Washington, D.C. 20549
PLATINA ENERGY GROUP INC.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
The number of shares of common stock, $.001 par value, outstanding as of November 18, 2008: 187,943,601 shares
Note 1. Basis of Presentation and Organization
Organization, History and Business
Platina Energy Group, Inc. ("the Company"), a Delaware Corporation, was originally incorporated on January 19, 1988. The Company went through several previous unrelated transactions involving other businesses that have subsequently been divested. A further subsequent restructure of the Company on June 25, 2005 resulted in the name change to Platina Energy Group, Inc. with business focus on the oil and gas sector.
The Company is in the exploration stage, as defined in Statement of Financial Accounting Standards (“SFAS”) No. 7, “ Accounting and Reporting by Development Stage Enterprises ,” with its principal activity being the exploration and development of oil and gas properties.
On March 30, 2005, the Company formed a wholly owned subsidiary, Permian Energy International, Inc., a Nevada Corporation to acquire certain rights for enhanced oil recovery and reduction of paraffin build up through a thermal pulsing pump device. On April 6, 2005, the Company completed its acquisitions of rights and licenses from Permian Energy Services, LP in connection with certain rights including the representation and marketing of a proprietary thermal pulsing pump in the oil and gas industry. The assets acquired from the LP were transferred into Permian Energy International. The thermal pulse unit, (“TPU”), was engineered to create a new recovery pump for oil particularly in fields with heavy paraffin problems. As a by-product of the process for specific field applications, the need for down-hole or pump jacks can be eliminated. Also, flow rates of oil from viscosity changes due to heat and pressure changes can be substantially increased. Through May 2007, the Company leased its sole TPU for $3,600 per month.
On January 5, 2007, the Company formed Appalachian Energy Corp. a Nevada Corporation (“Appalachian”). Appalachian is headquartered in London, Kentucky. Appalachian acquired prospects in Tennessee. (See Note 6).
In June of 2007, the Company formed Platina Exploration Corp., a Nevada Corporation (“PEC”). PEC is headquartered in Dallas, Texas. PEC has acquired producing interests on multiple leases in Seminole County, Oklahoma and prospects in Young County, Texas (See Note 6).
On October 5, 2007, the Company formed Applegate Petroleum Management LLC, (“Applegate”). Applegate is headquartered in Cheyenne, Wyoming, and its primary function is to coordinate private equity raising activities for Platina.
On January 10, 2008, the Company formed Wildcat Energy Corp., (“Wildcat”) a Nevada Corporation. Wildcat is headquartered in London, Kentucky. Wildcat acquired 11 properties located in Laurel County, Kentucky and 10 properties in Whitley County, Kentucky. (See Note 6).
The accompanying financial statements include the activities of the Company and its subsidiaries. All material intercompany transactions have been eliminated.
Basis of Presentation
The accompanying interim financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") for interim financial reporting. These interim financial statements are unaudited and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments and accruals) necessary to present fairly the balance sheet, operating results and cash flows for the periods presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"). Operating results for the six months ended September 30, 2008 are not necessarily indicative of the results that may be expected for the year ending March 31, 2009 or for any other interim period during such year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted in accordance with the rules and regulations of the SEC. These interim financial statements should be read in conjunction with the audited financial statements and notes thereto contained in the Company's Form 10-KSB for the year ended March 31, 2008.
The Company's financial statements are prepared using the accrual method of accounting in accordance with accounting principles generally accepted in the United States of America and have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. The Company has accumulated operating losses since its inception (January 19, 1988). In addition, the Company has used ongoing working capital in its operations. At September 30, 2008 the Company's current liabilities exceeded its current assets by approximately $4,000,000 and it has an accumulated deficit of approximately $27,500,000.
In view of current matters, the continuation of the Company's operations is dependent on revenue from its oil and gas production, funds generated by its management, advancements made by expenditures from certain joint venture arrangements, the raising of capital through the sale of its equity instruments or issuance of debt. Management has purchased certain rights and licenses from Permian Energy Services LP (“Permian”), a related party (see Note 5), in connection with the marketing of a proprietary thermal pulsing pump in the oil and gas industry. Further, the Company has entered into various drilling programs with third parties. Management believes that these sources of funds will allow the Company to continue as a going concern through 2009. However, no assurances can be made that current or anticipated future sources of funds will enable the Company to finance future periods’ operations. In light of these circumstances, substantial doubt exists about the Company's ability to continue as a going concern. These consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets or liabilities that might be necessary should the Company be unable to continue as a going concern.
Note 2. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Platina Energy Group Inc. and its wholly owned subsidiaries, Appalachian Energy Corporation, Platina Exploration Corp., Applegate Petroleum Management, LLC, Wildcat Energy Corp. and Enhanced Oil Recovery Technologies, Inc. Intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates.
Cash Equivalents
For purposes of the statements of cash flows, the Company considers cash equivalents to include highly liquid investments with original maturities of three months or less.
Accounts Receivable
Accounts receivable are reported at the customers’ outstanding balances less any allowance for doubtful accounts. The Company does not accrue interest on overdue accounts receivable.
The allowance for doubtful accounts is charged to income in amounts sufficient to maintain the allowance for uncollectible accounts at a level management believes is adequate to cover any probable losses. Management determines the adequacy of the allowance based on historical write-off percentages and information collected from individual customers. As of September 30, 2008, management believes all accounts receivable are collectible. Accordingly, no allowance for doubtful accounts is included in the accompanying consolidated balance sheet.
Property and Equipment
Property and equipment are stated at cost. Major renewals and improvements are charged to the asset accounts while replacements, maintenance, and repairs that do not improve or extend the lives of the respective assets are expensed. At the time property and equipment are retired or otherwise disposed of, the asset and related accumulated depreciation accounts are relieved of the applicable amounts. Gains or losses from retirements or sales are credited or charged to income.
The Company's equipment consists of gathering and transmitting equipment which is being depreciated over its estimated useful life of 20 years, a TPU unit which is being depreciated over its estimated useful life of 7 years on the straight-line method, transportation equipment which is being depreciated over its estimated useful life of 3 to 5 years on the straight-line method.
Oil and Gas Properties
The Company follows the full cost method of accounting for crude oil and natural gas properties. Under this method, all direct costs and certain indirect costs associated with acquisition of properties and successful as well as unsuccessful exploration and development activities are capitalized. Depreciation, depletion, and amortization of capitalized crude oil and natural gas properties and estimated future development costs, excluding unproved properties, are based on the unit-of-production method based on proved reserves.
Long-Lived Assets
The Company accounts for its long-lived assets in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the historical cost carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and fair value or disposable value. As of September 30, 2008, the Company did not deem any of its long-term assets to be impaired.
Convertible Debentures
If the conversion feature of conventional convertible debt provides for a rate of conversion that is below market value, this feature is characterized as a beneficial conversion feature (“BCF”). A BCF is recorded by the Company as a debt discount pursuant to EITF Issue No. 98-5 (“EITF 98-05”), Accounting for Convertible Securities with Beneficial Conversion Features or Contingency Adjustable Conversion Ratio, and EITF Issue No. 00-27, Application of EITF Issue No. 98-5 to Certain Convertible Instruments. In those circumstances, the convertible debt will be recorded net of the discount related to the BCF. The Company amortizes the discount to interest expense over the life of the debt using the effective interest method.
Derivative Financial Instruments
As of September 30, 2008, the Company recognized a derivative liability of $3,247,059 pursuant to EITF 00-19 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock”. The Company recognized a derivative gain in the amount of $161,183 and a derivative loss in the amount of $2,309,489 during the three and six months ended September 30, 2008, respectively. This is due to the increase in the number of its authorized common shares which eliminated the prior year’s liability on the number of committed shares in excess of authorized shares.
Revenue recognition
The Company recognizes revenue in accordance with Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial Statements,” as revised by SAB No. 104. As such, the Company recognizes revenue when persuasive evidence of an arrangement exists, title transfer has occurred, the price is fixed or readily determinable and collectibility is probable. Sales are recorded net of sales discounts.
In September 2006, the Company entered into an agreement to joint venture its thermal pulsing pump (TPU) for one year at $3,600 per month. The lease was cancelled effective June 1, 2007. Pursuant to the lease agreement, the Company received an advance payment of $7,400 and was required to make certain modifications to the pump’s vessel. As of December 31, 2007, the Company incurred $7,432 in costs associated in the vessel upgrade. The upgrade was completed in October 2006 and the $7,432 is included in the cost basis of the TPU. The lease commenced in November 2006. The costs of the vessel upgrades are being depreciated over the pump’s remaining expected useful life of approximately 6 years. During the year ended March 31, 2008, the Company generated $107,685 from its oil and gas production of which $48,000 was earned from the sale of approximately 600 barrels of oil to Zone Petroleum. The Company is currently storing the oil for Zone, who has accepted ownership and full responsibility for the oil purchased.
Income Taxes
The Company accounts for income taxes under the provisions of SFAS No. 109, “Accounting for Income Taxes.” Under SFAS No. 109, deferred tax assets and liabilities are recognized for future tax benefits or consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided for significant deferred tax assets when it is more likely than not that the asset will not be realized through future operations.
The Company has total net operating tax loss carry forwards at September 30, 2008 of approximately $13,850,000 for federal income tax purposes. These net operating losses have generated a deferred tax asset of approximately $4,571,000 on which a valuation allowance equaling the total tax benefit has been provided due to the uncertain nature of it being realized. Net operating loss carryforwards expire in various periods through September 30, 2028 for federal tax purposes.
