Mammoth Energy Services Inc.
MAMMOTH ENERGY SERVICES, INC. (Form: 8-K, Received: 10/27/2017 06:10:28)





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

Form 8-K

CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): May 15, 2017
 
Mammoth Energy Services, Inc.
(Exact name of registrant as specified in its charter)
Delaware
 
32-0498321
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
001-37917
 
 
(Commission File Number)
 
14201 Caliber Drive Suite 300
Oklahoma City, Oklahoma
 
73134
(Address of principal executive offices)
 
(Zip Code)
 
  (405) 608-6007
 
 
  (Registrant’s telephone number, including area code)
 
 
 
 
 
(Former name or former address, if changed since last report)
 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  ý

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ý  
Check the appropriate box below if the Form 8-K is intended to simultaneously satisfy the filing obligation of the Registrant under any of the following provisions:


¨  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act(17 CFR 240.13e-4(c))










Item 2.02. Results of Operations and Financial Condition.

The information required by this item is included in Item 8.01 and incorporated by reference herein.

Item 8.01. Results of Operations and Financial Condition

As previously reported by Mammoth Energy Services, Inc. (“Mammoth” or the "Company") in its Current Report on Form 8-K filed on June 9, 2017, Mammoth acquired certain oilfield service companies (the “Acquisitions”) from Gulfport Energy Corporation, Rhino Exploration LLC, and certain affiliates of Wexford Capital LP. In the Acquisitions, which closed on June 5, 2017, Mammoth acquired: (1) Sturgeon Acquisitions LLC (“Sturgeon”) and Sturgeon’s wholly owned subsidiaries Taylor Frac LLC, Taylor Real Estate Investments LLC and South River Road LLC; (2) Stingray Energy Services LLC; and (3) Stingray Cementing LLC in exchange for the issuance by Mammoth of an aggregate of 7,000,000 shares of its common stock. On August 2, 2017, Mammoth amended its initial report on Form 8-K to provide the audited financial statements, the unaudited interim financial statements and the pro forma financial information, which are required by Item 9.01(a) and (b) of Form 8-K in connection with the Acquisitions.

Prior to the completion of the Acquisitions, Mammoth and Sturgeon were entities under common control and in accordance with generally accepted accounting principles in the United States ("GAAP"), Mammoth has accounted for its acquisition of Sturgeon in a manner similar to the pooling of interest method of accounting. As such, Mammoth's historical financial information for all periods included in this report has been recast to combine Sturgeon's financial results with Mammoth's financial results as if the acquisition of Sturgeon had been effective since Sturgeon commenced operations on September 13, 2014.
 
The Company's Report on Form 10-Q for the three months ended March 31, 2017 filed with the SEC on May 15, 2017 (the "2017 Form 10-Q") is hereby recast by this Current Report on Form 8-K as follows:

2017 Form 10-Q (Exhibit 99.1)
The Financial Statements and Supplementary Data included herein supersedes Part I of the 2017 Form 10-Q
The Management's Discussion and Analysis of Financial Condition and Results of Operations included herein Exhibit 99.1 supersedes Item 2 of the 2017 Form 10-Q

There have been no revisions or updates to any other sections of the 2017 Form 10-Q, other than the revisions noted above. This Current Report on Form 8-K should be read in conjunction with the 2016 Form 10-K and any references herein to Items 6, 7 and 8 under Part II of the 2016 Form 10-K refer to the Form 8-K filed on October 25, 2017. As of the date of this Current Report on Form 8-K, future references to the Company's historical financial statements should be made to this Current Report as well as future quarterly and annual reports on Form 10-Q and Form 10-K, respectively.

Item 9.01. Financial Statements and Exhibits

(d)    Exhibits.

Number
Exhibit
 
 
 
99.1
Unaudited condensed consolidated financial statements of Mammoth Energy Services, Inc for the three months ended March 31, 2017, including notes thereto.
101.1
Interactive data files pursuant to Rule 405 of Regulation S-T.






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.

 
 
 
 
 
MAMMOTH ENERGY SERVICES, INC.
Date:
October 26, 2017
 
By:
 
/s/ Mark Layton
 
 
 
 
 
Mark Layton
 
 
 
 
 
Chief Financial Officer and Secretary
 
 
 
 
 
 
 
 
 
 
 
 






Number
Exhibit
 
 
 
Unaudited condensed consolidated financial statements of Mammoth Energy Services, Inc for the three months ended March 31, 2017, including notes thereto.
101.1
Interactive data files pursuant to Rule 405 of Regulation S-T.



EXHIBIT 99.1

TABLE OF CONTENTS
 
 
 
 
 
 
 
Page
Item 1.
 
 
 
 
 
Item 2.



MAMMOTH ENERGY SERVICES, INC.



PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MAMMOTH ENERGY SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
ASSETS
 
March 31,
 
December 31,
 
 
2017 (a)
 
2016 (a)
CURRENT ASSETS
 
 
 
 
Cash and cash equivalents
 
$
12,927,242

 
$
29,238,618

Accounts receivable, net
 
25,612,506

 
21,169,579

Receivables from related parties
 
32,433,387

 
27,589,283

Inventories
 
6,097,571

 
6,124,201

Prepaid expenses
 
3,559,431

 
4,425,872

Other current assets
 
1,182,058

 
391,599

Total current assets
 
81,812,195

 
88,939,152

 
 
 
 
 
Property, plant and equipment, net
 
264,727,442

 
242,119,663

Sand reserves
 
55,365,025

 
55,367,295

Intangible assets, net - customer relationships
 
13,859,772

 
15,949,772

Intangible assets, net - trade names
 
5,439,307

 
5,617,057

Goodwill
 
88,726,875

 
88,726,875

Other non-current assets
 
5,491,879

 
5,642,661

Total assets
 
$
515,422,495

 
$
502,362,475

 
 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 
CURRENT LIABILITIES
 
 
 
 
Accounts payable
 
$
40,337,570

 
$
20,469,542

Payables to related parties
 
661,134

 
203,209

Accrued expenses and other current liabilities
 
9,049,128

 
8,546,198

Income taxes payable
 

 
28,156

Total current liabilities
 
50,047,832

 
29,247,105

 
 
 
 
 
Long-term debt
 

 

Deferred income taxes
 
43,881,012

 
47,670,789

Asset retirement obligation
 
261,029

 
259,804

Other liabilities
 
2,635,605

 
2,404,422

Total liabilities
 
96,825,478

 
79,582,120

 
 
 
 
 
COMMITMENTS AND CONTINGENCIES (Note 13)
 

 

 
 
 
 
 
EQUITY
 

 
 
Equity:
 
 
 
 
Common stock, $0.01 par value, 200,000,000 shares authorized, 37,500,000
 
375,000

 
375,000

issued and outstanding at March 31, 2017 and December 31, 2016.
 
 
 
 
Additional paid in capital
 
400,775,752

 
400,205,921

Accumulated deficit
 
(61,259,392
)
 
(56,322,878
)
Members' equity
 
81,693,910

 
81,738,675

Accumulated other comprehensive loss
 
(2,988,253
)
 
(3,216,363
)
Total equity
 
418,597,017

 
422,780,355

Total liabilities and equity
 
$
515,422,495

 
$
502,362,475


(a) Financial information has been recast to include the financial position and results attributable to Sturgeon Acquisitions LLC ("Sturgeon"). See Note 12.

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

1

MAMMOTH ENERGY SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (unaudited)


 
 
Three Months Ended
 
 
March 31,
 
 
2017 (a)
 
2016 (a)
REVENUE
 
 
 
 
Services revenue
 
$
27,091,882

 
$
28,236,482

Services revenue - related parties
 
32,961,657

 
1,146,554

Product revenue
 
3,372,063

 
1,281,745

Product revenue - related parties
 
11,540,419

 
1,918,078

Total Revenue
 
74,966,021

 
32,582,859

 
 
 
 
 
COST AND EXPENSES
 
 
 
 
Services cost of revenue (1)
 
45,460,804

 
26,093,376

Services cost of revenue - related parties
 
429,917

 
117,046

Product cost of revenue (2)
 
12,607,265

 
6,180,754

Product cost of revenue - related parties
 

 

Selling, general and administrative
 
6,412,544

 
3,505,629

Selling, general and administrative - related parties
 
324,254

 
108,245

Depreciation and amortization
 
17,237,251

 
17,751,072

Total cost and expenses
 
82,472,035

 
53,756,122

Operating loss
 
(7,506,014
)
 
(21,173,263
)
 
 
 
 
 
OTHER (EXPENSE) INCOME
 
 
 
 
Interest expense
 
(397,184
)
 
(1,296,356
)
Other, net
 
(184,146
)
 
(990
)
Total other expense
 
(581,330
)
 
(1,297,346
)
Loss before income taxes
 
(8,087,344
)
 
(22,470,609
)
(Benefit) provision for income taxes
 
(3,106,065
)
 
894,360

Net loss
 
$
(4,981,279
)
 
$
(23,364,969
)
 
 
 
 
 
OTHER COMPREHENSIVE LOSS
 
 
 
 
Foreign currency translation adjustment (3)
 
228,110

 
1,975,351

Comprehensive loss
 
$
(4,753,169
)
 
$
(21,389,618
)
 
 
 
 
 
Net loss per share (basic and diluted) (Note 9)
 
$
(0.13
)
 
$
(0.78
)
Weighted average number of shares outstanding (Note 9)
 
37,500,000

 
30,000,000

 
 
 
 
 
Pro Forma C Corporation Data (unaudited):
 
 
 
 
Net loss, as reported
 
 
 
(23,364,969
)
Pro forma benefit for income taxes
 
 
 
(1,776,580
)
Pro forma net loss
 
 
 
(21,588,389
)
Basic and Diluted (Note 9)
 
 
 
(0.50
)
Weighted average pro forma shares outstanding—basic and diluted (Note 9)
 
 
 
43,107,452

 
 
 
 
 
(1) Exclusive of depreciation and amortization
 
15,837,735

 
16,348,075

(2) Exclusive of depreciation and amortization
 
1,361,715

 
1,366,682

(3) Net of tax
 
20,143

 

(a) Financial information has been recast to include the financial position and results attributable to Sturgeon. See Note 12.





