PLATINUM ENERGY RESOURCES INC - FORM 10-Q

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EX-32.1 - PLATINUM ENERGY RESOURCES INC	v194754_ex32-1.htm
EX-31.1 - PLATINUM ENERGY RESOURCES INC	v194754_ex31-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2010

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to __________

Commission file number: 000-51553

PLATINUM ENERGY RESOURCES, INC.

(Exact name of registrant as specified in its charter)

Delaware		14-1928384
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

11490 Westheimer Road, Suite 1000 Houston, Texas (Address of principal executive offices)		77077 (Zip Code)

(281) 649-4500

(Registrant's telephone number, including area code)

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 ¨

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be posted pursuant to Rule 405 of Regulation S-T (S 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

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 definition of “accelerated filer” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one).

Large Accelerated Filer ¨ Accelerated Filer ¨ Non-Accelerated Filer ¨ (Do not check if a smaller reporting company) Smaller reporting company x

Indicated 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 August 20, 2010, 22,606,476 of the registrant’s common stock, par value $0.0001 per share, were outstanding.

PLATINUM ENERGY RESOURCES, INC. AND SUBSIDIARIES

Table of Contents

		Page
PART I- FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4T.	Controls and Procedures	28

PART II- OTHER INFORMATION
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 3.	Defaults Upon Senior Securities	31
Item 4.	Removed and Reserved	31
Item 5.	Other Information	31
Item 6.	Exhibits	32
Signatures		33

Page 2 of 33

PLATINUM ENERGY RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	June 30, 2010			December 31, 2009
ASSETS

CURRENT ASSETS
Cash and cash equivalents	$	4,588,484		$	2,941,939
Accounts receivable, net of $224,392 allowance for doubtful accounts as of June 30, 2010 and December 31, 2009
Oil and gas sales		2,191,961			2,079,201
Service		3,079,466			2,961,546
Inventory		422,452			410,791
Fair value of commodity derivatives - current		3,050,878			3,595,144
Prepaid expenses and other current assets		257,301			610,989
Total Current Assets		13,590,542			12,599,610

Property and equipment, at cost
Oil and gas properties, full cost method		208,377,394			208,291,206
Other property and equipment		5,594,108			5,565,746
Less accumulated depreciation, depletion, amortization and impairment		(170,506,757	)		(167,973,630	)
Property and equipment, net		43,464,745			45,883,322

Other assets
Fair value of commodity derivatives		3,258,487			3,190,294
Real estate held for development		2,700,000			2,700,000

Total Assets	$	63,013,774		$	64,373,226

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable
Trade	$	2,239,011		$	2,154,188
Oil and gas sales		1,231,598			920,818
Unearned service revenues		1,290,666			1,525,356
Accrued liabilities and other		1,886,939			2,508,579
Income taxes payable		289,525			328,324
Current portion of asset retirement obligation		801,915			812,670
Current maturities of long-term debt, capital lease obligations and notes payable		14,224,840			17,802,925
Total Current Liabilities		21,964,494			26,052,860

Long-term debt and capital lease obligations, net of current portion		98,860			111,315
Notes payable - acquisitions		3,548,384			3,422,433
Other accrued liabilities		119,735			119,735
Asset retirement obligation		6,458,288			6,426,424
Total Liabilities		32,189,761			36,132,767

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
Preferred stock, $0.0001 par value, 1,000,000 authorized, 0 issued		—			—
Common stock, $0.0001 par value; 75,000,000 shares authorized; 24,068,675 issued and 22,606,476 and 22,070,762 outstanding at June 30, 2010 and December 31, 2009, respectively		2,407			2,407
Additional paid-in capital		152,113,738			155,175,771
Accumulated deficit		(109,830,077	)		(111,276,255	)
Treasury stock – 1,462,199 and 1,997,913 shares, respectively, at cost		(11,462,055	)		(15,661,464	)

Total Stockholders' Equity		30,824,013			28,240,459

Total Liabilities and Stockholders' Equity	$	63,013,774		$	64,373,226

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

Page 3 of 33

PLATINUM ENERGY RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
REVENUES
Oil and gas sales	$	4,514,266		$	4,465,303		$	10,570,462		$	7,780,004
Service revenues		4,124,569			4,487,219			8,738,987			10,007,714
		8,638,835			8,952,522			19,309,449			17,787,718
COSTS AND EXPENSES
Lease and other operating expense		2,981,247			2,203,471			5,272,114			4,933,899
Cost of service revenues		4,257,397			4,281,185			8,538,842			9,614,886
Marketing, general and administrative expense		847,807			2,317,738			2,623,734			4,548,459
Depreciation, depletion and amortization expense		1,143,098			1,866,365			2,533,127			3,796,309
Accretion of asset retirement obligations		-			80,834			356,347			159,547

Total costs and expenses		9,229,549			10,749,593			19,324,164			23,053,100

Operating Income (Loss)		(590,714	)		(1,797,071	)		(14,715	)		(5,265,382	)

OTHER INCOME (EXPENSE)
Interest income		8,613			881			59,025			4,314
Interest expense		(252,228	)		(334,726	)		(512,187	)		(630,617	)
Commodity derivatives – realized and unrealized gains (losses)		3,244,782			(8,405,839	)		1,938,976			(7,878,394	)
Other		-			122			—			2,553
Total other income (expense)		3,001,167			(8,739,562	)		1,485,814			(8,502,144	)

Income (Loss) Before Income Taxes		2,410,453			(10,536,633	)		1,471,099			(13,767,526	)
Provision (Benefit) From Income Taxes		11,503			(3,674,709	)		24,921			(4,789,446	)

Net Income (Loss)	$	2,398,950		$	(6,861,924	)	$	1,446,178		$	(8,978,080	)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
Basic and Diluted		22,606,475			22,070,762			22,472,547			22,070,762

NET INCOME (LOSS) PER COMMON SHARE:
Basic and Diluted	$	0.11		$	(0.31	)	$	0.06		$	(0.41	)

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

Page 4 of 33

PLATINUM ENERGY RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six Months Ended
	June 30,
	2010			2009
Cash Flows From Operating Activities
Net Income / (Loss)	$	1,446,178		$	(8,978,080	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation, depletion and amortization		2,533,127			3,796,309
Accretion of asset retirement obligation		356,347			159,547
Accretion of debt discount		125,951			117,169
Stock based compensation		39,161			90,000
Deferred income taxes		-			(4,818,634	)
Commodity derivatives – realized and unrealized (gains) losses		(1,938,976	)		7,878,394
Changes in operating assets and liabilities:
Accounts receivable – Oil and gas		(137,244	)		(169	)
Accounts receivable – Service		(117,920	)		2,429,099
Inventory		(11,661	)		(44,116	)
Prepaid expenses and other current assets		353,688			242,986
Accounts payable – Trade		84,823			(915,674	)
Accounts payable – Oil and gas		125,601			(591,055	)
Accrued liabilities, unearned service revenues and other		241,885			(1,126,020	)
Income taxes payable		(38,799	)		42,713
Net cash provided by (used in) operating activities		3,062,161			(1,717,531	)

Cash Flows From Investing Activities
Purchases of property and equipment		(264,609	)		(965,722	)
Cash received on settlement of derivative contracts		2,439,533			1,165,930
Net cash provided by investing activities		2,174,924			200,208

Cash Flows From Financing Activities
Proceeds of revolving credit facility		-			1,000,000
Payments on long-term debt and capital leases		(3,590,540	)		(679,592	)
Net cash provided by (used in) financing activities		(3,590,540	)		320,408

Net Increase (Decrease) in Cash and Cash Equivalents		1,646,545			(1,196,915	)

Cash and Cash Equivalents - Beginning of the Period		2,941,939			3,668,092

Cash and Cash Equivalents - End of Period	$	4,588,484		$	2,471,177

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest	$	371,870		$	432,427
Income taxes		—			70,000
Non-Cash Investing and Financing Activities
Issuance of treasury stock to settle accrued liability	$	1,098,215		$	—
Asset retirement cost and obligation	$	151,000		$	50,278

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

Page 5 of 33

PLATINUM ENERGY RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(UNAUDITED)

Note 1 - Organization, Business and Operations

Platinum Energy Resources, Inc. and subsidiaries (the “Company” or “Platinum”) considers itself to be in two lines of business:

(i) The oil and gas division, which has approximately 37,000 acres under lease in relatively long-lived fields with well-established production histories. The Company’s properties are concentrated primarily in the Gulf Coast region in Texas, the Permian Basin in Texas and New Mexico and the Fort Worth Basin in Texas; and

(ii) The engineering and construction services division, which services primarily three types of clients: (1) upstream oil and gas, domestic oil and gas producers and pipeline companies; (2) industrial, petrochemical and refining plants; and (3) infrastructure, private and public sectors, including state municipalities, cities, and port authorities. Maverick Engineering, Inc. (Maverick) operates out of facilities headquartered in Houston, Texas and operates primarily in Texas.

Note 2 – Going Concern

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company has incurred significant losses, resulting in cumulative losses of $109,830,077 through June 30, 2010. At June 30, 2010 the Bank of Texas loan balance was approximately $9.5 million. The Company’s current cash on hand is not adequate to satisfy the Bank of Texas debt.

The Company’s outstanding loan with the Bank of Texas originally matured on June 1, 2010. On August 6, 2010, the Company paid $1 million of principal to the Bank of Texas and was granted an extension to the maturity date of the loan to September 1, 2010. Beyond the extended maturity date, the Company’s available options to settle the outstanding loan with the Bank of Texas may require a combination of actions, including possible further liquidation of the Company’s hedge positions, use of available cash on hand, a partial sale of its oil and gas assets, seeking additional equity financing, or the refinancing of its existing debt. If the Company is unable to raise additional equity or to refinance its loan with the Bank of Texas, then it will have no choice but to sell a portion of its oil and gas properties. Additionally, no assurance can be given that any such financing or refinancing, if achievable, will be adequate to meet our ultimate capital needs and to support our growth. If the Company is not able to obtain additional financing on a timely basis and on satisfactory terms, or should the Company receive a foreclosure notice from the Bank of Texas, our operations would be materially negatively impacted. Further the Company has assets and liabilities that could be adversely affected by unfavorable outcomes of litigation in progress. See Litigation Note 15 for a full discussion of litigation.