Stock Based Compensation
The Company accounts for stock-based compensation under SFAS No. 123R, "Share- based Payment” " and SFAS No. 148, "Accounting for Stock-Based Compensation--Transition and Disclosure--An amendment to SFAS No. 123." These standards define a fair value based method of accounting for stock-based compensation. In accordance with SFAS Nos. 123R and 148, the cost of stock-based employee compensation is measured at the grant date based on the value of the award and is recognized over the vesting period. The value of the stock-based award is determined using the Black-Scholes option-pricing model, whereby compensation cost is the excess of the fair value of the award as determined by the pricing model at the grant date or other measurement date over the amount an employee must pay to acquire the stock. The resulting amount is charged to expense on the straight-line basis over the period in which the Company expects to receive the benefit, which is generally the vesting period.
The Company recognized stock-based compensation expense of $2,582,458 and $719,049 for the six months ending September 30, 2008 and 2007, respectively. Stock based compensation is included in general and administrative expense.
Issuance of Stock for Non-Cash Consideration
All issuances of the Company's stock for non-cash consideration have been assigned a per share amount equaling either the market value of the shares issued or the value of consideration received, whichever is more readily determinable. The majority of the non-cash consideration received pertains to services rendered by consultants and others and has been valued at the market value of the shares on the dates issued.
Net Loss per Share
The Company adopted the provisions of SFAS No. 128, “Earnings Per Share” (“EPS”). SFAS No. 128 provides for the calculation of basic and diluted earnings per share. Basic EPS includes no dilution and is computed by dividing income or loss available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution of securities that could share in the earnings or losses of the entity, arising from the exercise of options and warrants and the conversion of convertible debt. If such shares were included in diluted EPS, they would have resulted in weighted-average common shares of 160,404,634 and 77,036,882 for the six months ended September 30, 2008 and 2007, respectively.
Fair Value of Financial Instruments
The Company's financial instruments consist of cash and cash equivalents, accounts payable, and notes payable. Pursuant to SFAS No. 107, “Disclosures About Fair Value of Financial Instruments,” the Company is required to estimate the fair value of all financial instruments at the balance sheet date. The Company considers the carrying values of its financial instruments in the financial statements to approximate their fair values due to the short term nature of the instruments.
Reclassification
Certain reclassifications have been made to the 2007 balances to conform to the 2008 presentation.
Recent Accounting Pronouncements
SFAS No. 157 - In September 2006, the FASB issued Statement 157, Fair Value Measurements. This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. However, for some entities, the application of this Statement will change current practice. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Earlier application is encouraged, provided that the reporting entity has not yet issued financial statements for that fiscal year, including financial statements for an interim period within that fiscal year. The Company has evaluated the impact of the adoption of SFAS 157, and does not believe the impact will be significant to the Company's overall results of operations or financial position.
SFAS No. 158 - In September 2006, the FASB issued Statement No. 158 Employers’ Accounting for Defined Benefit Pension and Other Post Retirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R). This Statement improves financial reporting by requiring an employer to recognize the over funded or under funded status of a defined benefit post retirement plan (other than a multi-employer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity or changes in unrestricted net assets of a not-for-profit organization. This Statement also improves financial reporting by requiring an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. An employer with publicly traded equity securities is required to initially recognize the funded status of a defined benefit post retirement plan and to provide the required disclosures as of the end of the fiscal year ending after December 15, 2006. An employer without publicly traded equity securities is required to recognize the funded status of a defined benefit post retirement plan and to provide the required disclosures as of the end of the fiscal year ending after June 15, 2007. The Company has evaluated the impact of the adoption of SFAS 158, and does not believe the impact will be significant to the Company's overall results of operations or financial position.
SAB No. 108 – In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108 (SAB No. 108), “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” The guidance in SAB No. 108 requires Companies to base their materiality evaluations on all relevant quantitative and qualitative factors. This involves quantifying the impact of correcting all misstatements, including both the carryover and reversing effects of prior year misstatements, on the current year financial statements. The Company has adopted this standard.
SFAS No. 159 - In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115. This Statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is expected to expand the use of fair value measurement, which is consistent with the Board’s long-term measurement objectives for accounting for financial instruments. This Statement applies to all entities, including not-for-profit organizations. Most of the provisions of this Statement apply only to entities that elect the fair value option. However, the amendment to FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities, applies to all entities with available-for-sale and trading securities. Some requirements apply differently to entities that do not report net income. This Statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of FASB Statement No. 157, Fair Value Measurements. No entity is permitted to apply this Statement retrospectively to fiscal years preceding the effective date unless the entity chooses early adoption. The choice to adopt early should be made after issuance of this Statement but within 120 days of the beginning of the fiscal year of adoption, provided the entity has not yet issued financial statements, including required notes to those financial statements, for any interim period of the fiscal year of adoption. This Statement permits application to eligible items existing at the effective date (or early adoption date). The Company has evaluated the impact of the implementation of SFAS No. 159 and does not believe the impact will be significant to the Company's overall results of operations or financial position.
Note 3. Accounts Receivable, Trade
Accounts receivable, trade, consisted of $0 at September 30, 2008. Allowance for doubtful accounts was $0 at September 30, 2008.
Note 4. Accounts Receivable, Other
Accounts receivable, other, consisted of $12,000 due from a third party and $2,900 due from employees for payroll advances.
Note 5. Acquisition of Licensing Rights
On April 6, 2005, the Company completed its purchase of rights and licenses from Permian Energy Services LP, a related party, in connection with certain technological representation and marketing rights of a proprietary thermal pulse pump in the oil and gas industry. In consideration for the assets purchased, the Company originally agreed to issue 2,250,000 shares of its common stock and pay $250,000 as evidenced by a promissory note with interest accruing at an annual rate of 6%. Under the terms of the note, accrued interest would have been due one year from the date of the Note and all principal and additional accrued interest would have been due two years from the date of the note. Throughout the first portion of fiscal 2006, Permian Energy International was in dispute with the prior President of Permian International, Inc. relative to certain amounts allegedly due to him. The Company valued the intangible assets purchased at $347,500, which consisted of the $250,000 obligation plus the fair value of the 750,000 shares issued to a consultant in connection with the acquisition. The Company valued the shares issued as of April 6, 2005 (See Note 6).
In April 2006, the Company entered into a satisfactory settlement agreement with Permian Energy Services L.P. and Robert Clark ("Clark"), the former president of Permian Energy International Inc. Under the terms of the settlement agreement, the Company agreed to dismiss its lawsuit against Clark. The Company has also agreed to pay Clark $53,823 in exchange for Clark returning the 2,025,000 shares it received under the April 6, 2005 asset purchase agreement and cancelling the $214,963 obligation due it.
In order to bring the negotiations with Clark to a successful conclusion, Wyoming Energy Corp. had to return to Permian Energy Services LP, its 10% ownership interest in the LP. In consideration for the loss of Wyoming's interest in the LP, the Company transferred its obligation in favor of the LP to Wyoming under the same terms and conditions. At the time of the transaction, Wyoming Energy Corp. was wholly-owned by the Company's president, but was subsequently sold to an unrelated third party in March 2007.
Clark also agreed not to engage in the business of providing downhole oil or gas well stimulation as referenced and defined in the PES-BI-Comp agreement, which was assigned to the Company by Clark in April 2005 pursuant to the Asset Purchase Agreement for a period of three years.
The Company is amortizing the licensing rights over its expected useful life of seven years. Amortization expense charged to operations amounted to $24,882 and $24,882 in the six months ended September 30, 2008 and 2007, respectively.
Estimated amortization expense is as follows:
Year ending June 30,
2009 $49,643
2010 49,643
2011 49,643
2012 12,410
$ 161,339
Note 6. Property and equipment
Oil and gas properties
In October 2006, the Company issued 3,600 shares of its Class C convertible preferred stock in exchange for an option to acquire certain oil and gas leases situated on 3,600 acres in Floyd County, Texas. The option was to expire in January 2007, but the Company paid $54,000 to extend the option period. The 3,600 shares of Class C preferred stock were valued at $32,400 based on the market price of the underlying common shares on which the preferred shares can be converted into on the date of issuance.
In January 2007, the company issued 22,500 shares of its Series B Preferred Stock to Tri Global Holdings, LLC for the purchase of oil and gas leases to thirty to thirty five drilling locations on approximately 1,600 acres in the Devonian Black Shale formation located in the Appalachian Basin in East Tennessee. The 22,500 shares were valued at $213,773, based on the market price of the Company's underlying common stock on the date of acquisition. Each share of Series B Preferred is convertible into 100 shares of the Company's common stock.
In February 2007, the Company issued 25,000 shares of its Series B Preferred Stock in exchange for the acquisition of oil and gas leases and options comprising of approximately 20,000 acres located in Palo Duro Basin, Texas and oil and gas leases located on 372 acres in Young Texas. The 25,000 shares were valued at $237,525, based on the market price of the Company's underlying common stock on the date of acquisition.
Further in April 2007, the Company issued 12,464 shares of its Series B Preferred Stock to extend the option through August 1, 2007. The 12,464 shares of Class B preferred stock were valued at $149,568 based on the market price of the underlying common shares on which the preferred shares can be converted into on the date of issuance.
In June 2007, the Company issued 61,091 of its Class A convertible preferred stock in exchange for the oil and gas leases referenced above. The 61,091 shares of Class A convertible preferred stock were valued at $171,055 based on the market price of the underlying common shares on which the preferred shares can be converted into on the date of issuance.
