Trimerica Energy Corp - FORM 10-K

Attached files

file	filename
EX-31.1 - Trimerica Energy Corp	teco_ex311.htm
EX-32.1 - Trimerica Energy Corp	teco_ex32.htm
EX-21.1 - Trimerica Energy Corp	teco_ex211.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-K

ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2010

Commission file number 000-28015

TREATY ENERGY CORPORATION

(Name of Small Business Issuer in Its Charter)

NEVADA		86-0884116
(State or other jurisdiction of incorporation or organization)		(Employer Identification No.)

201 St. Charles Ave., Suite 2558

New Orleans, LA 70170

(Address of principal executive offices, including zip code.)

(504) 599-5684

(Registrant's telephone number, including area code)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer (Do not check if a smaller reporting company)	o	Smaller reporting company	þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o No þ

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity. Based on the closing sale price on April 11, 2011 ($0.0144 per share), the aggregate market value of the voting common stock held by non-affiliates (399,860,796)) is $5,757,000.

State the number of shares outstanding of each of the registrant’s classes of common stock as of April 12, 2011: 574,649,907.

Documents Incorporated by reference: None.

TREATY ENERGY CORPORATION

FORM 10-K

For the Year Ended December 31, 2010

TABLE OF CONTENTS

PART 1 Financial Information

Item 1.	Business Factors	3
Item 1A.	Risk Factors	5
Item 1B.	Unresolved Staff Comments	7
Item 2.	Properties	7
Item 3.	Legal Proceedings	7
Item 4.	Submission of Matters to a Vote of Security Holders	8

PART II Other Information

Item 5.	Market for Common Equity and Related Stockholder Matters	8
Item 6.	Selected Financial Data	9
Item 7 .	Management’s Discussion and Analysis and Plan of Operation	9
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk.	13
Item 8.	Financial Statements and Supplemental Data	14
Item 9.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure	39
Item 9A.	Controls and Procedures	39
Item 9B.	Other Information	40

PART III

Item 10.	Directors, Executive Officers, Promoters and Control Persons and Corporate Governance; Compliance with Section 16(a) Of The Exchange Act	40
Item 11.	Executive Compensation	42
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	43
Item 13.	Certain Relationships and Related Transactions, and Director Independence	44
Item 14.	Principal Accountant Fees and Services	44
Item 15.	Exhibits, Financial Statement Schedules, Signatures	45

PART 1 – FINANCIAL INFORMATION

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. In December, 2008, we merged with Treaty Petroleum, Inc., a Texas Corporation under a transaction commonly referred to as a reverse merger.

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 to various 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. 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;

·	weather conditions;

·	domestic and foreign governmental regulations;

·	the price and availability of alternative fuels;

·	political conditions in oil producing regions;

·	the domestic and foreign supply of oil;

·	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, Tennessee and Belize. 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, 2010 and 2009 of $769,679 and $1,202,190, 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:

·	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. UNRESOLVED STAFF COMMENTS

The registrant is not an accelerated filer and is therefore not required to complete this section.

ITEM 2. PROPERTIES

Our administrative offices are located at 201 St. Charles Ave., Suite 2558, New Orleans, LA 70170. Our office rent is paid by an affiliate and we are not required to reimburse.

ITEM 3. LEGAL PROCEEDINGS

On January 29, 2010, a lawsuit (Highground et al. versus Ronald L. Blackburn et al.)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 wrongdoings by the defendants (other than Treaty) which have no bearing on our operations since inception. The lawsuit also alleges certain monies owed to some of the plaintiffs by the Company.

On March 11, 2010, we filed a Notice of Removal of the state action to the United States District Court, Eastern District of Louisiana, based upon the diversity of all the parties. The case has been moved to the United States District Court.

On April 11, 2010, the defendants filed a countersuit against the plaintiffs seeking damages against Highground, et al based on misrepresentation of the Crockett County, Texas leases. The lawsuit is in recess as of the date of this filing and should reconvene in May, 2011.

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. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to the shareholders during the fourth quarter of 2010.

PART II - OTHER INFORMATION

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

Our shares currently trade on the electronic OTCMarkets (OTC.BB), a regulated quotation service, under the symbol "TECO." Listed below are the highest and lowest bid prices for our common stock for each calendar quarter for 2010 and 2009 as reported on the OTCBB, and represents inter-dealer quotations, without retail markup, markdown, or commission and may not be reflective of actual transactions.

Fiscal quarter	High		Low

First quarter, 2009		0.150		0.028
Second quarter, 2009		0.075		0.016
Third quarter, 2009		0.028		0.010
Fourth quarter, 2009		0.023		0.011

First quarter, 2010		0.026		0.006
Second quarter, 2010		0.023		0.010
Third quarter, 2010		0.015		0.010
Fourth quarter, 2010		0.014		0.007

At December 31, 2010, there were 496,605,424 shares of our common stock issued and outstanding.

Holders

As of December 31, 2010, we had approximately 1,266 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 February 28, 2011 Treaty Energy adopted a stock option plan that is accounted for based on Accounting Standards Codification No. 718, Compensation – Stock Compensation. The plan allows the Company to grant stock and options to persons employed or associated with the Company, including, without limitation, any employee, attorney, accountant, consultant or advisor up to an aggregate of 10,000,000 common shares.

Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities

We issued no shares during the year ended December 31, 2010.

Subsequent to December 31, 2010, we issued 2,796,609 shares for cash, 66,747,874 shares for services, and 8,500,000 shares to acquire an aircraft for use in our Belize project

ITEM 6. SELECTED FINANCIAL DATA

A smaller reporting company is not required to provide the information required by this item.

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 $330,851 in 2010 and $212,511 in 2009, and a working capital deficit of $1,485,551 at December 31, 2010. 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.

In December 2010, the FASB Accounting Standards Update 2010-29 Business Combinations Topic 805, which requires a public entity to disclose pro forma information for business combinations that occurred in the current reporting period. The disclosures include pro forma revenue and earnings of the combined entity for the current reporting period as though the acquisition date for all business combinations that occurred during the year had been as of the beginning of the annual reporting period. If comparative financial statements are presented, the pro forma revenue and earnings of the combined entity for the comparable prior reporting period should be reported as though the acquisition date for all business combinations that occurred during the current year had been as of the beginning of the comparable prior annual reporting period. Effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. The adoption did not have an impact on the Company’s financial position and results of operations.

In March 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-11 (ASU 2010-11), “Derivatives and Hedging (Topic 815): Scope Exception Related to Embedded Credit Derivatives.” The amendments in this Update are effective for each reporting entity at the beginning of its first fiscal quarter beginning after June 15, 2010. Early adoption is permitted at the beginning of each entity’s first fiscal quarter beginning after issuance of this Update. The Company does not expect the provisions of ASU 2010-11 to have a material effect on the financial position, results of operations or cash flows of the Company.

In February 2010, the FASB issued ASU No. 2010-09 “Subsequent Events (ASC Topic 855) “Amendments to Certain Recognition and Disclosure Requirements” (“ASU No. 2010-09”). ASU No. 2010-09 requires an entity that is an SEC filer to evaluate subsequent events through the date that the financial statements are issued and removes the requirement for an SEC filer to disclose a date, in both issued and revised financial statements, through which the filer had evaluated subsequent events. The adoption did not have an impact on the Company’s financial position and results of operations.

In January 2010, the FASB issued an amendment to ASC 820, Fair Value Measurements and Disclosure, to require reporting entities to separately disclose the amounts and business rationale for significant transfers in and out of Level 1 and Level 2 fair value measurements and separately present information regarding purchase, sale, issuance, and settlement of Level 3 fair value measures on a gross basis. This standard, for which the Company is currently assessing the impact, is effective for interim and annual reporting periods beginning after December 15, 2009 with the exception of disclosures regarding the purchase, sale, issuance, and settlement of Level 3 fair value measures which are effective for fiscal years beginning after December 15, 2010.

In January 2010, the FASB issued an amendment to ASC 505, Equity, where entities that declare dividends to shareholders that may be paid in cash or shares at the election of the shareholders are considered to be a share issuance that is reflected prospectively in EPS, and is not accounted for as a stock dividend. This standard is effective for interim and annual periods ending on or after December 15, 2009 and is to be applied on a retrospective basis. The adoption of this standard is not expected to have a significant impact on the Company’s financial statements.

Results of Operations – Comparison of Years Ended December 31, 2009 versus 2008

Revenues

Both 2009 and 2010 have insignificant amounts of revenues. The revenues recognized in early 2009 were from the Crockett County, Texas leases which were lost during 2009 due to lack of production. The 2010 revenues were from our Tennessee wells which, as of the publication of this report, have not yet been fully brought back onto production.

Expenses

Depreciation, Amortization and Depletion

Depreciation, amortization and depletion decreased for the year ended December 31, 2010 versus the same period in 2009. This decrease is due to the loss of the leases in Crockett County, Texas. Our Tennessee wells have not yet been fully brought onto production.

Lease Operating Expenses

Our lease operating expenses are up significantly from 2009, $459,820 versus $42,996, principally due to our seismic work in Belize.

General and Administrative Expenses

Our general and administrative expenses decreased from $721,561 in 2009 versus $559,298 for the same period in 2010. This decrease results from reduced officer and director salaries, reduced legal and accounting costs.

Interest Expense

Our interest expense is significantly higher in 2010 versus 2009, principally due to higher debt levels.

Net Loss

Our net loss increased for the year ended December 31, 2010 (a net loss of $769,679) from the same period in 2009 (a net loss of $1,202,190) 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:

Kansas - We expect that the Kansas oil and gas leases, if acquired and financing is obtained, will initially produce between 135 and 150 barrels per day which will immediately add positive cash flows from operations to our negative cash flows currently existing due to our corporate costs. We expect that our aggressive drilling program will provide additional cash flows in the future.

Tennessee – In July, 2010, we completed the Robin Moody well #1 and Joseph Schwallie #1 wells. After initial flow rates that exceeded expectations, the Robin Moody #1 well declined to 1 barrel per day. We are currently evaluating whether to acidize the well to improve production. The Joseph Schwallie #1 well was acidized and is currently producing gas. We expect that the existence of the gas production is an indication that oil will be produced in the near future.

Belize - We intend to finance the drilling of one to three wells by selling additional interests in our Joint Venture with Princess Petroleum Limited and through the sale of debt. We are currently undertaking geological and geophysical studies in Belize to determine the location of our first well.

