Item 1. Business Factors
Information Regarding Forward-Looking Statements
This report contains forward-looking statements that involve risks and uncertainties. We generally use words such as "believe," "may," "could," "will," "intend," "expect," "anticipate," "plan," and similar expressions to identify forward-looking statements. You should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the risks described below and elsewhere in this report. Although we believe the expectations reflected in the forward-looking statements are reasonable, they relate only to events as of the date on which the statements are made, and our future results, levels of activity, performance or achievements may not meet these expectations. We do not intend to update any of the forward-looking statements after the date of this document to conform these statements to actual results or to changes in our expectations, except as required by law.
History
Treaty Energy Corporation, (“Treaty”, “the Company”, “we”, or “us”) was incorporated in the State of Nevada in August, 1997. As explained in Note 10 in the financial statements, in December, 2008, we merged with Treaty Petroleum, Inc., a Texas Corporation under a transaction commonly referred to as a reverse merger.
At December 31, 2009 we owned a 100% working interest and a 68% revenue interest in two oil leases in Crockett Country, Texas. As is explained in Note 4 to the financial statements, we failed to hold these leases by production.
Also, as is explained in Note 4, on December 31, 2009, we entered into an arrangement to with Town Oil Co. in Paola, Kansas, to acquire a 100% working interest in 54 leases containing 481 active producing wells and 135 injector wells producing approximately 150 barrels per day. As of the date of this report, we are still seeking financing for this acquisition. We are currently seeking financing to close this deal.
We are a crude oil and natural gas producing company.
Our Business
Treaty is in the business of acquiring oil and gas properties with production capabilities and proven reserves.
Government Regulation
Proposals and proceedings that might affect the oil and gas industry are periodically presented to Congress, the Federal Energy Regulatory Commission (“FERC”), the Minerals Management Service (“MMS”), state legislatures and commissions and the courts. We cannot predict when or whether any such proposals may become effective. The natural gas industry is heavily regulated. There is no assurance that the regulatory approach currently pursued by various agencies will continue indefinitely. Notwithstanding the foregoing, we currently do not anticipate that compliance with existing federal, state and local laws, rules and regulations, will have a material or significantly adverse effect upon our capital expenditures, earnings or competitive position. No material portion of our business is subject to renegotiation of profits or termination of contracts or subcontracts at the election of the federal government.
Our operations are subject to various types of regulation at the federal, state and local levels. This regulation includes requiring permits for drilling wells, maintaining bonding requirements in order to drill or operate wells and regulating the location of wells, the method of drilling and casing of wells, the surface use and restoration of properties upon which wells are drilled, the plugging and abandoning of wells and the disposal of fluids used or generated in connection with operations. Our operations are also subject tovarious conservation laws and regulations. These include the regulation of the size of drilling and spacing units or proration units and the density of wells which may be drilled and the unitization or pooling of oil and natural gas properties. In addition, state conservation laws sometimes establish maximum rates of production from oil and natural gas wells, generally prohibit the venting or flaring of natural gas and impose certain requirements regarding the ratability of production. The effect of these regulations may limit the amount of oil and natural gas we can produce from our wells in a given state and may limit the number of wells or the locations at which we can drill.
Currently, there are no federal, state or local laws that regulate the price for our sales of natural gas, natural gas liquids, crude oil or condensate. However, the rates charged and terms and conditions for the movement of gas in interstate commerce through certain intrastate pipelines and production area hubs are subject to regulation under the Natural Gas Policy Act of 1978, as amended. Pipeline and hub construction activities are, to a limited extent, also subject to regulations under the Natural Gas Act of 1938, as amended. While these controls do not apply directly to us, their effect on natural gas markets can be significant in terms of competition and cost of transportation services, which in turn can have a substantial impact on our profitability and costs of doing business. Additional proposals and proceedings that might affect the natural gas and crude oil extraction industry are considered from time to time by Congress, FERC, state regulatory bodies and the courts. We cannot predict when or if any such proposals might become effective and their effect, if any, on our operations. We do not believe that we will be affected by any action taken in any materially different respect from other crude oil and natural gas producers, gatherers and marketers with whom we compete.
State regulation of gathering facilities generally includes various safety, environmental and in some circumstances, nondiscriminatory take requirements. This regulation has not generally been applied against producers and gatherers of natural gas and crude oil to the same extent as processors, although natural gas and crude oil gathering may receive greater regulatory scrutiny in the future.
Our oil and natural gas production and saltwater disposal operations and our processing, handling and disposal of hazardous materials, such as hydrocarbons and naturally occurring radioactive materials (“NORM”) are subject to stringent environmental regulation. Compliance with environmental regulations is generally required as a condition to obtaining drilling permits. State inspectors frequently inspect regulated facilities and review records required to be maintained for document compliance. We could incur significant costs, including cleanup costs resulting from a release of hazardous material, third-party claims for property damage and personal injuries, fines and sanctions, as a result of any violations or liabilities under environmental or other laws. Changes in or more stringent enforcement of environmental laws could also result in additional operating costs and capital expenditures.
Various federal, state and local laws regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, directly impact oil and natural gas exploration, development and production operations, and consequently may impact our operations and costs. These regulations include, among others, (i) regulations by the Environmental Protection Agency (“EPA”), and various state agencies regarding approved methods of disposal for certain hazardous and non-hazardous wastes; (ii) the Comprehensive Environmental Response, Compensation and Liability Act, and analogous state laws, which regulate the removal or remediation of previously disposed wastes (including wastes disposed of or released by prior owners or operators), property contamination (including groundwater contamination), and remedial plugging operations to prevent future contamination; (iii) the Clean Air Act and comparable state and local requirements, which may require certain pollution controls with respect to air emissions from our operations; (iv) the Oil Pollution Act of 1990, which contains numerous requirements relating to the prevention of and response to oil spills into waters of the United States; (v) the Resource Conservation and Recovery Act, which is the principal federal statute governing the treatment, storage and disposal of hazardous wastes; and (vi) state regulations and statutes governing the handling, treatment, storage and disposal of NORM.
In the course of our routine oil and natural gas operations, surface spills and leaks, including casing leaks of oil or other materials may occur, and we may incur costs for waste handling and environmental compliance. It is also possible that our oil and natural gas operations may require us to manage NORM.
NORM are present in varying concentrations in sub-surface formations, including hydrocarbon reservoirs, and may become concentrated in scale, film and sludge in equipment that comes in contact with crude oil and natural gas production and processing streams. Some states, including Michigan and Texas, have enacted regulations governing the handling, treatment, storage and disposal of NORM. Moreover, we are able to control directly the operations of only those wells for which we act as the operator. Despite our lack of control over wells owned by us but operated by others, the failure of the operator to comply with the applicable environmental regulations may, in certain circumstances, be attributed to us under applicable state, federal or local laws or regulations.
We are in the process of achieving substantial compliance with all currently applicable environmental laws and regulations. We believe that in order to complete our compliance efforts, we will be required to pay approximately $25,000. Since these laws and regulations are periodically amended, however, we are unable to predict the additional cost of compliance, if any. To our knowledge, there are currently no material adverse environmental conditions that exist on any of our properties and there are no current or threatened actions or claims by any local, state or federal agency, or by any private landowner against us pertaining to such a condition. Further, we are not aware of any currently existing condition or circumstance that may give rise to such actions or claims in the future.
Competition
We face competition from other oil and natural gas companies in all aspects of our business, including acquisition of producing properties and oil and natural gas leases, marketing of oil and natural gas, and obtaining goods, services and labor. Most of our competitors have substantially larger financial and other resources than we have. Factors that affect our ability to acquire producing properties include available funds, available information about prospective properties and our limited number of employees. Competition is also presented by alternative fuel sources, including heating oil and other fossil fuels. Renewable energy sources may become more competitive in the future.
The availability of a ready market for and the price of any hydrocarbons produced will depend on many factors beyond our control including, but not limited to, the amount of domestic production and imports of foreign oil and liquefied natural gas, the marketing of competitive fuels, the proximity and capacity of natural gas pipelines, the availability of transportation and other market facilities, the demand for hydrocarbons, the effect of federal and state regulation of allowable rates of production, taxation, the conduct of drilling operations and federal regulation of crude oil and natural gas. In addition, the restructuring of the natural gas pipeline industry virtually eliminated the gas purchasing activity of traditional interstate gas transmission pipeline buyers. Producers of natural gas have therefore been required to develop new markets among gas marketing companies, end users of natural gas and local distribution companies. All of these factors, together with economic factors in the marketing arena, generally affect the supply of and/or demand for oil and natural gas and thus the prices available for sales of oil and natural gas.
Employees
Treaty Energy Corporation has no employees. All services are currently done through contracted vendors.
Item 1A.
