UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
___________________________________________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 2012
Commission File Number: 333-176566
________________
PLATINUM ENERGY SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
________________
|
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Nevada | 27-3401355 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
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2100 West Loop South, Suite 1400 | |
Houston, Texas | 77027 |
(Address of principal executive offices) | (Zip Code) |
713-622-7731
(Registrant’s telephone number, including area code)
________________
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| | | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o |
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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o |
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. |
Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filer ¨ | Smaller reporting company x |
|
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). |
Yes ¨ No x |
As of November 10, 2012, the issuer had 16,347,962 shares of common stock, $0.001 par value, outstanding. |
PLATINUM ENERGY SOLUTIONS, INC.
CONTENTS TO FORM 10-Q
|
| | |
| | Page |
| FINANCIAL INFORMATION | |
| FINANCIAL STATEMENTS (Unaudited) | |
| Condensed Consolidated Balance Sheets - September 30, 2012 and December 31, 2011 | |
| Condensed Consolidated Statements of Operations and Comprehensive Loss - Three and Nine Months ended September 30, 2012 and 2011 | |
| Condensed Consolidated Statements of Cash Flows - Nine Months ended September 30, 2012 and 2011 | |
| Condensed Consolidated Statements of Stockholders' Deficit - September 30, 2012 and December 31, 2011 | |
| Notes to Condensed Consolidated Financial Statements | |
| MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | |
| CONTROLS AND PROCEDURES | |
| | |
| OTHER INFORMATION | |
| LEGAL PROCEEDINGS | |
| EXHIBITS | |
| | |
| | |
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (the “Form 10-Q”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1993, and Section 21E of the Exchange Act of 1934. All statements, other than statements of historical facts, included in this Form 10-Q that address activities, events or developments that we expect, project, believe or anticipate will or may occur in the future are forward-looking statements. These forward-looking statements are based on management’s current belief, based on currently available information, as to the outcome and timing of future events. Forward-looking statements may include statements that relate to, among other things, our:
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• | future financial and operating performance and results; |
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• | business strategy and budgets; |
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• | amount, nature and timing of capital expenditures; |
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• | competition and government regulations; |
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• | operating costs and other expenses; |
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• | cash flow and anticipated liquidity; |
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• | property acquisitions and sales; and |
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• | plans, forecasts, objectives, expectations and intentions. |
All statements, other than statements of historical fact included in this Form 10-Q, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this Form 10-Q, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on our current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events.
Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from the anticipated future results or financial condition expressed or implied by the forward-looking statements. These risks, uncertainties and other factors include but are not limited to:
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• | concentration of our customer base and fulfillment of existing customer contracts; |
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• | dependence on the spending and drilling activity by the onshore oil and natural gas industry; |
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• | our ability to maintain pricing and obtain contracts; |
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• | the cyclical nature of the oil and natural gas industry; |
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• | deterioration of the credit markets; |
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• | delays in obtaining required permits; |
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• | our ability to raise additional capital to fund future capital expenditures; |
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• | increased vulnerability to adverse economic conditions due to indebtedness; |
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• | competition within the oil and natural gas industry; |
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• | asset impairment and other charges; |
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• | the potential for excess capacity in the oil and natural gas industry; |
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• | our limited operating history on which investors will evaluate our business and prospects; |
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• | our identifying, making and integrating acquisitions; |
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• | our ability to obtain raw materials and specialized equipment; |
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• | technological developments or enhancements; |
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• | management control over stockholder voting; |
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• | the ability to employ skilled and qualified workers; |
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• | work stoppages and other labor matters; |
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• | hazards inherent to the oil and natural gas industry; |
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• | inadequacy of insurance coverage for certain losses or liabilities; |
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• | regulations affecting the oil and natural gas industry; |
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• | federal legislation and state legislative and regulatory initiatives relating to hydraulic fracturing; |
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• | costs and liabilities associated with environmental, health and safety laws, including any changes in the interpretation or enforcement thereof; |
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• | future legislative and regulatory developments; |
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• | changes in trucking regulations; and |
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• | effects of climate change. |
We believe that it is important to communicate our expectations of future performance to our investors. However, events may occur in the future that we are unable to accurately predict, or over which we have no control. We caution you against putting undue reliance on forward-looking statements or projecting any future results based on such statements. When considering our forward-looking statements, you should keep in mind the cautionary statements in this Form 10-Q which provide examples of risks, uncertainties and events that may cause our actual results to differ materially from those contained in any forward-looking statement.
All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section and any other cautionary statements that may accompany such forward-looking statements. Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this Form 10-Q.
You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
PLATINUM ENERGY SOLUTIONS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS |
| | | | | | | |
| September 30, 2012 | | December 31, 2011 |
| (Unaudited) | | |
ASSETS | | | |
CURRENT ASSETS: | | | |
Cash and cash equivalents | $ | 14,287,100 |
| | $ | 10,153,313 |
|
Available for sale investment securities | — |
| | 4,951,361 |
|
Accounts receivable, net of allowance for doubtful accounts of $477,019 | 16,387,393 |
| | 29,429,194 |
|
Inventory | 5,795,941 |
| | 5,272,073 |
|
Prepayments and other current assets | 19,399,060 |
| | 7,563,820 |
|
Deferred tax asset | 191,762 |
| | 191,762 |
|
Total current assets | 56,061,256 |
| | 57,561,523 |
|
Property and equipment, net | 171,640,653 |
| | 165,297,477 |
|
Other assets | 12,038,869 |
| | 16,176,743 |
|
TOTAL ASSETS | $ | 239,740,778 |
| | $ | 239,035,743 |
|
| | | |
LIABILITIES AND STOCKHOLDERS’ DEFICIT | | | |
CURRENT LIABILITIES: | | | |
Line of credit | $ | 15,000,000 |
| | $ | 18,958,512 |
|
Accounts payable—Trade | 37,941,888 |
| | 10,837,406 |
|
Accounts payable—Capital expenditures | 18,205,973 |
| | 8,114,960 |
|
Accrued expenses | 18,601,129 |
| | 19,265,030 |
|
Deferred revenue | 6,000,000 |
| | 9,627,129 |
|
Amounts due to affiliates | — |
| | — |
|
Deferred tax liabilities | — |
| | — |
|
Total Current Liabilities | 95,748,990 |
| | 66,803,037 |
|
Long-term debt | 168,688,727 |
| | 167,689,860 |
|
Amounts due to affiliates | 9,086,749 |
| | 11,105,056 |
|
Deferred revenue | — |
| | 3,500,000 |
|
Deferred tax liabilities | 1,323,408 |
| | 1,562,942 |
|
TOTAL LIABILITIES | $ | 274,847,874 |
| | $ | 250,660,895 |
|
STOCKHOLDERS’ DEFICIT | | | |
Preferred stock Series A, $0.001 par value; authorized 20,000 shares; | | | |
20,000 and 20,000 shares issued and outstanding, respectively | $ | 20 |
| | $ | 20 |
|
Preferred stock Series B, $0.001 par value; authorized 13,500 shares; | | | |
13,500 and zero shares issued and outstanding, respectively | 14 |
| | — |
|
Common stock, $0.001 par value; authorized 99,996,000; | | | |
16,347,962 and 15,535,229 shares issued and outstanding, respectively | 16,348 |
| | 15,535 |
|
Additional paid in capital | 39,416,893 |
| | 25,240,012 |
|
Accumulated other comprehensive income | — |
| | 35,434 |
|
Accumulated deficit | (77,151,966 | ) | | (39,782,294 | ) |
Total stockholders’ deficit | (37,718,691 | ) | | (14,491,293 | ) |
Noncontrolling interest | 2,611,595 |
| | 2,866,141 |
|
Total Platinum stockholders’ deficit | (35,107,096 | ) | | (11,625,152 | ) |
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | 239,740,778 |
| | $ | 239,035,743 |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
PLATINUM ENERGY SOLUTIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited) |
| | | | | | | |
| Three Months Ended | | Three Months Ended |
| September 30, 2012 | | September 30, 2011 |
Revenue | $ | 36,623,590 |
| | $ | 8,774,270 |
|
Cost of services | (32,985,129 | ) | | (8,588,352 | ) |
Depreciation | (5,233,859 | ) | | (2,445,874 | ) |
General and administrative expense | (2,434,488 | ) | | (3,757,713 | ) |
Loss on disposal of assets | (189,290 | ) | | — |
|
Loss from operations | $ | (4,219,176 | ) | | $ | (6,017,669 | ) |
Interest expense, net | (7,492,252 | ) | | (5,042,544 | ) |
Loss before income tax | $ | (11,711,428 | ) | | $ | (11,060,213 | ) |
Income tax benefit | 255,402 |
| | 114,190 |
|
Net loss | $ | (11,456,026 | ) | | $ | (10,946,023 | ) |
Loss attributable to noncontrolling interests | (95,072 | ) | | (137,461 | ) |
Net loss attributable to Platinum | $ | (11,360,954 | ) | | $ | (10,808,562 | ) |
| | | |
Earnings Per Share: | | | |
Net loss attributable to Platinum - Basic and diluted | $ | (0.73 | ) | | $ | (0.78 | ) |
| | | |
Weighted average shares - Basic and diluted | 15,797,110 |
| | 13,788,769 |
|
| | | |
Other comprehensive loss, before tax: | | | |
Unrealized loss on investment securities, before tax | — |
| | 18,495 |
|
Income tax benefit related to other comprehensive loss | — |
| | — |
|
Other comprehensive loss, net of tax | — |
| | 18,495 |
|
Comprehensive loss, net of tax | (11,456,026 | ) | | (10,927,528 | ) |
Less: comprehensive loss attributable to the noncontrolling interest | $ | (95,072 | ) | | $ | (137,461 | ) |
Comprehensive loss attributable to Platinum | $ | (11,360,954 | ) | | $ | (10,790,067 | ) |
The accompanying notes are an integral part of the condensed consolidated financial statements.
PLATINUM ENERGY SOLUTIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited) |
| | | | | | | |
| Nine Months Ended | | Nine Months Ended |
| September 30, 2012 | | September 30, 2011 |
Revenue | $ | 109,695,531 |
| | $ | 9,878,200 |
|
Cost of services | (98,230,892 | ) | | (10,076,320 | ) |
Depreciation | (15,568,004 | ) | | (3,792,921 | ) |
General and administrative expense | (11,333,987 | ) | | (8,379,305 | ) |
Loss on disposal of assets | (189,290 | ) | | — |
|
Loss from operations | $ | (15,626,642 | ) | | $ | (12,370,346 | ) |
Interest expense, net | (22,237,110 | ) | | (11,511,497 | ) |
Loss before income tax | $ | (37,863,752 | ) | | $ | (23,881,843 | ) |
Income tax benefit | 239,534 |
| | 222,965 |
|
Net loss | $ | (37,624,218 | ) | | $ | (23,658,878 | ) |
Loss attributable to noncontrolling interests | (254,546 | ) | | (267,147 | ) |
Net loss attributable to Platinum | $ | (37,369,672 | ) | | $ | (23,391,731 | ) |
| | | |
Earnings Per Share: | | | |
Net loss attributable to Platinum - Basic and diluted | $ | (2.51 | ) | | $ | (2.15 | ) |
| | | |
Weighted average shares - Basic and diluted | 14,968,786 |
| | 10,883,496 |
|
| | | |
Other comprehensive loss, before tax: | | | |
Unrealized loss on investment securities, before tax | (35,434 | ) | | 7,891 |
|
Income tax benefit related to other comprehensive loss | — |
| | — |
|
Other comprehensive loss, net of tax | (35,434 | ) | | 7,891 |
|
Comprehensive loss, net of tax | (37,659,652 | ) | | (23,650,987 | ) |
Less: comprehensive loss attributable to the noncontrolling interest | $ | (254,546 | ) | | $ | (267,147 | ) |
Comprehensive loss attributable to Platinum | $ | (37,405,106 | ) | | $ | (23,383,840 | ) |
The accompanying notes are an integral part of the condensed consolidated financial statements.
PLATINUM ENERGY SOLUTIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) |
| | | | | | | |
| Nine Months Ended | | Nine Months Ended |
| September 30, 2012 | | September 30, 2011 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
Net loss | $ | (37,624,218 | ) | | $ | (23,658,878 | ) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | | | |
Depreciation | 15,568,004 |
| | 3,792,921 |
|
Amortization of debt issuance cost and debt discount | 3,260,332 |
| | 2,030,227 |
|
Loss on disposal of assets | 189,290 |
| | — |
|
Deferred income taxes | (239,534 | ) | | (222,965 | ) |
Stock-based compensation | 782,281 |
| | 623,387 |
|
Write off of deferred equity offering cost | 2,273,805 |
| | — |
|
Changes in assets and liabilities | 20,104,165 |
| | 2,266,559 |
|
Net cash provided by (used in) operating activities | 4,314,125 |
| | (15,168,749 | ) |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | |
Purchase of investment securities | — |
| | (5,654,717 | ) |
Sale of investment securities | 4,915,927 |
| | 2,753,177 |
|
Purchase of and deposits for property and equipment | (11,820,166 | ) | | (95,553,267 | ) |
Other | 133,608 |
| | 6,986 |
|
Net cash used in investing activities | (6,770,631 | ) | | (98,447,821 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | |
Net proceeds from issuance of senior notes | — |
| | 159,928,600 |
|
Proceeds from issuance of preferred stock | — |
| | 20,000,000 |
|
Proceeds from issuance of common stock | 13,530,569 |
| | — |
|
Payments of debt issuance cost | — |
| | (14,211,330 | ) |
Release of restricted cash | — |
| | 6,637,493 |
|
Repayment of line of credit | (3,958,512 | ) | | (6,746,889 | ) |
Payment of equity offering costs | (531,004 | ) | | (732,267 | ) |
Contribution from noncontrolling interests, net | — |
| | 215,600 |
|
Payments of financed insurance arrangements | (2,450,760 | ) | | — |
|
Net cash provided by financing activities | 6,590,293 |
| | 165,091,207 |
|
| | | |
Net increase in cash and cash equivalents | 4,133,787 |
| | 51,474,637 |
|
Cash and cash equivalents—Beginning | 10,153,313 |
| | 1,431,595 |
|
Cash and cash equivalents—Ending | $ | 14,287,100 |
| | $ | 52,906,232 |
|
| | | |
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | | | |
Interest paid | $ | 25,084,639 |
| | $ | 69,375 |
|
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES |
Increase in property and equipment in accounts payable | $ | 10,091,014 |
| | $ | 306,822 |
|
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES |
Return of restricted cash to a customer | $ | — |
| | $ | 10,000,000 |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
PLATINUM ENERGY SOLUTIONS, INC. CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT Nine Months Ended September 30, 2012 (Unaudited) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Preferred Stock | | Preferred Stock | | | | | | | |
| | | | | | Total Platinum |
| | Series A | | Series B | | Common Stock | | | | | | Accumulated | | | | Stockholders' |
| | Shares | | Par | | Shares | | Par | | Shares | | Par | | APIC | | AOCI | | Deficit | | NCI | | Deficit |
Balance at December 31, 2011 | | 20,000 |
| | $ | 20 |
| | — |
| | $ | — |
| | 15,535,229 |
| | $ | 15,535 |
| | $ | 25,240,012 |
| | $ | 35,434 |
| | $ | (39,782,294 | ) | | $ | 2,866,141 |
| | $ | (11,625,152 | ) |
Issuance of stock awards and stock-based compensation amortization | | — |
| | $ | — |
| | — |
| | $ | — |
| | 201,347 |
| | $ | 201 |
| | $ | 654,229 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 654,430 |
|
Issuance of stock options and stock-based compensation amortization | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 127,851 |
| | — |
| | — |
| | — |
| | 127,851 |
|
Issuance of common stock | | — |
| | — |
| | — |
| | — |
| | 2,700,000 |
| | 2,700 |
| | 13,362,157 |
| | — |
| | — |
| | — |
| | 13,364,857 |
|
Issuance of preferred stock in exchange for common stock | | — |
| | — |
| | 13,500 |
| | 14 |
| | (2,700,000 | ) | | (2,700 | ) | | 2,686 |
| | — |
| | — |
| | — |
| | — |
|
Issuance of common stock from exercise of warrants | | — |
| | — |
| | — |
| | — |
| | 611,386 |
| | 612 |
| | 29,958 |
| | — |
| | — |
| | — |
| | 30,570 |
|
Unrealized loss on investment securities | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (35,434 | ) | | — |
| | — |
| | (35,434 | ) |
Net loss | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (37,369,672 | ) | | (254,546 | ) | | (37,624,218 | ) |
Balance at September 30, 2012 | | 20,000 |
| | $ | 20 |
| | 13,500 |
| | $ | 14 |
| | 16,347,962 |
| | $ | 16,348 |
| | $ | 39,416,893 |
| | $ | — |
| | $ | (77,151,966 | ) | | $ | 2,611,595 |
| | $ | (35,107,096 | ) |
The accompanying notes are an integral part of the condensed consolidated financial statements.