Drilling and Work-Over Programs

Kansas - We have identified approximately 600 locations in eastern Kansas on the oil and gas leases that we have under contract. If we close the acquisition and obtain the bank financing, we will plan on drilling approximately 400 of these wells in five years.

Several existing leases can be enhanced through water-flooding which will increase pressure and incremental production from existing wells.

We currently do not have adequate cash to undertake these plans. Unless we close our acquisition in Kansas and obtain the required bank financing, we will be unable to execute them.

Financing

We hope to finance our work over, drilling and acquisition programs by a combination of bank financing, owner financing and cash flows from operations.

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. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

A smaller reporting company is not required to provide the information required by this item.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

INDEX TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm	15
Balance Sheets – December 31, 2010 and 2009	16
Results of Operations for the years ended December 31, 2010 and 2009 and for the period from re entry to the Exploratory Stage (July 1, 2009) to December 31, 2010	17
Statement of Changes in Stockholders’ Deficit from December 31, 2007 to December 31, 2010	18
Statements of Cash Flows for the years ended December 31, 2010 and 2009 and for the period from re entry to the Exploratory Stage (July 1, 2009) to December 31, 2010	20
Notes to Financial Statements	22

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, 2010 and 2009 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, 2010. 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, 2010 and 2009, 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 15, 2011

TREATY ENERGY CORPORATION

(An Exploratory Stage Company)

Balance Sheets

As of December 31, 2010 and 2009

	Dec 31, 2010			Dec 31, 2009

ASSETS

Cash and equivalents	$	148		$	-
Total current assets		148			-

Oil and gas properties (unproved), net (successful efforts method of accounting)		252,424			-
Prepaid expenses and other		-			6,678
Other property, plant and equipment, net		1,759			-

TOTAL ASSETS	$	254,331		$	6,678

LIABILITIES

Accounts payable and accrued liabilities	$	469,775		$	360,020
Notes and accrued interest to related parties		481,646			201,641
Notes and accrued interest payable		534,278			162,501
Total current liabilities		1,485,699			724,162

TOTAL LIABILITIES		1,485,699			724,162

STOCKHOLDERS' DEFICIT

Common stock – par value $0.001, 500 million shares authorized. 496,605,424 shares issued and outstanding at December 31, 2010 and 2009.		496,605			496,605
Additional paid in capital		527,483			475,688
Common stock payable		204,000			-
Accumulated loss - pre exploratory stage		(644,829	)		(644,829	)
Accumulated loss - exploratory stage		(1,814,627	)		(1,044,948	)

Total stockholders' deficit		(1,231,368	)		(717,484	)

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	254,331		$	6,678

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, 2010 and 2009

And from Re-entry to the Exploratory Stage (July 1, 2009)

to December 31, 2010

	Year Ended December 31,						From Re Entry to the Exploratory Stage (Jul 1, 2009) to
	2010			2009			Dec 31, 2010

REVENUES
Sales of oil	$	1,570		$	423		$	1,570

Total revenues		1,570			423			1,570

EXPENSES
Royalties		1,122						1,122
Lease operating expenses		460,137			42,996			475,320
Transportation costs		-			455			(354	)
Production taxes		-			14			(352	)
Impairment of oil and gas properties		-			411,412			411,412
General and administrative		559,298			721,561			1,171,801
Depreciation, depletion and amortization		125			1,520			125
Accretion of asset retirement obligation		-			898			-
Interest expense		42,540			23,757			149,096

Total expenses		1,063,222			1,202,613			2,108,170

OPERATING LOSS		(1,061,652	)		(1,202,190	)		(2,106,600	)

Gains on dispositions of properties		291,973			-			291,973

NET LOSS	$	(769,679	)	$	(1,202,190	)	$	(1,814,627	)

Net loss per common shares - basic and diluted	$	-		$	-
Weighted average common shares outstanding - basic and diluted		496,605,424			470,921,214

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, 2007 to December 31, 2010

	Common Stock				Additional Paid In			Common Stock		Pre -Development			Development Stage
	Shares		Amount		Capital			Payable		Stage Losses			Losses			Total
Balances, December 31, 2007		460,061,553	$	460,062	$	(304,208	)	$	-	$	-		$	(246,073	)	$	(90,219	)

Interest imputed on related party note payable						5,240											5,240
Expenses paid on behalf of the Company by a related party						169,648											169,648
Debt acquired in reverse merger						(500,000	)										(500,000	)
Net loss, year ended 12/31/08														(241,514	)		(241,514	)

Balances, December 31, 2008		460,061,553		460,062		(629,320	)		-		-			(487,587	)		(656,845	)

Cashless exercise of options		49,148		49		(49	)										-
Cash provided by a related party						104,000											104,000
Expenses paid on behalf of the Company by a related party:
Paid in cash						61,822											61,822
Paid in stock						162,695											162,695

Interest imputed on notes payable						10,090											10,090
Acquisitions of oil and gas properties		7,000,000		7,000		168,000											175,000
Stock for services		4,000,000		4,000		48,400											52,400
Sale of stock for cash		3,000,000		3,000		36,000											39,000
Officer and director compensation		7,886,776		7,886		316,831											324,717
Retirement of debt		14,607,947		14,608		197,219											211,827
Net loss, year ended December 31, 2009											(644,829	)		(557,361	)		(1,202,190	)
																	-
Balances, December 31, 2009		496,605,424	$	496,605	$	475,688				$	(644,829	)	$	(1,044,948	)	$	(717,484	)