Item 1A. Risk Factors
An investment in our common stock involves a high degree of risk. You should carefully consider the following risk factors, other information included in this annual report and information in our other periodic reports filed with the SEC. If any of the following risks actually occur, our business, financial condition or results of operations could be materially and adversely affected.
Risks Related to Our Business
Oil Prices
Oil prices are volatile. A substantial decrease in oil prices would significantly affect our business and impede our growth.
Our revenues, profitability and future growth depend upon prevailing oil prices. Prices also affect the amount of cash flow available for capital expenditures and our ability to borrow and raise additional capital. Lower prices may also reduce the amount of oil that we can economically produce. It is possible that prices will be low at the time periods in which the wells are most productive, thereby reducing overall returns. It is possible that prices will drop so low that production will become uneconomical. If production becomes uneconomical, we may decide to discontinue production until prices improve.
Prices for oil fluctuate widely. The prices for oil are subject to a variety of factors beyond our control, including:
·
the level of consumer product demand;
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weather conditions;
·
domestic and foreign governmental regulations;
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the price and availability of alternative fuels;
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political conditions in oil producing regions;
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the domestic and foreign supply of oil;
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speculative trading and other market uncertainty; and
·
worldwide economic conditions.
The failure to develop reserves could adversely affect our production and cash flows.
Our success depends upon our ability to find, develop or acquire oil and natural gas reserves that are economically recoverable. We will need to conduct successful exploration or development activities or acquire properties containing proved reserves, or both. The business of exploring for, developing or acquiring reserves is capital intensive. We may not be able to make the necessary capital investment to expand our oil and natural gas reserves from cash flows, and external sources of capital may be limited or unavailable. Our drilling activities may not result in significant reserves, and we may not have continuing success drilling productive wells. Exploratory drilling involves more risk than development drilling because exploratory drilling is designed to test formations in which proved reserves have not been discovered. Additionally, while our revenues may increase if prevailing gas prices increase significantly, our finding costs for reserves also could increase, and we may not be able to finance additional exploration or development activities.
We may have difficulty financing our planned growth.
We will require substantial additional financing to fund our planned growth. Additional financing may not be available to us on acceptable terms or at all. If additional capital resources are unavailable, we may be forced to curtail our acquisition, development drilling and other activities or to sell some of our assets on an untimely or unfavorable basis. We are in the process of evaluating strategic alternatives as of the date of this report.
Our current operating activity is concentrated in Kansas and Tennessee. As a result, we may be disproportionately exposed to the impact of drilling and other delays or disruptions of production from these regions caused by weather conditions, governmental regulation, lack of field infrastructure, or other events which impact this area.
We may continue to incur losses.
We reported a net loss for the years ended December 31, 2009 and 2008 of $1,202,190 and $241,514, respectively. There is no assurance that we will be able to achieve and maintain profitability.
Our oil and natural gas reserve data are estimates based on assumptions that may be inaccurate and existing economic and operating conditions that may differ from future economic and operating conditions.
·
Reservoir engineering is a subjective and inexact process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact manner and is based upon assumptions that may change from year to year and vary considerably from actual results. Accordingly, reserve estimates may be subject to downward or upward adjustment. Actual production, revenue and expenditures with respect to our reserves will likely vary from estimates, and such variances may be material. Information regarding discounted future net cash flows should not be considered as the current market value of the estimated oil and natural gas reserves that will be attributable to our properties. Examples of items that may cause our estimates to be inaccurate include, but are not limited to, the following:
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The estimated discounted future net cash flows from proved reserves are based on prices and costs as of the date of the estimate, while actual future prices and costs may be materially higher or lower;
·
Because we have limited operating cost data to draw upon, the estimated operating costs used to calculate our reserve values may be inaccurate;
·
Actual future net cash flows also will be affected by factors such as the amount and timing of actual production, supply and demand for oil and natural gas, increases or decreases in consumption, and changes in governmental regulations or taxation;
·
Our reserve report for our producing properties assumes that production will be generated from each well for a period of 15 years. Because production is expected for such an extended period of time, the probability is enhanced that conditions at the time of production will vary materially from the current conditions used to calculate future net cash flows; and
·
The 10% discount factor, which is required by the Financial Accounting Standards Board in Statement of Financial Accounting Standards No. 69 to be used in calculating discounted future net cash flows for reporting purposes, is not necessarily the most appropriate discount factor based on interest rates in effect from time to time and risks that will be associated with our operations or the oil and natural gas industry in general.
We may incur non-cash charges to our operations as a result of current and future financing transactions.
Under current accounting rules and requirements, we may incur additional non-cash charges to future operations beyond the stated contractual interest payments required under our current and potential future credit facilities. While such charges are generally non-cash, they would impact our results of operations and earnings per share and could be material.
Item 1B.
Item 1B. Unresolved Staff Comments
The registrant is not an accelerated filer and is therefore not required to complete this section.
Item 2.
Item 2. Properties
Our administrative offices are located at 440 Louisiana, Suite 1400, Houston, Texas, 77002. We pay approximately $3,400 per month and our lease runs through October, 2010.
Item 3.
Item 3. Legal Proceedings
On January 29, 2010, a lawsuit was filed in the 22nd Judicial District Court, Parish of St. Tammany, Louisiana naming Treaty Energy Corporation, among others, as a defendant. The lawsuit alleges certain monies owed for operations on the Crockett County leases prior to their administration by Treaty Energy Corporation.
It is not clear from the lawsuit what damages are being claimed by the plaintiffs. Moreover, the Company’s legal counsel believes that the 22nd Judicial District Court in the Parish of St. Tammany has no jurisdiction over a lawsuit whose plaintiff and defendant both reside in Texas. The Company has moved to have the lawsuit moved into the Federal Court system.
We may be involved from time to time in ordinary litigation, negotiation and settlement matters that will not have a material effect on our operations or finances. Other than the litigation described above, we are not aware of any pending or threatened litigation against us or our officers and directors in their capacity as such that could have a material impact on our operations or finances.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to the shareholders during the fourth quarter of 2009.
PART II - Other Information
Item 5.
Item 5. Market for Common Equity and Related Stockholder Matters
Market Information
Our shares currently trade on the electronic OTC Bulletin Board (OTCBB), a regulated quotation service, under the symbol "TECO." Prior to May 19, 2008 our shares were traded on the OTCBB, they were then subsequently removed from trading the OTC BB for failure to file our annual report on Form 10-KSB for the year ended December 31, 2007 in a timely manner. As a result our shares were traded on the Over the Counter Pink Sheets from May 21, 2008 to November 24, 2008. We are currently trading again on the OTC BB. Listed below are the highest and lowest bid prices for our common stock for each calendar quarter for 2007 and 2008 as reported on the OTCBB, and represents inter-dealer quotations, without retail markup, markdown, or commission and may not be reflective of actual transactions.
At December 31, 2009, there were 496,605,424 shares of our common stock issued and outstanding.
Holders
As of December 31, 2009, we had approximately 1,154 holders of record, including common shares held by brokerage clearing houses, depositories, or otherwise in unregistered form.
Dividends
We have not declared or paid cash dividends on our common stock since inception and do not anticipate paying such dividends in the foreseeable future. The payment of dividends may be made at the discretion of the Board of Directors and will depend upon, among other factors, our operations, capital requirements, and overall financial condition.
Securities Authorized for Issuance under Equity Compensation Plans
On May 22, 2003 Treaty Energy’s predecessor management adopted a stock option plan that is accounted for based on SFAS No. 123 (R) and related interpretations. The plan allows the Company to grant options to persons employed or associated with the Company, including, without limitation, any employee, director, general partner, officer, attorney, accountant, consultant or advisor up to an aggregate of 5,000,000 common shares. On February 24, 2004 the Company increased the number of shares to be issued under the plan to 15,000,000.
At December 31, 2008, 352,313 options were granted, fully vested and outstanding. During the twelve months ended December 31, 2009, all of these options were either exercised or expired.
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
During the three months ended December 31, 2009, we issued the following unregistered securities:
On October 15, 2009, we issued 2,015,772 shares of common stock to our Chief Executive Officer pursuant to his employment agreement and recognized $34,268 of compensation expense.
On November 30, 2009, we issued 3,000,000 shares to a director in return for $39,000 in cash.
Item 6.
Item 6. Selected Financial Data
A smaller reporting company is not required to provide the information required by this item.
Item 7
Item 7 . Management’s Discussion and Analysis and Plan of Operation
The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto, and other financial information included elsewhere in this Form 10-K. This report contains forward-looking statements that involve risks and uncertainties. Actual results in future periods may differ materially from those expressed or implied in such forward-looking statements as a result of a number of factors, including, but not limited to, the risks discussed under the heading "Risk Factors" and elsewhere in this Form 10-K.