NOTE 1—GENERAL
Nature of Operations
Platinum Energy Solutions, Inc. (collectively, with its subsidiary, the “Company,” “we,” or “Platinum”) was incorporated in Nevada on September 7, 2010. We are a Houston, Texas based oilfield services provider specializing in premium Hydraulic Fracturing, Coiled Tubing and Other Pressure Pumping services, our three reportable segments. In March 2011, we commenced operations, following the lease of certain pressure pumping and coil tubing equipment from a related party and, therefore, ceased to be a development stage company. Our Hydraulic Fracturing segment began operations in August 2011 in the Eagle Ford Shale. We utilize modern, high pressure-rated fracturing equipment that allows us to handle challenging geological environments, reduce operating costs, increase asset utilization and deliver excellent customer service. In addition, we have a contract for wet sand supply and physical capabilities around the transportation, processing and storage of sand used in the hydraulic fracturing process.
Basis of Presentation
The consolidated financial statements include the accounts of Platinum and all entities that we control by ownership of a majority voting interest as well as variable interest entities for which we are the primary beneficiary. All significant inter-company transactions and balances have been eliminated in consolidation.
Our unaudited condensed consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. We believe that the presentation and disclosures herein are adequate to make the information not misleading. In the opinion of management, the unaudited condensed consolidated financial information included herein reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods presented. These unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto included in our annual report on Form 10-K for the year ended December 31, 2011. The results of operations for the interim periods presented herein are not necessarily indicative of the results to be expected for a full year or any other interim period.
Management Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America (“U.S. GAAP”) necessarily requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We regularly evaluate estimates and judgments based on historical experience and other relevant facts and circumstances. Significant estimates included in these financial statements primarily relate to the consolidation of our variable interest entity (“VIE”), the assessment of our property and equipment regarding useful lives, depreciation and impairment, the valuation of our equity grants made to employees and non-employees (directors and certain vendors), and the realizability of deferred tax assets. Actual results could differ from those estimates as new events occur, additional information is obtained and the Company’s operating environment changes.
NOTE 2—FAIR MARKET VALUE MEASUREMENTS
Fair Value Valuation Techniques
The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:
| |
• | Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date. |
| |
• | Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability. |
| |
• | Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date. |
The following table presents the placement in the fair value hierarchy of assets and liabilities that are measured at fair value on a recurring basis:
|
| | | | | | | | | | | |
| Carrying Value | | Fair Value | | Quoted Prices in Active Markets for Identical Assets |
September 30, 2012 | | | | | (Level 1) |
Investment securities | $ | — |
| | $ | — |
| | $ | — |
|
December 31, 2011 | | | | | |
Investment securities | $ | 4,951,361 |
| | $ | 4,951,361 |
| | $ | 4,951,361 |
|
In February 2012, we liquidated our investment securities.
The carrying amounts of our financial instruments, consisting of cash equivalents, investment securities, accounts receivable, accounts payable, accrued expenses, and our line of credit, approximate their fair values due to their relatively short maturities.
NOTE 3— INVENTORY
Inventory consisted of the following:
|
| | | | | | | | |
| | September 30, 2012 | | December 31, 2011 |
Sand | | $ | 3,986,493 |
| | $ | 3,439,221 |
|
Consumable spare parts | | 1,183,877 |
| | 1,416,157 |
|
Chemicals | | 625,571 |
| | 416,695 |
|
Total inventory | | $ | 5,795,941 |
| | $ | 5,272,073 |
|
NOTE 4—PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
|
| | | | | | | |
| September 30, 2012 | | December 31, 2011 |
Furniture and fixtures | $ | 551,225 |
| | $ | 529,239 |
|
Vehicles | 22,009,076 |
| | 20,806,245 |
|
Equipment | 159,342,570 |
| | 148,448,720 |
|
Leasehold improvements | 1,720,336 |
| | 151,289 |
|
Construction in progress | 10,508,182 |
| | 3,478,995 |
|
| 194,131,389 |
| | 173,414,488 |
|
Accumulated depreciation | (22,490,736 | ) | | (8,117,011 | ) |
Property and equipment, net | $ | 171,640,653 |
| | $ | 165,297,477 |
|
As of September 30, 2012 and December 31, 2011, property and equipment includes $13.0 million and $20.7 million, respectively, of deposits on equipment not yet delivered to the company.
NOTE 5—DEFERRED REVENUE
During 2010, we received a total of $20.0 million in advances under the terms of two separate customer contracts related to multi-year well services contracts. The agreement with one customer stipulates $10.0 million be placed into an escrow account
in the name of the Company to be used to offset future billings made to that customer as services are delivered. In March 2011, the $10.0 million was returned to that customer. There were no restrictions on the use of the $10.0 million received from the other customer. In December 2011, we received an additional $6.9 million advance under the other customer contract and there were no restrictions on the use of the additional $6.9 million. As of September 30, 2012, the short-term and long-term balances of these advances were $6.0 million and $0.0 million, respectively. As of December 31, 2011, the short-term and long-term balances of these advances were $9.6 million and $3.5 million, respectively. These balances are included in deferred revenue in the accompanying consolidated balance sheets, which is earned per the terms of the customer contract as services are delivered. During the three and nine months ended September 30, 2012, $1.0 million and $7.1 million of these advances were earned and are included in revenue.
NOTE 6—DEBT
Portfolio Loan Account Facility
In 2010, we established a portfolio loan account facility with Morgan Stanley Bank, N.A., which we refer to as the Morgan Stanley Facility, in an initial available amount of $8.8 million. The facility was subsequently reduced due to reductions in the balance of pledged collateral to $4.0 million as of December 31, 2011. Drawings on the facility are available on a revolving line of credit basis and bear interest at a variable rate equal to Morgan Stanley Bank, N.A.’s base lending rate in effect from time to time plus a certain percentage that can vary based on the amount drawn. Amounts drawn under the Morgan Stanley Facility from time to time may be repaid and re-borrowed by the Company from time to time. The Morgan Stanley Facility has an indefinite term.
The Morgan Stanley Facility is secured by investment securities maintained, from time to time, at Morgan Stanley Bank, N.A., which were originally acquired with a portion of an advance from a customer. The Morgan Stanley Facility is not secured by any other assets and does not impose any covenant obligations on the Company.
We have used the proceeds of our drawings under the Morgan Stanley Facility to pay for certain costs relating to the manufacture of our new fracturing fleets and for our general liquidity purposes. As of December 31, 2011, there was approximately $4.0 million outstanding under the Morgan Stanley Facility. In February 2012, we sold the investment securities and repaid the outstanding balance under the Morgan Stanley Facility. The average interest rate as of September 30, 2012 for the three and nine months periods ending September 30, 2012 was approximately 0.00% and 0.75%, respectively. There was no outstanding balance and no availability under the Morgan Stanley Facility as of September 30, 2012.
March 2011 Senior Secured Notes
On March 3, 2011, we completed the private placement of $115 million of Senior Secured Notes, at an interest rate of 14.25% per year on the principal amount (the “Original Senior Notes”). The Original Senior Notes mature on March 1, 2015, unless the Original Senior Notes are repurchased earlier. At any time prior to March 1, 2013, the Company may redeem up to 35.0% of the Original Senior Notes at a price equal to 114.25% of the principal amount, plus accrued and unpaid interest, if any, to the date of redemption, with net cash proceeds from certain equity offerings. The Company may also redeem the Original Senior Notes from March 1, 2013 to February 28, 2014 and from March 1, 2014, thereafter at a price equal to 107.125% and 100% respectively, plus accrued and unpaid interest. Upon a change of control, the holders of the Original Senior Notes will have the right to require the Company to repurchase the Original Senior Notes at 101% of the principal amount, plus any accrued and unpaid interest. The Original Senior Notes are secured by a lien against substantially all of the Company’s assets and all of the Company’s existing and future domestic subsidiaries’ assets and will receive preference in the case of liquidation.
The Original Senior Notes were issued at a discount such that the cash received was equal to 97.76% of the principal amount of the Original Senior Notes. Accordingly, we recognized a $2.6 million discount on the Original Senior Notes that is being amortized over the life of the Original Senior Notes using the effective interest method.
In conjunction with this, the holders of the Original Senior Notes received 115,000 warrants entitling the holders to purchase 2,801,170 shares of the Company’s common stock at an exercise price of $0.05. These warrants expire on February 28, 2018. We allocated $1,150,000 of the proceeds to the warrants, which was recorded as additional paid-in capital, based on the relative fair values of the Original Senior Notes and the warrants at the time of issuance of the securities.
Unamortized debt issuance costs associated with the Original Senior Notes were $7.5 million and $9.2 million as of September 30, 2012 and December 31, 2011, respectively. These debt issue costs are included in Other assets and are being
amortized over the term of the Original Senior Notes using the effective interest method.
The first interest payment on the Original Senior Notes, in the amount of $8.1 million, which was due on September 1, 2011, was paid-in-kind and added to the principal amount of the Original Senior Notes pursuant to the terms of the Original Senior Notes.
The Original Senior Notes contain covenants, including but not limited to:
| |
• | Limitation of capital expenditure; |
| |
• | Restrictions on the payment of dividends as well as the purchase of equity for cash; |
| |
• | Issuance of further debt or the issuance of future disqualified stock including preferred stock; and |
| |
• | Restrictions on the sale of stock that could result in the sale or merger of the Company with another or the sale of assets and properties to another. |
September 2011 Senior Secured Notes
On September 29, 2011, we completed a private offering of an additional $50 million aggregate principal amount of our 14.25% Senior Secured Notes due March 2015 (the “Additional Senior Notes”) under the indenture governing the Original Senior Notes. The Additional Senior Notes and the Original Senior Notes (collectively, the “Senior Notes”) are treated as a single series for purposes of such indenture, as amended. In connection with the offering of the Additional Senior Notes, we obtained the consent of holders of a majority in aggregate principal amount of outstanding Original Senior Notes to certain amendments to the indenture to (i) increase certain permitted indebtedness under our indenture from $35 million to $50 million in aggregate principal amount to allow for the issuance of the Additional Senior Notes and eliminate the requirement that the proceeds of the issuance of such Additional Senior Notes be used by us solely for the purpose of acquiring equipment, and (ii) amend the covenant relating to maximum amount of capital expenditures permitted to be incurred in any fiscal year from $10 million to $30 million effective in the fiscal year commencing in 2012 (and increase from $113 million to $160 million the exclusion for anticipated expenditures for new equipment thereunder).
In addition, we agreed that if we complete, on or prior to June 30, 2012, an equity offering (an underwritten initial public offering of our common stock) with net cash proceeds to us in excess of $100 million, we will redeem that amount of Senior Notes whose aggregate redemption price is at least equal to the amount of such excess over $100 million.
The Additional Senior Notes were issued at a discount such that the cash received was equal to approximately 95% of the principal amount of the Additional Senior Notes. Accordingly, we recognized a $2.5 million discount on the Additional Senior Notes that is being amortized over the life of the Additional Senior Notes using the effective interest method. Unamortized debt issuance costs associated with the Additional Senior Notes were $2.4 million and $2.9 million as of September 30, 2012 and December 31, 2011, respectively. These debt issue costs are included in Other assets and are being amortized over the term of the Additional Senior Notes using the effective interest method.
The balance of our Senior Notes at September 30, 2012 and December 31, 2011, net of the unamortized discount, totaled $168.7 million and $167.7 million, respectively. As of September 30, 2012 and December 31, 2011, the fair value of our Senior Notes was $116.8 million and $174.8 million, respectively, based on quoted market prices, including the $8.1 million paid-in-kind interest capitalized on September 1, 2011.
JPMorgan Credit Agreement
On December 28, 2011, we entered into an asset based revolving credit agreement with JPMorgan Chase Bank, N.A. (“JPMorgan”), as amended on May 11, 2012, which we refer to as the “Credit Agreement.” Subject to a borrowing base consisting of certain eligible accounts receivable and inventory, an amount up to $15.0 million was made available to us under the Credit Agreement and, on December 29, 2011, we borrowed the full $15.0 million amount available to us pursuant to a revolving note made by us in favor of JPMorgan as lender. The Credit Agreement includes borrowing capacity available for letters of credit. Revolving loans are available under the Credit Agreement for working capital and other general corporate purposes. The revolving line of credit will terminate on June 30, 2014, and no further advances may be made to us thereafter. We used the proceeds of our initial borrowing under the Credit Agreement to pay for certain capital expenditures, including three of our new coiled tubing units
and progress payments on our planned facilities, and for general corporate purposes.
The interest rate applicable to the Credit Agreement is, at our option, either LIBOR plus a margin ranging from 2.25% to 3.50% (depending on our total leverage ratio) or, the JPMorgan prime rate, called “CBFR”, plus a margin ranging from 1.00% to 2.50% (depending upon such total leverage ratio). The CBFR rate is the higher of (i) the interest rate publicly announced by JPMorgan as its prime rate and (ii) the adjusted LIBOR rate as calculated by JPMorgan. We will pay a non-use fee of 0.25% on the daily average undrawn portion of the commitment under the Credit Agreement. The average interest rate for the three and nine months ended September 30, 2012 was approximately and 3.07% and 3.03% respectively.