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


2

MAMMOTH ENERGY SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (unaudited)


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
Members'
Accumulated
Common
Paid-In
 
 
 
Shares
Amount
Equity
Deficit
Partners
Capital
AOCL
Total
Balance at December 31, 2015 (a)


90,783,508


329,090,230


(5,926,968
)
413,946,770

Net loss prior to LLC conversion




(32,085,117
)


(32,085,117
)
Net loss


(4,044,833
)




(4,044,833
)
Capital distributions


(5,000,000
)




(5,000,000
)
Equity based compensation




(18,683
)


(18,683
)
LLC Conversion (Note 1)




(296,986,430
)
296,986,430



Issuance of common stock at public offering, net of offering costs
37,500,000

375,000




102,699,661


103,074,661

Stock-based compensation





519,830


519,830

Net loss subsequent to LLC conversion



(56,322,878
)
 


(56,322,878
)
Other comprehensive income






2,710,605

2,710,605

Balance at December 31, 2016 (a)
37,500,000
$
375,000

$
81,738,675

$
(56,322,878
)
$

$
400,205,921

$
(3,216,363
)
$
422,780,355

Net loss


(44,765
)
(4,936,514
)



(4,981,279
)
Equity based compensation





569,831


569,831

Other comprehensive income






228,110

228,110

Balance at March 31, 2017 (a)
37,500,000
$
375,000

$
81,693,910

$
(61,259,392
)
$

$
400,775,752

$
(2,988,253
)
$
418,597,017

































(a) Financial information includes the financial position and results attributable to Sturgeon. See Note 12.


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

3

MAMMOTH ENERGY SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)


 
 
Three Months Ended
 
 
March 31,
 
 
2017 (a)
 
2016 (a)
Cash flows from operating activities
 
 
 
 
Net loss
 
$
(4,981,279
)
 
$
(23,364,969
)
Adjustments to reconcile net loss to cash provided by operating activities:
 
 
 
 
Equity based compensation
 
569,831

 

Depreciation and amortization
 
17,237,251

 
17,751,072

Amortization of coil tubing strings
 
492,409

 
551,300

Amortization of debt origination costs
 
150,781

 
164,739

Bad debt expense
 
(40,446
)
 
23,543

Gain disposal of property and equipment
 
(79,408
)
 
(21,000
)
Deferred income taxes
 
(3,801,212
)
 
93,451

Changes in assets and liabilities:
 
 
 
 
Accounts receivable, net
 
(4,356,787
)
 
(1,815,536
)
Receivables from related parties
 
(4,842,008
)
 
22,399,582

Inventories
 
(465,779
)
 
(568,430
)
Prepaid expenses and other assets
 
76,885

 
(4,451,262
)
Accounts payable
 
13,301,991

 
(2,202,545
)
Payables to related parties
 
451,455

 
(58,220
)
Accrued expenses and other liabilities
 
732,873

 
10,801,225

Income taxes payable
 
(28,156
)
 
(26,912
)
Net cash provided by operating activities
 
14,418,401

 
19,276,038

 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
Purchases of property and equipment
 
(31,109,692
)
 
(539,922
)
Proceeds from disposal of property and equipment
 
369,258

 
34,863

Net cash used in investing activities
 
(30,740,434
)
 
(505,059
)
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
Borrowings from lines of credit
 

 
4,840,778

Repayments of lines of credit
 

 
(13,240,778
)
Net cash used in financing activities
 

 
(8,400,000
)
Effect of foreign exchange rate on cash
 
10,657

 
260,074

Net (decrease) increase in cash and cash equivalents
 
(16,311,376
)
 
10,631,053

Cash and cash equivalents at beginning of period
 
29,238,618

 
4,038,899

Cash and cash equivalents at end of period
 
$
12,927,242

 
$
14,669,952

 
 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
 
Cash paid for interest
 
$
254,330

 
$
1,180,572

Cash paid for income taxes
 
$
700,825

 
$
934,262

Supplemental disclosure of non-cash transactions:
 
 
 
 
Purchases of property and equipment included in trade accounts payable
 
$
9,346,077

 
$
597,885


(a) Financial information has been recast to include the financial position and results attributable to Sturgeon. See Note 12.






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

4

MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1.
Organization and Basis of Presentation
The accompanying unaudited condensed consolidated interim financial statements were prepared in accordance with the rules and regulations of the Securities and Exchange Commission, and reflect all adjustments, which in the opinion of management are necessary for the fair presentation of the results for the interim periods, on a basis consistent with the annual audited consolidated financial statements. These condensed consolidated interim financial statements should be read in conjunction with the consolidated financial statements and the summary of significant accounting policies and notes thereto included in the 2016 annual consolidated financial statements of Mammoth Energy Services, Inc. (the "Company," "Mammoth Inc" or "Mammoth" ) in the Annual Report on Form 10-K filed on February 24, 2017.

Mammoth, together with its subsidiaries, is an integrated, growth-oriented energy services company serving companies engaged in the exploration and development of North American onshore unconventional oil and natural gas reserves. The Company was incorporated in Delaware in June 2016 as a wholly-owned subsidiary of Mammoth Energy Partners, LP, a Delaware limited partnership (the "Partnership" or the "Predecessor"). The Partnership was originally formed by Wexford Capital LP (“Wexford”) in February 2014 as a holding company under the name Redback Inc. and was converted to a Delaware limited partnership in August 2014. On November 24, 2014, Mammoth Energy Holdings, LLC (“Mammoth Holdings”), an entity controlled by Wexford, Gulfport Energy Corporation (“Gulfport”) and Rhino Resource Partners LP (“Rhino”) contributed their interest in certain of the entities presented below to the Partnership in exchange for 20 million limited partner units. Mammoth Energy Partners GP, LLC (the “General Partner”) held a non-economic general partner interest.

The following companies (the "Operating Entities”) are included in these condensed consolidated financial statements: Bison Drilling and Field Services, LLC (“Bison Drilling”), formed November 15, 2010; Bison Trucking LLC (“Bison Trucking”), formed August 9, 2013; White Wing Tubular Services LLC (“White Wing”), formed July 29, 2014; Barracuda Logistics LLC (“Barracuda”), formed October 24, 2014; Mr. Inspections LLC (“MRI”), formed January 25, 2015; Panther Drilling Systems LLC (“Panther”), formed December 11, 2012; Redback Energy Services, LLC (“Energy Services”), formed October 6, 2011; Redback Coil Tubing, LLC (“Coil Tubing”), formed May 15, 2012; Redback Pump Down Services LLC (“Pump Down”), formed January 16, 2015; Muskie Proppant LLC (“Muskie”), formed September 14, 2011; Stingray Pressure Pumping LLC (“Pressure Pumping”), formed March 20, 2012; Stingray Logistics LLC (“Logistics”), formed November 19, 2012; and Great White Sand Tiger Lodging Ltd. (“Lodging”), formed October 1, 2007, Sand Tiger Holdings, Inc. ("ST Holdings"), formed June 27, 2007, Silverback Energy Services LLC ("Silverback"), formed June 8, 2016; Mammoth Equipment Leasing LLC, formed on November 14, 2016; Cobra Acquisitions LLC ("Cobra"), formed January 9, 2017; and Cobra T&D LLC, formed January 24, 2017.

In addition, on June 5, 2017, Mammoth acquired Sturgeon Acquisitions LLC (“Sturgeon”) and Sturgeon's wholly-owned subsidiaries, Taylor Frac, LLC (“Taylor Frac”), Taylor Real Estate Investments, LLC (“Taylor RE”), and South River Road, LLC (“South River”) (collectively, the "Sturgeon Acquisition"). The accompanying financial statements have been recast to include the financial position and results attributable to the Sturgeon Acquisition. See Note 12 for additional information regarding the Sturgeon Acquisition.

The contribution to the Partnership on November 24, 2014 of all Operating Entities, except Pressure Pumping, Logistics and entities created after the date of such contribution to the Partnership, was treated as a combination of entities under common control. On November 24, 2014, the Partnership also acquired Pressure Pumping and Logistics (collectively, the “Stingray Entities”) in exchange for 10 million limited partner units. Prior to the contribution, the Partnership did not conduct any material business operations other than certain activities related to the preparation of the registration statement for a proposed initial public offering.

On October 12, 2016, the Partnership was converted into a Delaware limited liability company named Mammoth Energy Partners LLC (“Mammoth LLC”), and then Mammoth Holdings, Gulfport and Rhino, as all the members of Mammoth LLC, contributed their member interests in Mammoth LLC to Mammoth Inc. Prior to the conversion and the contribution, Mammoth Inc. was a wholly-owned subsidiary of the Partnership. Following the conversion and the contribution, Mammoth LLC (as the converted successor to the Partnership) was a wholly-owned subsidiary of Mammoth Inc. Mammoth Inc. did not conduct any material business operations until Mammoth LLC was contributed to it. On October 19, 2016, Mammoth Inc. closed its initial public offering of 7,750,000 shares of common stock (the "IPO"), which included an aggregate of 250,000 shares that were offered by Mammoth Holdings, Gulfport and Rhino, at a price to the public of $15.00 per share.

5

MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Net proceeds to Mammoth Inc. from its sale of 7,500,000 shares of common stock were approximately $103.1 million . On the closing date of the IPO, Mammoth Inc. repaid all outstanding borrowings under its revolving credit facility and intends to use the remaining net proceeds for general corporate purposes, which may include the acquisition of additional equipment and complementary businesses that enhance its existing service offerings, broaden its service offerings or expand its customer relationships.

At March 31, 2017 and December 31, 2016 , Mammoth Holdings, Gulfport and Rhino owned the following share of outstanding common stock of Mammoth Inc:
 
 
At March 31, 2017
 
At December 31, 2016
 
 
Share Count
 
% Ownership
 
Share Count
 
% Ownership
Mammoth Holdings
 
20,443,903

 
54.5
%
 
20,443,903

 
54.5
%
Gulfport
 
9,073,750

 
24.2
%
 
9,073,750

 
24.2
%
Rhino
 
232,347

 
0.6
%
 
232,347

 
0.6
%
Outstanding shares owned by related parties
 
29,750,000

 
79.3
%
 
29,750,000

 
79.3
%
Total outstanding
 
37,500,000

 
100.0
%
 
37,500,000

 
100.0
%

Operations

The Company's pressure pumping services include equipment and personnel used in connection with the completion and early production of oil and natural gas wells, well services include coil tubing units used to enhance the flow of oil or natural gas and natural sand proppant services include the distribution and production of natural sand proppant that is used primarily for hydraulic fracturing in the oil and gas industry. The Company's contract land and directional drilling services provides drilling rigs and directional tools for both vertical and horizontal drilling of oil and natural gas wells. The Company also provides other energy services, currently primarily consisting of remote accommodations for people working in the oil sands located in Northern Alberta, Canada.