In June 2007, the Company issued 6,500 of its Class B convertible preferred stock and paid $10,000 to West Texas Royalties, Inc. in consideration for the remaining 25% of the working interest in the oil and gas leases located in Young County, Texas. The 6,500 shares of Class B convertible preferred stock were valued at $182,000 based on the market price of the underlying common shares on which the preferred shares can be converted into on the date of issuance.
On May 14, 2007 the Company signed a memorandum agreement (Agreement) with Zone Petroleum, LLC (Zone), a Wyoming corporation to fund the development of its Young County prospect. Pursuant to the agreement, Zone is granted an exclusive for the Young County prospect as long as Zone is able to fund the development of 35 wells over an 18 month period based an turnkey agreement of $50,000 per well. As discussed below, in June, 2007. The Company acquired the remaining balance of the working interest in its Young County, Texas prospect in order to facilitate its agreement with Zone Petroleum LLC. Under the agreement with Zone Petroleum, it will receive a 75% working interest with Platina retaining the remaining 25% working interest. Under the agreement, the Company will receive an operating fee of 10% to 15%, subject to negotiation. During the year ended March 31, 2008, the Company received $175,500 from Zone and received an additional $25,000 last year relating to this agreement. On December 30, 2007, the Company acquired the remaining 75% working interest from Zone in exchange for a note payable in the amount of $210,000 (See Note 8).
On August 7th 2007 the Company signed an agreement with Homestead Oil and Gas LLC to fund the development of its Appalachian prospect. Under the agreement, the development of 55 well sites are to be funded by Homestead, who will receive a 75% working interest in the wells, with Appalachian, a wholly owned subsidiary of Platina retaining a 25% working interest. As part of the agreement, Appalachian will have the right to purchase 100% or any fraction thereof, of any Homestead-owned well interest on this property. Drilling activities began in August of 2007. No assurance can be given as to the expected progress or performance of the development of the wells or that the production there from will prove profitable. On December 30, 2007, the Company acquired the remaining 75% working interest from Homestead in exchange for a note payable in the amount of $320,000 (See Note 8).
On October 29, 2007 the Company, through its wholly owned subsidiary, Platina Exploration Corporation, entered into a Property Sale and Joint Venture Agreement (the "Rick Newell Agreement") with Buccaneer Energy Corporation ("Buccaneer"). The Rick Newell Agreement provides for a Joint Venture by the Company with Buccaneer for a one half (1/2) interest in the Rick Newell Salt Water Disposal Project located in Oklahoma that consists of one (1) producing oil well (Rick #1) currently producing approximately four (4) barrels of oil per day, one (1) salt water disposal well (the Newell #2) and a number of wells which are to be recompleted and dispose of the salt water on the lease in the Newell #2 well. Pursuant to the Rick Newell Agreement, the Company is to pay to Buccaneer a total consideration of $455,138. In connection with this purchase, the Company is offering to qualified investors units at a price of $50,000 each. Each unit consist of 100,000 restricted shares of the Company's common stock, a 4% working interest in the Rick #1 and the Newell #2 and a 1 ½ % working interest in the 10 non-operating wells. As of January 10, 2008, the Company has received $525,000 through the issuance of 10.5 units.
On October 31, 2007, the Company, through its wholly owned subsidiary, Platina Exploration Corporation, also entered into a Property Sale and Joint Venture Agreement (the "Oklahoma Agreement") with Buccaneer. The Oklahoma Agreement provides for a Joint Venture by the Company with Buccaneer for a one half (1/2) interest in (i) the approximate forty percent (40%) interest of Buccaneer in the Oklahoma PUD Prospects comprised of several undeveloped prospects to be drilled and (ii) a one half (1/2) interest in the East Texas Projects consisting of the Gaywood acquisition comprised of approximately fifty (50) locations in Rusk County. The Oklahoma Agreement further provides that Buccaneer will show the Company other opportunities or projects and if the Company elects to participate, it will receive a one half (1/2) interest in such project or projects upon reimbursement to Buccaneer for its costs in such project(s). The Oklahoma Agreement also provides that the Company will pay Buccaneer $199,873 comprised of $60,000 cash and a $139,873 promissory note at six percent (6%) interest due on or before January 31, 2008. The Company paid the amounts due in January 2008, when the purchase was completed.
Both the Rick Newell Agreement and the Oklahoma Agreement further provide that Buccaneer and the Company will be equal partners in future operations with Buccaneer's wholly owned subsidiary, Buccaneer Energy L.L.C. being the operator of projects located in Oklahoma, Bowie Operating Company ("Bowie Operating"), a newly formed Texas LLC being the operator of all other projects except that pursuant to an oral agreement, Bowie Operating will also be the Operator of the Newell #2 upon completion of bonding in Oklahoma, with all operations to be at cost, plus normal Model 610 Operating Agreement COPUS drilling, completion and operating overhead reimbursement fees. Buccaneer has a 50% membership interest in Bowie. In January 2008, the Company agreed to convert the $250,000 promissory note from Buccaneer Energy Corporation into 50% ownership in Bowie Energy, LLC.
On January 10, 2008, entered into an Agreement of Sale and Purchase (the "Agreement") with Energas Resources, Inc. ("Energas"), TGC, Inc., a wholly-owned subsidiary of Energas, ("TGC") and AT Gas Gathering Systems, Inc., a wholly-owned subsidiary of Energas ("ATG")( Energas, TGC and ATG collectively, "Energas Resources") with the transactions set forth in the Agreement also closing on January 17, 2008 effective as of January 1, 2008. Pursuant to the Agreement, Energas Resources sold to the Company (i) all of the Energas Resources properties and interests, producing and non-producing, owned by Energas Resources as listed in the Agreement (ii) all right title and interest of Energas Resources in oil, gas and mineral leases, subleases, easements, farmout agreements, royalty agreements, overriding royalty agreements, and/or net profit interest agreements in 11 properties located in Laurel County, Kentucky and 10 properties in Whitley County, Kentucky as described in the Agreement, (iii) the interests of Energas Resources in certain property located in Laurel and Whitley Counties, Kentucky including but not limited to wells, approximately 9 miles of natural gas transmission line and gathering system facilities, compressor station and De-Hy Unit and other personal property as further described in the Agreement and (iv) all regulatory permits, licenses and authorizations relating to the purchased assets. The purchase price for the foregoing assets is $2,300,000 of which $100,000 was paid at the closing and $2,200,000 was paid by the Company executing a 7 1/2 % interest non recourse promissory note (the "Note") secured by the assets transferred to the Company. The Note further provides that the Company pay Energas Resources $100,000 on April 1, 2008, $100,000 on July 1, 2008 and commencing October 1, 2008, quarterly payments of interest only until January 1, 2010 when all outstanding principal and accrued but unpaid interest is due in full.
On January 17, 2008, the Company entered into an Agreement for Sale and Purchase of Oil and Gas Properties (the "Wyoming Agreement") with Energas with the transactions set forth in the Wyoming Agreement also closing on January 17, 2008. Pursuant to the Wyoming Agreement, Platina purchased a 26% working interest in the Rusty Creek Prospect in Niobrara County, Wyoming, which includes the Finley #1 and Finley #2 producing wells and Finley #4, TA with existing production of approximately 11 barrels of oil per day, plus leases of oil and gas rights on 1,760.11 acres and various personal property for a purchase price ,all of which was paid at closing, of (i) $233,379 (ii) warrants to purchase 2,500,000 shares of Platina's common stock at $.25 per share which expire on January 17, 2010, (iii) $10,593 for its participation in the workover of the Finley #1 and (iv) $111,896 for its participation in the deepening of the Finley #2.
On January 8, 2008, the Company acquired a 44% working interest in the Golf #1 Well, and the assignment of the Jack Goff and Cumberland College leases which comprises approximately 838 acres for a total purchase price of $10,000.
On March 31, 2008, Platina Energy Group, Inc. (the “Company”) entered into an Agreement and Plan of Acquisition (the “Exchange Agreement”) with UTEK Corporation, a Delaware corporation (“UTEK”), and UTEK’s wholly-owned subsidiary Enhanced Oil Recovery Technologies, Inc., a Nevada corporation (“Enhanced Oil”). Pursuant to the Exchange Agreement, the Company acquired from UTEK effective March 31, 2008 all of the issued and outstanding shares of common stock of Enhanced Oil in exchange for (i) 100,000 shares of the Company's Series F Convertible Preferred Stock that is convertible, no earlier than six months and no later than twelve months from the date of the Exchange Agreement, into $1,440,000 worth of shares of the Company's common stock based on the average of the five day closing price of the Company's common stock prior to the conversion date, (ii) two year warrants to purchase 500,000 shares of the Company's common stock at an exercise price of $.25 per share and (iii) two year warrants to purchase 500,000 shares of the Company's common stock at an exercise price of $.50 per share.
The principal assets of Enhanced Oil at the time of closing consisted of a Patent License Agreement with the University of Texas System and approximately $300,000 in cash. Pursuant to such Patent License Agreement, Enhanced Oil has the exclusive worldwide license rights for the use of Patent No. 6,705,403 described as a production system and method for producing fluids from a well that includes a technology that utilizes a combination of an electrical submersible pump and a jet pump to separate liquid and gas streams. The potential benefit of this system is that it enables a submersible pump and a jet pump to be used in combination in a high gas-to-liquid ratio oil well without installing a gas vent line. The License Agreement also provides for (i) an upfront $60,000 fee that is to be paid by UTEK, (ii) an annual $1,000 maintenance fee, (iii) a royalty of 4% of all consideration received by the Licensee from license customers for the licensed product, (iv) a royalty of 4% of the net sales of the licensed product and (v) a use fee for each production well which is owned or managed by the Licensee or its affiliates at which the licensed product is installed.