As a result of the above discussed conditions, there exists substantial doubt about our ability to continue as a going concern. Our consolidated financial statements are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The consolidated financial statements do not include any adjustments relating to the recoverability of the recorded assets or the classification of liabilities that may be necessary should the Company be unable to continue as a going concern.

Note 3 – Basis of Presentation

The accompanying unaudited interim consolidated financial statements as of June 30, 2010 and for the three and six months then ended have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission (“SEC”) and on the same basis as the annual audited consolidated financial statements. The unaudited interim consolidated balance sheet as of June 30, 2010, unaudited interim consolidated statements of operations for the three and six months ended June 30, 2010 and 2009, and the unaudited interim consolidated statements of cash flows for the six months ended June 30, 2010 and 2009 include all adjustments, consisting only of normal recurring adjustments, which management considers necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented. The results for the three and six months ended June 30, 2010 are not necessarily indicative of results to be expected for the year ending December 31, 2010 or for any future interim periods. The notes to the consolidated financial statements do not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete consolidated financial statements. The accompanying unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2009 as filed with the SEC.

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated.

Page 6 of 33

PLATINUM ENERGY RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(UNAUDITED)

Note 4 — Summary of Significant Accounting Policies

Estimates and Assumptions

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include volumes of oil and natural gas reserves and production, abandonment obligations, impairment of oil and natural gas properties (if any), depreciation, depletion and amortization, income taxes, bad debts, derivatives, contingencies and litigation.

Cash and Cash Equivalents

Cash and cash equivalents include demand deposits and money market funds for purposes of the statements of cash flows. The Company considers all highly liquid monetary instruments with original maturities of three months or less to be cash equivalents. Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash deposits. Accounts at each financial institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. As of June 30, 2010, the Company had deposits with institutions in excess of the insured limits totaling $3,340,429.

Allowance for Doubtful Accounts

The Company’s reported balance of accounts receivable, net of allowance for doubtful accounts, represents management’s estimate of the amount that ultimately will be realized in cash. The Company reviews the adequacy of the allowance for doubtful accounts on an ongoing basis, using historical payment trends, the age of the receivables and knowledge of the individual customers. When the analyses indicate, management increases or decreases the allowance accordingly. If the financial condition of our customers were to deteriorate, additional allowances may be required. The Company did not change its allowance for doubtful accounts during the three or six month periods ended June 30, 2010.

Oil and Gas Properties

The Company uses the full cost method of accounting for exploration and development activities. Under this method of accounting, the costs of unsuccessful, as well as successful, exploration and development activities are capitalized as oil and gas properties. This includes any internal costs that are directly related to exploration and development activities but does not include any costs related to production, general corporate overhead or similar activities. Gain or loss on the sale or other disposition of oil and gas properties is not recognized, unless the gain or loss would significantly alter the relationship between capitalized costs and proved reserves of oil and natural gas attributable to a country. The Company has defined a cost center by country. Currently, all of the Company’s oil and gas properties are located within the continental United States.

Properties and equipment may include costs that are excluded from costs being depreciated or amortized. Oil and gas costs excluded represent investments in unproved properties and major development projects in which the Company owns a direct interest. These unproved property costs include nonproducing leasehold, geological and geophysical costs associated with leasehold or drilling interests and exploration drilling costs. All costs excluded are reviewed at least quarterly to determine if impairment has occurred.

Under the full cost method of accounting, a ceiling test is performed quarterly. The full cost ceiling test is an impairment test prescribed by SEC Regulation S-X Rule 4-10. The ceiling test determines a limit on the carrying value of oil and gas properties. The capitalized costs of proved oil and gas properties, net of accumulated depreciation, depletion, amortization, and impairment and the related deferred income taxes, may not exceed the estimated future net cash flows from proved oil and gas reserves, excluding future cash outflows associated with settling asset retirement obligations that have been accrued on the balance sheet, using average prices for the preceding 12 months applied on a non-escalated basis and including the effect of derivative instruments that qualify as cash flow hedges, if any, discounted at 10%, net of related tax effects, plus the cost of unevaluated properties and major development projects excluded from the costs being amortized. If capitalized costs exceed this limit, the excess is charged to expense and reflected as additional accumulated depreciation, depletion, amortization and impairment.

Page 7 of 33

Depletion is provided using the unit-of-production method based upon estimates of proved oil and natural gas reserves with oil and natural gas production being converted to a common unit of measure based upon their relative energy content. Investments in unproved properties and major development projects are not amortized until proved reserves associated with the projects can be determined or until impairment occurs. If the results of an assessment indicate that the properties are impaired, the amount of the impairment is deducted from the capitalized costs to be amortized. Once the assessment of unproved properties is complete and when major development projects are evaluated, the costs previously excluded from amortization are transferred to the full cost pool and amortization begins. The amortizable base includes estimated future development costs and where significant, dismantlement, restoration and abandonment costs, net of estimated salvage value.

Contingencies

Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and its legal counsel assess such contingent liabilities, and such assessments inherently involve an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.

Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed.

Subsequent Events

Management evaluated subsequent events to determine if events or transactions occurring through the date at which the financial statements were available to be issued required disclosure. Management determined that, except as disclosed in Note 16, no such events have occurred that would require adjustment to or disclosure in the financial statements.

Reclassifications

Certain reclassifications have been made to prior year information to conform to the current period presentation.

Recently Issued Accounting Pronouncements

Accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our consolidated financial statements upon adoption.

Note 5 - Oil and Gas Properties

The following table sets forth the Company’s costs incurred in oil and gas property acquisition, exploration and development activities for the six months ended June 30, 2010 (stated in thousands):

Balance at January 1, 2010	$	208,291
Acquisition of properties:
Proved		—
Unproved		—
Exploration Costs		—

Revision to asset retirement obligation		(151	)
Development costs		237
Balance at June 30, 2010	$	208,377

The following table sets forth the Company’s capitalized costs relating to oil and gas producing activities at June 30, 2010 and December 31, 2009 (stated in thousands):

Page 8 of 33

	June 30, 2010			December 31, 2009
Properties subject to depletion, depreciation and amortization	$	208,377		$	208,291
Properties not subject to depletion, depreciation and amortization		-			-
		208,377			208,291
Accumulated depletion and impairment		(166,710	)		(164,497	)
Net capitalized costs	$	41,667		$	43,794

Note 6 – Derivative Financial Instruments

The Company engages in price risk management activities from time to time. We utilize derivative instruments, consisting of swaps, floors and collars, to attempt to reduce our exposure to changes in commodity prices. All derivative instruments are recognized as assets or liabilities in the balance sheet, measured at fair value. The accounting for changes in the fair value of a derivative depends on both the intended purpose and the formal designation of the derivative. Designation is established at the inception of a derivative, but subsequent changes to the designation are permitted. We have elected not to designate any of our derivative financial contracts as accounting hedges. Changes in fair value of derivative instruments which are not designated as cash flow hedges are recorded in other income (expense) as Commodity derivatives - realized and unrealized gains and losses. The obligations under the derivatives contracts are collateralized by the same assets that collateralize the Senior Credit Facility, and the contracts are cross-defaulted to the Senior Credit Facility. Substantially all of the derivative financial instruments are collateral for the Senior Credit Facility further described in Note 9.

While the use of these arrangements may limit the Company's ability to benefit from increases in the price of oil and natural gas, it is also intended to reduce the Company's potential exposure to significant price declines. These derivative transactions are generally placed with major financial institutions that the Company believes are financially stable; however, in light of the recent global financial crisis, there can be no assurance of the foregoing.

Page 9 of 33

For the three months ended June 30, 2010 and 2009, the Company included in other income (expenses) realized and unrealized gains (losses) related to its derivative contracts as follows (stated in thousands):

	Three Months Ended June 30, 2010		Three Months Ended June 30, 2009
Crude oil derivatives gains (losses)
Realized	$	730		328
Unrealized		2,515		(8,734	)
	$	3,245		(8,406	)

For the six months ended June 30, 2010 and 2009, the Company included in other income (expenses) realized and unrealized gains (losses) related to its derivative contracts as follows (stated in thousands):

	Six Months Ended June 30, 2010		Six Months Ended June 30, 2009
Crude oil derivatives gains (losses)
Realized	$	782		1,166
Unrealized		1,157		(9,044	)
	$	1,939		(7,878	)

In June 2010, the Company liquidated six put contracts at $85 per barrel and an additional five put contracts at $80 per barrel. These put contracts had settlement dates through December 2010, The net proceeds to the Company were $1.16 million in cash. Presented below is a summary of the Company’s crude oil derivative financial contracts at June 30, 2010:

Period Ended June 30,	Instrument Type	Total Volumes (BBL)		Contract Price		Fair Value Asset (stated in thousands)
2011	Puts		50,000		75.00	$	204
	Puts		70,000		80.00		680
	Swaps		70,000		95.50		1,315
	Swaps		60,000		95.25		852

2012	Swaps		60,000		95.25		806
	Swaps		60,000		95.00		976
	Puts		50,000		80.00		572

2013	Swaps		60,000		95.00		904
	Total					$	6,309

Note 7 – Fair Value Measurements

As defined in ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). In determining the fair value of its derivative contracts, the Company evaluates its counterparty and third party service provider valuations and adjusts for credit risk when appropriate. ASC 820 establishes a framework for measuring fair value and expands disclosure about fair value measurements. The statement requires fair value measurements be classified and disclosed in one of the following categories:

Page 10 of 33

Level 1:

Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. The Company considers active markets as those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2:

Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability. This category includes those derivative instruments that are valued using observable market data. Substantially all of these inputs are observable in the marketplace throughout the full term of the derivative instrument, can be derived from observable data, or supported by observable levels at which transactions are executed in the marketplace.

Level 3:

Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources (i.e., supported by little or no market activity). Level 3 instruments can include derivative instruments where the Company does not have sufficient corroborating market evidence of significant inputs to the valuation model to support classifying these instruments as Level 1 or Level 2.

