much faster rate than our revenue from rental day rates due to the ability to maintain pricing on services despite pricing pressure on rental day rates. We added a significant number of new customers during the nine months ended September 30, 2013 resulting in a decrease in our customer concentration. Due to the timing of the addition of customers throughout the first nine months of 2013, the full benefit of customer diversification will be realized in the fourth quarter of 2013 and in 2014 when our larger customer base is generating revenue throughout the entire period.
 
Our direct costs for the nine months ended September 30, 2013 increased 87.8% to $3.0 million, or 21.8% of revenues, compared to $1.6 million, or 14.3% of revenues for the nine months ended September 30, 2012. The increase is primarily due to increases in sub-rental expense, third party trucking expense, and fuel expense. In order to satisfy customer demand in 2012, Austin Chalk sub-rented an increasing number of 500 bbl capacity mud circulating tanks with the largest increase in the three months ended December 31, 2012. In early 2013, Austin Chalk accepted delivery of 100 new mud circulating tanks for its rental fleet and began to replace sub-rented tanks with ACPS-owned tanks as customers completed jobs and returned the sub-rented tanks. Although Austin Chalk has now replaced all sub-rented tanks and we expect to see a decrease in sub-rental expense in the fourth quarter of 2013, the average number of sub-rented tanks during the nine months ended September 30, 2013 was much greater than the average number of sub-rented tanks during the nine months ended September 30, 2012 due to the slow replacement process in 2013. The increases in third party trucking expense and fuel expense relate to an increase in activity in sections of the Eagle Ford shale which are a greater distance from the Giddings yard than the areas serviced during the nine months ended September 30, 2012 and the start-up of a new operating yard in San Angelo. The San Angelo yard has been serviced out of the pre-existing Giddings yard from its opening date in the second quarter of 2013. As revenue generated in San Angelo increases, we will obtain the equipment and hire the personnel necessary to enable San Angelo to operate independently which will result in decreases in third-party trucking expense and fuel expense. In addition, we have invested a significant amount of capital into expanding our trucking fleet which will enable us to reduce third-party trucking expense going forward. No payroll, or related burden, is included in direct costs.
 
Depreciation expense increased 70.2% to $1.2 million for the nine months ended September 30, 2013, compared to $0.7 million, for the nine months ended September 30, 2012. The increase is due to the significant capital expenditures we have made upgrading and expanding our rental equipment and trucking fleet in 2013 and also the write-up of assets associated with the acquisition of Austin Chalk on October 26, 2012.
 
Amortization expense, resulting from the intangible assets obtained in conjunction with the acquisition of Austin Chalk on October 26, 2012, was $0.4 million for the nine months ended September 30, 2013. Austin Chalk did not have any intangible assets on its balance sheet prior to the acquisition.
 
Selling, general and administrative expense increased 59.2% to $6.1 million for the nine months ended September 30, 2013, compared to $3.8 million for the nine months ended September 30, 2012. The $2.3 million increase in selling, general and administrative expenses is primarily due to increased payroll expense and related burden resulting from the start-up of the San Angelo yard and from the addition of essential personnel such as middle management and support staff to enable efficient growth and an increase in insurance expense related to a larger employee and equipment base.
 
Corporate expense was $1.5 million for the nine months ended September 30, 2013, consisting primarily of payroll for Aly Operating executives of $0.7 million, which includes approximately $76,000 of stock compensation expense, and $0.4 million of legal and professional fees, including audit and accounting fees, of which approximately $0.3 million were non-recurring. We did not incur corporate expense prior to the acquisition of Austin Chalk on October 26, 2012.
 
Interest expense was $0.3 million for the nine months ended September 30, 2013 compared to approximately $13,000 for the nine months ended September 30, 2012. The interest expense for the nine months ended September 30, 2013 relates to debt associated with a credit agreement entered into on October 26, 2012, in relation to the acquisition of ACPS.
 