On May 16, 2008, the Company entered into an agreement with Homestead Oil whereby Homestead Oil agreed to cancel its 4% override royalty interest in the Young County, Texas property in exchange for $500,000. (See Note 9.)
On August 11, 2008, the Company, through its wholly owned subsidiary, Wildcat Energy Group, agreed to sell to London Oil and Gas (the “Investor) a seventy five percent (75%) Net Revenue Interest with a 100% working interest (”Investor’s Interest”) of Wildcat’s eighty percent 80% Net Revenue Interest in one of the Kentucky Wells of Investor’s choice with Wildcat retaining the remaining twenty five percent (25%) Carried Interest of Wildcat’s 80% NRI in such Kentucky Well. The Investor agreed to pay to Wildcat a total of Nine Hundred Thousand Dollars ($900,000) as full consideration for the purchase of the Investor’s 100% Working Interest, and 75% Net Revenue Interest. If for any reason, after the 24th month subsequent to the Closing but not later than the 25th month, the Investor has not received distributions of at least the return of its $900,000 purchase price net of all Capital Expenditures, Maintenance Costs and its pro rata Operational Costs actually paid by the Investor or deducted from distributions due to the Investor, the Investor has the option, upon thirty (30) days written notice (the “Notice Period”), to “put” its Well Interest to the Company through its wholly owned subsidiary, Wildcat Energy Group, for the balance between what the Investor has received in distributions and the initial investment of $900,000 less any Capital Expenditures, Maintenance Costs and its pro rata Operational Costs due, if any (the “Buy Back Price”). Accordingly, the Company has recorded the $900,000 received as deferred revenue.
Note 7. Convertible Debt
Agreement #1
On March 14, 2007, convertible debentures totaling $137,556 were sold by four Noteholders (“Assignors”) of the Company to third party assignee(s) represented by counsel (“Assignee”). Under the terms of the sale, the Company agreed to modify the conversion feature of the notes. Under the modified terms, The Assignee shall have the right, upon three (3) days written notice to the Company, to convert the unpaid principal and accrued interest of each Note into the Company's common stock at a rate of $0.002 per share for the first 4,000,000 shares and thereafter $0.003 per share, except the last 4,000,000 shares will be at the rate of $0.004 per share; provided, however, the Assignee can only convert after the respective Assignor has been fully paid for that portion of the Note that the Assignee is looking to convert. The terms further provide that no Note shall be converted at any time by the Assignee if it would result in the Assignee beneficially owning more than 9.99% of the common stock of the Company at the time of such conversion and that no Note can be converted at any time that the Fair Market Value of the common stock of the Company is less than nine cents ($0.09) per share without the prior written consent of the Board of Directors of the Company. In addition, the converted shares cannot be sold by the Assignee(s) represented by legal counsel into the US Market for a period of five (5) years from the date of the Assignment. In March 2007, the Company issued 2,200,000 shares of its common stock in exchange for canceling $4,400 of indebtedness. The Company recognized a loss of $281,600 on the conversion. The Company determined that the modification of the conversion features created a beneficial conversion feature (“BCF”) totaling $134,775 which was charged to interest expense during the year ended March 31, 2007.
During the six months ended September 30, 2008, the Company issued 34,484,870 shares of its common stock in exchange for canceling $44,485 of indebtedness. These shares cannot be sold in the U.S. market for five years. The Company recognized a loss of $3,733,397 on the conversions, which is the difference between the prevailing market price of the shares on the date of conversion and the conversion price. The balance of the convertible debenture at September 30, 2008 totaled $0.
Agreement #2
On August 30, 2007 the Company entered into a Securities Purchase Agreement with La Jolla Cove Investors, Inc. (“La Jolla”), to (i) sell to La Jolla a 7 ¼ % Convertible Debenture for $300,000 with a maturity date of August 30, 2010 if not earlier converted by La Jolla into shares of the Company's Common Stock and (ii) issue to La Jolla a Warrant to Purchase up to 3,000,000 shares of the Company's common stock at price of $1 per share with an expiration date of August 30, 2010.
Under the terms of the convertible debenture, La Jolla can convert the debt or any portion thereof. The number of common shares into which the debenture may be converted is equal to the dollar amount of the Debenture being converted multiplied by eleven, minus the product of the Conversion Price multiplied by ten times the dollar amount of debenture being converted, the entire result being divided by the Conversion Price. The Conversion Price equals the lesser of (i) $1.00 or (ii) 80% of the average of the 3 lowest prices of the Common Shares during the twenty days prior to conversion. If La Jolla elects to convert, the Company has the right to pay off the amount of debt to be converted including accrued interest, however, if the trading price of the Company's common shares is less than $.25 at the time of La Jolla elects to convert, the Company may pay off the amount of debt and accrued interest to be converted with a 20% penalty thereon. The Company has the right to prepay any or all of the outstanding principal balance and accrued interest due at anytime in an amount equal to 120% of such outstanding balance and accrued interest.
The Company valued the convertible debenture (imputing an interest rate of 4.87%) and the related beneficial conversion option to convert the principal balance into shares using the “Relative Fair Value” approach. Accordingly, the Company recognized a $300,000 discount on the $300,000 principal amount of the convertible debenture. The discount was amortized over the life of the debenture. Interest charged to operation on the debenture for the six months ending September 30, 2008 and 2007 amounted to $64,737 and $0, respectively. Interest charged to operation on the discount for the six months ending September 30, 2008 and 2007 amounted to $161,874 and $0, respectively.
On September 19, 2008, the Company paid this debt in full and no further obligation is due.
Agreement #3
On October 16, 2007 the Company entered into a Securities Purchase Agreement with La Jolla Cove Investors, Inc. (“La Jolla”), to (i) sell to La Jolla a 8 % Convertible Debenture for $250,000 with a maturity date of October 16, 2010 if not earlier converted by La Jolla into shares of the Company's Common Stock and (ii) issue to La Jolla a Warrant to Purchase up to 2,500,000 shares of the Company's common stock at price of $1 per share with an expiration date of October 16, 2010.
Under the terms of the convertible debenture, La Jolla can convert the debt or any portion thereof. The number of common shares into which the debenture may be converted is equal to the dollar amount of the Debenture being converted multiplied by eleven, minus the product of the Conversion Price multiplied by ten times the dollar amount of debenture being converted, the entire result being divided by the Conversion Price. The Conversion Price equals the lesser of (i) $1.00 or (ii) 80% of the average of the 3 lowest prices of the Common Shares during the twenty days prior to conversion. If La Jolla elects to convert, the Company has the right to pay off the amount of debt to be converted including accrued interest, however, if the trading price of the Company's common shares is less than $.25 at the time of La Jolla elects to convert, the Company may pay off the amount of debt and accrued interest to be converted with a 20% penalty thereon. The Company has the right to prepay any or all of the outstanding principal balance and accrued interest due at anytime in an amount equal to 120% of such outstanding balance and accrued interest.
The Company has valued the convertible debenture (imputing an interest rate of 4.97%) and the related beneficial conversion option to convert the principal balance into shares using the “Relative Fair Value” approach. Accordingly, the Company recognized a $250,000 discount on the $250,000 principal amount of the convertible debenture. The discount is being amortized over the life of the 3 year life of the debenture. Interest charged to operation on the debenture for the six months ending September 30, 2008 and 2007 amounted to $0 and $0, respectively. Interest charged to operation on the discount for the six months ending September 30, 2008 and 2007 amounted to $0 and $0, respectively.
On December 7, 2007, the Company made a prepayment on the convertible debenture in the amount of $75,000. On January 25, 2008, the Company paid this debt in full and no further obligation is due.
Agreement #4
The Company completed a $1,500,000 financing pursuant to a Securities Purchase Agreement dated effective December 31, 2007 with Trafalgar Capital Specialized Fund, Luxembourg ("Trafalgar") for Trafalgar to loan $1,500,000 to the Company (the "Loan") pursuant to a secured Promissory Note (the "Note") dated December 31, 2007 with an annual interest rate of 10% due in monthly payments of interest only for the first two months and then commencing three (3) months from the date of the Note, principal and interest amortized over the remaining twenty five months of the Loan and a monthly redemption premium of 15% of the payment is payable in monthly installments with all principal and accrued but unpaid interest due on or before March 30, 2010.
Trafalgar is entitled, at its option, to convert until the Note is fully paid all or any part of the principal amount of the Note, plus accrued interest, into shares of the Company's common stock, at the price per share equal to $0.17 when the Common Stock is trading at or above $0.40 per share. If the Company fails to make a monthly payment within 5 days of its due date, then Trafalgar can convert its debt into shares of the Company's common stock at a price per share equal to eighty-five percent (85%) of the lowest daily closing bid price of the Company's Common Stock, as quoted by Bloomberg, LP, for the ten trading days immediately preceding the Conversion Date.
The Company issued 18,000,000 shares of its common stock and a third party non-affiliate issued an additional 6,000,000 shares into escrow as additional security for the loan.
As long as the Note is not in default and the trading price of the Company's common stock is $.40 per share or higher, the Company has the right to pay down all or a portion of the principal balance and accrued interest plus a 15% redemption fee. The funds from the loan will be used in conjunction with the Company's Tennessee prospect and specific corporate overhead.