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, 2007 to December 31, 2010

(Continued)

	Common Stock		Additional Paid In Capital		Common Stock Payable		Pre-Development Stage Losses	Development Stage Losses			Total
Expenses paid by a related party				1,155								1,155
Interest imputed on notes payable				7,812								7,812
Vesting of deferred compensation				42,828								42,828
Stock payable to consultant						204,000						204,000
Net loss, for year ended 12/31/10									(769,679	)		(769,679	)

Balances, December 31, 2010	496,605,424	$ 496,605	$	527,483	$	204,000	$ (644,829)	$	(1,814,627	)	$	(1,231,368	)

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, 2010 and 2009

	Year Ended December 31,						From Re Entry to the Exploratory Stage (7/1/09) to
	2010			2009			12/31/10

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(769,679	)	$	(1,202,190	)	$	(1,814,627	)

Adjustments to reconcile net loss to net cash provided by / (used in) operating activities
Depreciation, depletion and amortization		125			1,520			125
Gain on sales of oil and gas interests		(291,973	)		-			(291,973	)
Impairment of oil and gas assets		-			411,412			411,412
Amortization of discount on production note		21,254			7,266			21,254
Accretion of asset retirement obligation		-			898			-
Stock based compensation		246,828			377,117			623,945
Interest imputed on related-party notes		7,812			10,090			11,718
								-
Changes in operating assets and liabilities:								-
Accounts receivable		-			7,206			-
Accounts payable and accrued liabilities		174,957			5,883			194,645
Officer and director liabilities		257,972			170,392			428,364
Interest payable		15,174			4,573			17,514
Prepaid expenses		6,678			(6,678	)		-

Net cash used in operating activities		(330,851	)		(212,511	)		(397,622	)

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of oil and gas properties		(235,475	)		-			(235,475	)
Development of oil and gas properties		(40,101	)		-			(40,101	)
Purchases of other fixed assets		(1,759	)		-			(1,759	)
Proceeds from sales of oil and gas properties		445,000			-			445,000
Net provided by in investing activities		167,665			-			167,665

TREATY ENERGY CORPORATION

(An Exploratory Stage Company)

Statements of Cash Flows

For the Years Ended December 31, 2010 and 2009

(Continued)

							From Re Entry to the
	Year Ended December 31,						Exploratory Stage
	2010			2009			(7/1/09) to 3/31/09

CASH FLOWS FROM FINANCING ACTIVITIES
Expenses paid by related parties-cash		129,130			61,822			131,405
Expenses paid by related parties-stock		-			-			-
Net borrowings (repayments) to related parties		(82,796	)		112,700			(60,096	)
Repayments to related parties		-			-
Proceeds from notes payable		122,000			-			122,000
Principal payments on notes payable		(5,000	)		-			(5,000	)
Principal payments on related-party notes payable		-			(1,982	)		-
Common stock issued for cash		-			39,000			39,000
								-

Net cash provided by financing activities		163,334			211,540			227,309

Net increase / (decrease) in cash and cash equivalents		148			(971	)		(2,648	)
Cash and cash equivalents, beginning of period		-			971			2,796
Cash and cash equivalents, end of period	$	148		$	-		$	148

SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest		-			1,518			-
Cash paid for income taxes		-			-			-
Shares issued for retirement of debt		-			211,827			211,827
Shares issued to acquire oil and gas properties		-			175,000			175,000

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

TREATY ENERGY CORPORATION

(An Exploratory Stage Company)

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.

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.

Upon merging with Treaty Petroleum, Inc. we acquired producing properties in Crockeet County, Texas. During 2009, we lost those leases due to a lack of production. We therefore re-entered to the exploratory phase on July 1, 2009.

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, 2010 and 2009.

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, 2010 or 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 is discussed in Note 4 to the financial statements, at December 31, 2010 and 2009, we had no proved oil and gas reserves.

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, 2010 and 2009.

Fair Value Measurement

In September 2006, the FASB issued ASC (Accounting Standards Codification) 820, Fair Value Measurements and Disclosures. ASC 820 defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. ASC 820 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. ASC 820 is effective for fiscal years beginning after November 15, 2007.

ASC 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC 820 establishes a three-tiered fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows.

·	Level 1. Observable inputs such as quoted market prices in active markets.
·	Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly:, and
·	Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The following table presents assets and liabilities that are measured and recognized at fair value on a non-recurring basis:

	Level
Description		1		2		3

Notes and accrued interest to related parties	$	-	$	-	$	481,646
Notes and accrued interest		-		-		534,578

Our outstanding related-party and non-related party debts are carried at their carrying values which approximate market.

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.

At December 31, 2010, we had no asset retirement obligations because our wells in Tennessee are currently under evaluation for their productive potential and their productive lives.

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, $330,851 in 2010, and a working capital deficit of $1,485,551 at December 31, 2010. 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

Pickett County, Tennessee

On April 13, 2010, we acquired 100% undivided working interest (82.5% royalty interest) in eight leases in Pickett County, Tennessee in exchange for 1.5 million shares which were contributed by a major shareholder. These leases are: Herbert Groce #1, 77 acres; Herbert Groce #2, 80 acres; Leeta West, 20 acres; Joseph Schwallie, 47 acres; Byron Hill, 18.5 acres, Robin Moody, 18.5 acres, Terry Williams, 18.5 acres and Kimberly Hicks, 18.5 acres.