 
18

 
 
Our income tax expense for the nine months ended September 30, 2013, was $0.4 million, or 41.1% of our income before income taxes, compared to income tax expense of approximately $95,000 for the nine months ended September 30, 2012. Prior to the acquisition by Aly Operating on October 26, 2012, Austin Chalk was subject to Texas franchise tax but it was not subject to federal income tax because it operated as an S-corporation.
 
Liquidity and Capital Resources
 
Our on-going capital requirements arise primarily from our need to acquire equipment to increase our existing rental fleet and to expand product offerings and service lines, to service our debt, and to fund our working capital requirements. Our primary source of liquidity has been internal cash flows from operations and borrowings under our credit facility. Proceeds from the issuance of debt and equity funded the acquisition of Austin Chalk. Future funds are expected to be provided by operating cash flow and, to the extent we determine to do so, the issuance of debt and equity.
 
The net cash provided by or used in our operating, investing, and financing activities during the nine months ended September 30, 2013 and 2012 is summarized below (in thousands):
 
   
Successor
   
Predecessor
 
   
Nine Months Ended September 30,
 
   
2013
   
2012
 
Cash Provided By/(Used In):
           
             
Operating Activities
  $ 3,003     $ 4,126  
Investing Activities
    (7,901 )     (2,496 )
Financing Activities
    3,885       (1,418 )
                 
Change in Cash and Cash Equivalents
  $ (1,013 )   $ 212  
 
Operating Activities
 
For the nine months ended September 30, 2013, we generated $3.0 million of cash from operating activities. Our net income for this period was $0.5 million. Adjustments to net income totaled $1.9 million consisting primarily of $1.6 million of depreciation and amortization.
 
During the nine months ended September 30, 2013, changes in working capital provided $0.5 million in cash. Cash was primarily provided by a decrease in accounts receivable of $0.9 million and an increase of $0.5 million in accounts payable offset by a decrease in accrued expenses of $0.2 million and a decrease in accounts payable - affiliate of $0.8 million.
 
For the nine months ended September 30, 2012, we generated $4.1 million of cash from operating activities. Our net income for this period was $4.8 million and the non-cash addition of depreciation expense was $0.7 million. Changes in working capital resulted in a $1.4 million use of cash due primarily to an increase of $1.9 million in accounts receivable related to the rapid increase in sales and an increase in income tax payable of $0.5 million offset partially by a $1.1 million decrease in accounts payable and accrued expenses.
 
 
19

 
 
Investing Activities
 
During the nine months ended September 30, 2013, we used $7.9 million in investing activities, all consisting of the purchase or fabrication of capital assets, partially offset by $0.3 million of cash acquired from the reverse merger with Preferred Voice.
 
During the nine months ended September 30, 2012, we used $2.5 million in investing activities, all consisting of the purchase or fabrication of capital assets.
 
Financing Activities
 
During the nine months ended September 30, 2013, financing activities generated $3.9 million in cash, consisting of borrowings under our credit facilities, net of principal payments, and deferred financing costs.
 
During the nine months ended September 30, 2012, financing activities used $1.4 million in cash, resulting from distributions to the owner of $1.3 million, and principal payments made on debt facilities of $0.1 million.
 
On October 26, 2012, Aly Operating closed on the acquisition of Austin Chalk with the proceeds of an issuance of common stock of $13.2 million before stock issuance costs of $0.7 million and term loan borrowings in the amount of $8.3 million before debt issuance costs of $0.5 million, borrowed under our credit facility with Wells Fargo. The executed credit agreement with Wells Fargo, entered into simultaneously with the closing of the Austin Chalk acquisition, provides for an $8.3 million term loan facility with a maturity date of October 26, 2016, and a revolving credit facility up to the lesser of (i) the borrowing base and (ii) $5.0 million with a maturity date of October 26, 2016. The borrowing base is determined monthly, based on our inventory and receivables, and as of September 30, 2013, the borrowing base under the credit facility was $2.6 million. The credit agreement contains customary events of default and covenants including restrictions on our ability, and the ability of Austin Chalk, to incur additional indebtedness, make capital expenditures, pay dividends or make other distributions, grant liens and sell assets. In addition, the credit agreement contains certain financial covenants including requirements to maintain (1) a consolidated funded debt to EBITDA ratio of not more than 2.00 to 1.00 for any fiscal quarter ending on or after March 31, 2013, and (2) a fixed charge coverage ratio of not less than 1.5 to 1.0. Our obligations under the agreement are guaranteed by Austin Chalk and secured by substantially all of our assets and the assets of Austin Chalk.
 