In the event that the Company authorizes a stock split or a stock dividend, the conversion price in effect immediately prior to such split or dividend will be proportionately decreased, and in the event that the Company shall at any time combine the outstanding shares of common stock, the conversion price in effect immediately prior to such combination shall be proportionately increased, effective at the close of business on the date of split, dividend or combination as the case may be.
The Company is required to prepare and file, no later than thirty days from the date of failing to make any cash payment, including the applicable cure period (“Scheduled Filing Deadline”), a registration statement with the SEC under the 1933 Act for the registration for the resale by Trafalgar of at least two times the number of shares which are anticipated to be issued upon conversion of the Note. The Company shall cause the Registration Statement to remain effective until all of the converted shares have been sold.
In the event the Company fails to file the registration statement ,or it does not become effective within 60 days of the filing deadline (“Scheduled Effective Date”), or sales cannot be made due to a fault in the registration statement, the Company is required to pay as liquidated damages to Trafalgar, at its option, either a cash amount or shares of the Company's common stock within three (3) business days, after demand therefore, equal to two percent (2%) of the liquidated value of the Note outstanding as for each thirty (30) day period (or any part thereof) after the Scheduled Filing Deadline or the Scheduled Effective Date as the case may be.
As additional consideration for the debt facility, Trafalgar has the right to accept monthly repayment of principle and interest (approximately $70,000 per month) in the form of common shares only if the common stock price is trading above $.40 per share. Trafalgar would then have the right to receive such monthly payment(s) at a fixed conversion price of $.17 per share subject to certain potential adjustments.
The funds from the loan will be used in conjunction with the Company's Tennessee prospect and specific corporate overhead.
Interest charged to operation on the debenture for the six months ending September 30, 2008 and 2007 amounted to $131,128 and $0, respectively.
The outstanding balance of the obligation is $1,117,854 at September 30, 2008.
Agreement #5
The Company completed a $2,300,000 financing pursuant to a Securities Purchase Agreement dated effective May 21, 2008 with Trafalgar Capital Specialized Fund, Luxembourg ("Trafalgar") for Trafalgar to loan $2,300,000 to the Company (the "Loan") pursuant to a secured Promissory Note (the "Note") dated May 21, 2008 with an annual interest rate of 10% due in monthly payments of interest only for the first two months and then commencing three (3) months from the date of the Note, principal and interest amortized over the remaining twenty five months of the Loan and a monthly redemption premium of 15% of the payment is payable in monthly installments with all principal and accrued but unpaid interest due on or before August 21, 2010.
Trafalgar is entitled, at its option, to convert until the Note is fully paid all or any part of the principal amount of the Note, plus accrued interest, into shares of the Company's common stock, at the price per share equal to $0.081 when the Common Stock is trading at or above $0.30 per share. If the Company fails to make a monthly payment within 5 days of its due date, then Trafalgar can convert its debt into shares of the Company's common stock at a price per share equal to eighty-five percent (85%) of the lowest daily closing bid price of the Company's Common Stock, as quoted by Bloomberg, LP, for the ten trading days immediately preceding the Conversion Date.
The Company issued 2,300,000 shares of its common stock into escrow as additional security for the loan.
As long as the Note is not in default and the trading price of the Company's common stock is $.30 per share or higher, the Company has the right to pay down all or a portion of the principal balance and accrued interest plus a 15% redemption fee. The funds from the loan will be used in conjunction with the Company's Kentucky prospect and specific corporate overhead.
In the event that the Company authorizes a stock split or a stock dividend, the conversion price in effect immediately prior to such split or dividend will be proportionately decreased, and in the event that the Company shall at any time combine the outstanding shares of common stock, the conversion price in effect immediately prior to such combination shall be proportionately increased, effective at the close of business on the date of split, dividend or combination as the case may be.
The Company is required to prepare and file, no later than thirty days from the date of failing to make any cash payment, including the applicable cure period (“Scheduled Filing Deadline”), a registration statement with the SEC under the 1933 Act for the registration for the resale by Trafalgar of at least two times the number of shares which are anticipated to be issued upon conversion of the Note. The Company shall cause the Registration Statement to remain effective until all of the converted shares have been sold.
In the event the Company fails to file the registration statement ,or it does not become effective within 60 days of the filing deadline (“Scheduled Effective Date”), or sales cannot be made due to a fault in the registration statement, the Company is required to pay as liquidated damages to Trafalgar, at its option, either a cash amount or shares of the Company's common stock within three (3) business days, after demand therefore, equal to two percent (2%) of the liquidated value of the Note outstanding as for each thirty (30) day period (or any part thereof) after the Scheduled Filing Deadline or the Scheduled Effective Date as the case may be.
As additional consideration for the debt facility, Trafalgar has the right to accept monthly repayment of principle and interest (approximately $115,000 per month) in the form of common shares only if the common stock price is trading above $.30 per share. Trafalgar would then have the right to receive such monthly payment(s) at a fixed conversion price of $.081 per share subject to certain potential adjustments.
The funds from the loan will be used in conjunction with the Company's Kentucky prospect and specific corporate overhead.
Interest charged to operation on the debenture for the six months ending September 30, 2008 and 2007 amounted to $71,300 and $0, respectively.
The outstanding balance of the obligation is $2,208,000 at September 30, 2008. The Company failed to pay the required monthly repayment of principle and interest on September 21, 2008 and therefore the loan is in default. According to the terms of the agreement, upon failure to make a payment within five days of its due date, Trafalgar has the right to convert the balance of the obligation due into shares of the Company's stock at a price per share equal to eighty-five percent (85%) of the lowest daily closing bid price of the Company's Common Stock. At September 30, 2008, the Company recorded a derivative liability in the amount of $3,247,059 on the potential forced conversion, pursuant to EITF 00-19 paragraph 4.
Agreement #6
The Company completed a $1,200,000 financing pursuant to a Securities Purchase Agreement dated effective August 18, 2008 with Trafalgar Capital Specialized Fund, Luxembourg ("Trafalgar") for Trafalgar to loan $1,200,000 to the Company (the "Loan") pursuant to a secured Promissory Note (the "Note") dated August 18, 2008 with an annual interest rate of 10% due in monthly payments of interest only for the first two months and then commencing three (3) months from the date of the Note, principal and interest amortized over the remaining twenty five months of the Loan and a monthly redemption premium of 15% of the payment is payable in monthly installments with all principal and accrued but unpaid interest due on or before October 18, 2010.
Trafalgar is entitled, at its option, to convert until the Note is fully paid all or any part of the principal amount of the Note, plus accrued interest, into shares of the Company's common stock, at the price per share equal to $0.081 when the Common Stock is trading at or above $0.30 per share. If the Company fails to make a monthly payment within 5 days of its due date, then Trafalgar can convert its debt into shares of the Company's common stock at a price per share equal to eighty-five percent (85%) of the lowest daily closing bid price of the Company's Common Stock, as quoted by Bloomberg, LP, for the ten trading days immediately preceding the Conversion Date.
The Company issued 4,700,000 shares of its common stock into escrow as additional security for the loan.
As long as the Note is not in default and the trading price of the Company's common stock is $.30 per share or higher, the Company has the right to pay down all or a portion of the principal balance and accrued interest plus a 15% redemption fee. The funds from the loan will be used in conjunction with the Company's Kentucky prospect and specific corporate overhead.
In the event that the Company authorizes a stock split or a stock dividend, the conversion price in effect immediately prior to such split or dividend will be proportionately decreased, and in the event that the Company shall at any time combine the outstanding shares of common stock, the conversion price in effect immediately prior to such combination shall be proportionately increased, effective at the close of business on the date of split, dividend or combination as the case may be.
The Company is required to prepare and file, no later than thirty days from the date of failing to make any cash payment, including the applicable cure period (“Scheduled Filing Deadline”), a registration statement with the SEC under the 1933 Act for the registration for the resale by Trafalgar of at least two times the number of shares which are anticipated to be issued upon conversion of the Note. The Company shall cause the Registration Statement to remain effective until all of the converted shares have been sold.
In the event the Company fails to file the registration statement ,or it does not become effective within 60 days of the filing deadline (“Scheduled Effective Date”), or sales cannot be made due to a fault in the registration statement, the Company is required to pay as liquidated damages to Trafalgar, at its option, either a cash amount or shares of the Company's common stock within three (3) business days, after demand therefore, equal to two percent (2%) of the liquidated value of the Note outstanding as for each thirty (30) day period (or any part thereof) after the Scheduled Filing Deadline or the Scheduled Effective Date as the case may be.
As additional consideration for the debt facility, Trafalgar has the right to accept monthly repayment of principle and interest (approximately $67,500 per month) in the form of common shares only if the common stock price is trading above $.30 per share. Trafalgar would then have the right to receive such monthly payment(s) at a fixed conversion price of $.081 per share subject to certain potential adjustments.
The funds from the loan will be used in conjunction with the Company's Tennessee prospect and specific corporate overhead.
Interest charged to operation on the debenture for the six months ending September 30, 2008 and 2007 amounted to $10,000 and $0, respectively.
The outstanding balance of the obligation is $1,200,000 at September 30, 2008.
Note 8. Payable to Others
Wyoming Energy Corp.
Payable to others consisted of $20,408 due to Wyoming Energy Corp, a corporation previously owned by the Company's President, for the purchase of the TPU unit on August 1, 2008 in the amount of $100,000. The Company cancelled a note receivable from Wyoming Energy Corp in the amount of $79,592 as part of the transaction.