Our obligations under the Credit Agreement are secured (with certain exceptions) by first priority security interests on all of our assets. Our obligations under the Credit Agreement are guaranteed by Platinum Pressure Pumping, Inc. as guarantor, and will be guaranteed by our future domestic subsidiaries. The guarantor’s guarantee is, and any future domestic subsidiary’s guarantee will be, secured by first priority security interests in all of their assets. The guarantee is, and each future guarantee of the Credit Agreement will be, full, unconditional and joint and several.
The Credit Agreement permits voluntary prepayments (without reducing availability for future revolving borrowings) and voluntary commitment reductions at any time, in each case without premium or penalty. The revolving note pursuant to which we borrowed the full $15.0 million amount available to us includes a “cleanup” requirement pursuant to which the outstanding amount due thereunder must be paid down and reduced to zero for thirty consecutive days during each 12-month period.
The Credit Agreement contains a number of negative covenants that, among other things, restrict our ability to sell assets, incur additional debt, create liens on assets, make investments or acquisitions, engage in mergers or consolidations, pay dividends to stockholders or repurchase common stock, and other corporate activities. The negative covenant with respect to our debt, prohibits us from incurring indebtedness for borrowed money, installment obligations, or obligations under capital leases, other than (1) unsecured trade debt incurred in the ordinary course of business, (2) indebtedness owing under the Credit Agreement, (3) indebtedness existing prior to execution of the Credit Agreement not paid off with the proceeds of borrowings under the Credit Agreement with the permission of JPMorgan, (4) purchase money indebtedness, (5) indebtedness created for the sole purpose of amending, extending, renewing or replacing permitted indebtedness referred to in clause (3) (provided the principal amount of such indebtedness is not increased) and (6) other indebtedness in the aggregate amount of $5.0 million per year, excluding insurance premium financing.
The Credit Agreement also contains affirmative financial covenants relating to our (1) maximum leverage ratio, measured quarterly beginning June 30, 2012, (2) minimum fixed charge coverage ratio, measured quarterly beginning September 30, 2012, and (3) minimum average daily cash position, measured monthly beginning May 31, 2012.
For the covenant compliance period ended September 30, 2012 , the Company's Leverage Ratio (as defined in the Credit Agreement) exceeded the maximum level allowed under the Credit Agreement and the Company's Fixed Charge Coverage Ratio (as defined in the Credit Agreement) was less than the minimum level required under the Credit Agreement. Additionally, the Company's Minimum Average Daily Cash Position (as defined in the Credit Agreement) was less than the level required for the month ending September 30, 2012. An event of default under the Credit Agreement (as defined therein) would occur, absent a waiver of the covenant violations by JPMorgan, upon expiration of a 30 day cure period commencing on the date written notice of default is provided to the Company by JPMorgan. The amount outstanding under the Note at September 30, 2012 was $15.0 million.
As of the date hereof, no such notice had been given and no event of default has occurred. Upon expiration of the cure period and occurrence of an event of default, JPMorgan may, at its option and upon additional notice to the Company, accelerate the due date of the Note issued by the Company in respect of the Credit Agreement and the outstanding balance would become due and payable immediately. On November 9, 2012, JPMorgan issued a waiver ("Credit Agreement Waiver") for the Company's non-compliance with (i) the Leverage Ratio covenant and the Fixed Charge Coverage Ratio Covenant for the quarter ending September 30, 2012 and any event of default caused by such non-compliance, (ii) the Minimum Average Daily Cash Position for the month ending September 30, 2012 and any event of default caused by such non-compliance. Additionally, JPMorgan eliminated the "clean up" requirement for the calendar year 2012 and any event of default caused by such non-compliance.
Under the terms of the Indenture for our Senior Notes, an event of default (as defined in the Indenture) would occur if a default under the Credit Agreement resulted in the acceleration of indebtedness in excess of $5.0 million. If an event of default occurred under the Indenture and is continuing, the Trustee (as defined in the Indenture) or the holders of at least 25.0% in aggregate principal amount of the then outstanding Senior Notes may declare all the Senior Notes to be due and payable immediately. As a
result of the Credit Agreement Waiver, no Event of Default has or will occur as a result of the Company's non-compliance with the Leverage Ratio covenant as of September 30, 2012. The balance of our Senior Notes at September 30, 2012, net of the unamortized discount, totaled $168.7 million.
In connection with our entering into the Credit Agreement, JPMorgan as first lien lender, and The Bank of New York Mellon Trust Company, N.A., as trustee and collateral agent on behalf of the Second Lien Creditors (including the holders of the notes), entered into an Intercreditor Agreement dated as of December 28, 2011. The Intercreditor Agreement, among other things, defines the rights of our debt holders with respect to collateral.
Registered Exchange Offer
On March 15, 2012, the Company completed a registered exchange offer to exchange up to $173.1 million aggregate principal amount of its registered 14.25% Senior Secured Notes due 2015, which we refer to as the Exchange Notes, for $173.1 million aggregate principal amount of its outstanding unregistered 14.25% Senior Secured Notes due 2015, which we refer to as the Senior Notes. The terms of the Exchange Notes are identical in all material respects to the terms of the Senior Notes for which they were exchanged, except that the Exchange Notes have been registered under the Securities Act of 1933 (the “Securities Act”) and, therefore, the terms relating to transfer restrictions, registration rights and additional interest applicable to the Senior Notes are not applicable to the Exchange Notes, and the Exchange Notes bear different CUSIP numbers. An aggregate of $172.8 million in principal amount of Senior Notes were tendered in the exchange offer, and $172.8 million in aggregate principal amount of Exchange Notes were issued at the closing of the exchange offer.
NOTE 7— STOCKHOLDERS’ EQUITY
Common Stock
On February 28, 2011, the Company’s board of directors approved a one-for-ten reverse common stock split, which became effective on that date. On January 6, 2012, the Company's board of directors approved a one-for-five reverse common stock split, which became effective on that date. All references to common shares and per-share data for all periods presented in this report have been adjusted to give effect to these reverse splits. As no change was made to the par value of the common shares, a total of $62,140 was reclassified from common stock to additional paid-in capital as of December 31, 2011.
No fractional shares were issued in connection with the reverse stock split on January 6, 2012, and in lieu thereof, the number of shares of common stock held by any stockholder who would otherwise have been entitled to a fractional share was rounded up to the next highest full share.
Preferred Stock
Series A Preferred Stock
On March 3, 2011, we issued 20,000 shares of Series A Preferred Stock for $20 million. The Series A Preferred Stock is not convertible and has a liquidation preference of up to $40.0 million . The Preferred Stock is not redeemable unless the Company completes an initial public offering, at which time the Preferred Stock is redeemable at a redemption price equal to the original purchase price. The Series A Preferred Stock holders also acquired 9,896,960 shares of the Company’s common stock.
Series B Preferred Stock
On March 30, 2012, we issued 2,700,000 shares of common stock, that are immediately exchangeable into 13,500 shares of Series B Preferred Stock upon approval of the issuance of the preferred stock by the stockholders of the Company, for $13.5 million. The Series B Preferred Stock is convertible to common stock at a ratio of 200 to 1 and is entitled to dividends of 5% per annum of the purchase price per share, payable either in cash or stock on a quarterly basis. The Series B Preferred Stock is redeemable upon the Company’s completion of an initial public offering at a redemption price equal to or more than the original purchase price. The purchasers of the Series B preferred stock also received 1,037,968 warrants, each convertible into one share of common stock at an exercise price of $3.00 per share. We allocated $1,620,000 of the proceeds to the warrants, which was recorded as additional paid-in capital, based on the relative fair values of the stock and the warrants at the time of issuance of the securities. On April 30, 2012, the Series B Preferred Stock were approved for issuance. As of September 30, 2012, a total of 2,700,000 shares of the common stock had been exchanged for 13,500 shares of Series B Preferred Stock. Dividends in arrears related to the Series B Preferred Stock totaled approximately $165,071 and $242,496, as of and for the quarter and year-to-date
period ending September 30, 2012, respectively.
NOTE 8—STOCK AWARD PLAN
Overview
In exchange for services provided, we have issued restricted and unrestricted stock and stock options to employees and non-employees under the 2010 Omnibus Equity Incentive Plan (the “2010 Plan”). We reserved 1,044,817 shares of common stock (or options to purchase common stock) under the 2010 Plan for future issuances, of which 65,011 shares remained available for issuance as of September 30, 2012. The awards typically have a ten-year life and a four-year vesting period.
Absent an active market for our equity securities, the market value of our common stock underlying the restricted stock or stock options granted was determined by management and approved by our Board of Directors at the time of grant. In determining such fair market value, for purposes of valuing our share-based payment awards, we obtained contemporaneous valuations compiled by third-party appraisers based primarily on our financial forecasts and comparable peer company data. Among other significant assumptions, the valuation reflects a marketability discount as our equity securities are not traded. The underlying assumptions significantly impact the resulting estimated market value of our stock and the fair value of our restricted stock and option grants.
The fair value of our option grants was calculated through the use of the Black-Scholes option pricing model. The model requires certain assumptions regarding the estimated market price of the Company’s currently non-traded stock, the risk-free interest rate, the expected share price volatility and the expected term of each option grant.
During the three months ended September 30, 2012, the Company granted no restricted stocks and stock options.
Stock-based compensation expense
The stock-based compensation expense related to all our unvested awards (both restricted stock awards and stock option awards) described above was approximately $0.2 million and $0.7 million, respectively, for the three and nine-month periods ended September 30, 2012 and approximately $0.2 million and $0.6 million, respectively, for the three and nine-month periods ended September 30, 2011 and was primarily included in general and administrative expenses. The remaining unrecognized stock-based compensation expense as of September 30, 2012 of approximately $1.9 million will be recognized over the average remaining vesting period of approximately 2.5 years.
NOTE 9—EARNINGS PER SHARE
The following table is a reconciliation of the numerator and the denominator of our basic and diluted earnings per share for the three-month periods ended September 30, 2012 and 2011:
|
| | | | | | | |
| Three Months Ended | | Three Months Ended |
| September 30, 2012 | | September 30, 2011 |
| (Unaudited) |
Net loss attributable to Platinum—basic and diluted | $ | (11,360,954 | ) | | $ | (10,808,562 | ) |
Less: Dividends in arrears attributable to Series B Preferred Stock | (165,071 | ) | | — |
|
Net loss attributable to common stock—basic and diluted | $ | (11,526,025 | ) | | $ | (10,808,562 | ) |
| | | |
Weighted average shares of common stock outstanding—basic and diluted | 15,797,110 |
| | 13,788,769 |
|
Net loss per share: | | | |
Basic and Diluted | $ | (0.73 | ) | | $ | (0.78 | ) |
The calculation of weighted average shares of common stock outstanding—diluted for the three months ended September 30, 2012 excludes 6.6 million shares of outstanding restricted stock, stock option awards and convertible warrants because their effect was anti-dilutive. The calculation of weighted average shares of common stock outstanding—diluted for the three months ended September 30, 2011, excludes 4.6 million shares of outstanding restricted stock awards because their effect was anti-dilutive.
The following table is a reconciliation of the numerator and the denominator of our basic and diluted earnings per share for the nine-month periods ended September 30, 2012 and 2011:
|
| | | | | | | |
| Nine Months Ended | | Nine Months Ended |
| September 30, 2012 | | September 30, 2011 |
| (Unaudited) |
Net loss attributable to Platinum—basic and diluted | $ | (37,369,672 | ) | | $ | (23,391,731 | ) |
Less: Dividends in arrears attributable to Series B Preferred Stock | (242,496 | ) | | — |
|
Net loss attributable to common stock—basic and diluted | $ | (37,612,168 | ) | | $ | (23,391,731 | ) |
| | | |
Weighted average shares of common stock outstanding—basic and diluted | 14,968,786 |
| | 10,883,496 |
|
Net loss per share: | | | |
Basic and Diluted | $ | (2.51 | ) | | $ | (2.15 | ) |
The calculation of weighted average shares of common stock outstanding—diluted for the nine months ended September 30, 2012 excludes 6.1 million shares of outstanding restricted stock, stock option awards, Series B Preferred Stock and convertible warrants because their effect was anti-dilutive. The calculation of weighted average shares of common stock outstanding—diluted for the nine months ended September 30, 2011, excludes 3.5 million shares of outstanding restricted stock awards because their effect was anti-dilutive.
NOTE 10—INCOME TAXES
The consolidated effective tax rate of approximately 2.2% and 1.0% for the three month periods ended September 30, 2012 and 2011, respectively, and 0.6% and 0.9% for the nine month periods ended September 30, 2012 and 2011, respectively, is lower than the federal statutory rate as the majority of our income tax benefits were not recognized. This is because we are not able to conclude that it is more likely than not that we will be able to use these loss carryforwards and, as such, have provided a corresponding valuation allowance. For the nine months ended September 30, 2012, our net income tax benefit of $239,534 is comprised of an income tax benefit of $239,534 related to the losses of our consolidated VIE, which files a separate tax return.
NOTE 11—VARIABLE INTEREST ENTITY
We account for variable interest entities (“VIEs”) in accordance with FASB ASC Topic 810, Consolidation. On March 3, 2011, we entered into a lease agreement with Well Services Blocker, Inc. (“WSB”) and two of its wholly owned entities, Moncla Pressure Pumping Well Services, L.L.C. (“PP”) and Moncla Coil Tubing Well Services, LLC. (“CT”) to lease all of the coil tubing and pressure pumping equipment held by PP, CT and MW Services Transportation LLC (“MWST”) (collectively, the “WSB Business”). Due to a protective right included in the lease agreement that enables the sole shareholder of the WSB Business to sell to us the assets subject to the lease purchase agreement upon the occurrence of certain events, we determined that PP, CT and MWST are variable interest entities. We further determined that we are the primary beneficiary of PP, CT and MWST because the lease provides us with full control of all of the operating assets of PP, CT and MWST. As of September 30, 2012, the combined financials statements of PP, CT and MWST had $13.1 million in total assets and $10.5 million in total liabilities.
We obtained control of the WSB Business effective March 3, 2011. In accordance with FASB ASC Topic 805, Business Combinations, we accounted for the acquisition of the WSB Business using the acquisition method which requires an acquirer to recognize and measure the identifiable assets acquired and liabilities assumed at their fair values as of the acquisition date. The fair value of the net assets acquired, net of tax, was $2,646,064, which was recognized as non-controlling interests.
NOTE 12—RELATED PARTY TRANSACTIONS
On March 21, 2012, we entered into a stock purchase agreement with certain investors and current security holders of the Company, including Clearlake Capital Partners (Master) II, L.P. (“CCG”) and Mr. L. Charles Moncla, Jr., the Company’s Chairman of the Board and Chief Executive Officer, pursuant to which we agreed to issue and sell up to 2,700,000 shares of common stock at a purchase price of $5.00 per Share, for an aggregate purchase price of up to $13.5 million. CCG and Mr. Moncla also agreed to purchase any remaining shares not purchased by other investors in proportion to their existing ownership of common stock of the Company prior to the offering. We completed the stock sale on March 30, 2012, as more fully disclosed in Note 7.