The acquisition of the Stingray Entities added to the Company's completion and production portfolio. Specifically, by adding hydraulic fracturing and proppant hauling logistics services, the Company has developed a diverse offering of operations that can participate in nearly all phases of the energy services industry.

All of the Company’s operations are in North America. The Company operates in the Permian Basin, the Utica Shale, the Eagle Ford Shale, the Marcellus Shale, the Granite Wash, the Cana-Woodford Shale, the Cleveland Sand and the oil sands located in Northern Alberta, Canada. The Company's business depends in large part on the conditions in the oil and natural gas industry and, specifically, on the amount of capital spending by its customers. Any prolonged increase or decrease in oil and natural gas prices affects the levels of exploration, development and production activity, as well as the entire health of the oil and natural gas industry. Changes in the commodity prices for oil and natural gas could have a material effect on the Company’s results of operations and financial condition.

2.
Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements are prepared in accordance with Generally Accepted Accounting Principles ("GAAP"). All material intercompany accounts and transactions between the entities within the Company have been eliminated.

(b) Use of Estimates     
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the 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. Significant estimates include but are not limited to the Company's sand reserves and their impact on calculating the depletion expense, the allowance for doubtful accounts, asset retirement obligation, reserves for self-insurance, depreciation, depletion, accretion and amortization of property and equipment,

6

MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

business combination valuations, amortization of intangible assets, and future cash flows and fair values used to assess recoverability and impairment of long-lived assets, including goodwill.

(c) Cash and Cash Equivalents
All highly liquid investments with an original maturity of three months or less are considered cash equivalents. The Company maintains its cash accounts in financial institutions that are insured by the Federal Deposit Insurance Corporation, with the exception of cash held by Lodging in a Canadian financial institution. At March 31, 2017 , the Company had $5.7 million , in Canadian dollars, of cash in Canadian accounts. Cash balances from time to time may exceed the insured amounts; however, the Company has not experienced any losses in such accounts and does not believe it is exposed to any significant credit risks on such accounts.
 
(d) Accounts Receivable
Accounts receivable include amounts due from customers for services performed and are recorded as the work progresses. The Company grants credit to customers in the ordinary course of business and generally does not require collateral. Most areas in which the Company operates provide for a mechanic’s lien against the property on which the service is performed if the lien is filed within the statutorily specified time frame. Customer balances are generally considered delinquent if unpaid by the 30 th day following the invoice date and credit privileges may be revoked if balances remain unpaid.

The Company regularly reviews receivables and provides for estimated losses through an allowance for doubtful accounts. In evaluating the level of established reserves, the Company makes judgments regarding its customers’ ability to make required payments, economic events, and other factors. As the financial conditions of customers change, circumstances develop, or additional information becomes available, adjustments to the allowance for doubtful accounts may be required. In the event the Company was to determine that a customer may not be able to make required payments, the Company would increase the allowance through a charge to income in the period in which that determination is made. Uncollectible accounts receivable are periodically charged against the allowance for doubtful accounts once final determination is made of their uncollectability.

Following is a roll forward of the allowance for doubtful accounts for the three months ended March 31, 2017 and year ended December 31, 2016 :
Balance, January 1, 2016
 
$
4,011,932

Additions charged to expense
 
1,968,001

Deductions for uncollectible receivables written off
 
(602,967
)
Balance, December 31, 2016
 
5,376,966

Additions charged (credited) to expense
 
(40,446
)
Balance, March 31, 2017
 
$
5,336,520

As discussed in Note 1, prolonged declines in pricing can impact the overall health of the oil and natural gas industry. The three months ended March 31, 2017 contained such pricing conditions which may lead to enhanced risk of uncollectiblity on certain receivables. As such, the Company monitored its previously established reserves and, consistent with Company policy, it reduced a portion of the allowance for doubtful accounts. The Company will continue to pursue collection until such time as final determination is made consistent with Company policy.
(e) Inventory
Inventory consists of raw sand and processed sand available for sale, chemicals and other products sold as a bi-product of completion and production operations, and supplies used in performing services. Inventory is stated at the lower of cost or market (net realizable value) on an average cost basis. The Company assesses the valuation of its inventories based upon specific usage and future utility.

Inventory processed at the Company’s sand production facility includes direct excavation costs, processing costs, and
overhead allocation. Stockpile tonnages are calculated by measuring the number of tons added and removed from the
stockpile. Tonnages are verified periodically by an independent surveyor. Costs are calculated on a per ton basis and are
applied to the stockpiles based on the number of tons in the stockpile. Inventory transported for sale at the Company’s
terminal facility includes the cost of purchased or processed sand, plus transportation related charges.

Inventory also consists of coil tubing strings of various widths, diameters and lengths that are used in providing specialized services to customers who are primarily operators of oil or gas wells. The strings are used at various rates

7

MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

based on factors such as well conditions (i.e. pressure and friction), vertical and horizontal length of the well, running speed of the string in the well, and total running feet accumulated to the string. The Company obtains usage information from data acquisition software and other established assessment methods and attempts to amortize the strings over their estimated useful life. In no event will a string be amortized over a period longer than 12 months . Amortization of coil strings is included in services cost of revenue in the Condensed Consolidated Statements of Comprehensive Loss and totaled $492,409 and $551,300 for the three months ended March 31, 2017 and 2016 , respectively.

(f) Prepaid Expenses
Prepaid expenses primarily consist of insurance costs. Insurance costs are expensed over the periods that these costs benefit.

(g) Property and Equipment
Property and equipment, including renewals and betterments, are capitalized and stated at cost, while maintenance and repairs that do not increase the capacity, improve the efficiency or safety, or improve or extend the useful life are charged to operations as incurred. Disposals are removed at cost, less accumulated depreciation, and any resulting gain or loss is recorded in operations. Depreciation is calculated using the straight-line method over the shorter of the estimated useful life, or the remaining lease term, as applicable. Depreciation does not begin until property and equipment is placed in service. Once placed in service, depreciation on property and equipment continues while being repaired, refurbished, or between periods of deployment.

(h) Sand reserves
Sand reserve costs include engineering, mineralogical studies and other related costs to develop the mine, the removal of overburden to initially expose the mineral and building access ways. Exploration costs are expensed as incurred and classified as product cost of revenue. Capitalization of mine development project costs begins once the deposit is classified as proven and probable reserves. Drilling and related costs are capitalized for deposits where proven and probable reserves exist and the activities are directed at obtaining additional information on the deposit or converting non-reserve minerals to proven and probable reserves and the benefit is to be realized over a period greater than one year. Mining property and development costs are amortized using the units-of-production method on estimated measured tons in in-place reserves. The impact of revisions to reserve estimates is recognized on a prospective basis.

(i) Long-Lived Assets
The Company reviews long-lived assets for recoverability in accordance with the provisions of Financial Accounting Standards Board ("FASB") Accounting Standard Codification (“ASC”) Topic 360, Impairment or Disposal of Long-Lived Assets , which requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Recoverability of assets is measured by comparing the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. These evaluations for impairment are significantly impacted by estimates of revenues, costs and expenses, and other factors. If long-lived assets are considered to be impaired, the impairment to be recognized is measured by the amount in which the carrying amount of the assets exceeds the fair value of the assets. For the three months ended March 31, 2017 and 2016 , no impairment losses were recognized.

(j) Goodwill
Goodwill is tested for impairment annually, or more frequently if events or changes in circumstances indicate that goodwill might be impaired. The impairment test is a two-step process. First, the fair value of each reporting unit is compared to its carrying value to determine whether an indication of impairment exists. If impairment is indicated, then the implied value of the reporting unit’s goodwill is determined by allocating the unit’s fair value to its assets and liabilities as if the reporting unit had been acquired in a business combination. The fair value of the reporting unit is determined using the discounted cash flow approach, excluding interest. The impairment for goodwill is measured as the excess of its carrying value over its implied value. Goodwill was tested for impairment as of December 31, 2016. For the three months ended March 31, 2017 and 2016 , no impairment losses were recognized.

(k) Other Non-Current Assets
Other non-current assets primarily consist of deferred financing costs on the credit facility (See Note 7) and sales tax receivables.

(l) Asset Retirement Obligation
Mine reclamation costs, future remediation costs for inactive mines or other contractual site remediation costs are accrued based on management’s best estimate at the end of each period of the costs expected to be incurred at a site. Such cost

8

MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

estimates include, where applicable, ongoing care, maintenance and monitoring costs. Changes in estimates at inactive mines are reflected in earnings in the period an estimate is revised.

(m) Business Combinations
The Company accounts for its business acquisitions under the acquisition method of accounting as indicated in FASB ASC No. 805, Business Combinations, which requires the acquiring entity in a business combination to recognize the fair value of all assets acquired, liabilities assumed and any noncontrolling interest in the acquiree and establishes the acquisition date as the fair value measurement point. Accordingly, the Company recognizes assets acquired and liabilities assumed in business combinations, including contingent assets and liabilities and noncontrolling interest in the acquiree, based on fair value estimates as of the date of acquisition. In accordance with FASB ASC No. 805, the Company recognizes and measures goodwill, if any, as of the acquisition date, as the excess of the fair value of the consideration paid over the fair value of the identified net assets acquired.

When the Company acquires a business from an entity under common control, whereby the companies are ultimately controlled by the same party or parties both before and after the transaction, it is treated for accounting purposes in a manner similar to the pooling of interest method of accounting. The assets and liabilities are recorded at the transferring entity’s historical cost instead of reflecting the fair market value of assets and liabilities.

(n) Amortizable Intangible Assets
Intangible assets subject to amortization include customer relationships and trade names. Customer relationships are amortized based on an estimated attrition factor and trade names are amortized over their estimated useful lives. For the three months ended March 31, 2017 and 2016 , no impairment losses were recognized.