Overview
Critical Accounting Policies, Estimates and New Accounting Pronouncements
Management's discussion and analysis of its financial condition and plan of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. At each balance sheet date, management evaluates its estimates. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. The estimates and critical accounting policies that are most important in fully understanding and evaluating our financial condition and results of operations include those stated in our financial statements and those listed below:
Going Concern
The accompanying financial statements have been prepared assuming that Treaty will continue as a going concern. As shown in the accompanying financial statements, we had negative cash flows from operations of $212,511 in 2009 and $240,286 in 2008, and a working capital deficit of $724,162 at December 31, 2009. These conditions raise substantial doubt as to our ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern. Management intends to finance these deficits by making additional shareholder notes and seeking additional outside financing through either debt or sales of its common stock.
Recently Adopted Accounting Standards
In September 2006, the Financial Accounting Standards Board issued guidance which defines fair value, establishes a framework for measuring fair value and expands disclosure of fair value measurements (“Topic 820”). Topic 820 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company believes that adoption of this guidance on fair value measurements will not have a significant impact on its statement of operations and financial position.
The Company has adopted guidance issued by the Financial Accounting Standards Board regarding property, plant and equipment (“Topic 360”). This pronouncement requires us to review for impairment long-lived assets and acquired intangible assets subject to amortization, whenever events or changes in circumstances indicate that the carrying amount of an asset or group of assets may not be recoverable. We assess recoverability of assets to be held and used by comparing their carrying amount to the expected future undiscounted net cash flows they are expected to generate. If an asset or group of assets is considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the asset or group of assets exceeds fair value. We report long-lived assets meeting the criteria to be considered as held-for-sale at the lower of their carrying amount or fair value less anticipated disposal costs. In the years presented, the Company did not recognize any impairment charges on long-lived assets arising from carrying amount exceeding fair value.
In June, 2006, the Company adopted Financial Accounting Standards Board accounting guidance governing accounting for conditional asset retirement obligations. According to this guidance, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value can be reasonably estimated. The Company estimates a fair value of the obligation on each well in which it owns an interest by identifying costs associated with the future dismantlement and removal of production equipment and facilities and the restoration and reclamation of a field’s surface to a condition similar to that existing before oil and natural gas extraction began.
In general, the amount of an Asset Retirement Obligation (“ARO”) and the costs capitalized will be equal to the estimated future cost to satisfy the abandonment obligation using current prices that are escalated by an assumed inflation factor up to the estimated settlement date which is then discounted back to the date that the abandonment obligation was incurred using an assumed cost of funds for the Company. After recording these amounts, the ARO is accreted to its future estimated value using the same assumed cost of funds and the liability is increased each period as the retirement obligation approaches. See Note 6 for a discussion of our estimated Asset Retirement Obligation.
In May 2008, the FASB issued The Hierarchy of Generally Accepted Accounting Principles. This statement identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (“GAAP”) in the United States (the GAAP hierarchy). This statement becomes effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board (“PCAOB”) amendment to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles” and is not expected to have a significant impact on our consolidated financial statements.
Results of Operations - Comparison of Years Ended December 31, 2009 versus
Revenues
Our revenues decreased dramatically for the twelve months ended December 31, 2009 versus 2008 ($423 in 2009 versus $33,226 in 2008). The leases lost in Crockett County, Texas were not replaced by year end.
Expenses
Transportation Costs and Production Taxes
Transportation and production tax expenses were reduced almost to zero due to the loss of the leases in Crockett County, Texas.
Depreciation, Amortization and Depletion
Depreciation, amortization and depletion decreased for the year ended December 31, 2009 versus the same period in 2008. This decrease is due to the loss of the leases in Crockett County, Texas.
Lease Operating Expenses
Our lease operating expenses were reduced to $42,996 in 2009 from $174,263 in 2008. This reduction is due to the loss of our leases in Crockett County, Texas.
General and Administrative Expenses
Our general and administrative expenses increased from $70,408 for the twelve months ended December 31, 2008 to $721,561 for the same period in 2009. This increase resulted from increased officer and director stock-based compensation, additional statutory compliance costs and certain consulting activities.
Interest Expense
Interest expense increased slightly for the twelve months ended December 31, 2009 ($23,757) versus the same period in 2008 ($22,929) owing from slightly higher interest-bearing debt levels.
Net Loss
Our net loss increased for the year ended December 31, 2009 (a net loss of $1,202,190) from the same period in 2008 (a net loss of $241,514) for the reasons set forth above.
Liquidity and Capital Resources
Our financial statements have been prepared on a going concern basis that contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.
Currently, we are not able to maintain our existing operations through the existing cash balances and internally generated cash flows from sales of oil production. Moreover, we have determined that our existing capital structure is not adequate to fund our planned growth. We intend to finance our drilling, workover and acquisition program by issuing additional common stock and through loans from our shareholders. There can be no assurance that we will be successful in procuring the financing we are seeking. Future cash flows are subject to a number of variables, including the level of production, natural gas prices and successful drilling efforts. There can be no assurance that operations and other capital resources will provide cash in sufficient amounts to maintain planned or future levels of capital expenditures.
Plan of Operation
Over the next twelve months we intend to develop the following initiatives:
Acquire Financing for our Kansas Project
We hope to acquire financing to effectively transfer title on the 54 leases in eastern Kansas. We expect that the 100% working interest there will provide the company with approximately $150,000 per month in cash flows before debt service at a 150 barrel per day production level at $75 per barrel.
Kansas Production Enhancement
Along with the capital to acquire the Kansas leases, we hope to raise an additional $1 million to increase the production levels there. Many of the leases have never been water-flooded and we expect that properly doing so could increase production by 100% even before we begin drilling.
We currently do not have adequate cash to undertake these plans.
Acquiring Additional Oil and Gas Properties
We are currently evaluating the acquisition of several oil and gas properties in Kansas, Tennessee and Oklahoma. We hope to acquire one or more of these properties before the end of 2010.
Financing
We hope to finance our production enhancement, drilling and acquisition programs by issuing additional common stock and taking shareholder loans.
There is no guarantee that we can raise the required capital to acquire the Kansas leases, make additional acquisitions, undertake the production enhancement program, or drill any new wells or that undertaking such endeavors will make us profitable or self-sustaining.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
A smaller reporting company is not required to provide the information required by this item.
Item 8.
Item 8. Financial Statements and Supplemental Data
Report of Independent Registered Public Accounting Firm…………………………………………
Balance Sheets - December 31, 2009 and 2008…………………………………………………….
Results of Operations for the years ended December 31, 2009 and 2008 and for the period from re entry to the Exploratory Stage (July 1, 2009) to December 31, 2009………………………………...
Statement of Changes in Stockholders’ Equity from December 31, 2007 to December 31, 2009…...
Statements of Cash Flows for the years ended December 31, 2009 and 2008 and for the period from re entry to the Exploratory Stage (July 1, 2009) to December 31, 2009……………………………..
Notes to Financial Statements……………………………………………………………………….
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Treaty Energy Corporation
An Exploratory Stage Company
We have audited the accompanying balance sheets of Treaty Energy Corporation, an Exploratory Stage Company as of December 31, 2009 and 2008 and the related statements of operations, changes in stockholders' deficit, and cash flows for the periods then ended, and for the period from re entry to the Exploratory Stage (July 1, 2009) to December 31, 2009. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Treaty Energy Corporation as of December 31, 2009 and 2008, and the results of its operations, changes in stockholders' deficit and cash flows for the periods noted above in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company suffered a net loss from operations and has a net capital deficiency, which raises substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters also are described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ M&K CPAS, PLLC
Houston, Texas
www.mkacpas.com
April 13,
TREATY ENERGY CORPORATION
(An Exploratory Stage Company)
Balance Sheets
As of December 31, 2009 and 2008
The accompanying notes are an integral part of these financial statements.
TREATY ENERGY CORPORATION
(An Exploratory Stage Company)
Statements of Operations
For the Years Ended December 31, 2009 and 2008
The accompanying notes are an integral part of these financial statements.
TREATY ENERGY CORPORATION
(An Exploratory Stage Company)
Statement of Changes in Stockholders’ Deficit
For the Period from December 31, 2006 to December 31, 2008
The accompanying notes are an integral part of these financial statements.
TREATY ENERGY CORPORATION
(An Exploratory Stage Company)
Statements of Cash Flows
For the Years Ended December 31, 2009 and 2008
The accompanying notes are an integral part of these financial statements.
TREATY ENERGY CORPORATION
(An Exploratory Stage Company)
Statements of Cash Flows
For the Years Ended December 31, 2009 and 2008
(Continued)
The accompanying notes are an integral part of these financial statements.
TREATY ENERGY CORPORATION
(An Exploratory Stage Company)
(Formerly Alternate Energy Corp.)
Notes to Financial Statements
Note 1 - Organization and Nature of Business
Treaty Energy Corporation, formerly known as Alternate Energy Corp., (“Treaty”, “the Company”, “we”, or “us”) was incorporated as COI Solutions, Inc. in the State of Nevada in August, 1997.