On March 3, 2011, we entered into a lease agreement with WSB and two of its wholly owned entities, PP and CT, to lease certain pressure pumping and coil tubing equipment. These entities are controlled by our CEO. The term of the lease is for two years ending on March 2, 2013. Under the terms of the lease we will pay WSB a monthly fee of $210,000 per month over a term of two years. Should there be a change of control in the Company, we may, at the option of the lessor, be obligated to purchase the assets subject to the lease agreement for an amount equal to the greater of:
| |
a. | The aggregate of the outstanding balance of the loans from JPMorgan Chase Bank, N.A. and from WSB’s shareholder, Charles Moncla limited to $16.1 million; and |
| |
b. | The lesser of (i) the last twelve months of revenue generated by the business of WSB or (ii) $20.0 million. |
As explained above, we consolidated the WSB Business effective March 3, 2011.
The Company entered into a lease agreement with a certain related party to lease the Del Yard located in Scott, Louisiana commencing March 1, 2011. The agreement requires a monthly fee of $10,000 over a term of two years, ending on February 28, 2013.
During December 2010, the Company entered into an overhead allocation agreement with Layton Corporation, a company owned and controlled by one of the Company’s ex-directors, covering the Company’s office space at 2100 West Loop South, 16th Floor, Houston, Texas. This agreement provides for the shared space and other office services provided by Layton Corporation and the Company will pay $30,000 per month for these services over two years. This agreement was terminated on September 5, 2012. On August 16, 2012, the Company then entered into a new lease agreement with a third-party company (Moody National 2100 WLS Houston L.L.C.,) to lease the Company’s office space at 2100 West Loop South, 14th Floor, Houston, Texas.
The Company also entered into a contract with Layton Corporation whereby the Company paid Layton Corporation a $1.35 million fee for services related to the offering of debt and equity which closed on March 3, 2011. In March 2012, in connection with a restructuring of our board of directors, Daniel Layton resigned from the board.
The amounts due to affiliates are unsecured, interest free and has no fixed term of repayment. The calculation of amounts due to affiliates, non-current, is as follows:
|
| | | |
Balance as of December 31, 2011 | $ | 11,105,056 |
|
Lease payments to the WSB Business | (1,890,000 | ) |
Other, net | (128,307 | ) |
Balance as of September 30, 2012 | $ | 9,086,749 |
|
NOTE 13—COMMITMENTS AND CONTINGENCIES
Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.
We are involved, from time to time, in litigation, claims and disputes incidental to our business, which may involve claims for significant monetary amounts, some of which may not be covered by insurance. In the opinion of management, none of the existing litigation will have a material adverse effect on our financial position, results of operations or cash flows. However, a substantial settlement payment or judgment in excess of our accruals could have a material adverse effect on our financial position, results of operations or cash flows.
We have operating lease commitments expiring at various dates, principally for office space, real estate, railcars, and vehicles. Rental expense relating to operating leases was $2.1 million and $5.7 million during the three and nine months ended September 30, 2012, respectively, and $0.3 million and $0.6 million during the three and nine months ended September 30, 2011, respectively. As of September 30, 2012, future minimum rental payments related to noncancellable operating leases were as follows: 2012—$2.9 million, 2013—$3.3 million, 2014—$2.3 million, 2015—$2.3 million, 2016—$2.1 million, thereafter—$2.6 million , and in the aggregate—$15.5 million.
We have a commitment to purchase 100,000 gallons of guar gum per month, a necessary input for our hydraulic fracturing services, at prevailing market prices, commencing in September 2011. The agreement expired in August 2012 not extended.
We had a commitment to purchase 150,000 tons of sand per year from one supplier, a necessary input for our hydraulic fracturing services, with the option to increase it to 300,000 tons per year. The agreement commenced in July 2011 and expired in July 2012.
We have a commitment to purchase 10,000 tons of sand per month from another supplier. The agreement commenced in October 2011 and expires in September 2013, unless extended, by mutual agreement, for additional six-month terms.
We have commitments with third parties for the purchase of well services equipment for our third hydraulic fracturing fleet. The total purchase commitment as of September 30, 2012 was approximately $34 million, payable in increments due before each piece of equipment is delivered. The Company made payments during 2011 of $25.8 million toward such commitments.
We have commitments for the purchase of well services equipment for fourth and fifth hydraulic fracturing fleets with two third-party vendors. The purchase commitments as of September 30, 2012 were approximately $33.1 million and $32.7 million, respectively, payable in increments due before each piece of equipment is delivered. The Company made cash deposits during 2011 of $9.2 million and $4.1 million, respectively, toward such commitments.
As of September 30, 2012 and December 31, 2011, Accounts payable—Capital expenditures in the Company's consolidated balance sheet includes approximately $18.2 million and $8.1 million, respectively, related to equipment purchase commitments.
Our original business plan contemplated, among other things, the acquisition of up to five high-specification hydraulic fracturing fleets. The acquisition of equipment for additional fleets would require significant capital. In connection with our original business plan we submitted various purchase orders to vendors for additional equipment, but later informed them that, in light of current market conditions and the postponement of our initial public offering, we did not require the equipment in the time frame contemplated in the original orders. We have worked with each vendor to defer these purchases until such time that market demand requires the additional equipment. There are no specific dates at which we must make such purchases. We have not incurred any penalties related to the deferrals and we continue to believe that the deposits we have made in connection with the purchase orders are recoverable. Our ability to purchase additional equipment to continue to expand our existing fleets, and the timing of any such acquisitions, is impacted by the market demand for our services and could have a material impact on our operations. Any additional equipment purchases by the company would be contingent on raising additional capital.
In the normal course of business, the Company is subject to various taxes in the jurisdictions in which it operates. The determination of whether or not certain transactions are taxable requires management to make judgments based on interpretation of applicable tax rules. The Company’s consolidated balance sheet includes, in Accrued expenses, an accrual for certain non-income tax exposures in the amount of $6.1 million as of September 30, 2012.
NOTE 14—SEGMENT REPORTING
We operate our business in three reportable segments: (1) Hydraulic Fracturing, (2) Coiled Tubing, and (3) Other Pressure Pumping Services. These business segments provide different services and utilize different technologies.
| |
• | Hydraulic Fracturing: Hydraulic fracturing services are utilized when the formations holding oil and natural gas lack the permeability to release their hydrocarbons quickly and economically as is typical in many active unconventional oil and natural gas plays. Our fracturing services include providing technical expertise and experience to improve well completions as well as conducting technical evaluations, job design and fluid recommendations. We commenced hydraulic fracturing operations on August 29, 2011, in southern Texas. |
| |
• | Coiled Tubing: Coiled tubing allows operators to service a well while continuing production without shutting down the well, reducing risk of formation damage. Our Coiled Tubing segment currently conducts operations in Texas and Louisiana. |
| |
• | Other Pressure Pumping Services: Cementing service uses pressure pumping equipment to deliver a slurry of liquid cement that is pumped down a well between the casing and the borehole, among other applications. We perform routine pressure pumping services in conjunction with coiled tubing. Our Other Pressure Pumping Services segment currently conducts operations in Louisiana and Utah. |
Results for these business segments are presented below. We use the same accounting policies to prepare our business segment results as are used to prepare our consolidated financial statements.
Summarized financial information concerning our segments for the three-month periods ending September 30, 2012 and 2011, respectively, is shown in the following tables:
|
| | | | | | | | | | | | | | | | | | | |
Three Months Ended | Hydraulic Fracturing | | Coiled Tubing | | Other Pressure Pumping | | Corporate and Other(2) | | Consolidated |
September 30, 2012 | | | | | | | | | |
Revenues | $ | 34,348,032 |
| | $ | 427,221 |
| | $ | 1,848,337 |
| | $ | — |
| | $ | 36,623,590 |
|
Cost of services | (29,275,860 | ) | | (919,769 | ) | | (1,279,853 | ) | | (1,509,647 | ) | | (32,985,129 | ) |
Gross profit (loss)(1) | 5,072,172 |
| | (492,548 | ) | | 568,484 |
| | (1,509,647 | ) | | 3,638,461 |
|
Depreciation | (3,582,458 | ) | | (1,044,204 | ) | | (566,985 | ) | | (40,212 | ) | | (5,233,859 | ) |
General and administrative expense | — |
| | — |
| | — |
| | (2,434,488 | ) | | (2,434,488 | ) |
Loss on disposal of assets | (313,374 | ) | | — |
| | — |
| | 124,084 |
| | (189,290 | ) |
Operating income (loss) | $ | 1,176,340 |
| | $ | (1,536,752 | ) | | $ | 1,499 |
| | $ | (3,860,263 | ) | | $ | (4,219,176 | ) |
Capital expenditures, including equipment deposits | 1,400,000 |
| | — |
| | 100,502 |
| | — |
| | 1,500,502 |
|
|
| | | | | | | | | | | | | | | | | | | |
Three Months Ended | Hydraulic Fracturing | | Coiled Tubing | | Other Pressure Pumping | | Corporate and Other(2) | | Consolidated |
September 30, 2011 | | | | | | | | | |
Revenues | $ | 7,472,246 |
| | $ | 1,083,543 |
| | $ | 218,481 |
| | $ | — |
| | $ | 8,774,270 |
|
Cost of services | (7,051,714 | ) | | (1,110,902 | ) | | (425,736 | ) | | — |
| | (8,588,352 | ) |
Gross profit (loss)(1) | 420,532 |
| | (27,359 | ) | | (207,255 | ) | | — |
| | 185,918 |
|
Depreciation | (1,416,575 | ) | | (727,249 | ) | | (302,050 | ) | | — |
| | (2,445,874 | ) |
General and administrative expense | — |
| | — |
| | — |
| | (3,757,713 | ) | | (3,757,713 | ) |
Operating income (loss) | $ | (996,043 | ) | | $ | (754,608 | ) | | $ | (509,305 | ) | | $ | (3,757,713 | ) | | $ | (6,017,669 | ) |
Capital expenditures, including equipment deposits | 42,911,729 |
| | 1,522,994 |
| | 71,000 |
| | — |
| | 44,505,723 |
|
___________________
| |
(1) | Gross Profit represents Revenues minus Costs of services. |
(2) “Corporate and Other” represents items that are not directly related to a particular operating segment and eliminations.
Excluding the $2.4 million and $3.8 million in corporate general and administrative expenses for the three-month periods ended September 30, 2012 and 2011, respectively, total operating segments’ loss for such periods would have been $1.8 million and $2.3 million, respectively.
Summarized financial information concerning our segments for the nine-month periods ending September 30, 2012 and 2011, respectively, is shown in the following tables:
|
| | | | | | | | | | | | | | | | | | | |
Nine Months Ended | Hydraulic Fracturing | | Coiled Tubing | | Other Pressure Pumping | | Corporate and Other(2) | | Consolidated |
September 30, 2012 | | | | | | | | | |
Revenues | $ | 99,591,232 |
| | $ | 6,187,928 |
| | $ | 3,916,371 |
| | $ | — |
| | $ | 109,695,531 |
|
Cost of services | (84,170,839 | ) | | (6,220,156 | ) | | (3,231,302 | ) | | (4,608,595 | ) | | (98,230,892 | ) |
Gross profit (loss)(1) | 15,420,393 |
| | (32,228 | ) | | 685,069 |
| | (4,608,595 | ) | | 11,464,639 |
|
Depreciation | (10,770,582 | ) | | (3,222,193 | ) | | (1,462,278 | ) | | (112,951 | ) | | (15,568,004 | ) |
General and administrative expense | — |
| | — |
| | — |
| | (11,333,987 | ) | | (11,333,987 | ) |
Loss on disposal of assets | (313,374 | ) | | — |
| | — |
| | 124,084 |
| | (189,290 | ) |
Operating income (loss) | $ | 4,336,437 |
| | $ | (3,254,421 | ) | | $ | (777,209 | ) | | $ | (15,931,449 | ) | | $ | (15,626,642 | ) |
Capital expenditures, including equipment deposits | 11,710,726 |
| | 8,938 |
| | 100,502 |
| | — |
| | 11,820,166 |
|
|
| | | | | | | | | | | | | | | | | | | |
Nine Months Ended | Hydraulic Fracturing | | Coiled Tubing | | Other Pressure Pumping | | Corporate and Other(2) | | Consolidated |
September 30, 2011 | | | | | | | | | |
Revenues | $ | 7,472,246 |
| | $ | 1,884,866 |
| | $ | 521,088 |
| | $ | — |
| | $ | 9,878,200 |
|
Cost of services | (7,199,386 | ) | | (2,252,388 | ) | | (624,546 | ) | | — |
| | (10,076,320 | ) |
Gross profit (loss)(1) | 272,860 |
| | (367,522 | ) | | (103,458 | ) | | — |
| | (198,120 | ) |
Depreciation | (1,526,482 | ) | | (1,603,175 | ) | | (663,264 | ) | | — |
| | (3,792,921 | ) |
General and administrative expense | — |
| | — |
| | — |
| | (8,379,305 | ) | | (8,379,305 | ) |
Operating income (loss) | $ | (1,253,622 | ) | | $ | (1,970,697 | ) | | $ | (766,722 | ) | | $ | (8,379,305 | ) | | $ | (12,370,346 | ) |
Capital expenditures, including equipment deposits | 88,347,821 |
| | 7,370,268 |
| | 142,000 |
| | — |
| | 95,860,089 |
|
_________________
| |
(1) | Gross Profit represents Revenues minus Costs of services. |
| |
(2) | “Corporate and Other” represents items that are not directly related to a particular operating segment and eliminations. Excluding the $11.3 million and $8.4 million in corporate general and administrative expenses for the nine-month periods ended September 30, 2012 and 2011, respectively, total operating segments’ loss for such periods would have been $4.3 million and $4.0 million, respectively. |
The total assets per segment were as follows as of:
|
| | | | | | | | | | | | | | | | | | | |
| Hydraulic Fracturing | | Coiled Tubing | | Other Pressure Pumping | | Corporate and Other(2) | | Consolidated |
September 30, 2012 | $ | 196,823,502 |
| | $ | 26,631,407 |
| | $ | 11,000,567 |
| | $ | 5,285,302 |
| | $ | 239,740,778 |
|
December 31, 2011 | $ | 173,249,544 |
| | $ | 29,346,158 |
| | $ | 6,933,086 |
| | $ | 29,506,955 |
| | $ | 239,035,743 |
|
NOTE 15—SUPPLEMENTAL FINANCIAL INFORMATION
Prepayments consisted of the following:
|
| | | | | | | |
| | | |
| September 30, 2012 | | December 31, 2011 |
Prepayments for | | | |
Materials and equipment | $ | 17,013,564 |
| | $ | 6,420,228 |
|
Insurance | 1,820,283 |
| | 563,494 |
|
Rents and leases | 553,212 |
| | 568,097 |
|
Security deposits and permits | 12,001 |
| | 12,001 |
|
Total prepayments | $ | 19,399,060 |
| | $ | 7,563,820 |
|
Other assets consisted of the following:
|
| | | | | | | |
| September 30, 2012 | | December 31, 2011 |
Deferred costs related to | | | |
Senior Notes, Original and Additional | $ | 9,908,499 |
| | $ | 12,169,964 |
|
Equity offering and line of credit | 91,647 |
| | 1,873,392 |
|
Security deposits related to operating leases | 2,038,723 |
| | 2,133,387 |
|
Total other assets | $ | 12,038,869 |
| | $ | 16,176,743 |
|
Accrued expenses consisted of the following:
|
| | | | | | | |
| September 30, 2012 | | December 31, 2011 |
Accrued payroll | $ | 1,019,675 |
| | $ | 1,628,170 |
|
Accrued expenses | 10,105,509 |
| | 2,073,290 |
|
Accrued taxes | 103,529 |
| | 1,829,699 |
|
Accruals related to various materials and equipment | 5,385,462 |
| | 5,511,491 |
|
Accrued interest on Senior Notes | 1,986,954 |
| | 8,222,380 |
|
Total accrued expenses | $ | 18,601,129 |
| | $ | 19,265,030 |
|
Supplemental cash flow information was as follows for the nine-months ended:
|
| | | | | | | |
| | | |
| September 30, 2012 | | September 30, 2011 |
Accounts receivable | $ | 13,041,801 |
| | $ | (7,513,135 | ) |
Inventory | (523,868 | ) | | (433,606 | ) |
Prepaids and other current assets | (9,384,480 | ) | | (5,685,208 | ) |
Accounts payable and accrued expenses | 26,116,148 |
| | 15,898,508 |
|
Affiliate Payable | (2,018,307 | ) | | — |
|
Deferred revenue | (7,127,129 | ) | | — |
|
Changes in assets and liabilities | $ | 20,104,165 |
| | $ | 2,266,559 |
|
NOTE 16—FINANCIAL INFORMATION ABOUT THE COMPANY AND THE SUBSIDIARY GUARANTOR
On March 3, 2011 and September 29, 2011, Platinum Energy Solutions, Inc. ("PES") completed the private placement of the 14.25% Senior Secured Notes due March 2015, guaranteed on a senior secured basis by Platinum Pressure Pumping, Inc., a wholly owned subsidiary of PES (“PPP” or the “Guarantor”). The guarantee is full and unconditional and (if additional subsidiary guarantors are added) will be joint and several with such other subsidiary guarantors and the Guarantor is 100% owned by PES. Under the terms of the Indenture for the Senior Notes, as amended, PPP may not sell or otherwise dispose of all or substantially all of its assets to, or merge with or into another entity, other than the Company, unless no default exists under the Indenture, as amended, and the acquirer assumes all of the obligations of the Guarantor under the Indenture, as amended. PES is a holding company with no significant operations, other than through its subsidiary.
