PLATINUM ENERGY RESOURCES, INC./MAVERICK ENGINEERING, INC.
FOR THE YEAR ENDED DECEMBER 31, 2007 AND AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 2008
On March 18, 2008, Platinum Energy Resources, Inc. and predecessor (“Platinum”), Maverick Engineering Resources, Inc. (“Maverick”) and Robert L. Kovar Services, LLC (the “Sellers”) (as the representative of the selling equity stake holders in Maverick) entered into an Agreement and Plan of Merger (“Merger Agreement”) pursuant to which Platinum acquired Maverick (the “Merger”) for a gross purchase price of $11 million, subject to a working capital purchase price adjustment, with $6 million paid at closing and the remaining $5 million to be paid over the next 6 years pursuant to a non-interest bearing note (the “Cashflow Notes”). Established in 1993, Maverick is a full-service engineering service company with 270 employees including a staff of 70 engineers, consultants, surveyors, scientists and planners. Maverick is a provider of project management, engineering, procurement, and construction management services to both the public and private sectors. Maverick is based in South Texas with offices in Corpus Christi, Victoria and Houston. In connection with the Merger, Platinum entered into a five year employment agreement with Robert Kovar, the founder and CEO of Maverick, pursuant to which he joined Platinum as its Chief Operating Officer in addition to continuing as President of Maverick.
The following unaudited pro forma condensed combined financial statements of Platinum and Maverick are provided to assist you in your analysis of the financial aspects of the Merger.
The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2007 combines the proforma consolidated results of operations of Platinum and its predecessor company and the historical statements of operations Maverick giving effect to the Merger as if it had occurred on January 1, 2007. Reference is made to the Company’s Form 10-K/A (Amendment No. 2) for the year ended December 31, 2007, Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations, - Platinum Unaudited Pro Forma Consolidated Financial Information (page 32), for a complete description of the preparation of the unaudited proforma results of operations for Platinum and its predecessor company for the year ended December 31, 2007 which are used in this presentation.
The unaudited pro forma condensed combined balance sheet combines the historical balance sheets of Platinum and Maverick as of March 31, 2008 giving effect to the Merger as if it had occurred March 31, 2008.
The unaudited pro forma condensed combined statement of operations for the three months ended March 31, 2008 combines the historical statements of operations of Platinum and Maverick giving effect to the Merger as if it had occurred on January 1, 2008.
The pro forma adjustments give effect to events that are directly attributable to the transactions discussed below and are based on available data and certain assumptions that management believes are factually supportable. In addition, the adjustments made to the pro forma statements of operations are limited to those that have a continuing impact on the combined company.
The unaudited pro forma condensed combined financial statements described above should be read in conjunction with the historical consolidated financial statements of Platinum for the period April 25, 2005 (inception) to December 31, 2005 and the years ended December 31, 2006 and 2007 and the related notes thereto and the historical financial statements of Maverick for the years ended December 31, 2006 and 2007 and the related notes thereto, the unaudited pro forma statement of operations of Platinum and its predecessor company for the year ended December 31, 2007 and in conjunction with the unaudited historical financial statements of Platinum for the three months ended March 31, 2008 and 2007 and the related notes thereto and the unaudited historical financial statements of Maverick for the three months ended March 31, 2008 and 2007 and the related notes thereto. The financial statements of Platinum are included in its Form 10-K/A (Amendment No. 2) for the year ended December 31, 2007 and its Form 10-Q for the quarter ended March 31, 2008 filed with the Securities and Exchange Commission. The Maverick statements are included elsewhere herein. The pro forma adjustments are preliminary and the unaudited pro forma information is not necessarily indicative of the financial position or results of operations that may have actually occurred had the Merger Agreement taken place on the dates noted, or the future financial position or operating results of Platinum.
The aggregate purchase price as of March 31, 2008 for Maverick determined based upon the pro forma assumptions contained herein is as follows:
| Cash | | $ | 6,000,000 | |
| Cashflow Notes (net of $1,517,000 discount to present value) | | | 3,483,000 | |
| Estimated closing costs, principally legal | | | 200,000 | |
| Total purchase price | | $ | 9,683,000 | |
The Unaudited Pro Forma Condensed Combined Financial Statements reflect that the Merger is accounted for under the purchase method of accounting in accordance with the Statement of Financial Accounting Standard (“SFAS”) No. 141, Business Combinations. Based upon a preliminary determination, utilizing currently available information, the excess of purchase price of assets acquired over their carrying value as of March 31, 2008 has been allocated to customer contracts and relationships, executive employment and covenant not to compete and goodwill. All other assets and liabilities acquired are preliminarily estimated to be stated at their fair values, which approximates their recorded historical cost. It is contemplated that the transaction will qualify as a tax-free reorganization under Section 368(a)(1)(C) of the IRS Code. Accordingly, for income tax purposes, Platinum will assume the carryover basis of Maverick and will have no income tax deduction for the amortization of intangible assets for the difference between the amount allocated to these intangible assets and their carryover basis from Maverick or possible goodwill write-down(s) that may occur. We intend to engage a firm to prepare a final valuation of the acquired assets and liabilities. At such time as the valuation is complete, we will adjust the allocation of the purchase price among the acquired assets and assumed liabilities to reflect the final valuation as prescribed by SFAS No. 141. Accordingly, historical cost approximates fair value for these assets. The preliminary allocation of the purchase price to the acquired assets and assumed liabilities is as follows:
| Assets: | | | | |
| Current assets | | $ | 4,842,000 | |
| Property | | | 1,559,000 | |
| Intangible assets - employment agreement | | | 206,000 | |
| Intangible assets - customer contracts and relationships | | | 4,430,000 | |
| Intangible assets - covenant not to compete | | | 886,000 | |
| Goodwill | | | 6,220,000 | |
| | | $ | 18,143,000 | |
| Liabilities: | | | | |
| Current liabilities | | $ | 3,347,000 | |
| Long-term debt | | | 1,661,000 | |
| Revolving line of credit | | | 3,157,000 | |
| Capitalized lease obligations | | | 295,000 | |
| | | | 8,460,000 | |
| Net purchase price | | $ | 9,683,000 | |