We incorporated as COI Solutions, Inc. on August 1, 1997 as a Nevada corporation. On May 22, 2003, we acquired all the assets of AEC I Inc., formerly known as Alternate Energy Corporation, and changed our name to Alternate Energy Corp. We commenced active business operations on June 1, 2003 and were a development stage company under Codification Topic No. 915 developing alternate renewable energy sources.
As explained in Note 10 in the financial statements, in December, 2008, the Company merged with Treaty Petroleum, Inc., a Texas Corporation under a transaction commonly referred to as a reverse merger. With the change in ownership in December 2008, we embarked on a new business plan, focusing on oil and gas production.
We are an oil producing company.
Note 2 - Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The financial statements of the Company have been prepared in accordance with Generally Accepted Accounting Principals in the United States.
Use of Estimates
The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates underlying these consolidated financial statements include the estimated quantities of proved oil reserves used to compute depletion of oil and natural gas properties and the estimated fair value of asset retirement obligations.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an initial maturity of 3 months or less to be cash equivalents. The Company’s bank accounts periodically exceed federally insured limits. The Company maintains its deposits with high quality financial institutions and, accordingly, believes its credit risk exposure associated with cash is remote. There were no cash equivalents as of December 31, 2009 and 2008.
Accounts Receivable
Accounts receivable consists of amounts due for the sale of oil. Accounts receivable are evaluated for collectability based upon the financial condition of the customer and the age of the amount due. We have no amounts due us for oil and gas sold at December 31, 2009.
Oil Producing Properties
We account for our oil producing property costs using the successful efforts accounting method. Under the successful efforts method, lease acquisition costs and intangible drilling and development costs on successful wells and development dry holes are capitalized. Costs of drilling exploratory wells are initially capitalized, but charged to expense if and when a well is determined to be unsuccessful.
Capitalized proved property acquisition costs are depleted on the unit-of-production method on the basis of total estimated units of proved reserves. Development costs relating to producing properties are depleted on the unit-of-production method on the basis of total estimated units of proved developed reserves. When significant development costs are incurred in connection with a planned group of development wells before all of the planned wells have been drilled, it is occasionally necessary to exclude a portion of those development costs in determining the unit-of-production amortization rate until the additional development wells are drilled. However, in no case are future development costs anticipated in computing our amortization rate. Estimated dismantlement, restoration and abandonment costs are taken into account in determining depreciation, amortization and depletion provisions.
Expenditures for repairs and maintenance are charged to expense as incurred; renewals and betterments are capitalized. The costs and related accumulated depreciation, depletion, and amortization of properties sold or otherwise retired are eliminated from the accounts, and gains or losses on disposition are reflected in the statements of operations.
We perform a review for impairment of proved oil producing properties on a depletable unit basis when circumstances suggest there is a need for such a review. To determine if a depletable unit is impaired, we compare the carrying value of the depletable unit to the undiscounted future net cash flows by applying management’s estimates of future oil and gas prices to the estimated future production of oil and gas reserves over the economic life of the property. Future net cash flows are based upon our reservoir engineers’ estimate of proved reserves. In addition, other factors such as probable and possible reserves are taken into consideration when justified by economic conditions and actual or planned drilling or other development activities. For a property determined to be impaired, an impairment loss equal to the difference between the carrying value and the estimated fair value of the impaired property will be recognized. Fair value is estimated to be the present value of the aforementioned expected future net cash flows. Any impairment charge incurred is recorded in accumulated depreciation, depletion, impairment and amortization to reduce our recorded basis in the asset. Each part of this calculation is subject to a large degree of judgment, including the determination of the depletable units’ reserves, future cash flows and fair value.
Costs directly associated with the acquisition and evaluation of unproved properties are excluded from the amortization base until the related properties are developed. Unproved properties are assessed quarterly and any impairment in value is charged to impairment expense. The costs of unproved properties which are determined to be productive are transferred to proved oil and gas properties and amortized on a unit-of-production basis.
Oil Reserves
The process of estimating quantities of natural gas and crude oil reserves is very complex, requiring significant decisions in the evaluation of all available geological, geophysical, engineering and economic data. The data may also change substantially over time as a result of numerous factors including, but not limited to, additional development activity, evolving production history and continual reassessment of the viability of production under varying economic conditions. As a result, material revisions to existing reserve estimates may occur from time to time. Although every reasonable effort is made to ensure that reserve estimates reported represent the most accurate assessments possible, the subjective decisions and variances in available data for various fields make these estimates generally less precise than other estimates included in the financial statement disclosures. We use the unit-of-production method to amortize our oil and gas properties. This method requires us to amortize the capitalized costs incurred in developing a property in proportion to the amount of oil and gas produced as a percentage of the amount of proved reserves contained in the property. Accordingly, changes in reserve estimates as described above will cause corresponding changes in depletion expense recognized in periods subsequent to the reserve estimate revision. As of December 31, 2008, 100% of our reserves were prepared by independent petroleum engineers, Huddleston & Co., Inc., Petroleum and Geological Engineers. See the Supplemental Information (unaudited) in our financial statements for reserve data related to our properties.
As is discussed in Note 4 to the financial statements, at December 31, 2009, we had no oil and gas reserves due to the loss of our leases in Crockett County, Texas.
See Note 6 for a summary of the liabilities for our Asset Retirement Obligations at December 31, 2009 and 2008.
Revenue Recognition
Oil revenue is recognized when persuasive evidence of an arrangement exists, our oil is delivered, the fee is fixed and determinate and collectability is reasonably assured.
Earnings Per Share
Basic earnings per common share is computed by dividing net earnings or loss (the numerator) by the weighted average number of common shares outstanding during each period (the denominator). Diluted earnings per common share is similar to the computation for basic earnings per share, except that the denominator is increased by the dilutive effect of stock options outstanding and unvested restricted shares and share units, computed using the treasury stock method. There are currently no common stock equivalents.
Income Taxes
We recognize deferred tax assets and liabilities based on differences between the financial reporting and tax bases of assets and liabilities using the enacted tax rates that are expected to be in effect when the differences are expected to be recovered. We provide a valuation allowance for deferred tax assets for which we do not consider realization of such assets to be more likely than not.
See Note 8 for our reconciliation of income tax expense and deferred income taxes as of and for the years ended December 31, 2009 and 2008.
Fair Value Measurement
The Company has adopted guidance contained in Codification Topic No. 820 which defines fair value, establishes a framework for measuring fair value and expands disclosure of fair value measurements. Topic 820 applies under other accounting pronouncements that require or permit fair value measurements and accordingly, does not require any new fair value measurements. Topic 820 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company believes that the adoption of Topic 820 will not have a material effect on its statements of operations and financial condition. Topic 820 requires disclosure of assets and liabilities measured at fair value within a three-tiered hierarchy.
The following table shows the Company’s fair value instruments, measured on a recurring basis:
Accounting for the Disposal of Long-Lived Assets
The Company has adopted the guidance contained in Codification Topic 360, “Property, Plant and Equipment”. This pronouncement requires us to review for impairment long-lived assets, such as property, plant, equipment, and acquired intangible assets subject to amortization, whenever events or changes in circumstances indicate that the carrying amount of an asset or group of assets may not be recoverable. We assess recoverability of assets to be held and used by comparing their carrying amount to the expected future undiscounted net cash flows they are expected to generate. If an asset or group of assets is considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the asset or group of assets exceeds fair value. We report long-lived assets meeting the criteria to be considered as held-for-sale at the lower of their carrying amount or fair value less anticipated disposal costs. During 2009, the Company impaired $411,412 of assets for costs incurred relating to the acquisitions of producing properties which, as of the date of this report, have not been consummated.
Accounting for Conditional Asset Retirement Obligations
In June, 2006, the Company adopted the accounting guidance with respect to accounting for conditional asset retirement obligations. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value can be reasonably estimated. The Company estimates a fair value of the obligation on each well in which it owns an interest by identifying costs associated with the future dismantlement and removal of production equipment and facilities and the restoration and reclamation of a production operation’s surface to a condition similar to that existing before oil and natural gas extraction began.
In general, the amount of an Asset Retirement Obligation (“ARO”) and the costs capitalized will be equal to the estimated future cost to satisfy the abandonment obligation using current prices that are escalated by an assumed inflation factor up to the estimated settlement date which is then discounted back to the date that the abandonment obligation was incurred using an assumed cost of funds for the Company. After recording these amounts, the ARO is accreted to its future estimated value using the same assumed cost of funds and the liability is increased each period as the retirement obligation approaches. See Note 6 for a discussion of our estimated Asset Retirement Obligation.
At December 31, 2009, we had no asset retirement obligations because we had no producing assets.