(o) Fair Value of Financial Instruments
The Company's financial instruments consist of cash and cash equivalents, trade receivables, trade payables and amounts receivable or payable to related parties. The carrying amount of cash and cash equivalents, trade receivables, receivables from related parties and trade payables approximates fair value because of the short-term nature of the instruments.

(p) Revenue Recognition
The Company generates revenue from multiple sources within its operating segments. In all cases, revenue is recognized when services are performed, collection of the receivable is probable, persuasive evidence of an arrangement exists, and the price is fixed and determinable. Services are sold without warranty or right of return. Taxes assessed on revenue transactions are presented on a net basis and are not included in revenue.

Pressure pumping services are typically provided based upon a purchase order, contract, or on a spot market basis. Services are provided on a day rate, contracted, or hourly basis, and revenue is recognized as the work progresses. Jobs for these services are typically short-term in nature and range from a few hours to multiple days. Revenue is recognized upon the completion of each day’s work based upon a completed field ticket, which includes the charges for the services performed, mobilization of the equipment to the location, and personnel. Additional revenue is generated through labor charges and the sale of consumable supplies that are incidental to the service being performed. The labor charges and the use of consumable supplies are reflected on the completed field tickets.

Natural sand proppant revenues are recognized when legal title passes to the customer, which may occur at the production facility, rail origin or at the destination terminal. At that point, delivery has occurred, evidence of a contractual arrangement exists, the price is fixed and determinable, and collectability is reasonably assured. Amounts received from customers in advance of sand deliveries are recorded as deferred revenue. Customers have the ability to make up contractual short falls by achieving higher-than-contracted volumes over the shortfall window. Contractual shortfall revenue is deemed not probable until the end of the measurement period.

Well services are typically provided based upon a purchase order, contract or on a spot market basis. Services are provided on a day rate, contracted or hourly basis, and revenue is recognized as the work progresses. Jobs for these services are typically short-term in nature and range from a few hours to multiple days. Our equipment rental services are recognized upon completion of each day's work based on a completed field ticket. 

Contract drilling services are provided under daywork or footage contracts, and revenue is recognized as the work progresses based on the days completed or the feet drilled, as applicable. Mobilization revenue and costs for daywork and footage contracts are recognized over the days of actual drilling.


9

MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Directional drilling services are provided on a day rate or hourly basis, and revenue is recognized as work progresses. Proceeds from customers for the cost of equipment that is damaged or lost down-hole are reflected as service revenues as this is deemed to be perfunctory or inconsequential to the underlying service being performed.

Revenue from remote accommodation services is recognized when rooms are occupied and services have been rendered. Advance deposits on rooms and special events are deferred until services are provided to the customer. For the three months ended  March 31, 2017 , the Company recognized and collected  $918,963  in business interruption insurance proceeds which is included in Service revenue in the accompanying Condensed Consolidated Statements of Comprehensive Loss. The proceeds resulted from loss of revenue relating to wildfires that forced evacuation of personnel.

The timing of revenue recognition may differ from contract billing or payment schedules, resulting in revenues that have been earned but not billed (“unbilled revenue”). The Company had $2,880,915 and $2,744,986 of unbilled revenue included in accounts receivable, net in the Condensed Consolidated Balance Sheets at March 31, 2017 and December 31, 2016 , respectively. The Company had $11,446,153 and $10,505,240 of unbilled revenue included in receivables from related parties in the Condensed Consolidated Balance Sheets at March 31, 2017 and December 31, 2016 , respectively.

(q) Earnings per Share
Earnings per share is computed by dividing net loss by the weighted average number of outstanding shares. See Note 9.

(r) Unaudited Pro Forma Loss per Share
The Company’s pro forma basic loss per share amounts have been computed based on the weighted-average number of shares of common stock outstanding for the period, as if the common stock issued in the IPO was outstanding for the three months ended March 31, 2016. Diluted earnings per share reflects the potential dilution, using the treasury stock method. During periods in which the Company realizes a net loss, restricted stock awards would be anti-dilutive to net loss per share and conversion into common stock is assumed not to occur. See Note 9.

(s) Equity-based Compensation
The Company records equity-based payments at fair value on the date of grant, and expenses the value of these equity-based payments in compensation expense over the applicable vesting periods. See Note 10.

(t) Stock-based Compensation
The Company's stock-based compensation program consists of restricted stock units granted to employees and restricted stock units granted to non-employee directors under the Mammoth Energy Services, Inc. 2016 Incentive Plan (the "2016 Plan"). The Company recognizes in its financial statements the cost of employee services received in exchange for restricted stock based on the fair value of the equity instruments as of the grant date. In general, this value is amortized over the vesting period; for grants with a non-substantive service condition, this value is recognized immediately. Amounts are recognized in selling, general and administrative expenses. See Note 11.
(u) Income Taxes
On October 12, 2016, immediately prior to the IPO of Mammoth Inc., the Partnership converted into Mammoth LLC a limited liability company. All equity interests in Mammoth LLC were contributed to Mammoth Inc. and Mammoth LLC became a wholly owned subsidiary of Mammoth Inc. Mammoth Inc. is a C corporation under the Internal Revenue Code and is subject to income tax. Historically, each of Mammoth LLC and the Operating Entities (including the entities acquired in the Sturgeon Acquisition) other than Lodging was treated as a partnership for federal income tax purposes. As a result, essentially all taxable earnings and losses were passed through to its members, and Mammoth LLC did not pay any federal income taxes at the entity level. Mammoth Inc. owns the member interests in several single member limited liability companies. These LLCs are subject to taxation in Texas where the Company does business; therefore, the Company may provide for income taxes attributable to that state on a current basis. The income tax provision for the period before the IPO has been prepared on a separate return basis for Mammoth LLC and all of its subsidiaries that were treated as a partnership for federal income tax purposes.

Subsequent to the IPO, the Company's operations are included in a consolidated federal income tax return (with the exception of the entities acquired in the Sturgeon Acquisition) and other state returns. Accordingly, the Company has recognized deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases for all its subsidiaries as if each entity were a corporation, regardless of its actual characterization for U.S. federal income tax purposes. The Company's effective tax rate was  38.7%  for the three months ended March 31, 2017 . The Company's effective tax rate can fluctuate as a result of the impact of state income taxes, permanent differences and changes in pre-tax income.

10

MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Under FASB ASC 740, 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 statutory 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 of deferred tax assets and liabilities as a result of a change in tax rate is recognized in the period that includes the statutory enactment date. A valuation allowance for deferred tax assets is recognized when it is more likely than not that the benefit of deferred tax assets will not be realized.

The Company has included a pro forma provision for income taxes assuming it had been taxed as a C corporation in all periods prior to the conversion and contribution as part of its earnings per share calculation in Note 9. The unaudited pro forma data are presented for informational purposes only, and do not purport to project the Company's results of operations for any future period or its financial position as of any future date.

Lodging is subject to foreign income taxes, and such taxes are provided in the financial statements pursuant to FASB ASC 740, Income Taxes.

The Company evaluates tax positions taken or expected to be taken in preparation of its tax returns and disallows the recognition of tax positions that do not meet a “more likely than not” threshold of being sustained upon examination by the taxing authorities. During the three months ended March 31, 2017 and 2016 , no uncertain tax positions existed. Penalties and interest, if any, are recognized in general and administrative expense. The Company’s 2016 , 2015 , 2014 and 2013 income tax returns remain open to examination by the applicable taxing authorities.

(v) Foreign Currency Translation
For foreign operations, assets and liabilities are translated at the period-end exchange rate, and income statement items are translated at the average exchange rate for the period. Resulting translation adjustments are recorded within accumulated other comprehensive loss. Assets and liabilities denominated in foreign currencies, if any, are re-measured at the balance sheet date. Transaction gains or losses are included as a component of current period earnings.

(w) Environmental Matters
The Company is subject to various federal, state and local laws and regulations relating to the protection of the environment. Management has established procedures for the ongoing evaluation of the Company’s operations, to identify potential environmental exposures and to comply with regulatory policies and procedures. Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations and do not contribute to current or future revenue generation are expensed as incurred. Liabilities are recorded when environmental costs are probable, and the costs can be reasonably estimated. The Company maintains insurance which may cover in whole or in part certain environmental expenditures. As of  March 31, 2017 and December 31, 2016, there were no probable environmental liabilities that had a material impact to the Company’s financial position, results of operations or cash flows.

(x) Comprehensive Loss
Comprehensive loss consists of net loss and other comprehensive loss. Other comprehensive loss included certain changes in equity that are excluded from net loss. Specifically, cumulative foreign currency translation adjustments are included in accumulated other comprehensive loss.

(y) Concentrations of Credit Risk and Significant Customers
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents in excess of federally insured limits and trade receivables. The Company’s accounts receivable have a concentration in the oil and gas industry and the customer base consists primarily of independent oil and natural gas producers. At March 31, 2017 , no third-party customer accounted for more than 10% of the Company's trade accounts receivable and receivables from related parties balance combined. At March 31, 2017 and December 31, 2016 , related party customers accounted for 56% and 57% , respectively, of the Company’s trade accounts receivable and receivables from related parties balance combined. At March 31, 2017 and December 31, 2016 , one related party customer accounted for 52% and 53% , respectively, of the Company's trade accounts receivable and receivables from related parties balance combined. During the three months ended March 31, 2017 and 2016 , one related party customer accounted for 59% and 7% , respectively, of the Company's total revenue. Two third-party customers accounted for greater than 10% of the Company's total revenue for three months ended March 31, 2016 , at 37% and 19% , respectively. No third-party customer accounted for greater than 10% of the Company's total revenue for three months ended March 31, 2017 .

11

MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(z) New Accounting Pronouncements
In July 2015, the FASB issued ASU No. 2015-11, “ Inventory (Topic 330): Simplifying the Measurement of Inventory ,” which changes inventory measured using any method other than last-in, first-out (LIFO) or the retail inventory method (for example, inventory measured using first-in, first-out (FIFO) or average cost) at the lower of cost and net realizable value. ASU 2015-11 is effective for annual and interim reporting periods beginning after December 15, 2016, with early adoption permitted. On January 1, 2017, the Company adopted the ASU and it did not impact our condensed consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, “ Revenue from Contracts with Customers .” ASU 2014-09 supersedes existing revenue recognition requirements in GAAP and requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. Additionally, it requires expanded disclosures regarding the nature, amount, timing and certainty of revenue and cash flows from contracts with customers. The ASU was effective for annual and interim reporting periods beginning after December 15, 2016, using either a full or a modified retrospective application approach; however, in July 2015 the FASB decided to defer the effective date by one year (until 2018) by issuing ASU No. 2015-14, " Revenue From Contracts with Customers: Deferral of the Effective Date ." The Company expects to adopt this new revenue guidance utilizing the retrospective method of adoption in the first quarter of 2018, and because the Company is still evaluating the portion of its revenues that may be subject to the new leasing guidance discussed below, it is unable to quantify the impact that the new revenue standard will have on the Company’s consolidated financial statements upon adoption.