Other Payable
On September 15, 2008 the Company received an advance in the amount of $10,000 from a third party. The advance is due upon demand and non-interest bearing.
Note 9. Note Payable - Other
Note #1
As discussed in Note 3, Wyoming Energy Corp, a corporation previously owned by the Company's President, returned its 10% interest in Permian Energy Services LLC in order to bring the settlement with Permian to a successful conclusion. In consideration for the loss of Wyoming's interest in the LLC, the Company transferred its obligation to Permian to Wyoming under the same terms and conditions.
Under the terms of the note, all principal and accrued interest was due two years from the date of the note, on April 5, 2007. Interest accrued and charged to operations on this obligation accruing during the six months ended September 30, 2008 and 2007 totaled $7,837 and $7,303, respectively. The total balance of this obligation at September 30, 2008 is $264,272. During September 2008, the Company issued 6,000,000 shares of its common stock as a payment in the amount of $60,000 for this debt. The shares were valued at $300,000 based upon the market value at the date of issuance. Accordingly, the Company recognized a $240,000 loss on settlement of debt.
Note #2
On November 29, 2007 the Company borrowed $100,000 from an unrelated party under a promissory note. The terms of the note call for interest in the amount of $5,000 and repayment of the principal and interest within 60 days. The note also called for the issuance of 100,000 shares of the Company's common stock in payment of a loan fee. The loan fee was valued at $22,000, which was based on the market price of the shares on the date of issuance. The loan fee is included in expense for the year ended March 31, 2008. Interest accrued and charged to operations on this obligation accruing during the six months ended September 30, 2008 and 2007 totaled $7,562 and $0, respectively. The total balance of this obligation at September 30, 2008 is $101,233. The maturity date of the Note was extended to March 31, 2009. Under the amended terms of the Note, interest is assessed on the principal balance at an annual rate of 15%.
Note #3
On December 30, 2007 the Company acquired the remaining 75% working interest in the Young County, Texas prospect through the issuance of a note payable to Zone Petroleum, LLC in the amount of $210,000. Pursuant to the note, $10,000 is payable on or before February 15, 2008 and the remaining $200,000 accrues interest at 8% per annum with interest only payments payable quarterly commencing April 1, 2008 for a period of two years at which time all remaining principal and accrued but unpaid interest shall be due and payable. Interest accrued and charged to operations on this obligation accruing during the six months ended September 30, 2008 and 2007 totaled $2,630 and $0, respectively. The total balance of this obligation at September 30, 2008 is $0.
Note #4
On December 30, 2007 the Company acquired the remaining 75% working interest in the Tennessee prospects through the issuance of a note payable to Homestead Oil and Gas, Inc. in the amount of $320,000. Pursuant to the note, $20,000 is payable on or before February 15, 2008 and the remaining $300,000 accrues interest at 8% per annum with interest only payments payable quarterly commencing April 1, 2008 for a period of two years at which time all remaining principal and accrued but unpaid interest shall be due and payable.
On May 16, 2008, the Homestead agreed to cancel its 4% overriding royalty interest in the Young County, Texas property in exchange for $500,000. The Company and Homestead modified the original note payable and entered into a new note payable for a term of 18 months, accruing interest at 10% per annum.
Interest accrued and charged to operations on this obligation accruing during the six months ended September 30, 2008 and 2007 totaled $23,531 and $0, respectively. The total balance of this obligation at September 30, 2008 is $429,852.
Note #5
Effective January 17, 2008, the Company entered into an agreement with Energas to acquire certain properties (See Note 6) in exchange for $2,300,000 of which $100,000 was paid at the closing and $2,200,000 was paid by the Company executing a 7 1/2 % interest non recourse promissory note (the "Note") secured by the assets transferred to the Company. The Note further provides that the Company pay Energas Resources $100,000 on April 1, 2008, $100,000 on July 1, 2008 and commencing October 1, 2008, quarterly payments of interest only until January 1, 2010 when all outstanding principal and accrued but unpaid interest is due in full. Interest accrued and charged to operations on this obligation accruing during the six months ended September 30, 2008 and 2007 totaled $81,080 and $0, respectively. The total balance of this obligation at September 30, 2008 is $2,122,217.
Note #6
On February 20, 2008 the Company borrowed $200,000 from an unrelated party under a promissory note. The terms of the note call for interest to accrue at 15%, payment of accrued interest on a monthly basis and repayment of the principal and any accrued but unpaid interest within one year. Interest accrued and charged to operations on this obligation accruing during the six months ended September 30, 2008 and 2007 totaled $15,041 and $0, respectively. The total balance of this obligation at September 30, 2008 is $202,466.
Note #7
On March 7, 2008 the Company borrowed $100,000 from an unrelated party under a promissory note. The terms of the note call for interest to accrue at 15%, payment of accrued interest on a monthly basis and repayment of the principal and any accrued but unpaid interest within one year. Interest accrued and charged to operations on this obligation accruing during the six months ended September 30, 2008 and 2007 totaled $0 and $0, respectively. The total balance of this obligation at September 30, 2008 is $0.
Note #8
On March 17, 2008 the Company borrowed $50,000 from an unrelated party under a promissory note. The terms of the note call for interest to accrue at 15%, payment of accrued interest on a quarterly basis and repayment of the principal and any accrued but unpaid interest within one year. Interest accrued and charged to operations on this obligation accruing during the six months ended September 30, 2008 and 2007 totaled $0 and $0, respectively. The total balance of this obligation at September 30, 2008 is $0.
Note #9
On March 18, 2008 the Company borrowed $100,000 from an unrelated party under a promissory note. The terms of the note call for interest to accrue at 15%, payment of accrued interest on a monthly basis and repayment of the principal and any accrued but unpaid interest within one year. Interest accrued and charged to operations on this obligation accruing during the six months ended September 30, 2008 and 2007 totaled $8,096 and $0, respectively. The total balance of this obligation at September 30, 2008 is $101,233.
Note #10
On April 25, 2008 the Company borrowed $50,000 from an unrelated party under a promissory note. The terms of the note call for interest to accrue at 15%, payment of accrued interest on a monthly basis and repayment of the principal and any accrued but unpaid interest within one year. Interest accrued and charged to operations on this obligation accruing during the six months ended September 30, 2008 and 2007 totaled $3,432 and $0, respectively. The total balance of this obligation at September 30, 2008 is $50,616.
Note #11
On April 25, 2008 the Company borrowed $50,000 from an unrelated party under a promissory note. The terms of the note call for interest to accrue at 15%, payment of accrued interest on a monthly basis and repayment of the principal and any accrued but unpaid interest within one year. Interest accrued and charged to operations on this obligation accruing during the six months ended September 30, 2008 and 2007 totaled $1,644 and $0, respectively. The total balance of this obligation at September 30, 2008 is $0.
Note #12
On June 9, 2008 the Company borrowed $75,000 from an unrelated party under a promissory note. The terms of the note call for interest to accrue at 15%, payment of accrued interest on a monthly basis and repayment of the principal and any accrued but unpaid interest within one year. Interest accrued and charged to operations on this obligation accruing during the six months ended September 30, 2008 and 2007 totaled $1,697 and $0, respectively. The total balance of this obligation at September 30, 2008 is $17,459.
Note #13
On June 10, 2008 the Company borrowed $50,000 from an unrelated party under a promissory note. The terms of the note call for interest to accrue at 15%, payment of accrued interest on a monthly basis and repayment of the principal and any accrued but unpaid interest within one year. Interest accrued and charged to operations on this obligation accruing during the six months ended September 30, 2008 and 2007 totaled $3,000 and $0, respectively. The total balance of this obligation at September 30, 2008 is $0.
Note #14
On July 10, 2008 the Company borrowed $25,000 from an unrelated party under a promissory note. The terms of the note call for interest to accrue at 15%, payment of accrued interest on a monthly basis and repayment of the principal and any accrued but unpaid interest within one year. Interest accrued and charged to operations on this obligation accruing during the six months ended September 30, 2008 and 2007 totaled $842 and $0, respectively. The total balance of this obligation at September 30, 2008 is $25,308.
Note #15
On July 10, 2008 the Company borrowed $25,000 from an unrelated party under a promissory note. The terms of the note call for interest to accrue at 15%, payment of accrued interest on a monthly basis and repayment of the principal and any accrued but unpaid interest within one year. Interest accrued and charged to operations on this obligation accruing during the six months ended September 30, 2008 and 2007 totaled $842 and $0, respectively. The total balance of this obligation at September 30, 2008 is $25,308.
Note #16
On July 10, 2008 the Company borrowed $100,000 from Wyoming Energy Corp, a corporation previously owned by the Company's President under a promissory note. The terms of the note call for interest to accrue at 15%, payment of accrued interest on a monthly basis and repayment of the principal and any accrued but unpaid interest within one year. Interest accrued and charged to operations on this obligation accruing during the six months ended September 30, 2008 and 2007 totaled $3,123 and $0, respectively. The total balance of this obligation at September 30, 2008 is $103,123.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Report. In addition to historical information, the discussion in this Report contains forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those anticipated by these forward-looking statements due to factors including, but not limited to, those factors set forth elsewhere in this Report and in the section captioned "RISK FACTORS" in our Annual Report on Form 10-KSB for the year ended March 30, 2008.