We valued the 1.5 million shares at the closing price on April 13, 2010 and valued the Tennessee properties at $19,500, or $0.013 per share. We then divided the purchase price, plus commissions and other costs, equally among the three properties expected to be developed during 2010, and arrived at a cost basis of $10,158 per well. Finally, we recorded a liability to the major shareholder in the amount of $19,500, the value of the shares given in exchange for the leases.

On June 11, 2010, we entered into an agreement to sell 35% of our working interest in the Joseph Schwallie #1 well to an investor for $20,000 cash.

Also on June 11, 2010, we entered into an agreement to sell another 20% of the Joseph Schwallie #1 well for $55,000 in cash. Under the terms of this agreement, we are obligated to increase the distributions of cash flows to this investor from 20% to 34% until such time as the investor has received $55,000, after which the distribution obligation will revert to the 20% working interest.

As a result of the two above sales, we recorded a reduction in our historical cost basis of the Joseph Schwallie well from $10,158 to $4,571, recorded a liability in the amount of $55,000 and a gain on the two sales in the amount of $14,413.

On May 27, 2010, we entered into an agreement to sell 50% of our working interest in the Robin Moody #1 well for $20,000 in cash. Under the terms of this agreement, we are obligated to increase the distributions of cash flows to this investor from 50% to 56% until such time as the investor has received $20,000, after which the distribution obligation will revert to the 50% working interest.

On June 11, 2010, we sold a 20% interest in the Robin Moody lease for $55,000 in cash. Under the terms of this agreement, we are obligated to increase the distributions of cash flows to this investor from 20% to 29% until such time as the investor has received $55,000, after which the distribution obligation will revert to the 20% working interest.

As a result of the two above sales of our interests in the Robin Moody well #1, we recorded a reduction in our historical cost basis of the Robin Moody lease from $10,158 to $3,047, recorded liabilities in the amount of $75,000 and a loss on the two sales in the amount of $7,111.

On June 18, 2010, we entered into an agreement to sell 50% of our working interest in the Herbert Groce #1 well for $45,000 in cash. We recorded the sale by reducing the carrying value of our interest in the Herbert Groce #1 well by an amount equal to the pro-rata portion of our historical cost in the property, and recorded a gain of $39,921.

Belize Concession and Joint Venture with Princess Petroleum Ltd.

On April 20, 2010, we entered into a 50/50 Joint Venture agreement with Princess Petroleum Limited, a company organized under the laws of Belize to explore for oil and gas on approximately 2 million acres in Belize. The country of Belize is located in Central America, in the south of the Yucatan Island to the southeast of Mexico. It is surrounded by Mexico in the north, by Guatemala in the west and south and by the Caribbean Sea in the east. Its old name was British Honduras.

A major shareholder of the Company paid $100,000 cash as required under the agreement. We have recorded our basis in the $100,000 property and the corresponding debt to our shareholder.

On July 15, 2010, we sold a 10% interest (5% total) working interest in our Belize concession for $250,000 in cash. We reduced our carrying value proportionally and recorded a gain on the sale of $244,750.

Note 5 – Notes Payable to Related Parties

At December 31, 2010, we have the following liabilities to related and unrelated parties:

Notes and Interest Payable
Notes and interest payable to previous officers and directors		167,178
Liability relating to Crockett County leases		106,303
Notes and interest payable related to our Tennessee acquisition		238,797
Other		22,000
Total notes and interest payable	$	534,278

Notes and Interest Payable to Related Parties
Advances from affiliates		164,722
Accrued compensation to officers and directors		316,924
Total related party notes and interest payable	$	481,646

Notes and Interest Payable to Previous Officers and Directors

These liabilities arose principally between January, 2007 and December, 2008 as cash contributions and accrued compensation to officers and directors of Treaty Petroleum, Inc. with whom Treaty Energy Corporation merged in December of 2008. Some additional compensation was accrued during 2009 until the Crockett County, Texas leases were lost.

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 liabilities here form a portion of the basis of this lawsuit. We continue to accrue interest on these amounts until the court system has determined what liability, if any, Treaty Energy Corporation may have to the previous officers and directors.

Liability relating to the Crockett County Leases

Upon assuming the rights to receive production revenues assigned to Treaty Energy Corporation from Treaty Petroleum, Inc., we agreed to service the note payable to the assignee of the working interest (Treaty Petroleum, Inc.) so long as the Company held the lease.

As is discussed more thoroughly in Note 4 to our annual report on Form 10-K as of December 31, 2009, 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 $106,303. 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. During the year ended December 31, 2010, we amortized an additional $21,554 of the note discount to interest expense.

Advances from an Affiliate

This liability relates to amounts contributed by shareholders to pay certain Company expenses and to acquire assets in Belize. The shareholder expects to be reimbursed in cash or stock.

Accrued Compensation to officer – related party

This liability arises from our contract with Randall Newton, our former Chairman and CEO and Andrew Reid, our current CEO pursuant to their employment agreement with the Company, and with Newton Collaboration, LLC, which provides accounting and corporate governance services to us.