As required by ASC 815, financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.

The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2010, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value. The fair value of derivative financial instruments is determined based on counterparties’ valuation models that utilize market-corroborated inputs.

As of June 30, 2010
(in thousands)

	Level 1		Level 2		Level 3		Total
Commodity derivatives – oil and gas	$	—	$	6,309	$	—	$	6,309

The determination of the fair values above incorporates various factors required under ASC 815. These factors include the impact of our nonperformance risk and the credit standing of the counterparties involved in the Company’s derivative contracts.

Gains and losses (realized and unrealized) included in earnings for the three and six months ended June 30, 2010 and 2009 are reported in other income on the consolidated statement of operations.

Page 11 of 33

PLATINUM ENERGY RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(UNAUDITED)

During periods of market disruption, including periods of volatile oil and natural gas prices, rapid credit contraction or illiquidity, it may be difficult to value certain of the Company’s derivative instruments if trading becomes less frequent and/or market data becomes less observable. There may be certain asset classes that were in active markets with observable data that become illiquid due to the current financial environment. In such cases, derivative instruments may fall to Level 3 and thus require more subjectivity and management judgment. As such, valuations may include inputs and assumptions that are less observable or require greater estimation, as well as valuation methods which are more sophisticated or require greater estimation, thereby resulting in valuations with less certainty. Further, rapidly changing commodity and unprecedented credit and equity market conditions could materially impact the valuation of derivative instruments as reported within our consolidated financial statements and the period-to-period changes in value could vary significantly. Decreases in value may have a material adverse effect on our results of operations or financial condition.

Cash and cash equivalents, receivables, accounts payable and accrued liabilities were each estimated to have a fair value approximating the carrying amount due to the short maturity of those instruments. Indebtedness under the Company’s secured revolving bank credit facility and loans related to the acquisition of Maverick were estimated to have a fair value approximating the carrying amount since the interest rate is generally market sensitive.

Note 8 – Commitments and Contingencies

Lance Duncan Consulting Agreement

Effective with the Tandem acquisition on October 26, 2007, the Company entered into a consulting agreement with Mr. Lance Duncan for consulting services, including investigation and evaluation of possible future acquisitions for the Company. Under the terms of the consulting agreement, the Company agreed to issue to Mr. Duncan a total of 714,286 shares of the Company’s restricted common stock as consideration over the period of service. These shares were fixed in number (except for stock splits or other recapitalizations). These shares were to be issued in semi-annual installments over the eighteen month term of the agreement beginning with the closing of the Tandem acquisition.

On October 26, 2007, the first installment of 178,572 of irrevocable shares was issued to Mr. Duncan. These shares were valued at $1,250,000 which was charged to operations during the year ended December 31, 2007. The Company was required to issue the remaining 535,714 shares of its common stock in 2008. The Company did not issue these shares due to a dispute between the Company and Mr. Duncan. In February 2010, all claims between the Company and Mr. Duncan were resolved and the balance of the shares was distributed accordingly. See Note 14.

Note 9 - Long-Term Debt and Capital Lease Obligations

The following table sets forth the Company’s long-term debt position as of June 30, 2010 and December 31, 2009 (stated in thousands):

		June 30, 2010		December 31, 2009
Oil and gas revolving line of credit	(a)	$	9,509	$	13,029
Notes payable - acquisitions	(b)		3,548		3,422
Revolving line of credit to former shareholders – Maverick	(c)(f)		2,917		2,917
Term note to former shareholders - Maverick	(d)(f)		252		252

Second term note to former shareholders - Maverick	(e)(f)		1,404		1,404
Capital lease obligations			242		312
		$	17,872	$	21,336
Less: Current maturities			14,225		17,802
Long-term debt		$	3,647	$	3,534

Page 12 of 33

PLATINUM ENERGY RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(UNAUDITED)

(a) On March 14, 2008, Tandem and PER Gulf Coast, Inc. (“Borrower”) which are wholly-owned subsidiaries of the Company, entered into a Senior Secured Revolving Credit Facility (“Senior Credit Facility”) with Bank of Texas. The Senior Credit Facility provided for a revolving credit facility up to the lesser of the borrowing base and $100 million. The initial borrowing base was set at $35 million. The facility is collateralized by substantially all of the Company’s proved oil & gas assets as well as substantially all of the derivative financial instruments discussed in Note 6. The Senior Credit Facility was originally to mature on March 14, 2012, at which time all outstanding borrowings would have to be repaid.

Under the terms of the Senior Credit Facility, the Borrower must maintain certain financial ratios, must repay any amounts due in excess of the borrowing base, and may not declare any dividends or enter into any transactions resulting in a change in control, without the bank’s consent. A financial covenant under the Senior Credit Facility requires us to maintain a ratio of indebtedness to cash flow of no more than 3 to 1. The Company, as the parent company, is not a co-borrower or guarantor of the line, and transfers from the Borrower to the parent company are limited to (i) $1 million per fiscal year to the parent for management fees, and (ii) the repayment of up to $2 million per fiscal year in subordinate indebtedness owed to the parent.

In June 2009, the borrowing base was reduced to $15 million and the Senior Credit Facility was amended to change the interest rate provisions. Under the amended loan agreement, outstanding debt bears interest at LIBOR, plus a margin, which varies according to the ratio of the Borrower’s outstanding borrowings against the defined borrowing base, ranging from 2.5% to 3.5%, provided the interest rate does not fall below a floor rate of 4.5% per annum. In addition, the Borrower is obligated to the bank for a monthly fee of any unused portion of the line of credit at the rate of 0.50% per annum. The maturity date was also modified to June 1, 2010.

In May 2010, the Company paid down $1.5 million on the Senior Credit Facility. In June, the Company paid down an additional $2 million on the Senior Credit Facility utilizing cash on hand and the proceeds from the liquidation of certain derivative contracts as further described in Note 6. The Borrower did not repay the amounts due under the Senior Credit Facility on June 1, 2010.

On August 6, 2010 with an effective date of June 1, 2010, the Company and the Bank of Texas executed an amendment to the Senior Credit Facility. The Amendment (1) granted the Company an extension on the maturity date of the loan to September 1, 2010, (2) reduced the Borrowing Base under the Senior Credit Facility to approximately $9.5 million, (3) required the Company to reduce the then outstanding balance of $9.5 million under the Senior Credit Facility by $1 million, (4) waived certain events of default of the Borrower through the period ended May 31, 2010, and (5) increased the interest rate floor to a rate of not less than 5% per annum. The Company paid a fee of $40,000 to the Bank of Texas in connection with the waivers and the extension in the maturity date and $36,846 in interest. Additionally, on August 6, 2010, the Company used cash on hand to pay down $1 million on the Senior Credit Facility, reducing the Bank of Texas loan balance to approximately $8.5 million.

As of June 30, 2010, the $9.5 million outstanding under the revolving line of credit was bearing interest at the bank’s base rate, which was 5.0%. The Company believes it is currently in compliance with the terms of the amended Senior Credit Facility.

(b) Maverick - As part of the acquisition of Maverick, the Company agreed to pay $5 million over 5 years pursuant to non-interest bearing cash flow notes, subject to certain escrows, holdbacks and post-closing adjustments (“Cash Flow Notes”). The Cash Flow Notes are payable quarterly at the rate of 50% of pre-tax net income generated by the Maverick business on a stand-alone basis in the preceding quarter. At the five year anniversary of the Cash Flow Notes, if the aggregate quarterly payments made pursuant to the formula described in the preceding sentence are less than $5 million, any shortfall will be converted into a one year term note, bearing interest at the prime rate plus 2% per annum, with principal and interest due in equal monthly installments over the twelve month term. The Cash Flow Notes can be accelerated by certain events, including change in control of Maverick. The Company’s believes that no events since the acquisition of Maverick have triggered an acceleration in the due date of the Cash Flow Notes.

The purchase price was subject to adjustment for any change in working capital as defined in the agreement, between October 31, 2007 and the closing date, as well as other adjustments associated with changes in indebtedness. The Cash Flow Notes were reduced by the amount of the working capital post closing adjustment, which was determined by the Company to be $645,596. At the time the acquisition was completed, a discount to present value in the amount of $1,320,404 was recorded and deducted from the Cash Flow Notes as these notes are non-interest bearing for the initial 5 years of their term. As a result, the net carrying value of the Cash Flow Notes on April 29, 2008 was $3,034,000. Accretion of the discount related to the Cash Flow Notes of $63,544 and $59,114, for the three months ended June 30, 2010 and 2009, respectively, and for the six months ended June 30, 2010 and 2009, $125,951 and $117,169, respectively, was recognized as interest expense.

Page 13 of 33

On April 16, 2009, the Company received a written notice of acceleration from Robert L. Kovar Services, LLC, as the stockholder representative, claiming that the Company failed to make timely mandatory prepayments in the amount of $110,381 due under the terms of the Cash Flow Notes. The Company has not reclassified the long-term portion of these Cash Flow Notes included in Notes payable – acquisitions to current liabilities. It is the Company’s position that Maverick generated pretax quarterly losses during the period April 29, 2008 through June 30, 2010, and as such the Company was not obligated to make a mandatory payment to the note holders. Generally Accepted Accounting Principles in the United States of America (“GAAP”) require intangible assets to be amortized over their useful lives. In addition, goodwill and intangible assets are evaluated annually for potential impairment. The pretax income as calculated by Robert L. Kovar Services, LLC, as the stockholder representative, did not include amortization expense or impairment charges related to intangible assets and goodwill in accordance with GAAP. These Cash Flow Notes are now the subject of litigation between Kovar and the Company as further described in Note 15.

(c) $2,917,000 revolving line of credit, payable to the Maverick former shareholders in monthly interest payments at prime plus .25%, principal and unpaid interest due at maturity in September 2010. No payments were made during 2010. The interest rate applicable under this agreement is currently 3.5%. See Litigation - Note 15.

(d) $252,000 term note, payable to the Maverick former shareholders in monthly principal and interest payments of $10,280 with interest at prime plus .75%, unpaid principal and interest was due at maturity in May 2009. No payments were made in 2010. See Litigation - Note 15.