In February 2016, the FASB issued ASU No, 2016-2 “ Leases ” amending the current accounting for leases. Under the new provisions, all lessees will report a right-of-use asset and a liability for the obligation to make payments for all leases with the exception of those leases with a term of 12 months or less.  All other leases will fall into one of two categories: (i) a financing lease or (ii) an operating lease. Lessor accounting remains substantially unchanged with the exception that no leases entered into after the effective date will be classified as leveraged leases. For sale leaseback transactions, a sale will only be recognized if the criteria in the new revenue recognition standard are met. ASU 2016-2 is effective for fiscal years beginning after December 15, 2018, and interim periods within that fiscal year. Early adoption is permitted. Since a portion of the Company’s revenue may be subject to this new leasing guidance, it expects to adopt this updated leasing guidance at the same time its adopts the new revenue guidance discussed above, utilizing the retrospective method of adoption. This new leasing guidance will also impact the Company in situations where it is the lessee, and in certain circumstances it will have a right-of-use asset and lease liability on its consolidated financial statements. The Company is currently evaluating the effect the new guidance will have on the Company's consolidated financial statements and results of operations.

3.
Inventories
A summary of the Company's inventories is shown below:
 
 
March 31,
 
December 31,
 
 
2017
 
2016
Supplies
 
$
3,638,587

 
$
4,020,670

Raw materials
 
149,455

 
75,971

Work in process
 

 
205,450

Finished goods
 
2,309,529

 
1,822,110

Total inventory
 
$
6,097,571

 
$
6,124,201



12

MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

4.
Property, Plant and Equipment     
Property, plant and equipment include the following:
 
 
 
March 31,
 
December 31,
 
Useful Life
 
2017
 
2016
Land
 
 
$
5,040,482

 
$
5,040,482

Land improvements
15 years or life of lease
 
3,640,976

 
3,640,976

Buildings
15-39 years
 
55,102,313

 
54,833,021

Drilling rigs and related equipment
3-15 years
 
139,101,541

 
138,526,519

Pressure pumping equipment
3-5 years
 
101,580,322

 
96,500,592

Coil tubing equipment
4-10 years
 
28,006,153

 
28,019,217

Rail improvements
10-20 years
 
4,276,928

 
4,276,928

Other machinery and equipment
7-20 years
 
36,171,379

 
35,548,357

Vehicles, trucks and trailers
5-10 years
 
33,226,910

 
33,140,599

Other property and equipment
3-12 years
 
11,482,525

 
11,461,839

 
 
 
417,629,529

 
410,988,530

Deposits on equipment and equipment in process of assembly
 
 
40,036,012

 
9,427,307

 
 
 
457,665,541

 
420,415,837

Less: accumulated depreciation
 
 
192,938,099

 
178,296,174

Property, plant and equipment, net
 
 
$
264,727,442

 
$
242,119,663


Proceeds from customers for horizontal and directional drilling services equipment, damaged or lost down-hole are reflected in revenue with the carrying value of the related equipment charged to cost of service revenues and are reported as cash inflows from investing activities in the statement of cash flows. For the three months ended March 31, 2017 , proceeds from the sale of equipment damaged or lost down-hole were $347,844 and gain on sales of equipment damaged or lost down-hole was $242,723 . There were no proceeds from the sale of equipment damaged or lost down-hole for the three months ended March 31, 2016 .

A summary of depreciation, depletion, accretion and amortization expense is shown below:
 
 
Three Months Ended March 31,
 
 
2017
 
2,016
Depreciation expense
 
$
14,966,798

 
$
15,483,322

Accretion expense (see Note 2)
 
433

 

Depletion expense (see Note 2)
 
2,270

 

Amortization expense (see Note 5)
 
2,267,750

 
2,267,750

Depreciation, depletion, accretion and amortization
 
$
17,237,251

 
$
17,751,072



Deposits on equipment and equipment in process of assembly represents deposits placed with vendors for equipment that is in the process of assembly and purchased equipment that is being outfitted for its intended use. The equipment is not yet placed in service.


13

MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

5.
Goodwill and Intangible Assets
The Company had the following definite lived intangible assets recorded:
 
 
March 31,
 
December 31,
 
 
2017
 
2016
Customer relationships
 
$
33,605,000

 
$
33,605,000

Trade names
 
7,110,000

 
7,110,000

Less: accumulated amortization - customer relationships
 
19,745,228

 
17,655,228

Less: accumulated amortization - trade names
 
1,670,693

 
1,492,943

Intangible assets, net
 
$
19,299,079

 
$
21,566,829

Amortization expense for intangible assets was $2,267,750 and $2,267,750 for the three months ended March 31, 2017 and 2016 , respectively. The original life of customer relationships range from 4 to 10 years with a remaining average useful life of 3.10 years. Trade names are amortized over a 10 year useful life and as of March 31, 2017 the remaining useful life was 7.65 years.
Aggregated expected amortization expense for the future periods is expected to be as follows:
Year ended December 31:
 
Amount
Remainder of 2017
 
$
6,803,254

2018
 
8,224,005

2019
 
738,504

2020
 
738,504

2021
 
732,752

Thereafter
 
2,062,060

 
 
$
19,299,079


Goodwill was $88,726,875 at March 31, 2017 and December 31, 2016 .

6.
Accrued Expenses and Other Current Liabilities
Accrued expense and other current liabilities included the following:
 
 
March 31,
 
December 31,
 
 
2017
 
2016
Accrued compensation, benefits and related taxes
 
$
2,812,176

 
$
2,432,093

Financed insurance premiums
 
3,022,422

 
3,293,859

State and local taxes payable
 
319,868

 
319,597

Insurance reserves
 
1,173,705

 
971,351

Other
 
1,720,957

 
1,529,298

Total
 
$
9,049,128

 
$
8,546,198


Financed insurance premiums are due in monthly installments, bear interest at rates ranging from 1.79% to 5.00% , are unsecured, and mature within the twelve month period following the close of the year.
7.
Debt
Mammoth Credit Facility

On November 25, 2014, Mammoth entered into a revolving credit and security agreement with a syndicate of banks that provides for maximum borrowings of $170 million . The facility, as amended in connection with the IPO, matures on

14

MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

November 25, 2019. Borrowings under this facility are secured by the assets of Mammoth, inclusive of the subsidiary companies. The maximum availability of the facility is subject to a borrowing base calculation prepared monthly. Concurrent with the execution of the facility, the initial advance was used to repay all the debt of the Company then outstanding. Interest is payable monthly at a base rate set by the institution’s commercial lending group plus an applicable margin. Additionally, at the Company's request, outstanding balances are permitted to be converted to LIBOR rate plus applicable margin tranches at set increments of $500,000 . The LIBOR rate option allows the Company to select interest periods from one, two, three or six months. The applicable margin for either the base rate or the LIBOR rate option can vary from 1.5% to 3.0% , based upon a calculation of the excess availability of the line as a percentage of the maximum credit limit. The deferred loan costs associated with this facility are classified in other non-current assets.

At March 31, 2017 , the facility was undrawn and had borrowing base availability of $144,149,393 .

At December 31, 2016 , the facility was undrawn and had borrowing base availability of $146,181,002 .

The Mammoth facility also contains various customary affirmative and restrictive covenants. Among the various covenants are specifically identified financial covenants placing requirements of a minimum interest coverage ratio ( 3.0 to 1.0), maximum leverage ratio ( 4.0 to 1.0), and minimum availability ( $10 million ). As of March 31, 2017 and December 31, 2016 , the Company was in compliance with its covenants under the facility.

Sturgeon Credit Facility

On June 30, 2015, Sturgeon entered into a $25.0 million revolving line of credit (“the Sturgeon revolver”). Advances under the Sturgeon revolver bear interest at 2% plus the greater of (a) the Base Rate as set by the lender's commercial lending group, (b) the sum of the Federal Funds Open Rate plus one half of one percent, or (c) the sum of the Daily LIBOR rate. Additionally, at Sturgeon’s request, advances may be obtained at LIBOR plus 3% . The LIBOR rate option allows Sturgeon to select interest periods from one, two, three, or six month LIBOR futures spot rates. All outstanding principal and interest are due on the June 30, 2018 maturity date. As of March 31, 2017 and December 31, 2016, there were no outstanding borrowings under the revolver, and availability for future borrowings was $19,149,542 and $18,173,371 , respectively.

The facility contains various customary affirmative and restrictive covenants. Among the covenants are financial covenants, including a minimum fixed charge coverage ratio ( 3.5 to 1.0) and a minimum availability block ( $5.0 million ). The Company was not in compliance with its fixed charge coverage ratio covenant at March 31, 2017 and December 31, 2016, however the Sturgeon revolver was undrawn on that date. The Company was in compliance with all other covenants at March 31, 2017 and December 31, 2016.

The Sturgeon revolver was terminated on June 6, 2017 in connection with the Sturgeon Acquisition.

8.
Income Taxes
As discussed in Note 1, the Partnership was converted into a limited liability company on October 12, 2016 and the membership interests in the limited liability company were contributed to the Company. As a result, the Company will file a consolidated return for the period October 12, 2016 through December 31, 2016 . Prior to the conversion, the Partnership, other than Lodging, was not subject to corporate income taxes.