Liquidity and Capital Resources
As of September 30, 2008, the Company had cash in the amount of $79,700, while we had cash in the amount of $27,336 as of September 30, 2007. As of September 30, 2008, the Company had other receivables from other sources totaling $14,900, and prepaid expenses in the amount of $623,058. Prepaid expense largely consists of the value of shares of common stock and warrants issued to various consultants that are being amortized into operations over the respective term of the various consulting agreements.
As of September 30, 2008, the Company had current assets totaling $717,658. Moreover, as of September 30, 2008, the Company had current liabilities totaling $4,627,075, which exceeded current assets by $3,909,417. This large working capital deficit raises a substantial doubt as to the Company’s ability to continue as a going concern, and the Company’s auditor added an emphasis paragraph to its report on the Company’s consolidated financial statements for the year ended March 31, 2008 to such effect. Management initially believed that the Company would be able to resolve the excess of current liabilities over current assets through revenues from future oil and gas production. However, due to the sudden and dramatic decline in oil and gas prices in the third quarter of 2008 and the weeks thereafter, and the failure to complete and get certain wells on line in the third quarter of 2008 because of the unavailability of expected financing, management no longer believes that the Company will be able to solve the excess of current liabilities over current assets through revenues from future production under the present circumstances. Further, On October 15, 2008, the Company received a notice of default from Trafalgar Capital for failure to make its September and October payments on the obligations due Trafalgar of approximately $4,500,000. Management does not believe that the Company will be able to resolve this excess through an additional financing, given the current and foreseeable states of the oil and gas capital markets. As a result the Company is seeking a financial joint venture partner to acquire an interest in certain of the Company’s properties and to fund further developmental work. The Company expects that the proceeds from any sale of an interest would enable the Company to retire most or all of the indebtedness that is currently causing current liabilities to substantially exceed current assets. However, there can be no assurance that the Company will be able to find a financial joint venture partner or that the sales proceeds from any sale of an interest will be sufficient for the preceding purpose. If the Company were not able to find a financial joint venture partner or obtain additional funds, the Company would probably be unable to continue its exploration and development activities. Under certain circumstances, the Company could be forced to cease its operations and liquidate its remaining assets, if any. The ability of the Company to continue to pursue its business plan throughout fiscal 2009 and beyond will depend on the Company's ability to continue to meet its cash requirements and ultimately to achieve profitability with respect to its business operations. There can be no assurance that the Company will sustain this ability or achieve this goal.
From the time that the business was changed to oil and gas exploration and development in the summer of 2005 until early January 2008, the business was financed through a series of private placements, loans from affiliates, and loans from unaffiliated, commercial lenders, none of which were very large in size.
On January 10, 2008, the Company completed a $1,500,000 financing pursuant to a Securities Purchase Agreement dated effective December 31, 2007 with Trafalgar Capital Specialized Fund, Luxembourg ("Trafalgar") for Trafalgar to loan $1,500,000 the Company (the "First Loan") pursuant to a secured Promissory Note (the "First Note") dated December 31, 2007 with an annual interest rate of 10% due in monthly payments of interest only for the first two months and then commencing three (3) months from the date of the First Note, principal and interest amortized over the remaining twenty-five months of the First Loan and a monthly redemption premium of 15% of the payment is payable in monthly installments with all principal and accrued but unpaid interest due on or before March 30, 2010. In the event of a material default which includes non-payment of principal or interest when due, 24,000,000 treasury and third party non-affiliate shares were pledged as additional collateral for the First Loan. The First Note is further secured by all of the Company's assets. The funds from the First Loan were used to drill and complete five wells on the Tennessee prospect and to pay specific corporate overhead. Furthermore, the Company has the right, so long as the First Note is not in default, at any time to retire the debt facility for the then interest and principle amount plus a 15% redemption fee. As additional consideration for the debt facility, Trafalgar has the right to accept monthly repayment of principle and interest (approximately $70,000 per month) in the form of common shares only if the common stock price is trading above $.40 per share. Trafalgar would then have the right to receive such monthly payment(s) at a fixed conversion price of $.17 per share subject to certain potential adjustments.
On May 22, 2008, a $2,300,000 financing was completed pursuant to a Securities Purchase Agreement dated effective May 21, 2008 with Trafalgar for Trafalgar to loan $2,300,000 (the “Second Loan) pursuant to a secured Convertible Promissory Note (the “Second Note”) dated May 21, 2008 with interest at 10% due in monthly payments of interest only commencing one (1) month from the date of the Second Note, with all principal and accrued but unpaid interest due on or before August 21, 2011. Only when the Company's Common Stock is trading at $0.30 or above, Trafalgar may convert all or any part of the principal plus accrued interest into shares of our Common Stock at the fixed price of $0.081 per share, subject to various adjustments. The material default provisions include non-payment of principal or interest when due. As part of this transaction, 2,300,000 restricted shares of our Common Stock were issued to Trafalgar and pledged 57,500 shares of Series E Preferred Stock to Trafalgar to secure the Second Note. The Second Note is further secured by all of the Company's assets. The funds from the Second Loan were used in conjunction with the drilling of the Company's Kentucky wells.
On August 18, 2008, a $1,200,000 financing was completed pursuant to a Securities Purchase Agreement with Trafalgar for Trafalgar to loan $1,200,000 (the “Third Loan) pursuant to a secured Convertible Promissory Note (the “Third Note”) with interest at 10% due in monthly payments of interest only commencing two (2) months from the date of the Third Note, with all principal and accrued but unpaid interest due on or before August 18, 2010. Only when the Company's Common Stock is trading at $0.40 or above, Trafalgar may convert all or any part of the principal plus accrued interest into shares of our Common Stock at the fixed price of $0.102 per share, subject to various adjustments. The material default provisions include non-payment of principal or interest when due. As part of this transaction, 4,700,000 restricted shares of our Common Stock were issued to Trafalgar and pledged 27,500 shares of Series E Preferred Stock to Trafalgar to secure the Third Note. The Third Note is further secured by all of the Company's assets. The funds from the Third Loan were used in conjunction with the completion of the Company's Kentucky wells.
As indicated above, the Company is currently in default under the above loan agreements with Trafalgar. The Company is currently in negotiations with Trafalgar and has made a good faith payment of $50,000. Our management is hopeful of an amicable outcome and is working toward that goal with management and consultants of Trafalgar.
Although the Company had leased enough land to move forward with its current plan of operation, it needed to obtain additional financing before this plan could be partially implemented. The Company was able to commence the implementation of its current plan of operation in 2008 through the funding obtained from Trafalgar. However, the sudden and dramatic negative developments that took place in the third quarter of 2008 and the following weeks with respect to the stock market, the price of oil and gas, and the capital markets providing financing to oil and gas exploration and production companies have brought the Company's plan of operation to a virtual standstill due to Trafalgar’s decision to reduce its funding to the Company and the perceived unavailability of alternative financing. The reduction in funding prevented the Company from completing a portion of the Company's Kentucky wells, which resulted in less than anticipated production. Coupled with the recent dramatic decline in oil and gas prices, the Company's revenues from production have been far less than the Company anticipated. In addition, management does not believe that the Company will be able to procure alternative financing, given the current and foreseeable states of the oil and gas capital markets. In view of the preceding and as previously discussed, the Company is seeking a financial joint venture partner to acquire an interest in certain of the Company's properties and to fund further developmental work. There can be no assurance that the Company will be able to find such a partner. If it cannot find such a partner, the Company expects that it will be unable to continue with its current plan of operation, and it could be forced to cease its operations and liquidate its remaining assets, if any.
In addition to the capital necessary to undertake planned drilling and completion activities, additional funds will be needed in order to make scheduled debt payments on the indebtedness owed to Trafalgar. Even if the Company cures its default with Trafalgar, payments in the amount of $1.5 million (plus accrued interest) are due to Trafalgar on or before March 30, 2010, another payment in the amount of $1.2 million (plus accrued interest) is due to Trafalgar on or before August 18, 2010, and another payment in the amount of $2.3 million (plus accrued interest) is due to Trafalgar on or before August 21, 2011. Management initially believed that proceeds generated by the wells successfully drilled in Kentucky would enable the obligations to Trafalgar to be met. However, a reduction in funding and the recent dramatic decline in oil and gas prices now lead management to believe that this is not possible under the present circumstances. In view of the preceding and as previously discussed, the Company is seeking a financial joint venture partner to acquire an interest in certain of the Company's properties and to fund further developmental work. There can be no assurance that the Company will be able to find such a partner. If it cannot find such a partner, the Company may not be able to make the debt payments to Trafalgar. The failure to make these payments could result in the loss of a significant portion of the Company's assets and could cause Trafalgar to exercise other creditor rights, which could result in the loss of all or nearly all of the value of the Company's outstanding equity and bring operations to an end. For further information in this regard, see the risk factor captioned "The current lending transactions, which are secured by all of Platina’s assets, feature limiting operating covenants and require substantial future payments, expose the Company to certain risks and may adversely affect the ability to operate the business" in ITEMS 1 and 2. DESCRIPTION OF BUSINESS AND PROPERTIES - RISK FACTORS of our Annual Report on Form 10-KSB for the year ended March 31, 2008.
Production from exploration and drilling efforts (in sufficient quantities and at times during which favorable market prices prevail) will provide the Company with a positive cash flow, and the increases in proven reserves should increase the value of the Company's properties and should enable the Company to obtain bank financing (after the wells have produced for a period of time to satisfy the related lender). However, there can be no assurance that production in such quantities at time when favorable market prices prevail will occur.