(e) $1,404,000 second term note, payable to the Maverick former shareholders in monthly interest payments at prime plus .50% beginning in April 2008, and beginning in October 2008, principal payments of $23,390 plus interest until maturity in April 2013. No payments were made in 2010. The current interest rate applicable under this agreement is 3.75%. See Litigation - Note 15.

(f) On April 29, 2009, Maverick received a notice of acceleration (the “Acceleration Letter”) with respect to the revolving line of credit, the term note and the second term note payable to the Maverick former shareholders (the”Maverick Notes”) and governed by a Loan Agreement and related Security Agreement originally dated April 30, 2005 and April 29, 2005, respectively. The Acceleration Letter alleges that Maverick failed to comply with certain covenants under the terms of the Loan Agreement and that Maverick failed to make payments due under the Notes. The outstanding principal, accrued interest and late charges alleged to be owed by Maverick in the Acceleration Letter total $4,659,227. The Acceleration Letter also contends that interest continues to accrue at the default rate of 18% per annum. In a separate letter, dated May 1, 2009, Robert L. Kovar Services, LLC, as the stockholder representative for the sellers, purported to terminate the revolving credit facility under the Loan Agreement and demanded turnover of all collateral securing indebtedness under the Loan Agreement, including the Maverick Notes. No payments were made after the first quarter of 2009 through June 30, 2010.The Company and Maverick have asserted claims in litigation against the holders of the Maverick Notes, Robert L. Kovar Services, LLC, Robert L. Kovar, individually, and others. The litigation is in its early stages and, accordingly, the Company cannot predict the outcome of these matters. See Litigation Note - 15. The Company is accruing interest on the Maverick Notes while the claims are being resolved.

Annual maturities of indebtedness at June 30, 2010 are as follows (stated in thousands):

For the Year Ended June 30,
2011	$	14,082
2012		-
2013		3,548
2014		-
Thereafter		-
	$	17,630

The following is a schedule of future minimum lease payments under capitalized leases together with the present value of the net minimum lease payments at June 30, 2010 (stated in thousands):

For the Year Ended June 30,
2011	$	174
2012		90
2013		17
Thereafter		-
Total minimum lease payments		281
Less: Amount representing interest		(39	)
Current value of minimum lease payments		242
Less: Current maturities		(143	)
	$	99

The effective interest rate on capitalized leases ranges from 5% - 31%.

Page 14 of 33

PLATINUM ENERGY RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(UNAUDITED)

Note 10 – Asset Retirement Obligation

For the Company, asset retirement obligations (“ARO”) represent the systematic, monthly accretion and depreciation of future abandonment costs of tangible assets such as wells, service assets, and other facilities. The fair value of a liability for an asset’s retirement obligation is recorded in the period in which it is incurred if a reasonable estimate of fair value can be made, and the corresponding cost is capitalized as part of the carrying amount of the related long-lived asset. The liability is accreted to its then present value each period, and the capitalized cost is depreciated over the useful life of the related asset. If the liability is settled for an amount other than the recorded amount, an adjustment is made to the full cost pool, with no gain or loss recognized, unless the adjustment would significantly alter the relationship between capitalized costs and proved reserves. The Company’s policy with respect to ARO is to assign depleted wells to a salvager for the assumption of abandonment obligations before the wells have reached their economic limits; the Company has estimated its future ARO obligation with respect to its operations. The ARO assets, which are carried on the balance sheet as part of the full cost pool, have been included in our amortization base for the purposes of calculating depreciation, depletion and amortization expense.

The following table describes changes in the asset retirement liability as of June 30, 2010. The ARO liability in the table below includes amounts classified as long-term at June 30, 2010 (stated in thousands):

	Six Months Ended June 30, 2010
ARO liability at beginning of period – Current and Long-Term	$	7,239
Abandonments during period		(185	)
Accretion expense		356
Obligations arising during period		3
Changes in estimates		(153	)
ARO liability at end of period – Current and Long-Term	$	7,260

Note 11 – Earnings per Share

Basic earnings per share (“EPS”) amounts are calculated using the weighted average number of common shares outstanding during each period. Diluted EPS assumes the exercise of all stock options, warrants and convertible securities having exercise prices less than the average market price of the common stock during the periods, using the treasury stock method. When a loss from continuing operations exists, potential common shares are excluded in the computation of diluted EPS because their inclusion would result in an anti-dilutive effect on per share amounts.

Reconciliations between the numerators and denominators of the basic and diluted EPS computations for each period are as follows (in thousands, except per share data):

	Three Months Ended June 30,
	2010		2009
Numerator:
Net Income (loss) applicable to common stockholders	$	2,398,950	$	(6,861,924	)

Denominator:
Denominator for basic earnings (loss) per share — weighted-average shares outstanding		22,606,475		22,070,762
Effect of potentially dilutive common shares:
Warrants		—		—
Employee and director stock options		—		—
Denominator for diluted earnings (loss) per share — weighted-average shares outstanding and assumed conversions		22,606,475		22,070,762

Basic earnings ( loss) per share	$	0.11	$	(0.31	)

Diluted earnings ( loss) per share	$	0.11	$	(0.31	)

Page 15 of 33

	Six Months Ended June 30,
	2010		2009
Numerator:
Net Income (loss) applicable to common stockholders	$	1,446,178	$	(8,978,080	)

Denominator:
Denominator for basic earnings (loss) per share — weighted-average shares outstanding		22,472,547		22,070,762
Effect of potentially dilutive common shares:
Warrants		—		—
Employee and director stock options		—		—
Denominator for diluted earnings (loss) per share — weighted-average shares outstanding and assumed conversions		22,472,547		22,070,762

Basic earnings (loss) per share	$	0.06	$	(0.41	)

Diluted earnings (loss) per share	$	0.06	$	(0.41	)

The increase in weighted-average shares outstanding at June 30, 2010, is the result of issuing 535,714 shares to Lance Duncan. For the three and six months ended June 30, 2010 and 2009, the Company excluded options to purchase 151,000 and 156,000 shares of common stock, respectively, as the effect would be anti-dilutive.

Note 12 – Income Taxes

Deferred income taxes are provided on a liability method whereby deferred tax assets and liabilities are established for the difference between the financial reporting and income tax basis of assets and liabilities as well as operating loss and tax credit carry forwards. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

The Company has computed the tax provision for the six months ended June 30, 2010 in accordance with the provisions of ASC 740 – Income Taxes and ASC 270 – Interim Reporting. The Company has estimated that its effective tax rate for US purposes will be zero for 2010, and consequently, recorded no U.S. income tax benefit for the six months ended June 30, 2010 due to the substantial uncertainty regarding ultimate realization.

At June 30, 2010, the Company had, subject to the limitations discussed below, approximately $28 million of net operating loss carryforwards for U.S. purposes. These loss carryforwards will expire from 2026 through 2030 if not utilized.

In addition to any Section 382 limitations for change of control, uncertainties exist as to the future utilization of the operating loss carryforwards under the criteria set forth under ASC 740. Therefore, the Company has increased its valuation allowance at June 30, 2010 to approximately $8.8 million, an increase of roughly $0.1 million from December 31, 2009.

The current period income tax expense is solely attributable to Texas Margin taxes accrued during the period.

Note 13 - Segment Information

The Company considers itself to be in two lines of business - (i) as an independent oil and gas exploration and production company and (ii) as an engineering services company.

Page 16 of 33

	(i)	The Company sells substantially all of its crude oil production under short-term contracts based on prices quoted on the New York Mercantile Exchange (“NYMEX”) for spot West Texas Intermediate contracts, adjusted by agreed-upon increases or decreases which vary by grade of crude oil. The majority of the Company’s natural gas production is sold under short-term contracts based on pricing formulas which are generally market responsive. From time to time, the Company may also sell a portion of the gas production under short-term contracts at fixed prices. For the six months ended June 30, 2010, three customers accounted for approximately 46%, 12% and 12% of the Company’s crude oil and natural gas revenues. The Company believes that the loss of any of its oil and gas purchasers would not have a material adverse effect on its results of operations due to the availability of other purchasers.

(ii)

Maverick provides engineering and construction services primarily for three types of clients: (1) upstream oil & gas, domestic oil and gas producers and pipeline companies; (2) industrial, petrochemical and refining plants; and (3) infrastructure, private and public sectors, including state municipalities, cities, and port authorities. Maverick operates out of facilities headquartered in Victoria, Texas and operates primarily in Texas. The types of services provided include project management, engineering, procurement, and construction management services to both the public and private sectors, including the oil and gas business in which the Company is engaged. For the six months ended June 30, 2010, three customers accounted for approximately 42%, 18% and 15%. of the Company’s service revenues

The following table presents selected financial information for the Company’s operating segments (stated in thousands):

Page 17 of 33

PLATINUM ENERGY RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(UNAUDITED)

	Exploration								Consolidated
For the Three Months Ended June 30, 2010:	and Production		Engineering			Parent			Total
Revenues	$	4,514	$	4,125		$			$	8,639
Marketing, general and administrative expense	$	251	$	266		$	331		$	848
Income (loss) before income taxes	$	3,342	$	(601	)	$	(331	)	$	2,410

	Exploration									Consolidated
For the Three Months Ended June 30, 2009:	and Production			Engineering			Parent			Total
Revenues	$	4,465		$	4,487		$	—		$	8,952
Marketing, general and administrative expense	$	721		$	518		$	1,079		$	2,318
Loss before income taxes	$	(8,659	)	$	(799	)	$	(1079	)	$	(10,537	)

	Exploration								Consolidated
For the Six Months Ended June 30, 2010:	and Production		Engineering			Parent			Total
Revenues	$	10,570	$	8,739		$			$	19,309
Marketing, general and administrative expense	$	1,244	$	510		$	870		$	2,624
Income (loss) before income taxes	$	3,061	$	(720	)	$	(870	)	$	1,471

	Exploration									Consolidated
For the Six Months Ended June 30, 2009:	and Production			Engineering			Parent			Total
Revenues	$	7,780		$	10,008		$	-		$	17,788
Marketing, general and administrative expense	$	1,661		$	1,189		$	1,698		$	4,548
Income (loss) before income taxes	$	(10,305	)	$	(1,765	)	$	(1,698	)	$	(13,768	)

	Exploration						Consolidated
	and Production		Engineering		Parent		Total
Total assets as of June 30, 2010	$	58,440	$	3,583	$	991	$	63,014
Total assets as of December 31, 2009	$	55,350	$	5,581	$	3,441	$	64,372

Note 14 – Treasury Stock

In February 2010, the Company settled its dispute with Mr. Lance Duncan and issued him 535,714 shares of common stock out of its treasury stock holdings. The shares were originally recorded as treasury shares at the Company’s purchase cost of $7.84 per share, or $4,199,409. With the subsequent reissuance, the Company reduced the cost of treasury shares by $4,199,409 and recorded $3,101,194, representing the difference between the original acquisition cost of the shares and the value accrued by the Company, as a decrease in additional paid-in capital.