In May 2008, the FASB issued “The Hierarchy of Generally Accepted Accounting Principles”, which identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (“GAAP”) in the United States (the GAAP hierarchy). This statement becomes effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board (“PCAOB”) amendment to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles” and is not expected to have a significant impact on our consolidated financial statements.
The Company does not expect any other recent accounting pronouncements to have a material impact on its financial statements.
Note 3 - Going Concern
The accompanying financial statements have been prepared assuming that Treaty will continue as a going concern. As shown in the accompanying financial statements, we had negative cash flows from operations of $212,511 in 2009 and $240,286 in 2008, and a working capital deficit of $724,162 at December 31, 2009. These conditions raise substantial doubt as to our ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern. Management intends to finance these deficits by making additional shareholder notes and seeking additional outside financing through either debt or sales of its common stock.
Note 4 - Oil Producing Properties
Leases in Crockett County, Texas
Previous to the incorporation of Treaty Petroleum, Inc. (the merger partner with Treaty Energy - see Note 10), the shareholders were members of Phoenix Oil and Gas, LLC, a Tennessee Limited Liability Company (“Phoenix”). One of the members of Phoenix purchased the working interest in the oil wells located in Crockett County for $60,000 in cash. The working interest was subsequently conveyed to Phoenix by the member, who took a note in exchange (see Note 5) in the amount of $1 million.
Upon incorporation of Treaty Petroleum, Inc. the working interest was assigned by Phoenix to Treaty Petroleum, Inc. and a $1 million note to be paid by an overriding royalty interest in the form of a production payment was assigned to the member. Since the member, upon transferring the working interest, was a related party, Treaty Petroleum, Inc. recorded his interest at the historical cost of the related party - the $60,000 cash payment. We therefore established this as the cost basis of the producing properties in Treaty Energy due to the common control nature of the transaction. Additionally in 2006, we estimated the present value of the oil producing properties’ asset retirement obligation at $19,242 using a 15-year life discounted at 8%. We are depreciating this value using the straight-line method over the life of the properties.
In December, 2008, Treaty Petroleum, Inc. merged with Treaty Energy Corporation (see Note 10), transferring the producing assets and certain liabilities to Treaty Energy Corporation.
During September, 2009 we received notice that David Hallin, the previous Corporate Secretary of the Company acting as Corporate Secretary for Treaty Petroleum, Inc. (the Texas corporation from which the two Crockett County, Texas leases were assigned to Treaty Energy Corporation) executed a “Release of Lease”, surrendering all rights to the two Crockett County leases. We also received notice that Mr. Hallin, along with Ronda Hyatt, the previous Company President, acting as President of High Ground, Inc., the operator of record of the leases, executed a “Release and Indemnification Agreement” with a representative of the lessors of the leases whereby Treaty Petroleum, Inc. (the Texas Corporation) was indemnified of all liabilities to the lessors.
These leases no longer are available to Treaty Energy Corporation for production or development. We therefore have impaired the net asset value of the leases in their entirety.
In recording the loss of the Crockett Country leases, we wrote off the oil and gas properties, net of accumulated amortization, of $67,326 and removed the related asset retirement obligation of $23,342, and recorded a loss of $43,984.
Loss of Vago #1 Project
On July 30, 2009, we entered into an agreement to purchase the Vago #1 lease in West Texas from High Ground, Inc in West Texas. The acquisition was completed with delivery of the purchase price of seven million shares of Company common stock and valued the shares at the closing price on the date of the agreement, or $175,000.
We were unable to obtain due diligence information from High Ground on this acquisition. We have impaired this property in its entirety and are evaluating our options with respect to the return of the seven million shares.
Converse, Louisiana Loss
On October 29, 2009 we entered into a letter of intent to acquire 56 wells on 600 acres near Converse, Louisiana. In order to hold the property while the company sought financing, an affiliate posted 10 million shares as collateral. We were subsequently unable to obtain the financing, and the seller foreclosed on the 10 million shares. We valued the shares at the closing price on the date of the letter of intent ($0.013 for a value of $130,000) and recorded a loss of $178,036 which included legal fees incurred for closing.
Morgan County, Tennessee
On December 12, 2009, we entered into an agreement with Green Light Energy, a Florida LLC, to acquire four wells in Morgan County, Tennessee for $260,000, offering as consideration a promissory note due February 1, 2010. As of the date of this report, we have been unsuccessful at obtaining financing to pay the promissory note and the seller has not transferred title to these assets. The seller has excused the obligation on the promissory note due February 1, 2010. Although the seller has indicated a continued willingness to sell the properties to the Company, the properties have not been recorded as of December 31, 2009. Additionally, since financing was not obtained and the properties were not transferred, the Company was under no obligation to pay the seller $260,000 at December 31, 2009.
We incurred certain non-cash costs totaling $14,392 relating to obtaining financing which we have expensed.
A summary of the effect on income of the oil and gas impairments is as follows:
Agreement with Town Oil Company, Kansas
On December 31, 2009, we entered into an agreement with Town Oil Company, Inc. in Paola, Kansas to acquire a 100% working interest in 54 leases containing 481 active producing wells and 135 injector wells producing approximately 150 barrels per day.
Under the arrangement, the Company has until December 31, 2010 to arrange financing. Since the leases have not conveyed, and since the revenues are not accruing to the Company until the financing is arranged, we have not recognized these assets in the Company books.
We are actively seeking financing for this project.
Note 5 - Notes Payable to Related Parties
Note Payable for Conveyance of Oil Producing Properties
On March 2, 2005, Phoenix Oil and Gas, LLC purchased the working interest in the producing properties in Crockett County, Texas by issuing a $1 million note with the following terms:
·
A production payment of 2% of revenues received by Phoenix (net of taxes accrued by Phoenix) is to be paid up to a limit of $1 million.
·
In the event that Phoenix shall dissolve or assign its working interest in the lease, the fees will be due immediately out of the proceeds of the sale or secured by the establishment of a 2% production royalty.
·
In the event the lease becomes invalid, the note holder would receive from the other members $150,000 less monies already received via the production payments. Payments are due 60 days from the date insolvency is declared and, if not paid within that time, interest at 10% per annum will accrue.
·
The note is personally guaranteed by Phoenix’s Corporate Secretary who is now Treaty Energy’s Corporate Secretary.
On October 20, 2006, Phoenix Oil and Gas, LLC assigned a 2% production payment to the member and assigned the lease to Treaty Petroleum, Inc. The aggregate of the new production payments were established at $990,000 since Phoenix had paid $10,000 to that date. Phoenix Oil and Gas, LLC was dissolved at the end of 2006.
Treaty Energy Corporation, upon merging with Treaty Petroleum, agreed to service the liability while the lease was assigned to Treaty Energy Corporation (see Note 4). The note was recorded net of a discount of $918,634 and $933,168 at December 31, 2008 and 2007, respectively. The net note reflected in Treaty Energy’s financial statements as of December 31, 2008 was $77,943.
As is discussed above and in Note 4, we lost the Crockett County, Texas leases due to our failure to hold the leases by production. At the point the leases were lost, we had net note balance owed of $85,049. Although the Company has not issued a promissory note in this amount, we continue to carry this liability until we collect evidence that the original note made by Treaty Petroleum, Inc. has been retired.
Notes Payable for Working Capital
During 2008, we made principal and interest payments to our then Corporate Secretary of $993 and $1,007, respectively and accrued additional interest of $1,139. During 2009, we made no principal and interest payments and accrued an additional interest of $1,161. At December 31, 2009, principal and interest due on this note was $48,747.
During 2008, we accrued $49,010 to our then operator, High Ground, LLC in connection with their service contract with the Company. We made principal and interest payments on this note of $13,040 and $1,960, respectively. During 2009, we accrued an additional $24,000 relating to the operating agreement, and made principal and interest payments of $275 and $1,475, respectively. At December 31, 2009, principal and interest due on this note was $113,754.
On January 29, 2010, a lawsuit was filed in the 22nd Judicial District Court, Parish of St. Tammany, Louisiana naming Treaty Energy Corporation, among others, as a defendant. The notes references in the previous two paragraphs are part of the basis of the lawsuit. With respect to these notes and the lawsuit, Treaty Energy recognizes the liability owed to Mr. Hallin. However, the amounts owed to High Ground, LLC, our previous operator on the Crockett County, Texas leases is the subject of a countersuit filed by the Company in the United States District Court, Eastern Division of Louisiana.
Note 6 - Asset Retirement Obligation
In June, 2006, the Company adopted accounting guidance relating to accounting for conditional asset retirement obligations. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value can be reasonably estimated. The Company estimates a fair value of the obligation on each well in which it owns an interest by identifying costs associated with the future dismantlement and removal of production equipment and facilities and the restoration and reclamation of a field’s surface to a condition similar to that existing before oil and natural gas extraction began.