The following condensed consolidating financial statements present the consolidated balance sheets, consolidated statements of comprehensive loss and consolidated statements of cash flows of PES as parent, PPP as the guarantor subsidiary and non-guarantor entities for the periods reported.
PLATINUM ENERGY SOLUTIONS, INC. CONDENSED CONSOLIDATING BALANCE SHEET September 30, 2012 (Unaudited) |
| | | | | | | | | | | | | | | | | | | |
| Parent (PES) | | Guarantor (PPP) | | Non-Guarantor Entities | | Eliminations | | Consolidated |
Assets | | | | | | | | | |
Current assets: | | | | | | | | | |
Cash and cash equivalents | $ | 1,742,885 |
| | $ | 12,238,808 |
| | $ | 305,407 |
| | $ | — |
| | $ | 14,287,100 |
|
Accounts receivable, net | 150,000 |
| | 16,234,769 |
| | 2,624 |
| | — |
| | 16,387,393 |
|
Inventory | — |
| | 5,795,941 |
| | — |
| | — |
| | 5,795,941 |
|
Investment in subsidiary | 1,000 |
| | — |
| | — |
| | (1,000 | ) | | — |
|
Prepayments and other current assets | 1,882,284 |
| | 17,516,776 |
| | — |
| | — |
| | 19,399,060 |
|
Deferred tax asset | — |
| | — |
| | 191,762 |
| | — |
| | 191,762 |
|
Intercompany receivables | 189,658,160 |
| | — |
| | — |
| | (189,658,160 | ) | | — |
|
Total current assets | $ | 193,434,329 |
| | $ | 51,786,294 |
| | $ | 499,793 |
| | $ | (189,659,160 | ) | | $ | 56,061,256 |
|
Property and equipment, net | — |
| | 158,991,899 |
| | 12,648,754 |
| | — |
| | 171,640,653 |
|
Other assets | 10,009,174 |
| | 2,029,695 |
| | — |
| | — |
| | 12,038,869 |
|
Total assets | $ | 203,443,503 |
| | $ | 212,807,888 |
| | $ | 13,148,547 |
| | $ | (189,659,160 | ) | | $ | 239,740,778 |
|
Liabilities and Stockholders’ Equity (Deficit) | | | | | | | | |
Current liabilities: | | | | | | | | | |
Line of credit | $ | 15,000,000 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 15,000,000 |
|
Accounts payable—Trade | 4,135,447 |
| | 33,710,541 |
| | 95,900 |
| | — |
| | 37,941,888 |
|
Accounts payable—Capital expenditures | — |
| | 18,205,973 |
| | — |
| | — |
| | 18,205,973 |
|
Accrued expenses | 2,858,373 |
| | 15,710,198 |
| | 32,558 |
| | — |
| | 18,601,129 |
|
Intercompany payables | — |
| | 189,658,160 |
| | — |
| | (189,658,160 | ) | | — |
|
Amounts due to affiliates | — |
| | — |
| | — |
| | — |
| | — |
|
Deferred tax liabilities | — |
| | — |
| | — |
| | — |
| | — |
|
Deferred revenue | — |
| | 6,000,000 |
| | — |
| | — |
| | 6,000,000 |
|
Total current liabilities | $ | 21,993,820 |
| | $ | 263,284,872 |
| | $ | 128,458 |
| | $ | (189,658,160 | ) | | $ | 95,748,990 |
|
Long-term debt | 168,688,727 |
| | — |
| | — |
| | — |
| | 168,688,727 |
|
Amounts due to affiliates | 20,106 |
| | (18,443 | ) | | 9,085,086 |
| | — |
| | 9,086,749 |
|
Deferred revenue | — |
| | — |
| | — |
| | — |
| | — |
|
Deferred tax liabilities | — |
| | — |
| | 1,323,408 |
| | — |
| | 1,323,408 |
|
Total liabilities | $ | 190,702,653 |
| | $ | 263,266,429 |
| | $ | 10,536,952 |
| | $ | (189,658,160 | ) | | $ | 274,847,874 |
|
Stockholders’ Equity (Deficit): | | | | | | | | | |
Preferred Stock | 34 |
| | — |
| | — |
| | — |
| | 34 |
|
Common Stock | 16,348 |
| | 1,000 |
| | — |
| | (1,000 | ) | | 16,348 |
|
Additional paid in capital | 39,416,893 |
| | — |
| | — |
| | — |
| | 39,416,893 |
|
Accumulated OCI | — |
| | — |
| | — |
| | — |
| | — |
|
Accumulated deficit | (26,692,425 | ) | | (50,459,541 | ) | | — |
| | — |
| | (77,151,966 | ) |
Total stockholders’ equity (deficit) | $ | 12,740,850 |
| | $ | (50,458,541 | ) | | $ | — |
| | $ | (1,000 | ) | | $ | (37,718,691 | ) |
Noncontrolling interest | — |
| | — |
| | 2,611,595 |
| | — |
| | 2,611,595 |
|
Total Platinum stockholders’ equity (deficit) | $ | 12,740,850 |
| | $ | (50,458,541 | ) | | $ | 2,611,595 |
| | $ | (1,000 | ) | | $ | (35,107,096 | ) |
Total liabilities and stockholders’ equity (deficit) | $ | 203,443,503 |
| | $ | 212,807,888 |
| | $ | 13,148,547 |
| | $ | (189,659,160 | ) | | $ | 239,740,778 |
|
PLATINUM ENERGY SOLUTIONS, INC. CONDENSED CONSOLIDATING BALANCE SHEET December 31, 2011 |
| | | | | | | | | | | | | | | | | | | |
Assets | Parent (PES) | | Guarantor (PPP) | | Non-Guarantor Entities | | Eliminations | | Consolidated |
Current assets: | | | | | | | | | |
Cash and cash equivalents | $ | 7,835,894 |
| | $ | 2,018,418 |
| | $ | 299,001 |
| | $ | — |
| | $ | 10,153,313 |
|
Accounts receivable, net | — |
| | 29,392,767 |
| | 36,427 |
| | — |
| | 29,429,194 |
|
Available for sale investment securities | 4,951,361 |
| | — |
| | — |
| | — |
| | 4,951,361 |
|
Inventory | — |
| | 5,272,073 |
| | — |
| | — |
| | 5,272,073 |
|
Investment in subsidiary | 1,000 |
| | — |
| | — |
| | (1,000 | ) | | — |
|
Prepayments and other current assets | 538,378 |
| | 7,025,442 |
| | — |
| | — |
| | 7,563,820 |
|
Deferred tax asset | — |
| | — |
| | 191,762 |
| | — |
| | 191,762 |
|
Intercompany receivables | 173,460,201 |
| | — |
| | — |
| | (173,460,201 | ) | | — |
|
Total current assets | $ | 186,786,834 |
| | $ | 43,708,700 |
| | $ | 527,190 |
| | $ | (173,461,201 | ) | | $ | 57,561,523 |
|
Property and equipment, net | — |
| | 150,194,657 |
| | 15,102,820 |
| | — |
| | 165,297,477 |
|
Other assets | 14,052,383 |
| | 2,124,360 |
| | — |
| | — |
| | 16,176,743 |
|
Total assets | $ | 200,839,217 |
| | $ | 196,027,717 |
| | $ | 15,630,010 |
| | $ | (173,461,201 | ) | | $ | 239,035,743 |
|
Liabilities and Stockholders’ Equity (Deficit) | | | | | | |
Current liabilities: | | | | | | | | | |
Line of credit | $ | 18,958,512 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 18,958,512 |
|
Accounts payable—Trade | 914,572 |
| | 9,826,934 |
| | 95,900 |
| | — |
| | 10,837,406 |
|
Accounts payable—Capital expenditures | — |
| | 8,114,960 |
| | — |
| | — |
| | 8,114,960 |
|
Accrued expenses | 10,675,351 |
| | 8,589,708 |
| | (29 | ) | | — |
| | 19,265,030 |
|
Intercompany payables | — |
| | 173,460,201 |
| | — |
| | (173,460,201 | ) | | — |
|
Deferred revenue | — |
| | 9,627,129 |
| | — |
| | — |
| | 9,627,129 |
|
Deferred tax liabilities | — |
| | — |
| | — |
| | — |
| | — |
|
Total current liabilities | $ | 30,548,435 |
| | $ | 209,618,932 |
| | $ | 95,871 |
| | $ | (173,460,201 | ) | | $ | 66,803,037 |
|
Long-term debt | 167,689,860 |
| | — |
| | — |
| | — |
| | 167,689,860 |
|
Amounts due to affiliates | — |
| | — |
| | 11,105,056 |
| | — |
| | 11,105,056 |
|
Deferred revenue | — |
| | 3,500,000 |
| | — |
| | — |
| | 3,500,000 |
|
Deferred tax liabilities | — |
| | — |
| | 1,562,942 |
| | — |
| | 1,562,942 |
|
Total liabilities | $ | 198,238,295 |
| | $ | 213,118,932 |
| | $ | 12,763,869 |
| | $ | (173,460,201 | ) | | $ | 250,660,895 |
|
Stockholders’ Equity (Deficit): | | | | | | | | | |
Preferred Stock | 20 |
| | — |
| | — |
| | — |
| | 20 |
|
Common Stock | 15,535 |
| | 1,000 |
| | — |
| | (1,000 | ) | | 15,535 |
|
Additional paid in capital | 25,240,012 |
| | — |
| | — |
| | — |
| | 25,240,012 |
|
Accumulated OCI | 35,434 |
| | — |
| | — |
| | — |
| | 35,434 |
|
Accumulated deficit | (22,690,079 | ) | | (17,092,215 | ) | | — |
| | — |
| | (39,782,294 | ) |
Total stockholders’ equity (deficit) | $ | 2,600,922 |
| | $ | (17,091,215 | ) | | — |
| | $ | (1,000 | ) | | $ | (14,491,293 | ) |
Noncontrolling interest | — |
| | — |
| | 2,866,141 |
| | — |
| | 2,866,141 |
|
Total Platinum stockholders’ equity (deficit) | $ | 2,600,922 |
| | $ | (17,091,215 | ) | | $ | 2,866,141 |
| | $ | (1,000 | ) | | $ | (11,625,152 | ) |
Total liabilities and stockholders’ equity (deficit) | $ | 200,839,217 |
| | $ | 196,027,717 |
| | $ | 15,630,010 |
| | $ | (173,461,201 | ) | | $ | 239,035,743 |
|
PLATINUM ENERGY SOLUTIONS, INC. CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE LOSS Three Months Ended September 30, 2012 (Unaudited) |
| | | | | | | | | | | | | | | | | | | |
| Parent (PES) | | Guarantor (PPP) | | Non-Guarantor Entities | | Eliminations | | Consolidated |
Revenue | $ | — |
| | $ | 36,623,590 |
| | $ | 630,000 |
| | $ | (630,000 | ) | | $ | 36,623,590 |
|
Cost of services | — |
| | (33,589,255 | ) | | (25,874 | ) | | 630,000 |
| | (32,985,129 | ) |
Depreciation | — |
| | (4,417,193 | ) | | (816,666 | ) | | — |
| | (5,233,859 | ) |
General and administrative expenses | (1,325,805 | ) | | (1,104,903 | ) | | (3,780 | ) | | — |
| | (2,434,488 | ) |
Loss on disposal of assets | — |
| | (189,290 | ) | | — |
| | — |
| | (189,290 | ) |
Loss from operations | $ | (1,325,805 | ) | | $ | (2,677,051 | ) | | $ | (216,320 | ) | | $ | — |
| | $ | (4,219,176 | ) |
Interest income (expense), net | 1,315,833 |
| | (8,841,607 | ) | | 33,522 |
| | — |
| | (7,492,252 | ) |
Loss before income tax | $ | (9,972 | ) | | $ | (11,518,658 | ) | | $ | (182,798 | ) | | $ | — |
| | $ | (11,711,428 | ) |
Income tax benefit | — |
| | 167,675 |
| | 87,727 |
| | — |
| | 255,402 |
|
Net loss | $ | (9,972 | ) | | $ | (11,350,983 | ) | | $ | (95,071 | ) | | $ | — |
| | $ | (11,456,026 | ) |
PLATINUM ENERGY SOLUTIONS, INC. CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE LOSS Three Months Ended September 30, 2011 (Unaudited) |
| | | | | | | | | | | | | | | | | | | |
| Parent (PES) | | Guarantor (PPP) | | Non-Guarantor Entities | | Eliminations | | Consolidated |
Revenue | $ | — |
| | $ | 8,738,216 |
| | $ | 666,054 |
| | $ | (630,000 | ) | | $ | 8,774,270 |
|
Cost of services | — |
| | (9,167,316 | ) | | (51,036 | ) | | 630,000 |
| | (8,588,352 | ) |
Depreciation | — |
| | (1,582,758 | ) | | (863,116 | ) | | — |
| | (2,445,874 | ) |
General and administrative expenses | (3,260,783 | ) | | (452,233 | ) | | (44,697 | ) | | — |
| | (3,757,713 | ) |
Loss from operations | $ | (3,260,783 | ) | | $ | (2,464,091 | ) | | $ | (292,795 | ) | | $ | — |
| | $ | (6,017,669 | ) |
Interest income (expense), net | (5,083,688 | ) | | — |
| | 41,144 |
| | — |
| | (5,042,544 | ) |
Loss before income tax | $ | (8,344,471 | ) | | $ | (2,464,091 | ) | | $ | (251,651 | ) | | $ | — |
| | $ | (11,060,213 | ) |
Income tax benefit | — |
| | — |
| | 114,190 |
| | — |
| | 114,190 |
|
Net loss | $ | (8,344,471 | ) | | $ | (2,464,091 | ) | | $ | (137,461 | ) | | $ | — |
| | $ | (10,946,023 | ) |
PLATINUM ENERGY SOLUTIONS, INC. CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE LOSS Nine Months Ended September 30, 2012 (Unaudited) |
| | | | | | | | | | | | | | | | | | | |