To conserve on capital requirements, the Company may in the future issue shares in lieu of cash payments to employees and outside consultants, as has done in the past. Moreover, to conserve on capital requirements, management intends occasionally to seek other industry investors who are willing to participate in the Company's exploration and production activities. Management expects to retain a promotional interest in these prospects, but generally will have to finance a portion (and sometimes a significant portion) of the acquisition and drilling costs. Also, the Company periodically may acquire interests in properties by issuing shares of common stock.
Other derivatives
The Company accounts for our committed common shares in excess of the number of our authorized and unissued shares pursuant to EITF 00-19 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock”. EITF 00-19 requires that we record a liability for the fair value of committed shares in excess of the authorized and unissued shares.
Committed shares are any shares on which 1) we are obligated to issue pursuant to the terms of convertible debt that we are obligated, 2) shares that we are obligated to issue pursuant to the terms of our issued and outstanding convertible preferred stock, and 3) depending on the exercise price in terms of our trading price, shares that we are obligated to issue pursuant to stock warrants and options the we granted and that are currently exercisable.
Revenue recognition
Revenue is recognized in accordance with Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial Statements,” as revised by SAB No. 104. As such, revenue is recognized when persuasive evidence of an arrangement exists, title transfer has occurred, the price is fixed or readily determinable and collectability is probable. Sales are recorded net of sales discounts.
Stock Based Compensation
The Company accounts for stock-based compensation under SFAS No. 123R, "Share- based Payment” " and SFAS No. 148, "Accounting for Stock-Based Compensation--Transition and Disclosure--An amendment to SFAS No. 123." These standards define a fair value based method of accounting for stock-based compensation. In accordance with SFAS Nos. 123R and 148, the cost of stock-based employee compensation is measured at the grant date based on the value of the award and is recognized over the vesting period. The value of the stock-based award is determined using the Black-Scholes option-pricing model, whereby compensation cost is the excess of the fair value of the award as determined by the pricing model at the grant date or other measurement date over the amount an employee must pay to acquire the stock. The resulting amount is charged to expense on the straight-line basis over the period in which we expect to receive the benefit, which is generally the vesting period.
Issuance of Stock for Non-Cash Consideration
All issuances of the Company's stock for non-cash consideration have been assigned a per share amount equaling either the market value of the shares issued or the value of consideration received, whichever is more readily determinable. The majority of the non-cash consideration received pertains to services rendered by consultants and others and has been valued at the market value of the shares on the dates issued.
Net Loss per Share
The provisions of SFAS No. 128, “Earnings Per Share” (“EPS”) have been adopted. SFAS No. 128 provides for the calculation of basic and diluted earnings per share. Basic EPS includes no dilution and is computed by dividing income or loss available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution of securities that could share in the earnings or losses of the entity, arising from the exercise of options and warrants and the conversion of convertible debt.
Fair Value of Financial Instruments
The Company's financial instruments consist of cash and cash equivalents, accounts payable, and notes payable. Pursuant to SFAS No. 107, “Disclosures About Fair Value of Financial Instruments,” management is required to estimate the fair value of all financial instruments at the balance sheet date. The carrying values of our financial instruments in the financial statements are considered in order to approximate their fair values due to the short -term nature of the instruments.
Forward-Looking Statements
Statements in the preceding discussion relating to future plans, projections, events, or conditions are forward-looking statements. Actual results, including production growth and capital spending, could differ materially due to changes in long-term oil or gas prices or other changes in market conditions affecting the oil and gas industry; political events or disturbances; severe weather events; reservoir performance; changes in OPEC quotas; timely completion of development projects; changes in technical or operating conditions; and other factors including those discussed herein and in the section captioned "RISK FACTORS" in our Annual Report on Form 10-KSB for the year ended March 31, 2008.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our President and Chief Financial Officer (the “Certifying Officers”) have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) as of the end of period covered by this report. Based upon such evaluation, the Certifying Officers concluded that our disclosure controls and procedures were not effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and is accumulated and communicated to our management, including the Certifying Officers, as appropriate to allow timely decisions regarding required disclosure, due to the material weaknesses described below.
In light of the material weaknesses described below, the Certifying Officers performed additional analysis and other post-closing procedures to ensure our consolidated financial statements were prepared in accordance with generally accepted accounting principles. Accordingly, we believe that the consolidated financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.
A material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board (“PCAOB”) Auditing Standard No. 2) or combination of control deficiencies, that result in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The Certifying Officers have identified the following three material weaknesses which have caused the Certifying Officers to conclude that our disclosure controls and procedures were not effective at the reasonable assurance level:
1. We do not yet have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act and will be applicable to us for the year ending March 31 2009. The Certifying Officers evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and have concluded that the control deficiency that resulted represented a material weakness.
2. We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. The Certifying Officers evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.
The Certifying Officers have discussed this matter with our current independent registered public accounting firm.
To remediate the material weaknesses in our disclosure controls and procedures identified above, in addition to working with our outside accountants, we have continued to refine our internal procedures to begin to implement segregation of duties and to reduce the number of audit adjustments.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 4T. Controls and Procedures
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
PART II. OTHER INFORMATION
We are not now a party to any legal proceeding requiring disclosure in accordance with the rules of the U.S. Securities and Exchange Commission. In the future, we may become involved in various legal proceedings from time to time, either as a plaintiff or as a defendant, and either in or outside the normal course of business. We are not now in a position to determine when (if ever) such a legal proceeding may arise. If we ever become involved in such a legal proceeding, our financial condition, operations, or cash flows could be materially and adversely affected, depending on the facts and circumstances relating to such proceeding.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Preferred Stock
In July 2008, the Company issued 11,500 shares of its Series D Preferred Stock for a loan fee. The shares were valued at $171,500, based upon the market price of the underlying common shares at date of issuance.
In July 2008, 20,000 shares of the Company's Series B Preferred Stock were converted into 2,000,000 shares of its Common Stock.
In August 2008, the Company issued 4,000 shares of its Series D Preferred Stock for services rendered. The shares were valued at $36,000, based upon the market price of the underlying common shares at date of issuance.
In August 2008, 54,982 shares of the Company's Series A Preferred Stock were converted into 549,820 shares of its Common Stock.
In September 2008, the Company issued 5,000 shares of its Series D Preferred Stock for services rendered. The shares were valued at $35,000, based upon the market price of the underlying common shares at date of issuance.
In September 2008, 30,000 shares of the Company's Series D Preferred Stock were converted into 3,000,000 shares of its Common Stock.
In October 2008, 2,000 shares of the Company's Series C Preferred Stock were converted into 200,000 shares of its Common Stock.
In October 2008, 10,000 shares of the Company's Series D Preferred Stock were converted into 1,000,000 shares of its Common Stock.
Common Stock
In August 2008, the Company issued 2,000,000 shares of its Common Stock for services rendered. The shares were valued at $200,000, based upon the market price of the shares on the date of issuance.
In August 2008, the Company issued 400,000 shares of its Common Stock for certain investment properties. The shares were valued at $40,000, based upon the market price of the shares on the date of issuance.
In September 2008, the Company issued 5,088,865 shares of its Common Stock for loan fees. The shares were valued at $493,926, based upon the market price of the shares on the date of issuance.
In September 2008, the Company issued 5,733,334 shares of its Common Stock for $300,000.
In September 2008, the Company issued 6,000,000 shares of its Common Stock for services rendered. The shares were valued at $300,000, based upon the market price of the underlying common shares at date of issuance.
In October 2008, the Company issued 275,000 shares of its common stock for consulting services rendered. The shares were valued at $8,250, based upon the market price of the underlying common shares at date of issuance.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
On October 15, 2008, the Company received a notice of default from Trafalgar Capital for failure to make the Company's September and October 2008 payments due to Trafalgar. The Company has also not remitted to Trafalgar the Company's payment due for November 2008. The aggregate amount of these three payments is approximately $245,000_, and this amount represents the total arrearage as of the date of the filing of this Quarterly Report. For more information about the indebtedness owed to Trafalgar, see “ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Liquidity and Capital Resources.”
ITEM 5. OTHER INFORMATION
The information included in Item 3 Defaults upon Senior Securities of this Quarterly Report with respect to the Company's default on certain indebtedness owed to Trafalgar Capital is also incorporated by reference into this Item 5 Other Information of this Quarterly Report.
(a) The following exhibits are filed with this Quarterly Report or are incorporated herein by reference:
In accordance with the requirements of the Exchange Act, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
I, Blair J. Merriam, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Platina Energy Group Inc.;
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the company's internal controls over financial reporting that occurred during the company's most recent fiscal quarter (the company's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the company's internal controls over financial reporting; and
(a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal controls over financial reporting.
/s/ Blair J. Merriam
Blair J. Merriam,
I, Blair J. Merriam, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Platina Energy Group Inc.;
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the company's internal controls over financial reporting that occurred during the company's most recent fiscal quarter (the company's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the company's internal controls over financial reporting; and
(a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal controls over financial reporting.
/s/ Blair J. Merriam
Blair J. Merriam,
18 U.S.C. SECTION 1350
In connection with the Quarterly Report of Platina Energy Group Inc. (the "Company") on Form 10-Q for the quarter ended September 30, 2008 as filed with the Securities and Exchange Commission on or about the date hereof ("Report"), the undersigned, in the capacities and on the dates indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
18 U.S.C. SECTION 1350
In connection with the Quarterly Report of Platina Energy Group Inc. (the "Company") on Form 10-Q for the quarter ended September 30, 2008 as filed with the Securities and Exchange Commission on or about the date hereof ("Report"), the undersigned, in the capacities and on the dates indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