In general, the amount of an Asset Retirement Obligation (“ARO”) and the costs capitalized will be equal to the estimated future cost to satisfy the abandonment obligation using current prices that are escalated by an assumed inflation factor up to the estimated settlement date which is then discounted back to the date that the abandonment obligation was incurred using an assumed cost of funds for the Company. After recording these amounts, the ARO is accreted to its future estimated value using the same assumed cost of funds and the liability is increased each period as the retirement obligation approaches.
Our Asset Retirement obligation at December 31, 2008 was $22,444 and was zero at December 31, 2009 owing to the loss of the Crockett County leases (see Note 4). We were relieved from all liabilities associated with this property.
Note 7 - Shareholders’ Equity
In April, 2008, we amended our articles of incorporation to increase the number of shares authorized from 250 million to 500 million.
Private Placement Memorandum
In December 2006, Treaty Petroleum, Inc. offered in a Private Placement Memorandum, to sell financing units at $50,000 per unit to accredited investors, each unit consisting of 500,000 shares of Treaty Petroleum, Inc’s common stock and warrants to purchase 250,000 additional shares at $0.40. The warrants have an exercise period that begins on the day the Company’s common stock is traded on any exchange and expires 18 months thereafter, or June 12, 2010. The Company retains the right to sell fractional units.
For the years ended December 31, 2008 and 2007, we sold the following units:
No units were sold during 2008 or 2009.
Options and Warrants
Pursuant to the Private Placement Memorandum described above, the Company issued warrants to purchase 561,250 shares of common stock. The warrants are not exercisable until the first day that the Company’s common stock is traded on a recognized exchange. They expire 18 months from that date, or June 12, 2010.
As a result of the Reverse Merger explained in Note 10, the exercise period for these warrants began on December 12, 2008. In March, 2009, we issued 49,148 shares upon cashless exercise of 74,695 options by a consultant to Alternate Energy Corp. No other options or warrants have been exercised through December 31, 2009.
Although the original warrants were written conveying an option to purchase shares in Treaty Petroleum, Inc. (the predecessor of Treaty Energy Corporation), Treaty Energy intends to honor the warrants as options to purchase the common stock of Treaty Energy Corporation.
Total Potentially Dilutive Securities
In addition to the warrants issued by Treaty Petroleum, Inc. described above, Treaty Energy also inherited certain options and warrants outstanding at the merger date (for a description of the merger, see Note 10). At December 31, 2008 and 2009, the number of warrants and options that we inherited that were outstanding at December 31, 2008 was 2,687,419 and 352,313, respectively. At December 31, 2009 warrants and options outstanding were 2,687,419 and zero, respectively, all options inherited from Alternate Energy Corp and outstanding at December 31, 2008 having expired..
The following table summarizes all potentially dilutive securities outstanding at December 31, 2008.
The warrants issued in connection with the Treaty Petroleum December, 2006 private placement contain an exercise price of $0.40 and expire June 12, 2010.
The warrants inherited from Alternate Energy Corp. and which are outstanding at December 31, 2008 contain exercise prices and expiry dates as follows:
The options inherited from Alternate Energy Corp. and which are outstanding at December 31, 2008 have all expired during 2009.
Shareholder Contribution of Capital
During 2008, an affiliate paid expenses totaling $169,648 on behalf of the Company and elected to have those expenses treated as a contribution of capital. We recorded the expenses and with an offsetting credit to Additional Paid In Capital in that amount.
During 2009, the affiliate paid expenses of the Company of $224,517, of which $61,822 was paid in cash and $162,695 was paid in common stock of the Company. We recorded the expenses and with an offsetting credit to Additional Paid In Capital in that amount.
Issuances of Common Stock
In March, 2009, we issued 49,148 shares upon cashless exercise of 74,695 options by a consultant to Alternate Energy Corp.
On August 8, 2009, we issued 7 million shares of Company common stock to Highground, Inc. (“Highground”) to acquire the Vago #1 project on the eastern shelf of the Permian Basin in West Texas. When Highground failed to provide necessary due diligence to complete the required statutory filings, the Company rescinded the deal and requested the return of the shares rendered for consideration. We therefore impaired the entire property and recorded an impairment expense of $175,000.
On August 17, 2009, we paid a consulting firm 4 million shares. We valued the shares at the grant date of $0.0131 per share and recorded expense of $52,400.
On August 26, September 8 and October 15, 2009, we paid our Chief Executive Officer 4,221,519 shares, 1,649,485 shares and 2,015,772 shares, respectively. We valued the shares on the grant date and collectively valued the shares at $84,296. The unearned portion of the issuance at December 31, 2009 is $27,000 and will be earned over future periods.
On September 30, 2009, we issued 14,607,947 shares to Blaine Froats, the previous Chief Executive Officer of the Company (then Alternate Energy Corporate) to extinguish the liability the Company recognized to him from the previous operations. We reduced the debt to him ($211,827) to zero. We recognized no gain or loss on the retirement since Mr. Froats was a related party.
On November 30, 2009, we issued 3 million shares to a director for cash in the amount of $39,000.
At December 31, 2009, we have 496,605,424 shares issued and outstanding.
Note 8 - Income Taxes
Deferred income taxes reflect the tax consequences on future years of differences between the tax bases:
In assessing the realizability of future tax assets, management considers whether it is more likely than not that some portion or all of the future tax assets will not be realized. The ultimate realization of future tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of future tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Management has provided for a valuation allowance on all of its losses as there is no assurance that future tax benefits will be realized.
Our tax loss carry-forward of $1,312,660 generated during 2008 will begin to expire in 2021.
Note 9 - Supplemental Information on Oil Producing Properties (Unaudited)
Supplemental Reserve Information
The information set forth below on our proved oil reserves is presented in pursuant to the disclosure requirements of Statement of Financial Accounting Standards No. 69. The Company emphasizes that reserve estimates are inherently imprecise. Our reserve estimates were generally based upon extrapolation of historical production trends, analogy to similar properties and volumetric calculations. Accordingly, these estimates are expected to change and such changes could be material and occur in the near term as future information becomes available.
The Company retained the service of an independent petroleum consultant Huddleston & Co., Inc. for estimating proved reserves at December 31, 2008 and none in 2009 since the Company did not have any proved reserves.
The following table sets forth a summary of changes in estimated reserves for 2009 and 2008:
Standardized Measure of Discounted Future Net Cash Flow Relating to Proved Oil Reserves
The following information has been developed utilizing procedures prescribed by SFAS No. 69 and based on oil reserve and production volumes estimated by the Company’s independent reserve engineers. It may be useful for certain comparison purposes but should not be solely relied upon in evaluating the Company or its performance. Further, information contained in the following table should not be considered as representative of realistic assessments of future cash flows nor should the Standardized Measure of Discounted Future Net Cash Flows be viewed as representative of the current value of the Company.
The future cash flows presented below are computed by applying year-end prices to year-end quantities of proved oil and natural gas reserves. Future production and development costs are computed by estimating the expenditures to be incurred in producing the Company’s proved reserves based on year-end costs and assuming continuation of existing economic conditions. It is expected that material revisions to some estimates of oil and natural gas reserves may occur in the future, development and production of the reserves may occur in periods other than those assumed, and actual prices realized and costs incurred may vary significantly from those used.
Management does not rely upon the following information in making investment and operating decisions. Such decision are based upon a wide range of factors, including estimates of proved reserves, and varying price and cost assumptions are considered more representative of a range of possible economic conditions that may be anticipated.
We had no oil and gas producing properties at December 31, 2009.
The following table sets forth our future net cash flows relating to proved oil reserves based on the standardize measure prescribed in SFAS 69:
1.
Oil revenues are based on year-end prices (see table below). There is no consideration of risks associated with future production of proved reserves.
2.
Based on economic conditions at year-end and does not include administrative, general, or financing costs.
3.
Future income taxes are computed by applying the statutory tax rate to future net cash flows reduced by the tax basis of the properties.
The following table summarizes the year-end prices used to estimate reserves and future net cash flows in accordance with SEC guidelines.
Changes in Standardized Measure of Discounted Future Cash Flows
The following table sets forth the principal sources of change in the standardized measure of discounted future net cash flows:
1.
“Accretion to the discount” - this item is computed using the industry-recognized method as a computation of the 10% of the pre-tax present value of the prior year reserve report.
2.
“Revisions in quantity estimated” - quantity estimated varied significantly between 2006, 2007 and 2008, principally due to changes in year-end prices (see table above). Additionally, certain changes occurred due to shutting in of several wells in December, 2008.
3.
“Net changes in prices and production costs” - Our reserves consist exclusively of oil. A significant change in oil price between reporting periods resulted in differences between 2006, 2007 and 2008. Our production costs per barrel increased significantly during 2008 because much of our costs are fixed and, due to the shutting in of several oil wells during the fourth quarter of 2008, production was greatly diminished.
4.