Note 15 – Litigation

From time to time, the Company is party to certain legal actions and claims arising in the ordinary course of business. While the outcome of these events cannot be predicted with certainty, management does not anticipate these matters to have a materially adverse effect on the financial position or results of operations of the Company. As of the filing date, there has been no material change in the litigation discussion below.

Page 18 of 33

Exxon Litigation

On January 16th, 2008, Exxon Mobil Corporation filed a petition in the 270 th District Court of Harris County, Texas, naming us as a defendant along with TEC and a third party, Merenco Realty, Inc., demanding environmental remediation of certain properties in Tomball, Texas. In 1996, pursuant to an assignment agreement, Exxon Mobil sold certain oil and gas leasehold interests and real estate interests in Tomball, Texas to TEC’s predecessor in interest, Merit Energy Corporation. In 1999, TEC assigned its 50% undivided interest in one of the tracts in the acquired property to Merenco, an affiliate of TEC, owned 50% by our Chairman of the Board, Tim Culp. In October 2007, the Texas Railroad Commission notified Exxon Mobil of an environmental site assessment alleging soil and groundwater contamination for a site in the area of Tomball, Texas. Exxon Mobil believes that the site is one which was sold to TEC and claims that TEC is obligated to remediate the site under the assignment agreement. Exxon Mobil has requested that the court declare the defendants obligated to restore and remediate the properties and has requested any actual damages arising from breach and attorneys’ fees. We believe that Exxon Mobil’s claim that TEC is responsible for any remediation of such site is without merit and we intend to vigorously defend ourselves against this claim. However, no assurance can be given that we will prevail in this matter and we currently are not able to estimate the range of possible exposure or loss, if any, that might result from this litigation. We acquired substantially all the assets and liabilities of TEC in the TEC acquisition. Merenco was not acquired by us in the TEC acquisition and our Chairman, Tim Culp, continues to have a 50% ownership interest in Merenco. Currently the Court has indicated a willingness to put the case on hold pending completion of the Railroad Commission investigation.

Hyman Litigation

On November 11, 2008, Mr. Hyman, a former employee of KD Resources, filed a claim against KD Resources and Platinum Energy stating that he was discharged from KD Resources in violation of the Sarbanes-Oxley Act of 2002, Section 806, Protection for Employees of Publicly Traded Companies Who Provide Evidence of Fraud. In December, 2008, the Department of Labor (“DOL”) dismissed the complaint as not being timely filed. On or about January 8, 2009, Mr. Hyman appealed the ruling of the DOL. On January 16, 2009, the DOL filed an Order to Show Cause whereby Mr. Hyman was ordered to show why his case should not have been dismissed. On February 14, 2009, Mr. Hyman filed his response to the Order to Show Cause stating that he failed to file within the required time because he was engaged in negotiations with the Respondents. On March 18, 2009, the Department of Labor dismissed Mr. Hyman’s claim for failure to file within the 90-day filing period. Mr. Hyman filed a Petition for Review of the Decision and Order Dismissing Complaint issued March 18, 2009. A Notice of the Appeal was filed April 10, 2009 which was granted. On March 31, 2010, in a split decision, the Administrative Review Board reversed the decision of the Administrative Law Judge and Remanded the case for further consideration. It is the Company's contention that Mr. Hyman did not file his complaint within the time required by Sarbanes-Oxley, and in any case, was never an employee of Platinum Energy Resources or any of its subsidiaries; as such we are not liable for any issues between Mr. Hyman and his former employer, KD Resources. It is the Company's further contention that the only reason Platinum Energy is listed in this action is because it is a public company and Mr. Hyman needs a public company in order to obtain his status under the Sarbanes-Oxley Act. The case is currently in the discovery phase and the judge imposed a deadline of September 1, 2010 to present briefs. We believe the likelihood of any loss related to this litigation is remote.

Kovar Litigation

On December 3, 2008, Robert Kovar filed suit against Platinum alleging that he “Resigned for Good Reason” according to his employment contract. Mr. Kovar is seeking a Declaration Judgment that he had “Good Reason” to resign his employment at Platinum Energy and Maverick Engineering. Mr. Kovar is also requesting payment of the severance package, accelerated vesting of options and accelerated payment of the Cash Flow Notes (as described in the Platinum Energy, Maverick Engineering Merger Agreement and Note 9 above) as described in his employment agreement, plus attorney fees and court costs. It is our contention that Mr. Kovar resigned his position without good reason and is therefore, not entitled to severance or accelerated vesting of options. It is our additional conviction that the Cash Flow Notes has been cancelled and that Platinum Energy in no longer obligated to make any payments thereunder, pursuant to the terms of Mr. Kovar’s employment agreement. We are currently in the discovery phase of this matter. We believe that Mr. Kovar’s claim that he resigned with “Good Reason” is without merit and we intend to vigorously defend ourselves against this claim.

On April 16, 2009, the Company received a written notice of acceleration from Robert L. Kovar Services, LLC, as the stockholder representative, claiming that the Company failed to make timely mandatory prepayments in the amount of $110,381 due under the terms of the Cash Flow Notes. On April 29, 2009, Maverick received a notice of acceleration (the “Acceleration Letter”) with respect to the Maverick Notes governed by a Loan Agreement and related Security Agreement originally dated April 30, 2005 and April 29, 2005, respectively. The Acceleration Letter alleges that Maverick failed to comply with certain covenants under the terms of the Loan Agreement and that Maverick failed to make payments due under the Maverick Notes. The outstanding principal, accrued interest and late charges alleged to be owed by Maverick in the Acceleration Letter total $4,659,227. The Acceleration Letter also contends that interest continues to accrue at the default rate of 18% per annum. In a separate letter, dated May 1, 2009, Robert L. Kovar Services, LLC, as the stockholder representative for the sellers, purported to terminate the revolving credit facility under the Loan Agreement and demanded turnover of all collateral securing indebtedness under the Loan Agreement, including the Maverick Notes. The Company and Maverick have asserted claims in litigation against the holders of the Maverick Notes, Robert L. Kovar Services, LLC, Robert L. Kovar, individually, and others. This litigation is in its early stages and, accordingly, the Company cannot predict the outcome of these matters.

Page 19 of 33

On May 3. 2009, Platinum and Maverick Engineering. Inc. filed suit against Robert L. Kovar Services. LLC (“RKS”), Robert L. Kovar (“Kovar”), Rick J. Guerra (“Guerra”), and Walker, Keeling, & Carroll. L.L.P. (“WKC”) collectively (the Defendants”) alleging, among other things, a suit for declaratory judgment asking the court to declare that Platinum and Maverick are entitled to indemnification from the former Maverick stockholders, including Guerra and Kovar, for any damages they suffer as a result of a default on any note contained in the Maverick and PermSUB Merger Agreement. In addition, Platinum and Maverick have asked the Court to declare that WKC has breached the merger agreement by not stepping down as the Merger Escrow Agent. Platinum and

Maverick have also sued to recover costs of court and attorneys’ fees.

In October, 2009, Platinum and Maverick Engineering filed a Second Amended Petition with the following Causes of Action against the Defendants: Kovar fraudulently induced Platinum to enter into the Merger Agreement; Common-Law Fraud; Statutory Fraud; Breach of Fiduciary Duty; Tortious Interference with Merger Agreement; Civil Conspiracy; and Breach of Contract. As this case is still in the discovery phase of litigation, at this time, it is impossible for us to provide an informed assessment of the likelihood of a favorable or unfavorable outcome in this case.

Currently, the trial date has been set for November 30, 2010.

Citgo Litigation

On October 14, 2009, Maverick Engineering filed suit in Harris County against CITGO Refining & Chemical Company, LP for Breach of Contract. According to the Petition, Maverick provided engineering services to CITGO and CITGO has refused to pay for those services. Maverick is suing for recover of $357,538, representing the outstanding accounts receivable balance due from CITGO on the date the suit was filed, plus damages, costs, attorney fees, interest, and other relief. While Maverick has performed all terms, conditions, and covenants required under its contract with CITGO, it is too early in this litigation to be able to predict the outcome.

Meier Litigation

On October 20, 2009, Lisa Meier filed suit for breach of her employment contract. According to the Petition, Ms. Meier resigned for “good cause” and she is seeking severance pay. On June 10, 2009, Ms. Meier delivered to the Board of Directors of Platinum energy Resources, her second notice of intent to resign for “Good Reason.” Ms. Meier’s first notice was submitted on October 23, 2008, less than three months after entering into her employment agreement, and subsequently withdrawn.

The Board of Directors accepted Ms. Meier’s resignation, but stated that “good reason” did not exist. This matter is currently in the early phase of litigation. We believe that Ms. Meier’s claims are without merit and we intend to vigorously defend ourselves against these claims. There have been no changes in circumstances or events relating to this litigation since the discussion in the Company’s annual report.

Note 16 – Subsequent Events

On August 6, 2010, the Company and Bank of Texas executed the third amendment to the loan agreement effective June 1, 2010, between the two parties. The Company paid $1,076,846, consisting of $1 million in principal, $36,846 in interest and a $40,000 loan fee. In exchange, the bank granted, among other things, an extension of the maturity date of the loan to September 1, 2010. See Note 9 for further details on this amendment.