The components of income tax expense (benefit) attributable to the Company for the three months ended March 31, 2017 and 2016 , are as follows:
 
 
Three Months Ended March 31,
 
 
2017
 
2016
U.S. deferred income tax benefit
 
$
(3,685,381
)
 
$

Foreign current income tax expense
 
585,467

 
894,360

Foreign deferred income tax benefit
 
(6,151
)
 

Total
 
$
(3,106,065
)
 
$
894,360



15

MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

A reconciliation of the statutory federal income tax amount to the recorded expense is as follows:
 
 
Three Months Ended March 31,
 
 
2017
 
2016
Loss before income taxes
 
$
(8,087,344
)
 
$
(22,470,609
)
Statutory income tax rate
 
35
%
 
35
%
Expected income tax benefit
 
(2,830,570
)
 
(7,864,713
)
Non-taxable entity
 
15,667

 
9,042,878

Other permanent differences
 
14,063

 
6,793

State tax benefit
 
(452,372
)
 
(2,055
)
Foreign tax credit
 
(698,289
)
 

Foreign earnings not in book income
 
1,046,248

 

Foreign income tax rate differential
 
(174,511
)
 
(270,813
)
Other
 
(26,301
)
 
(17,730
)
Total
 
$
(3,106,065
)
 
$
894,360


Deferred tax assets and liabilities attributable to the Company consisted of the following:
 
 
March 31,
 
December 31,
 
 
2017
 
2016
Deferred tax assets:
 
 
 
 
Allowance for doubtful accounts
 
$
1,891,392

 
$
1,892,761

Net operating loss carryforward
 
2,280,696

 

Deferred stock compensation
 
1,697,536

 
1,686,671

Accrued liabilities
 
601,449

 
746,132

Other
 
1,765,362

 
1,785,999

Deferred tax assets
 
8,236,435

 
6,111,563

 
 
 
 
 
Deferred tax liabilities:
 
 
 
 
Property and equipment
 
$
(40,901,822
)
 
$
(42,525,793
)
Intangible assets
 
(6,890,355
)
 
(7,662,590
)
Unrepatriated foreign earnings
 
(4,244,437
)
 
(3,451,110
)
Other
 
(80,833
)
 
(142,859
)
Deferred tax liabilities
 
(52,117,447
)
 
(53,782,352
)
Net deferred tax liability
 
$
(43,881,012
)
 
$
(47,670,789
)
 
 
 
 
 
Reflected in accompanying balance sheet as:
 
 
 
 
Deferred income taxes
 
$
(43,881,012
)
 
$
(47,670,789
)

9.
Earnings Per Share
Common Stock Offering

On October 14, 2016, Mammoth Inc.’s common stock began trading on The Nasdaq Global Select Market under the symbol “TUSK.” On October 19, 2016, the Company closed the IPO of 7,750,000 shares of common stock at $15.00 per share. Net proceeds to Mammoth Inc. from its sale of 7,500,000 shares of common stock were approximately $103.1 million .


16

MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The authorized capital stock of the Company consists of  200 million  shares of common stock, par value  $0.01  per share, and 20 million shares of preferred stock, par value $0.01 per share.

Earnings Per Share

In connection with the contribution of Operating Entities to the Partnership in November 2014, the Partnership issued an aggregate of 30,000,000 common units to Mammoth Holdings, Gulfport and Rhino. Upon the conversion of the Partnership into Mammoth LLC, a limited liability company, in October 2016, the common units were converted into an equal number of membership interests in Mammoth LLC. Finally, when Mammoth Holdings, Gulfport and Rhino contributed their 30,000,000 membership interests in Mammoth LLC to the Company in connection with the IPO, the Company issued to them an aggregate of 30,000,000 shares of the Company's common stock. Accordingly, for purposes of comparability of earnings per equity security, the amount of outstanding equity was the same for all periods presented.
 
 
Three Months Ended March 31,
 
 
2017
 
2016
Basic loss per share:
 
 
 
 
Allocation of earnings:
 
 
 
 
Net loss
 
$
(4,981,279
)
 
$
(23,364,969
)
Weighted average common shares outstanding
 
37,500,000

 
30,000,000

Basic loss per share
 
$
(0.13
)
 
$
(0.78
)
 
 
 
 
 
Diluted loss per share:
 
 
 
 
Allocation of earnings:
 
 
 
 
Net loss
 
$
(4,981,279
)
 
$
(23,364,969
)
Weighted average common shares, including dilutive effect (a)
 
37,500,000

 
30,000,000

Diluted loss per share
 
$
(0.13
)
 
$
(0.78
)
(a)  
No incremental shares of potentially dilutive restricted stock awards were included for periods presented as their effect was antidulitive under the treasury stock method.

Unaudited Pro Forma Earnings Per Share

The Company’s pro forma basic earnings per share amounts have been computed based on the weighted-average number of shares of common stock outstanding for the period, as if the shares of common stock issued upon the conversion and contribution of Mammoth LLC to Mammoth Inc. were outstanding for the entire year. A reconciliation of the components of pro forma basic and diluted earnings per common share is presented in the table below:

17

MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 
 
Three Months Ended
 
 
March 31, 2016
Pro Forma C Corporation Data (unaudited):
 
 
Net loss, as reported
 
$
(23,364,969
)
Pro forma benefit for income taxes
 
(1,776,580
)
Pro forma net loss
 
(21,588,389
)
 
 
 
Basic loss per share:
 
 
Allocation of earnings:
 
 
Net loss
 
$
(21,588,389
)
Weighted average common shares outstanding
 
43,107,452

Basic loss per share
 
$
(0.50
)
 
 
 
Diluted loss per share:
 
 
Allocation of earnings:
 
 
Net loss
 
$
(21,588,389
)
Weighted average common shares, including dilutive effect (a)
 
43,107,452

Diluted loss per share
 
$
(0.50
)
(a)  
No incremental shares of potentially dilutive restricted stock awards were included for periods presented as their effect was antidulitive under the treasury stock method.

Pro forma basic and diluted loss per share has been computed by dividing pro forma net loss attributable to the Company by the number of shares of common stock determined as if the shares of common stock issued were outstanding for all periods presented. Management believes that these assumptions provide a reasonable basis for presenting the pro forma effects.

10.
Equity Based Compensation
Upon formation of certain Operating Entities, specified members of management (“Specified Members”) were granted the right to receive distributions from their respective Operating Entity, after the contribution member’s unreturned capital balance was recovered (referred to as “Payout” provision). Additionally, non-employee members were included in the award class (“Non-Employee Members”).

On November 24, 2014, the awards were modified in conjunction with the contribution of the Operating Entities to Mammoth. Awards are not granted in limited or general partner units. Agreements are for interest in the distributable earnings of Mammoth Holdings, Mammoth’s majority equity holder.

On the IPO closing date, Mammoth Holdings unreturned capital balance was not fully recovered from its sale of common stock in the IPO. As a result, Payout did not occur and no compensation cost was recorded. Future offerings or sales of common stock to recover outstanding unreturned capital remain not probable.

Payout is expected to occur following the sale by Mammoth Holdings of its shares of the Company's common stock, which is considered not probable until the event occurs. Therefore, for the awards that contained the Payout provision, no compensation cost was recognized as the distribution rights do not vest until Payout is reached. For the Specified Member awards, the unrecognized amount, which represents the fair value of the award as of the modification dates or grant date, was $5,618,552 . For the Non-Employees Member awards, the unrecognized cost, which represents the fair value of the awards as of March 31, 2017 was $48,061,841 .




18

MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

11.
Stock Based Compensation

The 2016 Plan authorizes the Company's Board of Directors or the compensation committee of the Company's Board of Directors to grant restricted stock, restricted stock units, stock appreciation rights, stock options and performance awards. There are 4.5 million  shares of common stock reserved for issuance under the 2016 Plan.

Restricted Stock Units

The fair value of restricted stock unit awards was determined based on the fair market value of the Company's common stock on the date of the grant. This value is amortized over the vesting period.

A summary of the status and changes of the unvested shares of restricted stock under the 2016 Plan is presented below.
 
 
Number of Unvested Restricted Shares
 
Weighted Average Grant-Date Fair Value
 
Unvested shares as of January 1, 2017
 
282,780

 
$
14.98

 
Granted
 
379,444

 
21.13

 
Vested
 

 

 
Forfeited
 
(4,444
)
 
15.00

 
Unvested shares as of March 31, 2017
 
657,780

 
$
18.53

 

As of  March 31, 2017 , there was  $11,324,218  of total unrecognized compensation cost related to the unvested restricted stock. The cost is expected to be recognized over a weighted average period of approximately  thirty-three months .

Included in cost of revenue and selling, general and administrative expenses is stock-based compensation expense of  $569,831 for the three months ended  March 31, 2017 .

12.
Sturgeon Acquisition
On March 20, 2017, and as amended on May 12, 2017, the Company entered into a definitive contribution agreement with MEH Sub LLC, Wexford Offshore Sturgeon Corp., Gulfport, Rhino and Mammoth LLC (the “Sturgeon Contribution Agreement”). Under the Sturgeon Contribution Agreement, the Company agreed to acquire, through its wholly-owned subsidiary Mammoth LLC, all outstanding membership interests in Sturgeon, which owns all of the membership interests in Taylor Frac, Taylor RE and South River (collectively, the "Sturgeon subsidiaries"). The Sturgeon Acquisition added sand reserves, increased the Company's production capacity and provided access to the Canadian National Railway, which affords access to the Appalachian basin in support of the Company’s pressure pumping services as well as to western Canada.

The Sturgeon Acquisition closed on June 5, 2017. Pursuant to the Sturgeon Contribution Agreement, Mammoth issued 5,607,452 shares of its common stock, par value $0.01 per share, for all outstanding equity interests in Sturgeon. Based upon a closing price of Mammoth's common stock of  $18.50  per share on June 5, 2017, the total purchase price was $103,737,862 .

Prior to the completion of the Sturgeon Acquisition, the Company and Sturgeon were entities under common control, and in accordance with GAAP, the Company accounted for the Sturgeon Acquisition in a manner similar to the pooling of interest method of accounting. As a result of the Sturgeon Acquisition, the Company's historical financial information has been recast to combine the Consolidated Statements of Operations and the Consolidated Balance Sheets of the Company for all periods included in the accompanying financial statements with those of Sturgeon as if the combination had been in effect since Sturgeon commenced operations on September 13, 2014. Any material transactions between the Company and Sturgeon were eliminated. Sturgeon's financial results were incorporated into the Company's natural sand proppant services division.