| Parent (PES) | | Guarantor (PPP) | | Non-Guarantor Entities | | Eliminations | | Consolidated |
Revenue | $ | — |
| | $ | 109,695,531 |
| | $ | 1,890,000 |
| | $ | (1,890,000 | ) | | $ | 109,695,531 |
|
Cost of services | — |
| | (100,095,018 | ) | | (25,874 | ) | | 1,890,000 |
| | (98,230,892 | ) |
Depreciation | — |
| | (13,113,938 | ) | | (2,454,066 | ) | | — |
| | (15,568,004 | ) |
General and administrative expenses | (7,011,314 | ) | | (4,318,775 | ) | | (3,898 | ) | | — |
| | (11,333,987 | ) |
Loss on disposal of assets | — |
| | (189,290 | ) | | — |
| | — |
| | (189,290 | ) |
Loss from operations | $ | (7,011,314 | ) | | $ | (8,021,490 | ) | | $ | (593,838 | ) | | $ | — |
| | $ | (15,626,642 | ) |
Interest income (expense), net | 3,008,968 |
| | (25,345,837 | ) | | 99,759 |
| | — |
| | (22,237,110 | ) |
Loss before income tax | $ | (4,002,346 | ) | | $ | (33,367,327 | ) | | $ | (494,079 | ) | | $ | — |
| | $ | (37,863,752 | ) |
Income tax benefit | — |
| | — |
| | 239,534 |
| | — |
| | 239,534 |
|
Net loss | $ | (4,002,346 | ) | | $ | (33,367,327 | ) | | $ | (254,545 | ) | | $ | — |
| | $ | (37,624,218 | ) |
PLATINUM ENERGY SOLUTIONS, INC. CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE LOSS Nine Months Ended September 30, 2011 (Unaudited) |
| | | | | | | | | | | | | | | | | | | |
| Parent (PES) | | Guarantor (PPP) | | Non-Guarantor Entities | | Eliminations | | Consolidated |
Revenue | $ | — |
| | $ | 9,842,146 |
| | $ | 1,506,054 |
| | $ | (1,470,000 | ) | | $ | 9,878,200 |
|
Cost of services | — |
| | (11,482,746 | ) | | (63,574 | ) | | 1,470,000 |
| | (10,076,320 | ) |
Depreciation | — |
| | (1,817,642 | ) | | (1,975,279 | ) | | — |
| | (3,792,921 | ) |
General and administrative expenses | (7,687,464 | ) | | (644,969 | ) | | (46,872 | ) | | — |
| | (8,379,305 | ) |
Loss from operations | $ | (7,687,464 | ) | | $ | (4,103,211 | ) | | $ | (579,671 | ) | | $ | — |
| | $ | (12,370,346 | ) |
Interest income (expense), net | (11,601,056 | ) | | — |
| | 89,559 |
| | — |
| | (11,511,497 | ) |
Loss before income tax | $ | (19,288,520 | ) | | $ | (4,103,211 | ) | | $ | (490,112 | ) | | $ | — |
| | $ | (23,881,843 | ) |
Income tax benefit | — |
| | — |
| | 222,965 |
| | — |
| | 222,965 |
|
Net loss | $ | (19,288,520 | ) | | $ | (4,103,211 | ) | | $ | (267,147 | ) | | $ | — |
| | $ | (23,658,878 | ) |
PLATINUM ENERGY SOLUTIONS, INC. CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS Nine Months Ended September 30, 2012 (Unaudited) |
| | | | | | | | | | | | | | | | | | | |
| Parent (PES) | | Guarantor (PPP) | | Non-Guarantor Entities | | Eliminations | | Consolidated |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | |
Net loss | $ | (4,002,346 | ) | | $ | (33,367,327 | ) | | $ | (254,545 | ) | | $ | — |
| | $ | (37,624,218 | ) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | | |
Depreciation | — |
| | 13,113,938 |
| | 2,454,066 |
| | — |
| | 15,568,004 |
|
Amortization of debt issuance costs and debt discounts | 3,260,332 |
| | — |
| | — |
| | — |
| | 3,260,332 |
|
Loss on disposal of assets | — |
| | 189,290 |
| | — |
| | — |
| | 189,290 |
|
Deferred income taxes | — |
| | — |
| | (239,534 | ) | | — |
| | (239,534 | ) |
Stock-based compensation | 782,281 |
| | — |
| | — |
| | — |
| | 782,281 |
|
Write off of equity offering costs | 2,273,805 |
| | — |
| | — |
| | — |
| | 2,273,805 |
|
Changes in assets and liabilities: | | | | | | | | |
|
Accounts receivable | (150,000 | ) | | 13,157,998 |
| | 33,803 |
| | — |
| | 13,041,801 |
|
Intercompany receivables | (16,197,959 | ) | | — |
| | — |
| | 16,197,959 |
| | — |
|
Inventory | — |
| | (523,868 | ) | | — |
| | — |
| | (523,868 | ) |
Accounts payable and accrued expenses | (4,731,245 | ) | | 30,814,807 |
| | 32,586 |
| | — |
| | 26,116,148 |
|
Affiliates Payable | 20,106 |
| | (18,443 | ) | | (2,019,970 | ) | | — |
| | (2,018,307 | ) |
Intercompany payables | — |
| | 16,197,959 |
| | — |
| | (16,197,959 | ) | | — |
|
Other current assets | (1,343,906 | ) | | (8,040,574 | ) | | — |
| | — |
| | (9,384,480 | ) |
Deferred revenue | — |
| | (7,127,129 | ) | | — |
| | — |
| | (7,127,129 | ) |
Net cash provided by (used in) operating activities | $ | (20,088,932 | ) | | $ | 24,396,651 |
| | $ | 6,406 |
| | $ | — |
| | $ | 4,314,125 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: | | |
Purchase of investment securities | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Sale of investment securities | 4,915,927 |
| | — |
| | — |
| | — |
| | 4,915,927 |
|
Purchase of and deposits for property and equipment | — |
| | (11,820,166 | ) | | — |
| | — |
| | (11,820,166 | ) |
Other | 38,943 |
| | 94,665 |
| | — |
| | — |
| | 133,608 |
|
Net cash provided by (used in) investing activities | $ | 4,954,870 |
| | $ | (11,725,501 | ) | | $ | — |
| | $ | — |
| | $ | (6,770,631 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES: | | |
Proceeds from issued common stock | $ | 13,530,569 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 13,530,569 |
|
Payment of financed insurance arrangement | — |
| | (2,450,760 | ) | | — |
| | — |
| | (2,450,760 | ) |
Repayment of line of credit | (3,958,512 | ) | | — |
| | — |
| | — |
| | (3,958,512 | ) |
Payment of equity offering costs | (531,004 | ) | | — |
| | — |
| | — |
| | (531,004 | ) |
Net cash provided by financing activities | $ | 9,041,053 |
| | $ | (2,450,760 | ) | | $ | — |
| | $ | — |
| | $ | 6,590,293 |
|
Net increase (decrease) in cash and cash equivalents | $ | (6,093,009 | ) | | $ | 10,220,390 |
| | $ | 6,406 |
| | $ | — |
| | $ | 4,133,787 |
|
Cash and cash equivalents—Beginning | 7,835,894 |
| | 2,018,418 |
| | 299,001 |
| | — |
| | 10,153,313 |
|
Cash and cash equivalents—Ending | $ | 1,742,885 |
| | $ | 12,238,808 |
| | $ | 305,407 |
| | $ | — |
| | $ | 14,287,100 |
|
PLATINUM ENERGY SOLUTIONS, INC. CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS Nine Months Ended September 30, 2011 (Unaudited) |
| | | | | | | | | | | | | | | | | | | |
| Parent (PES) | | Guarantor (PPP) | | Non-Guarantor Entities | | Eliminations | | Consolidated |
CASH FLOWS FROM OPERATING ACTIVITIES: | | |
Net loss | $ | (19,288,520 | ) | | $ | (4,103,211 | ) | | $ | (267,147 | ) | | $ | — |
| | $ | (23,658,878 | ) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | | |
Depreciation | — |
| | 1,817,642 |
| | 1,975,279 |
| | — |
| | 3,792,921 |
|
Amortization of debt issuance costs and debt discounts | 2,030,227 |
| | — |
| | — |
| | — |
| | 2,030,227 |
|
Deferred income taxes | — |
| | — |
| | (222,965 | ) | | — |
| | (222,965 | ) |
Stock-based compensation | 623,387 |
| | — |
| | — |
| | — |
| | 623,387 |
|
Changes in assets and liabilities: | | | | | | | | | |
Accounts receivable | — |
| | (8,457,527 | ) | | 944,392 |
| | — |
| | (7,513,135 | ) |
Inventory | — |
| | (433,606 | ) | | — |
| | — |
| | (433,606 | ) |
Intercompany receivables | (107,594,161 | ) | | — |
| | — |
| | 107,594,161 |
| | — |
|
Accounts payable and accrued expenses | 12,483,922 |
| | 5,629,536 |
| | (2,214,950 | ) | | — |
| | 15,898,508 |
|
Intercompany payables | — |
| | 107,594,161 |
| | — |
| | (107,594,161 | ) | | — |
|
Other current assets | (1,073,665 | ) | | (4,611,543 | ) | | — |
| | — |
| | (5,685,208 | ) |
Net cash provided by (used in) operating activities | $ | (112,818,810 | ) | | $ | 97,435,452 |
| | $ | 214,609 |
| | $ | — |
| | $ | (15,168,749 | ) |
CASH FLOWS FROM INVESTING ACTIVITIES: | | |
Purchase of investment securities | $ | (5,654,717 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | (5,654,717 | ) |
Sale of investment securities | 2,753,177 |
| | — |
| | — |
| | — |
| | 2,753,177 |
|
Purchase of and deposits for property and equipment | — |
| | (95,411,266 | ) | | (142,001 | ) | | — |
| | (95,553,267 | ) |
Other | — |
| | — |
| | 6,986 |
| | — |
| | 6,986 |
|
Net cash used in investing activities | $ | (2,901,540 | ) | | $ | (95,411,266 | ) | | $ | (135,015 | ) | | $ | — |
| | $ | (98,447,821 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES: | | |
Net proceeds from issued senior notes | $ | 159,928,600 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 159,928,600 |
|
Proceeds from issued preferred stock | 20,000,000 |
| | — |
| | — |
| | — |
| | 20,000,000 |
|
Payment of debt issuance costs | (14,211,330 | ) | | — |
| | — |
| | — |
| | (14,211,330 | ) |
Receipt of initial capital | (1,000 | ) | | 1,000 |
| | — |
| | — |
| | — |
|
Payment of equity offering costs | (732,267 | ) | | — |
| | — |
| | — |
| | (732,267 | ) |
Release of restricted cash | 6,637,493 |
| | — |
| | — |
| | — |
| | 6,637,493 |
|
Repayment of line of credit | (6,746,889 | ) | | — |
| | — |
| | — |
| | (6,746,889 | ) |
Contribution from noncontrolling interests | — |
| | — |
| | 215,600 |
| | — |
| | 215,600 |
|
Net cash provided by financing activities | $ | 164,874,607 |
| | $ | 1,000 |
| | $ | 215,600 |
| | $ | — |
| | $ | 165,091,207 |
|
Net increase in cash and cash equivalents | $ | 49,154,257 |
| | $ | 2,025,186 |
| | $ | 295,194 |
| | $ | — |
| | $ | 51,474,637 |
|
Cash and cash equivalents—Beginning | 1,431,595 |
| | — |
| | — |
| | — |
| | 1,431,595 |
|
Cash and cash equivalents—Ending | $ | 50,585,852 |
| | $ | 2,025,186 |
| | $ | 295,194 |
| | $ | — |
| | $ | 52,906,232 |
|
NOTE 17—SUBSEQUENT EVENT
The Company, JPMorgan Chase Bank, N.A. (the “Bank”) and Platinum Pressure Pumping, Inc. (the “Guarantor”) entered into a second amendment, dated as of November 9, 2012 (the “Second Amendment to Credit Agreement”), to that certain credit agreement, dated as of December 28, 2011, by and among the Company, the Bank and the Guarantor, as amended by First Amendment thereto dated as of May 11, 2012 (the “Credit Agreement”). Pursuant to the Second Amendment to Credit Agreement, among other things,
(1) Non-Recurring Expenses is defined to mean (i) up to $2,600,000 in non-recurring expenses incurred in the first quarter of 2012, (ii) up to $9,000,000 in non-cash, non-recurring expenses for potential write-offs in 2012 related to equipment deposits, as approved by Bank in its sole discretion, (iii) up to $2,961,557 in non-recurring expenses incurred in the second quarter of 2012 and (iv) up to $174,631 in non-recurring expenses incurred in the third quarter of 2012 for stock-based compensation expenses during July and August, 2012.