The term loan is repayable in quarterly installments of $0.4 million. Borrowings under the credit facility bear interest, at our option, at the base rate or LIBOR. The annual interest rate on each base rate borrowing is (a) the greatest of Wells Fargo’s Prime Rate, the Federal Funds Rate plus 0.5% and the one-month LIBOR rate on such day plus 1.00%, plus (b) a margin between 2.50% and 3.50% (depending on the then-current leverage ratio). The interest rate on each LIBOR loan will be the LIBOR rate for the applicable interest period plus a margin between 3.50% and 4.50% (depending on the then-current leverage ratio). At September 30, 2013, there was $6.6 million of outstanding borrowings under the term loan and $1.4 outstanding under the revolving credit facility. As of September 30, 2013, we had $1.2 million of incremental borrowing availability under the revolving credit facility.

On April 19, 2013, we obtained an amendment to our credit agreement in order to, among other things, provide for a $5.0 million delayed draw term loan facility for purposes of financing capital expenditures. We are permitted to borrow under the facility from time to time up until December 31, 2013 in order to fund up to 80% of the cost of capital expenditures, subject to a $5.0 million limit on aggregate borrowings thereunder. Borrowings under the delayed draw term loan facility are repayable quarterly, commencing with the fiscal quarter ending March 31, 2014, in an amount per quarter equal to 6.25% of the aggregate amount of delayed draw term loan borrowings outstanding as of December 31, 2013. The delayed draw term loan facility is subject to the same covenants and restrictions, and bears the same interest rate, as the existing term loan and revolving credit facilities provided by the credit agreement. At September 30, 2013, we had $4.4 million outstanding on the delayed draw loan facility and we had the capability to borrow an additional $0.6 million on the delayed draw loan facility for the purposes of financing capital expenditures.
 
 
20

 

The Company is required to satisfy certain financial and reporting covenants in conjunction with our debt facilities. Our lenders have waived the application of the leverage ratio requirement for the fiscal quarter ending September 30, 2013. We are in discussions with our lenders regarding an amendment to our credit facility.

During the three months ended September 30, 2013, the Company entered into non-cancelable capital leases for five winch trucks with the intent to purchase the trucks at the end of the 60 month term. The Company makes monthly principal and interest payments on these leases.
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not required by smaller reporting companies.
 
Item 4. Controls and Procedures
 
Evaluation of disclosure controls and procedures. The Chief Executive Officer and Chief Financial Officer, of the Company have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the quarter covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer of the Company have concluded that the Company’s disclosure controls and procedures as of the end of the quarter covered by this Quarterly Report on Form 10-Q are effective as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act.
 
Changes in internal controls. There were no changes in our internal controls over financial reporting identified in connection with our evaluation that occurred during our last fiscal quarter ended September 30, 2013 that materially affected, or was reasonably likely to materially affect our internal control over financial reporting.
 
 
21

 
 
PART II. OTHER INFORMATION
 
Item 1. Exhibits
 
Exhibit
Number
  Exhibit Description
     
31.1  
Certification of Chief Executive Officer
     
31.2   Certification of Chief Financial Officer
     
32.1  
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
32.2  
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
101.INS **
 
XBRL Instance Document
 
 
 
101.SCH **
 
XBRL Taxonomy Extension Schema Document
 
 
 
101.CAL **
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
101.DEF **
 
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
101.LAB **
 
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
101.PRE **
 
XBRL Taxonomy Extension Presentation Linkbase Document
 
** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
 
 
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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
ALY ENERGY SERVICES, INC.
 
       
Date: November 14, 2013
By:
/s/ Munawar H. Hidayatallah  
    Munawar H. Hidayatallah  
   
Chairman and Chief Executive Officer
 
 
 
(Principal Executive Officer)
 
 
 
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