The following table summarizes the carrying value of Sturgeon as of September 13, 2014, the date at which Sturgeon commenced operations with the acquisition of the Sturgeon subsidiaries:

19

MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 
 
Sturgeon
Cash and cash equivalents
 
$
705,638

Accounts receivable
 
7,587,298

Inventories
 
2,221,073

Other current assets
 
555,939

Property, plant and equipment
 
20,424,087

Sand reserves
 
57,420,000

Goodwill
 
2,683,727

Total assets acquired
 
$
91,597,762

 
 
 
Accounts payable and accrued liabilities
 
$
2,878,072

Total liabilities assumed
 
$
2,878,072

Net assets acquired
 
$
88,719,690

 
 
 
Allocation of purchase price
 
 
Carrying value of members' equity prior to Sturgeon contribution
 
$
81,738,675


13.
Related Party Transactions
Transactions between the subsidiaries of the Company and the following companies are included in Related Party Transactions: Gulfport; Grizzly Oil Sands ULC (“Grizzly”); El Toro Resources LLC ("El Toro"); Diamondback E&P LLC ("Diamondback"); Stingray Cementing LLC ("Cementing") and Stingray Energy Services LLC ("SR Energy") (collectively, the "2017 Stingray Companies"); Everest Operations Management LLC ("Everest"); Elk City Yard LLC ("Elk City Yard"); Double Barrel Downhole Technologies LLC ("DBDHT"); Orange Leaf Holdings LLC ("Orange Leaf"); Caliber Investment Group LLC ("Caliber"); and Dunvegan North Oilfield Services ULC (“Dunvegan”).
 
 
REVENUES
 
ACCOUNTS RECEIVABLE
 
 
Three Months Ended March 31,
 
At March 31,
At December 31,
 
 
2017
2016
 
2017
2016
Pressure Pumping and Gulfport
(a)
$
31,745,950

$

 
$
20,470,158

$
19,094,509

Muskie and Gulfport
(b)
11,540,419

1,918,078

 
8,109,288

5,373,007

Panther Drilling and Gulfport
(c)
1,042,377

451,875

 
1,732,263

1,434,036

Lodging and Grizzly
(d)
264

555

 
263

274

Bison Drilling and El Toro
(e)

371,873

 


Panther Drilling and El Toro
(e)

170,170

 


Bison Trucking and El Toro
(e)

130,000

 


White Wing and El Toro
(e)

20,431

 


Energy Services and El Toro
(f)
123,645


 
64,646

108,386

White Wing and Diamondback
(g)

1,650

 


The Company and 2017 Stingray Companies
(h)
44,206


 
1,865,677

1,363,056

Panther and DBDHT
(i)
5,215


 
86,015

100,450

Other Relationships
 


 
105,077

115,565

 
 
$
44,502,076

$
3,064,632

 
$
32,433,387

$
27,589,283

a.
Pressure Pumping provides pressure pumping, stimulation and related completion services to Gulfport.
b.
Muskie has agreed to sell and deliver, and Gulfport has agreed to purchase, specified annual and monthly amounts of natural sand proppant, subject to certain exceptions specified in the agreement, and pay certain costs and expenses.
c.
Panther Drilling performs drilling services for Gulfport pursuant to a master service agreement.
d.
Lodging provides remote accommodation and food services to Grizzly, an entity owned approximately 75% by affiliates of Wexford and approximately 25% by Gulfport.
e.
The contract land and directional drilling segment provides services for El Toro, an entity controlled by Wexford, pursuant to a master service
agreement.
f.
Energy Services performs completion and production services for El Toro pursuant to a master service agreement.
g.
White Wing provides rental services to Diamondback.
h.
The Company provided certain services to the 2017 Stingray Companies.
i.
Panther provides services and materials to DBDHT.

20

MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 
 
COST OF REVENUE
 
ACCOUNTS PAYABLE
 
 
Three Months Ended March 31,
 
At March 31,
At December 31,
 
 
2017
2016
 
2017
2016
Panther and DBDHT
(a)
$
127,720

$
46,554

 
$
115,661

$

Bison Trucking and Diamondback
(b)
38,132

41,627

 
10,187


Energy Services and Elk City Yard
(c)
26,700

26,700

 


The Company and 2017 Stingray Companies
(d)
237,365

2,165

 
408,458

174,145

Lodging and Dunvegan
(e)


 

3,199

Bison Trucking and El Toro
(f)


 
79


 
 
$
429,917

$
117,046

 
$
534,385

$
177,344

 
 
 
 
 
 
 
 
 
SELLING, GENERAL AND ADMINISTRATIVE COSTS
 
 
 
Consolidated and Everest
(g)
$
58,313

$
72,324

 
$
16,798

$
12,668

Consolidated and Wexford
(h)
233,880

35,921

 
109,065

13,197

Mammoth and Orange Leaf
(i)
29,510


 


Lodging and Dunvegan
(e)
2,551


 
886


 
 
$
324,254

$
108,245

 
$
126,749

$
25,865

 
 
 
 
 
$
661,134

$
203,209

a.
Panther rents rotary steerable equipment in connection with its directional drilling services from DBDHT.
b.
Bison Trucking leases office space from Diamondback in Midland, Texas. The office space is leased through early 2017.
c.
Energy Services leases property from Elk City Yard.
d.
The 2017 Stingray Companies provided certain services to the Company and, from time to time, the 2017 Stingray Companies paid for goods and services on behalf of the Company.
e.
Dunvegan provides technical and administrative services and pays for goods and services on behalf of Lodging.
f.
Bison Drilling leases space from El Toro for storage of a rig.
g.
Everest has historically provided office space and certain technical, administrative and payroll services to the Company and the Company has
reimbursed Everest in amounts determined by Everest based on estimates of the amount of office space provided and the amount of
employees’ time spent performing services for the Company. In 2014, Everest provided personnel to support operational functions in addition
to significant technical and advisory support.
h.
Wexford provides certain administrative and analytical services to the Company and, from time to time, the Company pays for goods and
services on behalf of Wexford.
i.
Orange Leaf leases office space to Mammoth Inc.

14.
Commitments and Contingencies
Lease Obligations

The Company leases real estate, rail cars and other equipment under long-term operating leases with varying terms and expiration dates through 2025.

Minimum Purchase Commitments

We have entered into agreements with sand suppliers that contain minimum purchase obligations. Our failure to purchase
the minimum tonnage would require us to pay shortfall fees. However, the minimum quantities set forth in the agreements
are not in excess of our currently expected future requirements.

Capital Spend Commitments

The Company has entered into agreements with suppliers to acquire capital equipment.

Aggregate future minimum payments under these obligations in effect at March 31, 2017 are as follows:

21

MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31:
 
Operating Leases
 
Capital Spend Commitments
 
Minimum Purchase Commitments
Remainder of 2017
 
$
7,014,543

 
$
20,978,150

 
$
11,165,848

2018
 
7,094,517

 

 
10,866,000

2019
 
6,338,076

 

 
10,866,000

2020
 
4,381,839

 

 

2021
 
2,948,334

 

 

Thereafter
 
6,092,296

 

 

 
 
$
33,869,605

 
$
20,978,150

 
$
32,897,848


For the three months ended March 31, 2017 and 2016 , the Company recognized rent expense of $1,960,107 and $1,996,377 , respectively.

The Company has various letters of credit totaling $454,560 to secure rail car lease payments. These letters of credit were issued under the Company's revolving credit agreement and are collateralized by substantially all of the assets of the Company.

On March 31, 2017 , the Company entered into a five year office lease agreement with Caliber Investment Group LLC, an affiliate of Wexford. The aggregate minimum lease payments under this agreement are $2.6 million .

In the fourth quarter of 2016 and first quarter of 2017, we entered into agreements to acquire new high pressure fracturing units and other capital equipment. The future commitments under these agreements were $21.0 million as of March 31, 2017 .

The Company has insurance coverage for physical loss to its assets, employer’s liability, automobile liability, commercial general liability, workers’ compensation and insurance for other specific risks. The Company has also elected in some cases to accept a greater amount of risk through increased deductibles on certain insurance policies.  As of March 31, 2017 and December 31, 2016 , the policy requires a per deductible per occurrence of $250,000 . The Company establishes liabilities for the unpaid deductible portion of claims incurred relating to workers’ compensation and auto liability based on estimates. As of March 31, 2017 and December 31, 2016 , the policies contained an aggregate stop loss of $2,000,000 . As of March 31, 2017 and December 31, 2016 , accrued claims were $1,173,705 and $971,351 , respectively. The Company also self-insures its employee health insurance. The Company has coverage on its self-insurance program in the form of a stop loss of $150,000 and an aggregate stop-loss of $5,799,991 per calendar year. In connection with the insurance programs, letters of credit of $1,636,000 as of March 31, 2017 and December 31, 2016 , have been issued supporting the retained risk exposure.  As of March 31, 2017 and December 31, 2016 , in connection with environmental remediation programs, letters of credit of $1,375,342 had been issued supporting the retained risk exposure. As of both March 31, 2017 and December 31, 2016 , these letters of credit were collateralized by substantially all of the assets of the Company.

On March 20, 2017, as amended and restated on May 12, 2017 , the Company entered into definitive agreements (the "Contribution Agreements") with affiliates of Wexford, Gulfport and Rhino to acquire Sturgeon Acquisitions LLC (which owned Taylor, Taylor Real Estate Investments, LLC and South River Road, LLC), SR Energy and Cementing for 7,000,000 of its common stock. Based upon the closing price of Mammoth's common stock of  $19.06  per share on March 20, 2017, the total purchase price was valued at approximately $133.4 million . These acquisitions closed on June 5, 2017.

On March 27, 2017, the Company, as purchaser, entered into a definitive asset purchase agreement with Chieftain Sand and Proppant, LLC and Chieftain Sand and Proppant Barron, LLC, unrelated third party sellers (the “Sellers”), following the Company’s successful bid in a bankruptcy court auction for substantially all of the assets of the Sellers for $36.3 million (the “Chieftain Acquisition”). The Chieftain Acquisition closed on May 26, 2017. The Company funded the purchase price for the Chieftain Acquisition with cash on hand and borrowings under its revolving credit facility.

The Company is routinely involved in state and local tax audits. During 2015, the State of Ohio assessed taxes on the purchase of equipment the Company believes is exempt under state law. The Company has appealed the assessment and a hearing was scheduled for November 30, 2016. In November 2016, the State of Ohio deferred the hearing until 2017.

22

MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

While the Company is not able to predict the outcome of the appeal, this matter is not expected to have a material adverse effect on the financial position or results of operations of the Company.