“Other” - This line item reflects reconciling amounts which is made available to capture those timing and other differences.
Capitalized Costs Related to Oil Producing Activities
The following table sets forth the capitalized costs relating to the Company’s oil and natural gas producing activities:
Costs Incurred in Oil Producing Activities
We acquired no additional oil producing properties during the years ended December 31, 2009 and 2008.
Results of Operations
The Company’s results of operations related to oil and natural gas activities are set forth below. The following table includes revenues and expenses associated directly with our oil and natural gas producing activities. It does not include any interest costs, general and administrative costs or provision for income taxes due to the net operating loss carry-forward, and therefore, is not necessarily indicative of the contribution to consolidated net operating results of our oil and natural gas operations.
Note 10 - Reverse Merger of Treaty Petroleum, Inc. and Treaty Energy Corporation.
Entities Referred to in This Paragraph
Treaty Energy Corporation - formerly Alternate Energy Corp. This company is a Nevada Corporation and is the filer on whom this 10-K filing is prepared. We refer to this entity in this note as “Treaty Energy” or “the Nevada Corporation”.
Treaty Petroleum, Inc. - a Texas corporation with whom the Nevada Corporation merged through a reverse merger explained in this paragraph. We refer to this entity in this note as “Treaty Petroleum” or “the Texas Corporation”.
ARGY Merger Sub, Inc. - a Nevada corporation formed to effect the reverse merger. It is a wholly owned subsidiary of Treaty Energy. We refer to this entity in this note as “ARGY Merger Sub, Inc.”
The Merger
On December 12, 2008, Treaty Energy, formerly Alternate Energy Corp., entered into a definitive agreement whereby Treaty Petroleum, merged with a wholly owned subsidiary of Treaty Energy, ARGY Merger Sub, Inc.. The merger of Treaty Petroleum and Treaty Energy was completed on December 24, 2008. In the agreement, the shareholders of Treaty Petroleum surrendered all of their shares in return for a 90% interest in Treaty Energy.
Treaty Energy agreed to assume $500,000 in debts of Alternate Energy as part of the agreement and the management of Alternate Energy forgave $449,392 in debt. Additionally, immediately before the merger, Alternate Energy reverse-split its stock on the basis of 8.032633:1 and thereafter issued 414,000,000 post split shares to shareholders of Treaty, for a total of 460,000,000 shares outstanding immediately post merger. The historical equity transactions in these financial statements are those of Treaty Petroleum, Inc., retroactively restated to reflect shares of Treaty Energy Corporation.
Upon assuming control of management and the board of directors, the Company changed its name from Alternate Energy Corp. to Treaty Energy Corporation and changed its trading symbol from ARGY to TECO. The assets and liabilities of the former Alternate Energy were spun off to a private company except for the $500,000 liabilities assumed by Treaty Energy. This transaction has been accounted for as a reverse merger as the company acquired maintains control of the acquiring company immediately after the merger. The transaction has been accounted for as a recapitalization as ARGY did not meet the definition of a business so no step up in fair value is allowed. The historical financial information in this form 10-K is that of the accounting acquirer.
Treaty is in the business of acquiring oil and gas properties with production capabilities and proven reserves. Treaty owns 743 acres in a previously established oil and gas field. It contains 116 proven productive acres.
Income Statement of Alternate Energy Corp.
The following is an unaudited income statement of Alternate Energy Corp. , the legal acquirer in the reverse merger, from January 1, 2008 to the date of the merger, December 12, 2008.
Note 11 - Related-Party Transactions
As is discussed in Note 5, we partially funded our working capital throughout 2009 and 2008 with loans from shareholders, accruing interest payable to them, and paying interest and principal.
Also as discussed in Note 5, we made payments to a shareholder related to the promissory note that arose from the conveyance of the oil producing properties that we acquired from this shareholder.
As is discussed in Note 7, during 2009, a shareholder paid $61,822 in cash expenses on behalf of the Company, $162,695 of expenses by transferring common stock of the Company to certain vendors and trading partners, and contributed $104,000 in cash to the Company. During 2008, the same shareholder paid expenses totaling $169,648. The shareholder elected to have all of above treated as contributed capital.
During 2009, our CEO loaned the Company $8,700.
Note 13 - Subsequent Events
On March 2, 2009, our President and direct, Joe Grace, resigned from the board of directors and from his position as officer of the Company, citing health reasons. Mr. Grace remains as a consultant to the Company.
On February 1, 2009, our Chief Executive Officer, Randall Newton, loaned the Company an additional $5,932.
The Company has evaluated subsequent events through the date these financial statements were issued.
Note 14 - Commitments and Contingencies
We have leased office space at the Lyric Center in Houston, Texas on a lease which expires October 31, 2010. We will pay approximately $40,071 during 2010 until the end of the lease. Thereafter Treaty has no continuing obligation.
Item 9.
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. To address the material weaknesses, we performed additional analysis and other post-closing procedures in an effort to ensure our consolidated financial statements included in this annual report have been prepared in accordance with generally accepted accounting principles. Accordingly, management believes that the 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.
Management’s Report on Internal Control over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act, as amended. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2009. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. We have identified the following material weaknesses.
1.
As of December 31, 2009, we did not maintain effective controls over the control environment. Specifically we have not developed and effectively communicated to our employees its accounting policies and procedures. This has resulted in inconsistent practices. Further, the Board of Directors does not currently have any independent members and no director qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-B. Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute e a material weakness.
2.
As of December 31, 2009, we did not maintain effective controls over financial statement disclosure. Specifically, controls were not designed and in place to ensure that all disclosures required were originally addressed in our financial statements. Accordingly, management has determined that this control deficiency constitutes a material weakness.
Because of these material weaknesses, management has concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2009, based on the criteria established in "Internal Control-Integrated Framework" issued by the COSO.
Change In Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our last fiscal year that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Attestation Report of the Registered Public Accounting Firm
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this annual report.
Item 9B.
Item 9B. Other Information
None
PART III
Item 10.
Item 10. Directors, Executive Officers, Promoters and Control Persons and Corporate Governance; Compliance with Section 16(a) Of The Exchange Act
As of December 31, 2009, the directors and executive officers and their positions, are as follows:
None of our directors or executive officers is currently a director of any company that files reports with the SEC, except as described below. None of our directors have been involved in any bankruptcy or criminal proceeding (excluding traffic and other minor offenses), nor has been enjoined from engaging in any business. Our directors are elected at the annual meeting of stockholders and hold office until their successors are duly elected and qualified. Officers are appointed by our Board of Directors and serve at the pleasure of the Board and are subject to employment agreements, if any, approved and ratified by the Board.
Randall Newton, Chairman and Chief Executive Officer
Randall Newton is a CPA with a background in corporate finance, SEC filings, strategic planning, mergers and acquisition modeling and analysis, corporate governance and compliance under Sarbanes-Oxley that is complemented by early experience in the financial side of oilfield transportation and international joint ventures in oil & gas exploration.
From 1998 to present Mr. Newton has been the principal of Newton Collaboration, LLC, a Houston Texas-based firm that provides accounting, governance and information systems consulting services to private and public companies, and provided such services to Treaty Energy since its inception. Prior to 1998, Mr. Newton served as corporate controller of Peak USA Energy Services Ltd. of Houston, where he created the Finance Department for a spin-off oilfield transportation joint venture for Nabors Drilling, the world's largest land-rig company and Chesapeake Energy.
Randall Newton received a BBA degree in Accounting and Finance from the University of Texas, and is fluent in Russian, Spanish and French.
Joe Grace, President and Director
Joe Grace has over 40 years of business experience beginning with six years at Gulf Oil. After Gulf, Mr. Grace worked for 15 years in banking beginning with Texas Commerce Bancshares (now Chase), followed by ten years of private company ownership, and three years of public company leadership.
Mr. Grace has been a bank president, CEO of two personally owned companies, CEO and Chairman of one public company and CEO of a second public company. His business interests range from oil and gas, banking and finance, corporate data centers, integrated security centers, digital imaging, specialty engineered products, and wireless broadband services.
In addition, Mr. Grace has assisted companies with business strategies, capital formation, investor relations, marketing concepts, contract development, business development, and personnel evaluations through consulting agreements with several private and public companies for the last ten years. He has also served on the Board of Directors of several companies.
Dan Olson, Director
Dan Olson has over 30 years of experience in both public and private business, and was a co-founder of Small Cap Consulting, LLC in 2004.
Mr. Olson's focus over the years has been on start-up and developmental companies. His ability to guide companies on achievable goals and then see those goals completed has taken him into various business sectors. The implementation of his management strategies has led many companies from concept to reality.
Mr. Olson has managed, owned, and served as a director in both private and public companies. He has also spent a portion of his career in mentoring Chief Executive Officers. He holds a post graduate degree in Economics from North Dakota State University.