(2) The Bank waives non-compliance by the Company with (a) the Leverage Ratio (as defined in the Credit Agreement) and the Fixed Charge Coverage Ratio (as defined in the Credit Agreement) for the quarter ending September 30, 2012 and any event of default caused thereby and (b) the Minimum Average Daily Cash Position (as defined in the Credit Agreement) for the month ending September 30, 2012 and any event of default caused thereby.
(3) The Company shall maintain at all times (a) a Leverage Ratio of not more than (i) 6.0 to 1.0 measured as of December 31, 2012 and (ii) 4.0 to 1.0 measured quarterly thereafter, (b) a Fixed Charge Coverage Ratio of not less than (i) 1.0 to 1.0 measured as of December 31, 2012 and (ii) 1.25 to 1.0 measured quarterly thereafter beginning March 31, 2013.
(4) The Second Amendment to Credit Agreement clarifies that the EBITDA Add-backs shall be applicable to all applicable covenant calculations and that the Non-Recurring Expenses set forth in the Second Amendment to Credit Agreement are applicable in covenant calculations for the periods ending June 30, 2012 and September 30, 2012.
(5) The Bank waives for the calendar year 2012 the requirement that the Company pay the outstanding indebtedness due thereunder to zero and maintain such zero balance for 30 consecutive days during each 12-month period.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the accompanying unaudited condensed consolidated financial statements as of September 30, 2012 and for the three and nine months ended September 30, 2012 and 2011 included elsewhere herein, and with our special report on Form 10-K for the year ended December 31, 2011. The following discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth elsewhere in this quarterly report on Form 10-Q. See “Forward-Looking Statements” above.
In this report, the “Company,” “we,” or “Platinum” refers to Platinum Energy Solutions, Inc. and its subsidiaries unless the context otherwise requires.
Overview
We are a Houston, Texas based oilfield services provider specializing in premium hydraulic fracturing, coiled tubing and other pressure pumping services. We started providing hydraulic fracturing services on August 29, 2011 to Petrohawk Energy Corporation which was later acquired by BHP Billiton Ltd (“Petrohawk”) in the Eagle Ford Shale. We started providing acid fracturing services on October 24, 2011 to El Paso in the Altamont Field in Utah. We commenced hydraulic fracturing services for Encana Oil & Gas (USA), Inc. (“Encana”) in the Haynesville Shale on November 29, 2011. In addition to the two hydraulic fracturing fleets we have purchased to service Petrohawk and Encana, we have purchased a substantial portion of a third hydraulic fracturing fleet and have deposits on fourth and fifth hydraulic fracturing fleets. The delivery of the equipment for these additional fleets is currently on hold and we are working closely with the equipment manufacturers as to when, or if, we will take delivery of the equipment. We utilize modern, high pressure-rated fracturing equipment that allows us to handle challenging geological environments, reduce operating costs, increase asset utilization and deliver excellent customer service. In addition, we have a contract for wet sand supply and physical capabilities around the transport, processing and storage of sand used in the hydraulic fracturing process. We believe this will be a competitive advantage, particularly given the current market constraint in the supply of dry sand. Our management team has extensive industry experience providing completion and workover services to exploration and production (“E&P”) companies.
Our Business
General
Historically, our revenue has been derived from the performance of coiled tubing and pressure pumping services. Since the end of August 2011, we have provided hydraulic fracturing services which currently provides, and we believe will continue to provide, the primary revenue source for the Company. Our revenue from coiled tubing and pressure pumping services has been, and we believe will continue to be, derived from prevailing market rates for coiled tubing and pressure pumping services, together with associated charges for stimulation fluids, nitrogen and coiled tubing materials.
Hydraulic Fracturing Services
Our revenues from hydraulic fracturing are derived from per-stage fees (often with monthly minimums) for the committed hydraulic fracturing fleets under term contracts, together, in some instances, with associated charges or handling fees for chemicals and proppants that are consumed during the fracturing process. The Company continues to seek additional long term arrangements with respect to our hydraulic fracturing fleets in the future. However, the Company may also seek additional revenue opportunities in the spot or short-term market, similar to our coiled tubing and pressure pumping arrangements.
Coiled Tubing Services
We provide coiled tubing services in the spot or short-term market. Coiled tubing is a key segment of the well service industry that allows operators to continue production during service operations without shutting down the well, reducing the risk of formation damage. The growth in deep well and horizontal drilling has increased the market for coiled tubing. Coiled tubing services involve using flexible steel pipe inserted into oil and gas wells to perform a variety of services. This flexible steel pipe, known as coiled tubing, is typically thousands of feet long and coiled onto a specialty truck. The small diameter of coiled tubing
allows it to be inserted through production tubing, allowing work to be done on an active well. Coiled tubing provides many advantages over costlier workover rigs. For example, wells do not have to cease production (shut in) during most coiled tubing operations, reducing the risk of damaging the formation. Additionally, coiled tubing can be inserted and removed more quickly than conventional pipe, which must be joined and unjoined. Coiled tubing also allows for the precise directing of fluids and treatment chemicals in a wellbore, resulting in better stimulation treatments. We are looking for creative ways to expand our coil tubing business. For example, we have recently entered into a short term agreement with a third party pursuant to which we agreed to lease of certain of our coiled tubing units to such third party in consideration for a share of the revenue received by the third party from the use of the equipment we leased to the third party.
Other Pressure Pumping Services
We also provide cementing and other pressure pumping services to our customers. Cementing services use pressure pumping equipment to deliver a slurry of liquid cement that is pumped down a well between the casing and the borehole. The principal use of cementing is known as primary cementing. Primary cementing provides isolation between fluid zones behind the casing to minimize potential damage to hydrocarbon bearing formations or the integrity of freshwater aquifers, and provides structural integrity for the casing by securing it to the earth. Cementing is also done when recompleting wells, where one zone is plugged and another is opened. Plugging and abandoning wells also requires cementing services. In addition to cementing services, we expect to provide other pressure pumping services, which will include well injection, cased-hole testing, workover pumping, mud displacement and wireline pumpdowns. Our customers would utilize these other pressure pumping services in connection with the completion of new wells and remedial and production enhancement work on existing wells.
Results of Operations
Our results of operations are driven primarily by four interrelated variables: (1) drilling and stimulation activities of our customers; (2) prices we charge for our services; (3) cost of products, materials and labor; and (4) our service performance. Because we bill the cost of raw materials, such as proppants, sand, and chemicals, to our customers in our term contracts, our profitability is not materially impacted by changes in the costs of such materials. To a large extent, the pricing environment for our services will dictate our level of profitability.
The following table presents selected information regarding the results of operations of our business for the three months ended September 30, 2012 and 2011, respectively:
|
| | | | | | | |
| Three Months Ended |
| | Three Months Ended |
| September 30, 2012 | | September 30, 2011 |
Revenue | $ | 36,623,590 |
| | $ | 8,774,270 |
|
Cost of services | (32,985,129 | ) | | (8,588,352 | ) |
Depreciation | (5,233,859 | ) | | (2,445,874 | ) |
General and administrative expense | (2,434,488 | ) | | (3,757,713 | ) |
Loss on disposal of assets | (189,290 | ) | | — |
|
Loss from operations | $ | (4,219,176 | ) | | $ | (6,017,669 | ) |
Interest expense, net | (7,492,252 | ) | | (5,042,544 | ) |
Loss before income tax | $ | (11,711,428 | ) | | $ | (11,060,213 | ) |
Income tax benefit | 255,402 |
| | 114,190 |
|
Net loss | $ | (11,456,026 | ) | | $ | (10,946,023 | ) |
Three Months Ended September 30, 2012 compared to the Three Months Ended September 30, 2011
Revenues. For the three-month period ended September 30, 2012 we had $36.6 million of revenue of which approximately 93.8% was generated from hydraulic fracturing services, 1.2% from coil tubing services and 5.0% from other pressure pumping services. Compared to the $8.8 million of revenue in the three-month period ended September 30, 2011, of which approximately 85.2%, 12.3% and 2.5% was generated from hydraulic fracturing, coiled tubing services and other pressure pumping services, respectively, we substantially increased our revenue during the current quarter, with the month of August 2012 being our best month, due primarily to hydraulic fracturing services that we commenced during the third quarter of 2011.
Cost of Services. Our cost of services, excluding depreciation, for the three-month period ended September 30, 2012 was approximately $33.0 million, which was primarily related to costs of materials, labor, spare parts and fuel used in hydraulic fracturing, coil tubing and other pressure pumping services, as compared to $8.6 million for the same period in the prior year, The significant increase in cost of services of $24.4 million was the result of commencing hydraulic fracturing services during the third quarter of 2011. The increase was in direct proportion to increased revenue in the current period and coupled with a reduction in our cost of services, as a percentage of revenue, to less than 90% in the current period from 98% in the prior period of early stage of operations.
Depreciation. Our depreciation expense for the three-month period ended September 30, 2012 was approximately $5.2 million, an increase of $2.8 million over the comparable prior year period, primarily related to the addition of significant new hydraulic fracturing fleets and coil tubing equipment acquired during the second half of 2011 and early 2012. Our depreciation expense for the three-month period ended September 30, 2011 was approximately $2.4 million due to our then relatively early stage of operations.
General and administrative expense. General and administrative expenses were $2.4 million for the three-month period ended September 30, 2012 and were comprised primarily of professional fees for legal and accounting services, payroll related costs and insurance expenses. The decrease of $1.3 million over the comparable period of the prior year was primarily due to a significant reduction of costs related to professional and legal services associated with our contemplated equity offering, which has been suspended during the second quarter of 2012 and written off in the amount of $2.3 million, offset by increased payroll related costs associated with our workforce in the current period.
Interest expense, net. Interest expense, net of $7.5 million for the three-month period ended September 30, 2012 was primarily attributable to our 14.25% Senior Notes. The increase of $2.4 million over the comparable period of the prior year was primarily due to the issuance of the Additional Senior Notes since September 2011.
Income Tax Benefit (Expense). Our income tax benefit for the three-month period ended September 30, 2012 of $255,402 relates to the federal benefit we recognized on the operating loss of our consolidated variable interest entity. We had no federal income tax in the current period. Our effective income tax rate for the 2012 and 2011 periods was approximately (2.2)% and 1.0%, respectively, due to the valuation allowance established against our loss carryforwards.
The following table presents selected information regarding the results of operations of our business for the nine months ended September 30, 2012 and 2011, respectively:
|
| | | | | | | |
| Nine Months Ended | | Nine Months Ended |
| September 30, 2012 | | September 30, 2011 |
Revenue | $ | 109,695,531 |
| | $ | 9,878,200 |
|
Cost of services | (98,230,892 | ) | | (10,076,320 | ) |
Depreciation | (15,568,004 | ) | | (3,792,921 | ) |
General and administrative expense | (11,333,987 | ) | | (8,379,305 | ) |
Loss on disposal of assets | (189,290 | ) | | — |
|
Loss from operations | $ | (15,626,642 | ) | | $ | (12,370,346 | ) |
Interest expense, net | (22,237,110 | ) | | (11,511,497 | ) |
Loss before income tax | $ | (37,863,752 | ) | | $ | (23,881,843 | ) |
Income tax benefit | 239,534 |
| | 222,965 |
|
Net loss | $ | (37,624,218 | ) | | $ | (23,658,878 | ) |
Nine Months Ended September 30, 2012 compared to the Nine Months Ended September 30, 2011
Revenues. For the nine-month period ended September 30, 2012 we had $109.7 million of revenue of which approximately 90.8% was generated from hydraulic fracturing services, 5.6% from coil tubing services and 3.6% from other pressure pumping services. Compared to the $9.9 million of revenue in the nine-month period ended September 30, 2011, of which approximately 75.6%, 19.1% and 5.3% was generated from hydraulic fracturing, coiled tubing services and other pressure pumping services,
respectively, we substantially increased our revenue during the current year period due primarily to hydraulic fracturing services that we commenced during the third quarter of 2011.
Cost of Services. Our cost of services, excluding depreciation, for the nine-month period ended September 30, 2012 was approximately $98.2 million, which was primarily related to costs of materials, labor, spare parts and fuel used in hydraulic fracturing, coil tubing and other pressure pumping services, as compared to $10.1 million for the same period in the prior year. The significant increase in cost of services of $88.2 million was the result of commencing hydraulic fracturing services during the third quarter of 2011, as well as a full nine-month period of operations in 2012 as compared to approximately seven months of operations in the 2011 period. As a percentage of revenue, the cost of services for the nine-month period ended September 30, 2012 was reduced to 90%, a 12% reduction as compared to the nine-month period ended September 30, 2011.
Depreciation. Our depreciation expense for the nine-month period ended September 30, 2012 was approximately $15.6 million, an increase of $11.8 million over the comparable prior year period, primarily related to the addition of significant new hydraulic fracturing and coil tubing equipment acquired during the second half of 2011 and early 2012. Our depreciation expense for the nine-month period ended September 30, 2011 was approximately $3.8 million due to our then early stage of operations.
General and administrative expense. General and administrative expenses were $11.3 million for the nine-month period ended September 30, 2012 and were comprised primarily of professional fees for legal and accounting services, payroll related costs, including share-based compensation expense, and insurance expense. The increase of $3.0 million over the comparable period of the prior year was primarily due to the write-off of previously deferred costs associated with our contemplated equity offering which has been suspended totaling $2.3 million during the second quarter of 2012.
Interest expense, net. Interest expense, net of $22.2 million for the nine-month period ended September 30, 2012 was primarily attributable to our 14.25% Senior Notes. The increase of $10.7 million over the comparable period of the prior year was primarily due to incurring a full nine months of interest expense on both of the Original and Additional Senior Notes for the nine-months ended September 30, 2012 as compared to only seven months of interest expense on the Original Senior Notes and one month of interest expense on the Additional Senior Notes during the nine-months ended September 30, 2011.
Income Tax Benefit (Expense). Our income tax benefit for the nine-month period ended September 30, 2012 of $239,534 relates to the federal tax benefit we recognized on the operating loss of our consolidated variable interest entity offset by the state tax expense for Platinum. Our effective income tax rate for the 2012 and 2011 periods was approximately 0.6% and 0.9%, respectively, due to the valuation allowance established against our loss carryforwards.
Off-Balance Sheet Arrangements
As of September 30, 2012, we had no significant off-balance sheet arrangements other than as disclosed in Note 13 of our condensed consolidated financial statements included in Part I, Item 1 of this quarterly report on Form 10-Q.
Liquidity and Capital Resources
Our primary sources of liquidity to date have been the net proceeds received from our debt and equity offerings completed in March 2011, September 2011, and March 2012, as well as borrowings under our revolving lines of credit and cash flows from operations. Our primary uses of capital have been the acquisition of equipment and general administrative expenses. We monitor potential capital sources, including equity and debt financings, in order to meet our liquidity requirements and planned capital expenditures.
The successful execution of our growth strategy depends on, among other things, an increase in market demand for our services, our ability to obtain additional hydraulic fracturing services contracts as well as coiled tubing and other pressure pumping jobs, and our ability to raise capital as needed to, among other things, finance the purchase of additional hydraulic fracturing fleets to meet such market demand. If we are unable to obtain additional capital on favorable terms or at all, we may be unable to sustain or increase our current level of growth in the future. The availability of equity and debt financing will be affected by prevailing economic conditions in our industry and financial, business and other factors, many of which are beyond our control.