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

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in our other Securities and Exchange Commission filings.

The following discussion should be read in conjunction with our Consolidated Financial Statements and related Notes thereto included elsewhere in this report.

Overview

We consider ourselves to be in two lines of business - (i) as an independent oil and gas exploration and production company and (ii) as an engineering and construction services company.

In our oil and gas operations, we conduct oil and natural gas exploration, development, acquisition, and production. Our basic business model is to find and develop oil and gas reserves through development activities, and sell the production from those reserves at a profit. To be successful, we must, over time, be able to find oil and gas reserves and then sell the resulting production at a price that is sufficient to cover our finding costs, operating expenses, administrative costs and interest expense, plus offer an acceptable rate of return on our capital investment. We sell substantially all of our crude oil production under short-term contracts based on prices quoted on the New York Mercantile Exchange (“NYMEX”) for spot West Texas Intermediate contracts, less agreed-upon deductions which vary by grade of crude oil. The majority of our natural gas production is sold under short-term contracts based on pricing formulas which are generally market responsive. From time to time, we may also sell a portion of the gas production under short-term contracts at fixed prices.

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(ii)

Through our wholly-owned Maverick operation, we provide engineering and construction services primarily for three types of clients: (1) upstream oil and gas, domestic oil and gas producers and pipeline companies; (2) industrial, petrochemical and refining plants; and (3) infrastructure, private and public sectors, including state municipalities, cities, and port authorities. Maverick operates out of facilities headquartered in Victoria, Texas and operates primarily in Texas. The types of services provided include project management, engineering, procurement, and construction management services to both the public and private sectors, including the oil and gas business in which we are engaged as described above. Maverick is based in south Texas with offices in Corpus Christi, Victoria, and Houston.

From time to time, we may make strategic acquisitions in our oil and natural gas business if we believe the acquired assets offer us the potential for reserve growth through additional developmental drilling activities. However, the successful acquisition of oil and natural gas properties requires assessment of many factors, which are inherently inexact and may be inaccurate, including future oil and natural gas prices, the amount of recoverable reserves, future operating costs, future development costs, failure of titles to properties, costs and timing of plugging and abandoning wells and potential environmental and other liabilities.

Furthermore, like all businesses engaged in the exploration and production of oil and natural gas, we face the challenge of natural production declines. As initial reservoir pressures are depleted, oil and natural gas production from a given well decreases. Thus, an oil and natural gas exploration and production company depletes part of its asset base with each unit of oil or natural gas it produces. Consequently, key to our success is not only finding reserves through developmental drilling and strategic acquisitions, but also by exploiting opportunities related to our existing production. For example, we have two fields, the Ira Unit located in Scurry County, Texas, and the Ballard Unit located in Eddy County, New Mexico which we believe contain substantial opportunities to expand and enhance their existing waterflood capabilities. These projects will require capital in the form of money and expertise.

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Results of Operations

Set forth below are:

(A)

A discussion of the results of operations for Platinum Energy Resources, Inc. ("Platinum") for the three and six months ended June 30, 2010, as compared to the three and six months ended June 30, 2009;

(B)

A discussion of the results of operations for our oil and gas entities for the three and six months ended June 30, 2010, as compared to the three and six months ended June 30, 2009; and

(C)

A discussion of the results of operations for our engineering and construction services business for the three and six months ended June 30, 2010, as compared to the three and six months ended June 30, 2009.

(A) - Results of Operations - Platinum

For the three months ended June 30, 2010 as compared to the three months ended June 30, 2009

On a consolidated basis we had net income of approximately $2.4 million during the three month period ended June 30, 2010, compared to a net loss of approximately $6.9 million during the comparative period ended June 30, 2009.

Our general and administrative expenses, other than those attributable to our oil and natural gas assets and our engineering services business, for the three months ended June 30, 2010 was $331,000, as compared to approximately $1,079,000 for the three months ended June 30, 2009. The decrease of $748,000 was the result of incurring significant non-recurring professional fees in efforts undertaken to file Form 10-K and reorganize various functions of the company’s business. The Company also continues to experience decreased expenses related to a lower head count and continued monitoring of cost controls.

For the six months ended June 30, 2010 as compared to the six months ended June 30, 2009

On a consolidated basis we had net income of approximately $1.5 million during the first six months ended June 30, 2010, compared to a net loss of approximately $9.0 million during the comparative period ended June 30, 2009.

Our general and administrative expenses, other than those attributable to our oil and natural gas assets and our engineering services business, for the six months ended June 30, 2010 was $870,000, as compared to approximately $1,698,000 for the six months ended June 30, 2009. The decrease of $828,000 was the result of incurring significant non-recurring professional fees in efforts undertaken to file Form 10-K and reorganize various functions of the company’s business. The Company also continues to experience decreased expenses related to a lower head count and continued monitoring of cost controls.

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(B) - Results of Operations - Oil and Gas

For the Three Months Ended June 30, 2010 as compared to the Three Months Ended June 30, 2009

Our revenues from oil and natural gas sales for the three months ended June 30, 2010 and 2009 remained relatively flat at $4.5 million and $4.4 million, respectively. The average oil price we obtained on our product sales for the three months ended June 30, 2010 was $77.60, compared to $55.51 for the three months ended June 30, 2009. The average gas price we obtained for our product for the three months ended June 30, 2010 was $4.21 per Mcf, as compared to $2.95 per Mcf for the three months ended June 30, 2009. Production on a BOE basis decreased 23.1% from 103,265 BOE during the three months ended June 30, 2009 to 79,359 BOE’s during the three months ended June 30, 2010. The decrease in production was a result of several fields undergoing routine maintenance in addition to the necessary shut-down periods experienced during workovers being performed under a broad program adopted in February 2010. We expect production to return to higher levels once the workover program is completed in its entirety. The Company expects to complete the workover program late in the fourth quarter.

Oil and gas production costs in the form of lease operating expense on a BOE basis increased by 73.9% from $21.43 to $37.57 during the three months ended June 30, 2009 and 2010, respectively. The increase was due primarily to workover programs put in place to improve the operating efficiency of the wells. During the three months ended June 30, 2010, we incurred nonrecurring lease operating costs totaling $752,226, or $9.47 per BOE, as part of a broad workover program. Other factors outside management control, such as third party service availability and the availability of adequate technical and field staff, could have an adverse effect on lease operating costs in the future.

Depletion expense for oil and gas properties was $988,000 and $1,427,000 for the three months ended June 30, 2010 and 2009, respectively. This represents a decrease of $439,000, or 31%, during the three months ended June 30, 2010 compared to the three months ended June 30, 2009. The decrease was related to a lower carrying value of our oil and gas properties as a result of the ceiling test impairment recorded as of December 31, 2009.

We also incurred realized gains of $730,000 and unrealized gains of $2,515,000 for the three months ended June 30, 2010 as compared to realized gains of $328,000 and unrealized losses of approximately $8,734,000 during the three months ended June 30, 2009 on the value of certain derivative contracts on crude oil. The change was due to the volatility in the price of oil.

Supplemental Oil and Gas Information

The following information is intended to supplement the unaudited consolidated financial statements included in this report with data that is not readily available from those statements.

	Three Months Ended June 30,
	2010		2009
Production
Oil (Bbls)		60,961		69,769
Gas (Mcf)		110,388		200,973
Boe (Bbls)		79,359		103,265

Average Prices
Oil ($/Bbl)	$	77.60	$	55.51
Gas ($/Mcf)	$	4.21	$	2.95

Average Lifting Cost
Per Boe	$	37.28	$	21.43

For the Six Months Ended June 30, 2010 as compared to the Six Months Ended June 30, 2009

Our revenues from oil and gas sales for the six months ended June 30, 2010 were $10.6 million. Oil and gas sales for the six months ended June 30, 2009 were $7.8 million. The 36% increase in oil and gas revenues, or $2.8 million, was due to an increase in commodity prices during the six months ended June 30, 2010. The average oil price we obtained on our product sales for the six months ended June 30, 2010 was $76.42, compared to $46.43 for the six months ended June 30, 2009. The average gas price we obtained for our product for the six months ended June 30, 2010 was $4.91 per Mcf, as compared to $3.16 for the six months ended June 30, 2009. Production on a BOE basis decreased 16.9% from 207,822 BOE’s during the six months ended June 30, 2009, to 157,255 BOE’s during the six months ended June 30, 2010.

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Oil and gas production costs in the form of lease operating expense on a BOE basis increased by $9.13 per BOE, or 41.2%, from $23.74 per BOE during the six months ended June 30, 2009 to $33.53 per BOE during the six months ended June 30, 2010. The increase was due primarily to workover programs put in place to improve the operating efficiency of the wells. During the six months ended June 30, 2010, we incurred nonrecurring lease operating costs totaling $958,578, or $6.10 per BOE, as part of a broad workover program. Other factors outside management control, such as third party service availability and the availability of adequate technical and field staff, could have an adverse effect on lease operating costs in the future.

Depletion expense for oil and gas properties was $2,213,000 and $2,974,000 for the six months ended June 30, 2010 and 2009, respectively. This represents a decrease of $761,000, or 26%, during the six months ended June 30, 2010 compared to the six months ended June 30, 2009. The decrease was related to a lower carrying value of our oil and gas properties as a result of the ceiling test impairment recorded as of December 31, 2009.

We also incurred realized gains of $782,000 and unrealized gains of $1,157,000 for the six months ended June 30, 2010 as compared to realized gains of $1,166,000 and unrealized losses of approximately $9,044,000 during the six months ended June 30, 2009 on the value of certain derivative contracts on crude oil. The change was due to the volatility in the price of oil.

Supplemental Oil and Gas Information

The following information is intended to supplement the unaudited consolidated financial statements included in this report with data that is not readily available from those statements.