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.

Our Asset Retirement Obligation was zero at December 31, 2009. During 2010, we acquired properties in Tennessee (see Note 4). As of December 31, 2010, we have not recorded any Asset Retirement Obligation related to the wells in Tennessee because until we bring the wells on to a level of commercially viable production, we cannot estimate the reserves nor the lives of the wells.

Note 7 – Shareholders’ Equity

On January 31, 2011, we amended our articles of incorporation to increase the number of shares authorized from 500 million to 750 million.

We began 2009 with 460,061,553 shares issued and outstanding. During the year ended December 31, 2009, we issued shares as follows:

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 had 496,605,424 shares issued and outstanding. No shares were issued during the year ended December 31, 2010.

Options and Warrants

Options and warrants outstanding at December 31, 2009 and 2010 are as follows:

	12/31/09			12/31/10
Outstanding at beginning of period		3,600,982			3,248,669
New grants		-			-
Exercises		(74,695	)		-
Expiries		(277,618	)		(561,250	)
Outstanding at end of period		3,248,669			2,687,419

These potentially dilutive securities expire as follows:

Strike Price		Date Granted	Term	Expiry Date	No. of Warrants / Options

$	0.01	06/22/05	7 Yr	06/22/12		124,492
$	0.01	06/22/06	7 Yr	06/22/13		138,435
$	0.01	06/22/07	7 Yr	06/22/14		124,492
$	0.01	03/31/08	7 Yr	06/22/18		2,300,000

Total						2,687,419

Shareholder Contribution of Capital

During 2009, affiliates 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.

During 2010, affiliates paid $1,155 of cash expenses of the Company. We recorded the expenses and with an offsetting credit to Additional Paid In Capital in that amount.

In July, 2010, we signed an agreement with a geological survey firm to produce the seismic study for our Belize project. Among the terms of that agreement was our obligation to pay the firm 15 million shares of common stock. We recorded the obligation in the equity section of our balance sheet as “Stock Payable” and valued the obligation at the closing price on the date of the agreement at $204,000.

On November 10, 2010, a major shareholder guaranteed payment of these shares.

Note 8 – Income Taxes

Deferred income taxes reflect the tax consequences on future years of differences between the tax bases:

	2010			2009
Deferred tax asset		774,420			459,431
Valuation allowance		(774,420	)		(459,431	)
Net future income tax asset		-			-

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 $2,312,000 will begin to expire in 2021.

Note 9 – Supplemental Information on Oil Producing Properties (Unaudited)

Supplemental Reserve Information

Throughout 2010, we had no proved properties. Therefore no supplemental reserve information is provided.

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 proved oil and gas producing properties at December 31, 2010.

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:

	As of December 31,
	2010			2009

Proved properties	$	-		$	-
Unproved properties		152,549			-
Total oil producing properties		152,549			-
Less: accumulated depletion		(125	)		-
Oil producing properties, net	$	152,424		$	-

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 unproved 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.

	Year Ended December 31,
	2009			2009

Sales of oil	$	1,570		$	423

Royalties		1,122
Lease operating expenses		459,820			42,996
Transportation costs		-			455
Production taxes		-			14
Depreciation, depletion and amortization		442			1,520
Accretion of asset retirement obligation		-			898
Results of producing activities	$	(459,814	)	$	(45,460	)

Note 10 – Restatement of Quarters Ended June 30, 2010 and September 30, 2010 (Unaudited)

On March 30, 2011, Treaty’s Board of Directors (“Board”) concluded that the Company’s financial statements contained in its quarterly reports for the period ended June 30, 2010 and September 30, 2010 should no longer be relied upon.

In the previous reports, the Company had recorded its basis in its Belize joint venture with Princess Petroleum Limited as $100,000, which was recorded as having been paid by a principal shareholder. However, the Company has discovered that the principal shareholder sold 20,000,000 shares of his Company stock to certain investors for $100,000. In addition to the sale of this stock, Treaty agreed to repay these investors $100,000 pursuant to a promissory note entered into on the same date. We recorded this note, increased our carrying value of our property in Belize, and recorded additional interest expense.

The following restated balance sheets, income statements and cash flow statements as of and for the three and six months ended June 30, 2010 and September 30, 2010 reflect the adjustments to the account as a result of this oversight.

Unaudited Financial Statements as of June 30, 2010

Treaty Energy Corporation

Restated Balance Sheet

June 30, 2010

(Unaudited)

	June 30, 2010 As Originally Reported (Unaudited)			Note Payable		Accrued Interest			June 30, 2010 As Restated (Unaudited)

ASSETS

Cash and equivalents	$	12,219							$	12,219
Other receivables		85,000								85,000
Total current assets		97,219			-		-			97,219

Oil and gas properties - proved (successful efforts method)		137,485			100,000					237,485
Less: accumulated amortization		-								-
Net oil and gas properties		137,485			100,000		-			237,485

Prepaid expenses and other		6,678								6,678

TOTAL ASSETS		241,382			100,000		-			341,382

LIABILITIES

Accounts payable and accrued liabilities		369,224								369,224
Notes and accrued interest to related parties		370,387								370,387
Notes and accrued interest payable		380,057			100,000		2,082			482,139
Total current liabilities		1,119,668			100,000		2,082			1,221,750