Our ability to satisfy debt service obligations, fund operations, and fund future capital expenditures will depend upon our future operating performance, and more broadly, on the availability of equity and debt financing, which will be affected by prevailing economic conditions, market conditions in the E&P industry and financial, business and other factors, many of which are beyond our control. We believe that our cash on hand, our expected operating performance and borrowings available under our credit
facilities will be adequate to meet operational needs for the next twelve months. Any future, unanticipated operating cash flow losses may require additional sources of funding.
Sources and Uses of Cash
Net cash provided by operating activities was $4.3 million during the nine months ended September 30, 2012, primarily attributable to our net loss of $37.6 million during the first nine-months of 2012 offset by changes in our working capital of $20.1 million, depreciation expense of $15.6 million and approximately $6.3 million of non-cash expenses. Net cash used in operating activities was $15.2 million during the nine months ended September 30, 2011, primarily attributable to our net loss of $23.7 million during the 2011 period offset by changes in our working capital of $2.3 million, depreciation expense of $3.8 million and approximately $2.4 million of non-cash expenses.
Net cash used in investing activities was $6.8 million during the nine months ended September 30, 2012, of which $11.8 million was attributable to our purchases of and deposits on property and equipment, offset by $4.9 million proceeds from sales of our investment securities. Net cash used in investing activities was $98.4 million during the nine months ended September 30, 2011, primarily attributable to our purchase of and deposits on property and equipment of $95.6 million and $5.7 million purchase of investment securities, offset by $2.8 million proceeds from sale of investment securities.
Net cash provided by financing activities was $6.6 million during the nine months ended September 30, 2012, primarily related to the proceeds of $13.5 million received from our March 2012 stock offering, offset by the $4.0 million repayment of our Morgan Stanley Facility and $0.5 million payment of equity offering costs primarily related to our planned initial public offering. Net cash provided by financing activities was $165.1 million during the nine months ended September 30, 2011, primarily attributable to net proceeds from issuance of the Original Senior Notes and preferred stock of approximately $179.9 million, offset by payments of debt issuance costs of $14.2 million.
The Company had a net increase in cash and cash equivalents of $4.1 million and $51.5 million during the nine months ended September 30, 2012 and 2011, respectively. The Company had cash and cash equivalents of $14.3 million and $10.2 million as of September 30, 2012 and December 31, 2011, respectively.
Assets and Liabilities
Total assets were $239.7 million as of September 30, 2012, which is an increase of $0.7 million when compared to the total assets of $239.0 million as of December 31, 2011. The increase is primarily attributable to the addition of $6.3 million in hydraulic fracturing and other equipment, net of depreciation, offset by a reduction of $4.1 million in long-term assets associated with deferred debt issuance costs related to our Senior Notes during the first nine months of 2012.
Total liabilities were $274.8 million as of September 30, 2012, which is an increase of $24.2 million when compared to December 31, 2011. The increase is primarily attributable to an increase of $27.1 million in trade accounts payables and an increase of approximately $10.1 million related to capital additions, offset by a repayment of $4.0 million on our line of credit balance, and a $7.1 million reduction in deferred revenue in connection with our delivery of certain hydraulic fracturing services during the nine months of 2012.
Total stockholders’ deficit attributable to the Company was $35.1 million as of September 30, 2012, which is an increase of $23.5 million when compared to the $11.6 million deficit as of December 31, 2011. The net increase is primarily due to the net loss incurred during the first nine months of 2012 of $37.4 million, offset by the completion of March 30, 2012 stock offering of $13.5 million.
Debt and Contractual Obligations
Our total debt, including current maturity, as of September 30, 2012 and December 31, 2011 was $183.7 million and $186.6 million, respectively. For additional information about our contractual obligations, see Notes 7 and 14 of the notes to our consolidated financial statements included in Part II, Item 8 of our special report on Form 10-K for the year ended December 31, 2011. As of September 30, 2012, there were no material changes to the disclosures regarding our contractual obligations made in the special report, except as disclosed herein.
For the covenant compliance period ended September 30, 2012, the Company's Leverage Ratio (as defined in the Credit
Agreement) exceeded the maximum level allowed under the Credit Agreement and the Company's Fixed Charge Coverage Ratio (as defined in the Credit Agreement) was less than the minimum level required under the Credit Agreement. Additionally, the Company's Mininum Average Daily Cash Position (as defined in the Credit Agreement) was less than the level required for the month ending September 30, 2012. An event of default under the Credit Agreement (as defined therein) would occur, absent a waiver of the covenant violations by JPMorgan, upon expiration of a 30 day cure period commencing on the date written notice of default is provided to the Company by JPMorgan. The amount outstanding under the Note at September 30, 2012 was $15.0 million.
As of the date hereof, no such notice had been given and no event of default has occurred. Upon expiration of the cure period and occurrence of an event of default, JPMorgan may, at its option and upon additional notice to the Company, accelerate the due date of the Note issued by the Company in in respect of the Credit Agreement and the outstanding balance would become due and payable immediately. On November 9, 2012, JPMorgan issued a waiver ("Credit Agreement Waiver") for the Company's non-compliance with (i) the Leverage Ratio covenant and the Fixed Charge Coverage Ratio for the quarter ending September 30, 2012 and any event of default caused by such non-compliance, (ii) the Minimum Average Daily Cash Position for the month ending September 30, 2012 and any event of default caused by such non-compliance. Additionally, JPMorgan eliminated the "clean up" requirement for the calendar year 2012 and any event of default caused by such non-compliance.
Under the terms of the Indenture for our Senior Notes, an event of default (as defined in the Indenture) would occur if a default under the Credit Agreement resulted in the acceleration of indebtedness in excess of $5.0 million. If an event of default occurred under the Indenture and is continuing, the Trustee (as defined in the Indenture) or the holders of at least 25.0% in aggregate principal amount of the then outstanding Senior Notes may declare all the Senior Notes to be due and payable immediately. As a result of the Credit Agreement Waiver, no event of default has or will occur as a result of the Company's non-compliance with the Leverage Ratio covenant as of September 30, 2012. The balance of our Senior Notes at September 30, 2012, net of the unamortized discount, totaled $168.7 million.
The Company, JPMorgan Chase Bank, N.A. (the “Bank”) and Platinum Pressure Pumping, Inc. (the “Guarantor”) entered into a second amendment, dated as of November 9, 2012 (the “Second Amendment to Credit Agreement”), to that certain credit agreement, dated as of December 28, 2011, by and among the Company, the Bank and the Guarantor, as amended by First Amendment thereto dated as of May 11, 2012 (the “Credit Agreement”). Pursuant to the Second Amendment to Credit Agreement, among other things,
(1) Non-Recurring Expenses is defined to mean (i) up to $2,600,000 in non-recurring expenses incurred in the first quarter of 2012, (ii) up to $9,000,000 in non-cash, non-recurring expenses for potential write-offs in 2012 related to equipment deposits, as approved by Bank in its sole discretion, (iii) up to $2,961,557 in non-recurring expenses incurred in the second quarter of 2012 and (iv) up to $174,631 in non-recurring expenses incurred in the third quarter of 2012 for stock-based compensation expenses during July and August, 2012.
(2) The Bank waives non-compliance by the Company with (a) the Leverage Ratio and the Fixed Charge Coverage Ratio for the quarter ending September 30, 2012 and any event of default caused thereby and (b) the Minimum Average Daily Cash Position for the month ending September 30, 2012 and any event of default to caused thereby.
(3) The Company shall maintain at all times (a) a Leverage Ratio of not more than (i) 6.0 to 1.0 measured as of December 31, 2012 and (ii) 4.0 to 1.0 measured quarterly thereafter, (b) a Fixed Charge Coverage Ratio of not less than (i) 1.0 to 1.0 measured as of December 31, 2012 and (ii) 1.25 to 1.0 measured quarterly thereafter beginning March 31, 2013.
(4) The Second Amendment to Credit Agreement clarifies that the EBITDA Add-backs shall be applicable to all applicable covenant calculations and that the Non-Recurring Expenses set forth in the Second Amendment to Credit Agreement are applicable in covenant calculations for the periods ending June 30, 2012 and September 30, 2012.
(5) The Bank waives for the calendar year 2012 the requirement that the Company pay the outstanding indebtedness due thereunder to $0.00 and maintain such $0.00 balance for 30 consecutive days during each 12-month period.
Recent Accounting Pronouncements
In May 2011, the FASB issued Accounting Standards Update (“ASU”) No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This ASU was issued to provide largely identical guidance about fair value measurement and disclosure requirements with the new International Financial Reporting Standard
No. 13, Fair Value Measurement. The ASU does not extend the use of fair value but, rather, provides guidance about how fair value should be applied where it already is required or permitted under U.S. GAAP. Most of the changes were clarifications of existing guidance or wording changes. ASU No. 2011-04 should be applied prospectively and is effective, for a public entity, beginning after December 15, 2011. For a nonpublic entity, the ASU is effective for annual periods beginning after December 15, 2011. We adopted ASU No. 2011-04 in the first quarter of 2012 and do not expect the adoption of the ASU to have a material effect on our financial position, results of operations, cash flows and disclosures.
In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income. This ASU increases the prominence of other comprehensive income in financial statements. Under this ASU, an entity will have the option to present the components of net income and comprehensive income in either one or two consecutive financial statements. The ASU eliminates the option in U.S. GAAP to present other comprehensive income in the statement of changes in equity. ASU No. 2011-05 should be applied retrospectively and is effective, for a public entity, beginning after December 15, 2011. For a nonpublic entity, the ASU is effective for fiscal years ending after December 15, 2012. We adopted ASU No. 2011-05 in the first quarter of 2012 and do not expect the adoption of the ASU to have a material effect on our financial position, results of operations, cash flows and disclosures.
In December 2011, the FASB issued ASU No. 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. Under ASU No. 2011-05, entities are required to present reclassification adjustments (to subsequently reclassify all items of accumulated other comprehensive income (“AOCI”) to net income or profit or loss) and the effect of those adjustments on the face of the financial statements where net income is presented, by component of net income, and on the face of the financial statements where other comprehensive income (“OCI”) is presented, by component of OCI. In addition, ASU No. 2011-05 requires that reclassification adjustments be presented in interim financial periods. ASU No. 2011-12 amends the requirements in ASU No. 2011-05 such that an entity may present those adjustments out of AOCI on the face of the financial statement in which OCI is presented or in the notes to the financial statements. ASU No. 2011-12 is effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2011. For nonpublic entities, the ASU is effective for fiscal years ending after December 15, 2012, and interim and annual periods thereafter. We adopted ASU No. 2011-12 in the first quarter of 2012. The adoption of the ASU had no effect on our financial position, results of operations, cash flows and disclosures.
ITEM 4. CONTROLS AND PROCEDURES
Based on their evaluation as of the end of the period covered by this quarterly report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures, as defined in Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934 (the "Exchange Act"), were effective as of September 30, 2012.
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 6, 2012, Enerflow Industries Inc. ("Enerflow") filed suit in Harris County, Texas against the Company seeking amounts allegedly unpaid for certain pieces of equipment, originally manufactured by Enerflow and sold to the Company. The total amount sought was approximately $6.6 million. On November 9, 2012, the Company and Enerflow entered a settlement agreement pursuant to which the Company returned certain pieces of defective equipment and other assets purchased from Enerflow, as a result of the defects in such equipment. The equipment returned to Enerflow was not material to the Company. Our financial statements for the quarter-to-date and year-to-date periods ending September 30, 2012 were reflective of the settlement.
The Company is involved, from time to time, in litigation, claims and disputes incidental to our business none of which presently is expected to have a material adverse effect on our business results or operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On March 30, 2012, the Company issued and sold 2,700,000 shares of common stock, at $5.00 per share for a total of $13,500,000, to certain investors and current stockholders of the Company, including Clearlake Capital Group (“CCG”) and Mr. Charles L. Moncla, Jr., the Company's Chairman of the Board and Chief Executive Officer. The common stock is immediately exchangeable into convertible preferred stock of the Company upon approval of the issuance and terms of such convertible preferred stock by the stockholders of the Company at a duly called meeting. As consideration for CCG's and Mr. Moncla's agreement to purchase any unpurchased common stock in this offering, the Company agreed to issue at closing 518,984 warrants to CCG and Mr. Moncla, with each of them receiving a pro rata portion of the warrants in proportion to their existing ownership of common stock of the Company. Each warrant is convertible into one share of common stock, has an exercise price of $3.00 per share and a 10-year term. In addition, other investors received at closing a pro rata portion of 518,984 warrants in proportion to the investment amount purchased by such investor to the total amount purchased by all investors. Each such warrant is convertible into one share of common stock of the Company, has an exercise price of $3.00 per share and a 10-year term.
In July and August 2012, the Company issued the remaining 1,112 shares of Series B Preferred Stock in exchange for 222,400 shares of common stock sold in the March 30, 2012 transaction discussed above.
ITEM 6. EXHIBITS.
|
| | |
Exhibit Number | | Description of Document |
31.1* | | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2* | | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32** | | Certification of the Chief Executive Officer and the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
101.INS** | | XBRL Instance Document |
101.SCH** | | XBRL Taxonomy Extension Schema Document |
101.CAL** | | XBRL Taxonomy Extension Calculation Linkbase Document |
101.LAB** | | XBRL Taxonomy Extension Label Linkbase Document |
101.PRE** | | XBRL Taxonomy Extension Presentation Linkbase Document |
101.DEF** | | XBRL Taxonomy Extension Definition Linkbase Document |
* Filed herewith.
** Furnished herewith.
SIGNATURES
In accordance with 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.
|
| | | |
| | PLATINUM ENERGY SOLUTIONS, INC. |
| | | |
Date: | November 16, 2012 | By: | /s/ L. CHARLES MONCLA, JR. |
| | | L. Charles Moncla, Jr. |
| | | Chairman and Chief Executive Officer |
| | | |
Date: | November 16, 2012 | By: | /s/ J. CLARKE LEGLER, II |
| | | J. Clarke Legler, II |
| | | Chief Financial Officer and Secretary |
EXHIBIT INDEX
|
| | |
Exhibit Number |
| Description of Document |
31.1* |
| Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2* |
| Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32** |
| Certification of the Chief Executive Officer and the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
101.INS** |
| XBRL Instance Document |
101.SCH** |
| XBRL Taxonomy Extension Schema Document |
101.CAL** |
| XBRL Taxonomy Extension Calculation Linkbase Document |
101.LAB** |
| XBRL Taxonomy Extension Label Linkbase Document |
101.PRE** |
| XBRL Taxonomy Extension Presentation Linkbase Document |
101.DEF** |
| XBRL Taxonomy Extension Definition Linkbase Document |
* Filed herewith.
** Furnished herewith.