	Six Months Ended June 30,
	2010		2009
Production
Oil (Bbls)		121,410		139,699
Gas (Mcf)		215,068		408,739
Boe (Bbls)		157,255		207,822

Average Prices
Oil ($/Bbl)	$	76.42	$	46.43
Gas ($/Mcf)	$	4.91	$	3.16

Average Lifting Cost
Per Boe	$	33.40	$	23.74

For the three months ended June 30, 2010 as compared to the three months ended June 30, 2009

Revenues for the three months ended June 30, 2010 and the three months ended June 30, 2009 were $4.1 million and $4.5 million, respectively. Gross margin performance for these periods was (3.23%) and 4.64%, respectively. The decline in gross margin for the period ending June 30, 2010 was caused by a simultaneous work slowdown in our three largest business segments (Industrial, Oil & Gas and Survey), and a large downturn in U.S. economy. The southern division of Maverick, also, finished one of its most profitable jobs in March 2010. When the senior engineers, staffed on the completed project, were moved to other ongoing projects with significantly lower multipliers, the result was having to bill at existing rates that were lower than Mavericks costs. The Company does not expect this trend to continue into the future, as rates can be renegotiated with clients and contracted personnel. Engineering services reported pretax losses of $601,111 and $798,520 in the three months ended June 30, 2010 and 2009, respectively.

For the six months ended June 30, 2010 as compared to the six months ended June 30, 2009

Revenues for the six months ended June 30, 2010 and the six months ended June 30, 2009 were $8.7 million and $10.0 million, respectively. Gross margin performance for these periods was 2.29% and 3.0%, respectively. The decline in gross margin at June 30, 2010 was caused by a simultaneous work slowdown in our three largest business segments (Industrial, Oil & Gas and Survey), largely as a result of project curtailments as clients adjusted to the slowdown in the U.S. economy. Engineering services reported pretax losses of $720,345 and $1,765,316 in the six months ended June 30, 2010 and 2009, respectively.

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Liquidity and Capital Resources

Going Concern

The accompanying consolidated financial statements have been prepared assuming we will continue as a going concern. We have incurred significant losses since inception, resulting in cumulative losses of $109,830,077 through June 30, 2010. Substantially all of these losses were a result of non-cash writedowns associated with the full cost ceiling test impairment of our oil and gas properties that occurred with the decline in product prices. Additionally, the outstanding loan with the Bank of Texas originally matured on June 1, 2010 and remains unpaid as of the date of this filing. At June 30, 2010, the loan balance was approximately $9.5 million. Since June 30, 2010, we have paid down the loan to approximately $8.5 million by using excess cash on hand. The Bank of Texas loan is collateralized by substantially all of our proved oil & gas assets, as well as substantially all of our derivative financial instruments. On August 6, 2010, Bank of Texas granted us an extension of the maturity date to September 1, 2010. Our current cash on hand is not adequate to satisfy the Bank of Texas loan on the September 1, 2010 maturity date.

The options available to us to settle the outstanding loan with the Bank of Texas include further liquidation of our hedge positions, use of available cash, a partial sale of our oil and gas assets, seeking additional equity financing, or the refinancing of our existing debt. There is no assurance that we will be able to obtain such additional funds through equity or debt refinancing, or any combination thereof. Additionally, no assurance can be given that any such refinancing, if achievable, will be adequate to meet our ultimate capital needs and to support our growth. If the Company is not able to obtain additional financing on a timely basis and on satisfactory terms, or should the Bank of Texas issue us a notice of foreclosure with respect to the assets collateralizing the loan, our operations would be materially negatively impacted. However, at current product prices, our cash flow associated with our oil and gas operations continues to be strong. Although the options available to us to satisfy the bank debt are not attractive, we do believe that we have the assets in place to satisfy this obligation.

Capital Resources

At June 30, 2010, we had cash and cash equivalents of $4,588,484 and negative working capital of $8,373,952, compared to cash and cash equivalents of $2,941,939 and negative working capital of $13,453,250 at December 31, 2009. The improved working capital was primarily attributable to increased cash on hand attributable to improved cash flow from operations, cash received in settlement of derivative contracts and payments made against our outstanding Bank of Texas loan balance.

Operating activities provided cash during the six months ended June 30, 2010 of $3,062,161, versus cash used in operations of $1,717,531 during the 2009 period. The improved operating cash flow for the six months ended June 30, 2010, was primarily attributable to net income for the 2010 period as compared to a net loss for the 2009 period and favorable changes in working capital items for the 2010 period, partially offset by the noncash gain attributable to changes in the fair value of commodity derivatives during 2010.

Investing activities provided cash during the six months ended June 30, 2010 of $2,174,924, versus $200,208 during the 2009 period. The improved cash flow from investing activities for 2010 was primarily attributable to the settlement of derivative contracts and reduced capital expenditures during the 2010 period. The Company received $2,439,533 in the 2010 period for the settlement of derivative contracts, as compared to $1,165,930 during the 2009 period. The Company had additions to property and equipment in the 2010 period of $264,609 versus $965,722 of additions during the 2009 period.

Financing activities used cash of $3,590,540 during the six months ended June 30, 2010, versus providing cash of $320,408 during the 2009 period. The 2010 period used proceeds received from the settlement of derivative contracts and excess cash on hand to reduce the Senior Credit Facility with Bank of Texas by $3.5 million. The 2009 period includes the impact of $1,000,000 in proceeds received from the Senior Credit Facility with Bank of Texas. No such proceeds were received in the 2010 period.

Capital Expenditures - Oil and Gas Development

The reserve report prepared as of December 31, 2009 assumes that we will not spend any capital expenditures in 2010 to exploit oil and gas opportunities. Our primary focus since the beginning of the year has been to control our operating costs. As cash flow allows, we may commence a limited drilling or continue our workover program in order to stem the natural decline associated with our current production. The execution of any capital program is dependent on the availability of technical and field staff, product pricing, rig availability and an implementation of corporate strategy. Through June 30, 2010 we have incurred capital expenditures of approximately $237,000, primarily related to a gathering system upgrade project.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements as defined in Item 303(a) (4) (ii) of Regulation S-K promulgated under the Securities Exchange Act of 1934.

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Critical Accounting Policies:

Use of Estimates

Full Cost and Impairment of Assets

We account for our oil and natural gas exploration and development activities using the full cost method of accounting. Under this method, all costs incurred in the acquisition, exploration and development of oil and natural gas properties are capitalized. Costs of non-producing properties, wells in the process of being drilled and significant development projects are excluded from depletion until such time as the related project is developed and proved reserves are established or impairment is determined. At the end of each quarter, the net capitalized costs of our oil and natural gas properties, as adjusted for asset retirement obligations, is limited to the lower of unamortized cost or a ceiling, based on the present value of estimated future net revenues, net of income tax effects, discounted at 10%, plus the lower of cost or fair market value of our unproved properties. Revenues are measured at unescalated oil and natural gas prices at the end of each quarter, with effect given to cash flow hedge positions. If the net capitalized costs of oil and natural gas properties exceed the ceiling, we are subject to a ceiling test write-down to the extent of the excess. A ceiling test write-down is a non-cash charge to earnings. It reduces earnings and impacts stockholders’ equity in the period of occurrence and results in lower DD&A expense in future periods.

There is a risk that we will be required to write down the carrying value of our oil and natural gas properties when oil and natural gas prices decline. If commodity prices deteriorate, it is possible that we could incur impairment in future periods.

Depletion

Provision for depletion of oil and natural gas properties under the full cost method is calculated using the unit of production method based upon estimates of proved developed oil and natural gas reserves with oil and natural gas production being converted to a common unit of measure based upon their relative energy content. Investments in unproved properties and major development projects are not amortized until proved reserves associated with the projects can be determined or until impairment occurs. The cost of any impaired property is transferred to the balance of oil and natural gas properties being depleted.

Significant Estimates and Assumptions

Oil and Gas Reserves

(1) Reserve engineering is a subjective process of estimating underground accumulations of oil and gas that cannot be measured in an exact manner. The accuracy of a reserve estimate depends on the quality of available geological and engineering data, the precision of the interpretation of that data, and judgment based on experience and training. We have historically engaged an independent petroleum engineering firm to evaluate our oil and gas reserves. As a part of this process, our internal reservoir engineer and the independent engineers exchange information and attempt to reconcile any material differences in estimates and assumptions.

(2) Reserves which can be produced economically through application of improved recovery techniques (such as fluid injection) are included in the proved classification when successful testing by a pilot project, or the operation of an installed program in the reservoir, provides support for the engineering analysis on which the project or program was based.

(3) Estimates of proved reserves do not include the following: (A) oil that may become available from known reservoirs but is classified separately as indicated additional reserves; (B) crude oil, natural gas, and natural gas liquids, the recovery of which is subject to reasonable doubt because of uncertainty as to geology, reservoir characteristics, or economic factors; (C) crude oil, natural gas, and natural gas liquids, that may occur in undrilled prospects; and (D) crude oil, natural gas, and natural gas liquids, that may be recovered from oil shales, coal, gilsonite and other such sources.

Valuation of proved undeveloped properties

Placing a fair market value on proved undeveloped properties, commonly referred to as “PUDs” is very subjective since there is no quoted market for them. The negotiated price of any PUD between a willing seller and willing buyer depends on the specific facts regarding the PUD, including:

·	the location of the PUD in relation to known fields and reservoirs, available markets and transportation systems for oil and gas production in the vicinity, and other critical services;

·	the nature and extent of geological and geophysical data on the PUD;

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·	the terms of the leases holding the acreage in the area, such as ownership interests, expiration terms, delay rental obligations, depth limitations, drilling and marketing restrictions, and similar terms;

·	the PUDs risk-adjusted potential for return on investment, giving effect to such factors as potential reserves to be discovered, drilling and completion costs, prevailing commodity prices, and other economic factors; and

·	the results of drilling activity in close proximity to the PUD that could either enhance or condemn the prospect’s chances of success.