TOTAL LIABILITIES		1,119,668			100,000		2,082			1,221,750

STOCKHOLDERS' DEFICIT

Preferred stock - par value $0.001, 50 million shares authorized, none issued or outstanding at June 30, 2010		-								-
Common stock – par value $0.001, 500 million shares authorized. 496,605,424 shares issued and outstanding at June 30, 2010 and December 31, 2009.		496,605								496,605
Additional paid in capital		517,577								517,577
Accumulated loss - pre exploration stage		(644,829	)							(644,829	)
Accumulated loss - exploration stage		(1,247,639	)				(2,082	)		(1,249,721	)

Total stockholders' deficit		(878,286	)		-		(2,082	)		(880,368	)

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	241,382		$	100,000	$	-		$	341,382

Treaty Energy Corporation

Restated Results of Operations

Six Months Ended June 30, 2010

(Unaudited)

	Six Months Ended June 30, 2010 As Originally Reported (Unaudited)			Additional Interest			Six Months Ended June 30, 2010 As Restated (Unaudited)

REVENUES
Sales of oil	$	-					$	-

Total revenues		-			-			-

EXPENSES
Lease operating expenses		12,225						12,225
Transportation costs		-						-
Production taxes		-						-
Impairment of oil and gas properties		-						-
General and administrative		231,276						231,276
Depreciation, depletion and amortization		-						-
Accretion of asset retirement obligation		-						-
Interest expense		6,413			2,082			8,495

Total expenses		249,914			2,082			251,996

Operating income / (loss)		(249,914	)		(2,082	)		(251,996	)

OTHER INCOME AND EXPENSE ITEMS
Gains / (losses) on dispositions of properties		47,223						47,223

NET LOSS	$	(202,691	)		(2,082	)	$	(204,773	)

Net loss per common shares - basic and diluted	$	-					$	-
Weighted average common shares outstanding - basic and diluted		496,605,424						496,605,424

Treaty Energy Corporation

Restated Statement of Cash Flows

Six Months Ended June 30, 2010

(Unaudited)

	Six Months Ended June 30, 2010 As Originally Reported (Unaudited)			Note Payable			Accrued Interest			Six Months Ended June 30, 2010 As Restated (Unaudited)


Net loss	$	(202,691	)				$	(2,082	)	$	(204,773	)
											-
Adjustments to reconcile net loss to net cash provided by / (used in) operating activities											-
Gain on sales of oil and gas interests		(47,223	)								(47,223	)
Stock based compensation		36,828									36,828
Interest imputed on related-party notes		3,906									3,906
											-
Changes in operating assets and liabilities:											-
Accounts payable and accrued liabilities		9,204									9,204
Officer and director liabilities		117,739									117,739
Interest payable		2,507						2,082			425

Net cash provided by / (used in) operating activities		(79,730	)		-			-			(79,730	)


Acquisitions of oil and gas properties		(115,975	)		(100,000	)					(215,975	)
Development of oil and gas properties		(19,787	)								(19,787	)
Proceeds from sales of oil and gas properties		35,000									35,000

Net cash provided by / (used in) investing activities		(100,762	)		(100,000	)		-			(200,762	)

Expenses paid by related parties-cash		1,155									1,155
Borrowings from related parties		158,556									158,556
Proceeds from notes payable		75,000			100,000						175,000
Principal payments on related-party notes payable		(42,000	)								(42,000	)

Net cash provided by / (used in) financing activities		192,711			100,000			-			292,711

Net increase / (decrease) in cash and cash equivalents		12,219									12,219
Cash and cash equivalents, beginning of period		-
Cash and cash equivalents, end of period	$	12,219		$	-		$	-		$	12,219


Acquisition of oil and gas properties with related party debt		19,500									19,500

Unaudited Financial Statements as of September 30, 2010

Treaty Energy Corporation

Restated Balance Sheet

September 30, 2010

(Unaudited)

	September 30, 2010 As Originally Reported (Unaudited)			Note Payable		Accrued Interest			June 30, 2010 As Restated (Unaudited)
ASSETS

Cash and equivalents	$	684							$	684
Oil and gas accounts receivable		1,295								1,295
Total current assets		1,979			-		-			1,979

Oil and gas properties - proved (successful efforts method)		152,549			100,000					252,549
Less: accumulated amortization		(125	)							(125	)
Net oil and gas properties		152,424			100,000		-			252,424

Other property, plant and equipment, net of accumulated depreciation of $29 and $0 at September 30, 2010 and December 31, 2009, respectively		1,730								1,730

Prepaid expenses and other		26,253								26,253

TOTAL ASSETS		182,386			100,000		-			282,386

LIABILITIES

Accounts payable and accrued liabilities		358,484								358,484
Notes and accrued interest to related parties		347,989								347,989
Notes and accrued interest payable		381,728			100,000		4,603			486,331
Total current liabilities		1,088,201			100,000		4,603			1,192,804

TOTAL LIABILITIES		1,088,201			100,000		4,603			1,192,804

STOCKHOLDERS' DEFICIT

Preferred stock - par value $0.001, 50 million shares authorized, none issued or outstanding at June 30, 2010		-								-
Common stock – par value $0.001, 500 million shares authorized. 496,605,424 shares issued and outstanding at September 30, 2010 and December 31, 2009.		496,605								496,605
Additional paid in capital		524,444								524,444
Common stock payable		204,000								204,000
Accumulated loss - pre exploration stage		(644,829	)							(644,829	)
Accumulated loss - exploration stage		(1,486,035	)		-		(4,603	)		(1,490,638	)