On March 16, 2016, a putative and collective action lawsuit alleging that Coil Tubing failed to pay a class of workers in compliance with the Fair Labor Standards Act was filed titled Rusty Hale, individually and on behalf of all others similarly situated v. Redback Energy Services LLC in the U.S. District Court for the Western District of Oklahoma. On March 28, 2017, the Company settled this matter. This resolution did not have a material impact on the Company’s financial position, results of operations or cash flows.

On June 3, 2015, a putative class and collective action lawsuit alleging that Pressure Pumping failed to pay a class of workers overtime in compliance with the Fair Labor Standards Act and Ohio law was filed titled William Crigler, et al v. Stingray Pressure Pumping, LLC in the U.S. District Court Southern District of Ohio Eastern Division. The parties have reached a settlement of this matter which received final approval from the court in August 2017. The settlement is expected to be payable in 2017. This settlement will not have a material impact on the Company’s financial position, results of operations or cash flows.

On October 12, 2015, a putative class and collective action lawsuit alleging that Energy Services failed to pay a class of workers overtime in compliance with the Fair Labor Standards Act and Oklahoma law was filed titled William Reynolds, individually and on behalf of all others similarly situated v. Redback Energy Services LLC in the U.S. District Court for the Western District of Oklahoma. In March 2017, the parties reached a settlement of this matter and filed a joint motion with the court to approve this settlement, which was granted. This settlement will not have a material impact on the Company’s financial position, results of operations or cash flows.

On December 2, 2015, a putative class and collective action lawsuit alleging that Bison Drilling failed to pay a class of workers overtime in compliance with the Fair Labor Standards Act and Texas law was filed titled John Talamentez, individually and on behalf of all others similarly situated v. Bison Drilling and Field Services, LLC in the U.S. District Court Western District of Texas Midland/Odessa Division. The Company is evaluating the background facts and at this time is not able to predict the outcome of this lawsuit or whether it will have a material impact on the Company’s financial position, results of operations or cash flows.

On February 12, 2016, a putative lawsuit alleging that Energy Services failed to pay a class of workers in compliance with the Fair Labor Standards Act was filed titled Brian Croniser vs. Redback Energy Services LLC in the U.S. District Court Southern District of Ohio. On February 17, 2017, the Company settled this matter and the lawsuit has been dismissed. This resolution did not have a material impact on the Company’s financial position, results of operations or cash flows.

On June 22, 2016, a putative, Title VII discrimination, and Oklahoma anti-discrimination lawsuit alleging that Redback Energy Services was in violation of the previously mentioned federal and state laws. The lawsuit was filed titled Earl Richardson and Keary Johnson v. Redback Energy Services LLC in the U.S. District Court for the Western District of Oklahoma. The Company is evaluating the background facts at this time and is not able to predict the outcome of this lawsuit or whether it will have a material impact on the Company’s financial position, results of operations or cash flows.

On August 1, 2016, a putative class and collective action lawsuit alleging that Energy Services failed to pay a class of workers overtime in compliance with the Fair Labor Standards Act and Texas law was filed titled Michael Caffey, individually and on behalf of all others similarly situated v. Redback Energy Services LLC in the U.S. District Court for the Western District of Texas. The Company is evaluating the background facts and at this time is not able to predict the outcome of this lawsuit or whether it will have a material impact on the Company’s financial position, results of operations or cash flows.

On September 27, 2016, a putative lawsuit alleging that Energy Services failed to pay a class of workers in compliance with the Fair Labor Standards Act was filed titled Michael Drake vs. Redback Coil Tubing LLC, et al in the U.S. District Court Western District of Texas. The Company is evaluating the background facts at this time. The parties have agreed to stay discovery while they engage in settlement discussions. The Company is not able to predict the outcome of this lawsuit or whether it will have a material impact on the Company’s financial position, results of operations or cash flows.

On January 26, 2017, a collective action lawsuit alleging that Pressure Pumping failed to pay a class of workers in compliance with the Fair Labor Standards Act was filed titled Ryan Crosby vs. Stingray Pressure Pumping, in the United Stated District Court for the Southern District of Ohio Eastern Division. The Company is evaluating the background facts

23

MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

at this time and is not able to predict the outcome of this lawsuit or whether it will have a material impact on the Company’s financial position, results of operations or cash flows.

The Company is involved in various other legal proceedings in the ordinary course of business. Although the Company cannot predict the outcome of these proceedings, legal matters are subject to inherent uncertainties and there exists the possibility that the ultimate resolution of these matters could have a material adverse effect on the Company's business, financial condition, results of operations or cash flows.

Defined contribution plan

The Company sponsors a 401(k) defined contribution plan for the benefit of substantially all employees at their date of hire. The plan allows eligible employees to contribute up to 92% of their annual compensation, not to exceed annual limits established by the federal government. The Company makes discretionary matching contributions of up to 4% of an employee’s compensation and may make additional discretionary contributions for eligible employees. For the three months ended March 31, 2017 and 2016 , the Company paid $0 and $67,171 , respectively, in contributions to the plan.

15.
Operating Segments
The Company is organized into five reportable segments based on the nature of services provided and the basis in which management makes business and operating decisions. The Company principally provides energy services in connection with on-shore drilling of oil and natural gas wells for small to large domestic independent oil and nature gas producers. The Company’s five segments consist of pressure pumping services ("Pressure Pumping Services"), well services ("Well Services"), natural sand proppant ("Sand"), contract land and directional drilling services ("Drilling") and other energy services ("Other Energy Services").

The Company's Chief Executive Officer and Chief Financial Officer comprise the Company's Chief Operating Decision Maker function ("CODM"). Segment information is prepared on the same basis that the CODM manages the segments, evaluates the segment financial statements, and makes key operating and resource utilization decisions. Segment evaluation is determined on a quantitative basis based on a function of revenue and earnings before interest, other expense (income), impairment, taxes and depreciation and amortization as well as a qualitative basis, such as nature of the product and service offerings, types of customers.

Based on the CODM's assessment, effective December 31, 2016, the Company reorganized the reportable segments to align with its new management reporting structure and business activities. Prior to this reorganization, the existing reportable segments were comprised of four segments for financial reporting purposes: land and directional drilling services, completion and production services, completion and production - natural sand proppant and remote accommodation services. As a result of this change, there are five reportable segments for financial reporting purposes as described above. Historical information in this Note to the financial statements has been revised to reflect the new reportable segment.

The following table sets forth certain financial information with respect to the Company’s reportable segments:

24

MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 
Completion and Production
 
 
 
 
Three Months Ended March 31, 2017
Pressure Pumping Services
Well Services
Sand
Drilling
Other Energy Services
Total
Revenue from external customers...
$
8,691,647

$
3,190,132

$
3,372,063

$
9,703,397

$
5,506,706

$
30,463,945

Revenue from related parties..........
$
31,760,906

$
152,895

$
11,540,419

$
1,047,592

$
264

$
44,502,076

Cost of revenue..............................
$
28,707,440

$
3,799,776

$
12,607,265

$
10,953,423

$
2,430,082

$
58,497,986

Selling, general and administrative expenses...............................................
$
1,774,926

$
972,405

$
2,057,553

$
1,295,024

$
636,890

$
6,736,798

Earnings before interest, other expense, taxes and depreciation and amortization............
$
9,970,187

$
(1,429,154
)
$
247,664

$
(1,497,458
)
$
2,439,998

$
9,731,237

Other expense .......................
$
2,631

$
1,182

$
14,207

$
163,785

$
2,341

$
184,146

Interest expense..............................
$
128,444

$
(105,902
)
$
132,639

$
217,182

$
24,821

$
397,184

Depreciation and amortization.......
$
9,157,893

$
1,208,241

$
1,362,965

$
4,968,628

$
539,524

$
17,237,251

Income tax provision.....................
$

$
(3,691,532
)
$

$

$
585,467

$
(3,106,065
)
Net income (loss)..........................
$
681,219

$
1,158,857

$
(1,262,147
)
$
(6,847,053
)
$
1,287,845

$
(4,981,279
)
Total expenditures for property, plant and equipment.................
$
28,665,309

$

$
174,513

$
2,269,277

$
593

$
31,109,692

At March 31, 2017
 
 
 
 
 
 
Goodwill.......................................
$
86,043,148

$

$
2,683,727

$

$

$
88,726,875

Intangible assets, net.....................
$
19,174,183

$
124,896

$

$

$

$
19,299,079

Total assets...................................
$
228,631,538

$
47,104,529

$
111,028,954

$
97,838,858

$
30,818,616

$
515,422,495

 
Completion and Production
 
 
 
 
Three Months Ended March 31, 2016
Pressure Pumping Services
Well Services
Sand
Drilling
Other Energy Services
Total
Revenue from external customers...
$
12,294,529

$
2,698,592

$
1,281,745

$
5,257,738

$
7,985,623

$
29,518,227

Revenue from related parties..........
$

$

$
1,918,078

$
1,145,999

$
555

$
3,064,632

Cost of revenue..............................
$
11,531,886

$
3,927,709

$
6,180,754

$
7,208,657

$
3,542,170

$
32,391,176

Selling, general and administrative expenses...............................................
$
526,175

$
573,296

$
601,267

$
1,302,473

$
610,663

$
3,613,874

Earnings before interest, other (income) expense, taxes and depreciation and amortization.......
$
236,468

$
(1,802,413
)
$
(3,582,198
)
$
(2,107,393
)
$
3,833,345

$
(3,422,191
)
Other (income) expense .......................
$
(19,208
)
$
9,400

$
19,182

$
(10,074
)
$
1,690

$
990

Interest expense..............................
$
237,055

$
98,319

$
104,461

$
852,574

$
3,947

$
1,296,356

Depreciation and amortization.......
$
8,955,217

$
1,397,507

$
1,368,517

$
5,507,381

$
522,450

$
17,751,072

Income tax provision.....................
$

$

$

$

$
894,360

$
894,360

Net (loss) income..........................
$
(8,936,596
)
$
(3,307,639
)
$
(5,074,358
)
$
(8,457,274
)
$
2,410,898

$
(23,364,969
)
Total expenditures for property, plant and equipment.................
$
30,695

$

$
97,425

$
264,171

$
147,631

$
539,922

At March 31, 2016
 
 
 
 
 
 
Goodwill.......................................
$
86,043,148

$

$
2,683,727