Hedging Activities

From time to time, we utilize derivative instruments, consisting of swaps, floors and collars, to attempt to reduce our exposure to changes in commodity prices and interest rates. We account for our derivatives in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. SFAS No. 133 requires that all derivative instruments be recognized as assets or liabilities in the balance sheet, measured at fair value. The accounting for changes in the fair value of a derivative depends on both the intended purpose and the formal designation of the derivative. Designation is established at the inception of a derivative, but subsequent changes to the designation are permitted. We have elected not to designate any of our derivative financial contracts as accounting hedges and, accordingly, account for these derivative financial contracts using mark-to-market accounting. Changes in fair value of derivative instruments which are not designated as cash flow hedges are recorded in other income (expense) as changes in fair value of derivatives. Hedging is a strategy that can help a company to mitigate the volatility of oil and gas prices by limiting its losses if oil and gas prices decline; however, this strategy may also limit the potential gains that a company could realize if oil and gas prices increase.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The primary objective of the following information is to provide forward-looking quantitative and qualitative information about our potential exposure to market risks. Market risk is the sensitivity of income to changes in interest rates, foreign exchanges, commodity prices, equity prices, and other market-driven rates or prices. The disclosures are not meant to be precise indicators of expected future losses, but rather indicators of reasonably possible losses. This forward-looking information provides indicators of how we view and manage our ongoing market risk exposures.

Interest Rate Risk

At June 30, 2010 our oil and gas subsidiaries had approximately $9.5 million in outstanding borrowings associated with their credit facility with a major bank and our engineering services subsidiary had $8.1 million in outstanding borrowings under term notes with the selling shareholders from whom we acquired Maverick, our engineering services business.

Price Risks

See Note 6 within the financial statements in Item 1 for a description of our price risks and price risk management activities.

Item 4T. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

The Company carried out an evaluation, under the supervision and with the participation of management, including the Company’s principal executive officer and principal financial officer, of the effectiveness of the disclosure controls and procedures, as such term is defined in Exchange Act Rule 13a-15(e), as of June 30, 2010. Based on that evaluation, the Company’s Principal executive officer concluded that the Company’s disclosure controls and procedures were not effective as of June 30, 2010 due to material weaknesses in our internal controls related to inadequate staffing within our accounting department and upper management, lack of consistent policies and procedures, inadequate monitoring of controls, inadequate disclosure controls and significant turnover among the staff and officers of the Company. It is Management’s plan to remediate the internal control material weakness by implementing new controls and procedures that combined will improve the quality of the financial reporting process.

Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are properly recorded, processed, summarized and reported within the time periods required by the Commission’s rules and forms. Management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures that, by their nature, can provide only reasonable assurance regarding management’s control objectives. Management does not expect that its disclosure controls and procedures will prevent all errors and fraud. A control system, irrespective of how well it is designed and operated, can only provide reasonable assurance, and cannot guarantee that it will succeed in its stated objectives.

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Changes in Internal Control Over Financial Reporting

There were no changes in internal control over financial reporting that occurred during the first six months of 2010 that have materially affected, or are reasonably likely to affect materially, our internal control over financial reporting.

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OTHER INFORMATION

Item 1. Legal Proceedings.

Exxon Litigation

On January 16th, 2008, Exxon Mobil Corporation filed a petition in the 270 th District Court of Harris County, Texas, naming us as a defendant along with TEC and a third party, Merenco Realty, Inc., demanding environmental remediation of certain properties in Tomball, Texas. In 1996, pursuant to an assignment agreement, Exxon Mobil sold certain oil and gas leasehold interests and real estate interests in Tomball, Texas to TEC’s predecessor in interest, Merit Energy Corporation. In 1999, TEC assigned its 50% undivided interest in one of the tracts in the acquired property to Merenco, an affiliate of TEC, owned 50% by our Chairman of the Board, Tim Culp. In October 2007, the Texas Railroad Commission notified Exxon Mobil of an environmental site assessment alleging soil and groundwater contamination for a site in the area of Tomball, Texas. Exxon Mobil believes that the site is one which was sold to TEC and claims that TEC is obligated to remediate the site under the assignment agreement. Exxon Mobil has requested that the court declare the defendants obligated to restore and remediate the properties and has requested any actual damages arising from breach and attorneys’ fees. We believe that Exxon Mobil’s claim that TEC is responsible for any remediation of such site is without merit and we intend to vigorously defend ourselves against this claim. However, no assurance can be given that we will prevail in this matter. We acquired substantially all the assets and liabilities of TEC in the TEC acquisition. Merenco was not acquired by us in the TEC acquisition and our Chairman, Tim Culp, continues to have a 50% ownership interest in Merenco.

Hyman Litigation

On November 11, 2008, Mr. Hyman, a former employee of KD Resources, filed a claim against KD Resources and Platinum Energy stating that he was discharged from KD Resources in violation of the Sarbanes-Oxley Act of 2002, Section 806, Protection for Employees of Publicly Traded Companies Who Provide Evidence of Fraud. In December, 2008, the Department of Labor (“DOL”) dismissed the complaint as not being timely filed. On or about January 8, 2009, Mr. Hyman appealed the ruling of the DOL. On January 16, 2009, the DOL filed an Order to Show Cause whereby Mr. Hyman was ordered to show why his case should not have been dismissed. On February 14, 2009, Mr. Hyman filed his response to the Order to Show Cause stating that he failed to file within the required time because he was engaged in negotiations with the Respondents. On March 18, 2009, the Department of Labor dismissed Mr. Hyman’s claim for failure to file within the 90-day filing period. Mr. Hyman filed a Petition for Review of the Decision and Order Dismissing Complaint issued March 18, 2009. A Notice of the Appeal was filed April 10, 2009 which was granted. On March 31, 2010, in a split decision, the Administrative Review Board Reversed the decision of the Administrative Law Judge and Remanded the case for further consideration. It is the Company's contention that Mr. Hyman did not file his complaint within the time required by Sarbanes-Oxley, and in any case, was never an employee of Platinum Energy Resources or any of its subsidiaries; as such we are not liable for any issues between Mr. Hyman and his employer, KD Resources. It is the Company's further contention that the only reason Platinum Energy is listed in this action is because it is a public company and Mr. Hyman needs a public company in order to obtain his status under the Sarbanes-Oxley Act.

Kovar Litigation

On December 3, 2008, Robert Kovar filed suit against Platinum alleging that he “Resigned for Good Reason” according to his employment contract. Mr. Kovar is seeking a Declaration Judgment that he had “Good Reason” to resign his employment at Platinum Energy and Maverick Engineering. Mr. Kovar is also requesting payment of the severance package, accelerated vesting of options and accelerated payment of the Cash Flow Note (as described in the Platinum Energy, Maverick Engineering Merger Agreement) as described in his employment agreement, plus attorney fees and court costs. It is our contention that Mr. Kovar resigned his position without good reason and is therefore, not entitled to severance or accelerated vesting of options. It is our additional conviction that the Cash Flow Note has been cancelled and that Platinum Energy in no longer obligated to make any payments there under, pursuant to the terms of Mr. Kovar’s employment agreement. We are currently in the discovery phase of this matter. We believe that Mr. Kovar’s claim that he resigned with “Good Reason” is without merit and we intend to vigorously defend ourselves against this claim.

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Platinum v. Robert L. Kovar Services, et al

On April 16, 2009, the Company received a written notice of acceleration from Robert L. Kovar Services, LLC, as the stockholder representative, claiming that the Company failed to make timely mandatory prepayments in the amount of $110,381 due under the terms of the Cash Flow Notes. On April 29, 2009, Maverick received a notice of acceleration (the “Acceleration Letter”) with respect to the Notes governed by a Loan Agreement and related Security Agreement originally dated April 30, 2005 and April 29, 2005, respectively. The Acceleration Letter alleges that Maverick failed to comply with certain covenants under the terms of the Loan Agreement and that Maverick failed to make payments due under the Notes. The outstanding principal, accrued interest and late charges alleged to be owed by Maverick in the Acceleration Letter total $4,659,227. The Acceleration Letter also contends that interest continues to accrue at the default rate of 18% per annum. In a separate letter, dated May 1, 2009, Robert L. Kovar Services, LLC, as the stockholder representative for the sellers, purported to terminate the revolving credit facility under the Loan Agreement and demanded turnover of all collateral securing indebtedness under the Loan Agreement, including the Notes. The Company and Maverick have asserted claims in litigation against the holders of the Notes, Robert L. Kovar Services, LLC, Robert L. Kovar, individually, and others. These litigations are in its early stages and, accordingly, the Company cannot predict the outcome of these matters.

Maverick have also sued to recover costs of court and attorneys’ fees.

Citgo Litigation

On October 14, 2009, Maverick Engineering filed suit in Harris County against CITGO Refining & Chemical Company, LP for Breach of Contract. According to the Petition, Maverick provided engineering services to CITGO and CITGO has refused to pay for those services. Maverick is suing for $357,538.16 plus damages, costs, attorney fees, interest, and other relief. While Maverick has performed all terms, conditions, and covenants required under its contract with CITGO, it is too early in this litigation to be able to predict outcome.

Meier Litigation

On October 20, 2009, Lisa Meier filed suit for breach of her employment contract. According to the Petition, Ms. Meier resigned for “good cause” and she is seeking severance pay. On June 10, 2009, Ms. Meier delivered to the Board of Directors of Platinum Energy Resources, her second notice of intent to resign for “Good Reason.” Ms. Meier’s first notice was submitted on October 23, 2008, less than three months after entering into her employment agreement, and subsequently withdrawn.

The Board of Directors accepted Ms. Meier’s resignation, but stated that “good reason” did not exist. This matter is currently is the early phase of litigation. We believe that Ms. Meier’s claims are without merit and we intend to vigorously defend ourselves against these claims.

Item 1A. Risk Factors.

There have been no material changes to the risk factors set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Submission of Matters to a Vote of Security Holders.

Removed and reserved.

Item 5. Other Information.

None.

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Item 6. Exhibits.

The following exhibits, which are numbered in accordance with Item 601 of Regulation S-K, are filed herewith or, as noted, incorporated by reference herein:

Exhibit Number		Exhibit Description

31.1		Section 302 Certification of Principal Executive Officer

31.2		Section 302 Certification of Principal Financial Officer

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	PLATINUM ENERGY RESOURCES, INC.

Date: August 20, 2010	By:	/s/ Al Rahmani
		Al Rahmani
		Chief Executive Officer

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PLATINUM ENERGY RESOURCES INC - FORM 10-Q - August 20, 2010

Attached files

PLATINUM ENERGY RESOURCES INC Reports