Board of Directors and Committees
Our Board of Directors presently consists of three members: Randall Newton, Joe Grace and Dab Olson. Our Bylaws generally provide for majority approval of directors in order to adopt resolutions. The Board of Directors may be expanded in the future. All executive officer compensation, including payroll expenditures, salaries, stock options, stock incentives, and bonuses, must be approved by the unanimous consent of the Board of Directors. The entire Board of Directors acts as the Audit Committee and the Compensation Committee.
On compensation matters, the Board considers and recommends payroll expenditures, salaries, stock options, stock incentive and bonus proposals for our employees. Acting in its audit committee function, the Board reviews, with our independent accountants, our annual financial statements prior to publication, and reviews the work of, and approves non-audit services performed by, such independent accountants. The Board appoints the independent public accountants for the ensuing year. The Board also reviews the effectiveness of the financial and accounting functions and the organization, operation and management of our Company.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 and the rules there under require our officers and directors, and persons who beneficially own more than ten percent of our common stock to file reports of ownership and changes in ownership with the Securities and Exchange Commission and to furnish us with copies.
Based on our reviews of the copies of the Section 16(a) forms received by it, or written representations from certain reporting persons, we believe that, during the last fiscal year, none of our directors or executive officers satisfied their Section 16(a) filing requirements. Such persons are in the process, with the assistance of counsel, to file all required and missing reports.
Code of Ethics
On March 12, 2004, the Board of Directors adopted a written Code of Ethics designed to deter wrongdoing and promote honest and ethical conduct, full, fair and accurate disclosure, compliance with laws, prompt internal reporting and accountability to adherence to the Code of Ethics. This Code of Ethics has been filed with the Securities and Exchange Commission as an Exhibit to this Form 10-K. The new Board of Directors has ratified this code. We will provide a copy of our Code of Ethics to any shareholder without charge upon a written request.
Procedure for Nominating Directors
We have not made any material changes to the procedures by which security holders may recommend nominees to our board of directors.
The board does not have a written policy or charter regarding how director candidates are evaluated or nominated for the board. Additionally, the board has not created particular qualifications or minimum standards that candidates for the board must meet. Instead, the board considers how a candidate could contribute to the Company's business and meet the needs of the Company and the board.
The board will consider candidates for director recommended by our shareholders. Candidates recommended by shareholders are evaluated with the same methodology as candidates recommended by management or members of the board. To refer a candidate for director, please send a resume or detailed description of the candidate's background and experience with a letter describing the candidate's interest in the Company to 440 Louisiana, Suite 1400, Houston, Texas 77002. All candidate referrals are reviewed by at least one current board member.
Item 11.
Item 11. Executive Compensation
Summary Compensation
The following table shows the compensation paid or accrued during the fiscal years ended December 31, 2009 and 2008, to our officers and directors.
·
Includes $140,455 of salary accrued or paid and 6 months of earned signing bonus of $27,000.
·
Mr. Grace’s salary was paid in common stock of the Company by an affiliate, but recognized by the Company as a corporate expense.
·
Mr. Olson’s salary was paid in common stock of the Company by an affiliate, but recognized by the Company as a corporate expense
Narrative to Summary Compensation Table
Employment Agreements of Named Executive Officers
Randall Newton, Joe Grace and Dan Olson currently have compensation agreements with the Company.
Mr. Newton’s agreement provides for a monthly payment of $20,833 payable in cash or in stock at the Company’s option.
Mr. Grace’s agreement provides for a one-time payment of 16 million shares for one year of service which began October 20, 2009. As is discussed in Note 13 to the financial statements, Mr. Grace resigned from this position as an officer and director of the Company on March 2, 2009 citing health reasons. The Company entered into a two-year consulting agreement with Mr. Grace under which he will earn the remainder of his one-time payment.
Mr. Olson’s agreement provides for a one-time payment of 1.5 million shares for one year of service which began October 20, 2009.
Long-term Incentive Plans
We do not have any long-term incentive plans, pension plans or any similar compensatory plans for any of our directors or executive officers. Nor do we currently have any intention to initiate any such plans in the near future.
Outstanding Equity Awards at Fiscal Year End
None of our current officers or directors have outstanding equity awards as December 31, 2009.
Retirement Benefits
We do not have any material terms or plans that provide for the payment of retirement benefits, or benefits that will be paid primarily following retirement, including but not limited to tax-qualified defined benefit plans, supplemental executive retirement plans, tax-qualified defined contribution plans and nonqualified defined contribution plans.
Nonqualified Deferred Compensation
We do not have any nonqualified defined contribution plans or other deferred compensation plans
Potential Payments Upon Termination or Change of Control
We do not, as of December 31, 2008, have any material terms , contracts, agreements, plans or arrangements, written or unwritten, that provides for payment(s) to a CEO at, following, or in connection with the resignation, retirement or termination of a CEO, or a change in control of the company or a change in the CEO’s responsibilities following a change in control, with respect to each CEO.
Director Compensation
The following table sets forth a summary of the compensation earned by our directors and/or paid to certain of our directors pursuant to certain agreements we have with them in 2009 and 2008.
Director Compensation Table (2008)
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth information as to the record ownership of our common stock by our (i) directors and executive officers, (ii) all of the officers and directors as a group and (iii) each person who owns more than 5% or more of our common stock. The persons named in this table possess the sole voting and investment power with respect to the shares of common stock shown unless otherwise indicated. In general, beneficial ownership includes those shares that a person has the power to vote, sell, or otherwise dispose. Beneficial ownership also includes that number of shares, which an individual has the right to acquire within 60 days (such as stock options) of the date this table was prepared. Two or more persons may be considered the beneficial owner of the same shares. The inclusion in this section of any shares deemed beneficially owned does not constitute an admission by that person of beneficial ownership of those shares. All ownership of securities is direct ownership unless otherwise indicated.
(1)
Applicable percentage owned is based on 460,061,553 shares outstanding at December 31, 2008.
(2)
Includes shares owned by corporations controlled by our officers and directors.
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Certain Relationships and Related Transactions
As is discussed in Note 5 to the financial statements, we partially funded our working capital throughout 2009 and 2008 with loans from shareholders, accruing interest payable to them, and paying interest and principal.
Also as discussed in Note 5 to the financial statements, we made payments to a shareholder related to the promissory note that arose from the conveyance of the oil producing properties that we acquired from this shareholder.
As is discussed in Note 7 to the financial statements, during 2009 a shareholder paid expenses totaling $61,822, contributed $104,000 in cash and paid expenses totaling $162,695 in personal holdings of common stock. During 2008, that shareholder paid expenses of $169,648. This shareholder elected to have all of these contributions treated as paid in capital.
Our Chief Executive Officer loaned the company $14,659 during 2009.
Director Independence
During the year ended December 31, 2008, Ronda Hyatt, Gary Dunham and David Hallin served as our directors.
On July 8, 2009, shareholders representing seventy four percent (74%) of the voting power of Treaty Energy Corporation (the “Company”) took certain corporate action by written consent of shareholders pursuant to Nevada corporate law. The shareholders voted to elect Randall Newton a director and as Chairman of the Board of Directors of the Company, and simultaneously voted to remove Ronda Hyatt, David Hallin, and Gary Dunham as directors of the Company. After these actions, Randall Newton remained as the only director of the Company.
On July 8, 2009, shareholders representing seventy four percent (74%) of the voting power of Treaty Energy Corporation (the “Company”) took certain corporate action by written consent of shareholders pursuant to Nevada corporate law. The shareholders voted to elect Randall Newton a director and as Chairman of the Board of Directors of the Company, and simultaneously voted to remove Ronda Hyatt, David Hallin, and Gary Dunham as directors of the Company. After these actions, Randall Newton remained as the only director of the Company.
On September 19, 2009, the three former officers, Ronda Hyatt, David Hallin and Gary Dunham submitted their resignations.
On October 20, 2009 the Company appointed Joe Grace and Dan Olson to the Board of Directors.
As our common stock is currently traded on the OTC Bulletin Board, we are not subject to the rules of any national securities exchange which require that a majority of a listed company’s directors and specified committees of the board of directors meet independence standards prescribed by such rules.
Item 14.
Item 14. Principal Accountant Fees and Services
We paid M&K, CPAS, PLLC audit and review fees of $28,400 for 2009. For 2008 audit fees, we have paid $25,000 for audit and audit-related fees.
Tax Fees. We have not paid any money for tax related services.
All Other Fees. We have not paid any money for other fees.
Audit Committee pre-approval policies and procedures. The entire Board of Directors, which acts as our audit committee, approved the engagement of M&K, CPAS, PLLC.
Item 15.
Item 15. Exhibits, Financial Statement Schedules, Signatures
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Treaty Energy Corporation
Date: April 15, 2010
By: /s/ Randall Newton
Randall Newton
Chairman and Chief Executive Officer