Total stockholders' deficit		(905,815	)		-		(4,603	)		(910,418	)

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	182,386		$	100,000	$	-		$	282,386

Treaty Energy Corporation

Restated Statement of Operations

Nine Months Ended September 30, 2010

(Unaudited)

	Nine Months Ended Sep 30, 2010 As Originally Reported (Unaudited)			Additional Interest			Nine Months Ended Sep 30, 2010 As Restated (Unaudited)

REVENUES
Sales of oil	$	1,570		$	-		$	-

Total revenues		1,570			-			-

EXPENSES
Royalties		275						275
Lease operating expenses		343,031						343,031
Transportation costs		-						-
Production taxes		-						-
Impairment of oil and gas properties		-						-
General and administrative		381,133						381,133
Depreciation, depletion and amortization		154						154
Accretion of asset retirement obligation		-						-
Interest expense		10,037			4,603			14,640

Total expenses		734,630			4,603			739,233

Operating income / (loss)		(733,060	)		(4,603	)		(737,663	)

OTHER INCOME AND EXPENSE ITEMS
Gains / (losses) on dispositions of properties		291,973						291,973

NET LOSS	$	(441,087	)	$	(4,603	)	$	(445,690	)

Net loss per common shares - basic and diluted	$	-					$	-
Weighted average common shares outstanding - basic and diluted		496,605,424						496,605,424

Treaty Energy Corporation

Restated Statement of Cash Flows

Nine Months Ended September 30, 2010

(Unaudited)

	Sep 30, 2010 As Originally Reported (Unaudited)			Note Payable			Accrued Interest			Sep 30, 2010 As Restated (Unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(441,087	)				$	(4,603	)	$	(445,690	)

Adjustments to reconcile net loss to net cash provided by / (used in) operating activities
Depreciation, depletion and amortization		154									154
Gain on sales of oil and gas interests		(291,973	)								(291,973	)
Stock based compensation		245,742									245,742
Interest imputed on related-party notes		5,859									5,859
											-
Changes in operating assets and liabilities:											-
Accounts receivable		(1,295	)								(1,295	)
Accounts payable and accrued liabilities		3,464									3,464
Officer and director liabilities		171,518									171,518
Interest payable		5,878						4,603			10,481
Prepaid expenses		(19,575	)								(19,575	)

Net cash provided by / (used in) operating activities		(321,315	)					-			(321,315	)

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of oil and gas properties		(135,475	)		(100,000	)					(235,475	)
Development of oil and gas properties		(40,101	)								(40,101	)
Purchases of other fixed assets		(1,759	)								(1,759	)
Proceeds from sales of oil and gas properties		445,000									445,000

Net cash provided by / (used in) investing activities		267,665			(100,000	)		-			167,665

CASH FLOWS FROM FINANCING ACTIVITIES
Expenses paid by related parties-cash		129,130									129,130
Borrowings from related parties		(69,796	)								(69,796	)
Proceeds from notes payable		-			100,000						100,000
Principal payments on notes payable		(5,000	)								(5,000	)


Net cash provided by / (used in) financing activities		54,334			100,000			-			154,334

Net increase / (decrease) in cash and cash equivalents		684									684
Cash and cash equivalents, beginning of period		-									-
Cash and cash equivalents, end of period	684			$	-		$	-		$	684

SUPPLEMENTAL CASH FLOW INFORMATION
Acquisition of oil and gas properties with related party debt		19,500									19,500

Note 11 – Related-Party Transactions

As is discussed in Note 5, we partially funded our working capital throughout 2010 and 2009 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 then CEO, Randall Newton, loaned the Company $8,700.

During 2010, we made cash payments to a major shareholder of $101,900 against his outstanding balance owed to him at December 31, 2009 of $125,955.

Also during 2010, a major shareholder engaged in several related-party transactions:

·	Paid expenses on behalf of the Company totaling $22,480.

·	Received cash payments of $123,900.

·	Purchased oil and gas properties on the Company’s behalf totaling $119,500.

Also, during 2010, our then CEO, Randall Newton, contributed $8,641 in cash and paid expenses of the Company totaling $15,192.

Also during 2010, and affiliate Company controlled by Andrew Reid our CEO, loaned the Company $85,455, paid expenses on behalf of the Company of $18,310 and received $25,000 in cash payments.

Outstanding related party debts at December 31, 2010 were as follows:

Major shareholder	$	24,055
Andrew Reid, Chief Executive Officer		79,000
Randall Newton, our previous CEO		237,924
A company controlled by our CEO		138,967
Other		1,700
Total	$	481,647

Note 13 – Subsequent Events

From January 1, 2011 to April 12, 2011, we issued 2,796,609 shares for cash, 66,747,874 for services, and 8,500,000 to acquire an aircraft for use in our Belize project.

The Company has evaluated subsequent events through the date these financial statements were issued.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

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, 2010. 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.

As of December 31, 2010, 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.

As of December 31, 2010, 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, 2010, 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. OTHER INFORMATION

None

PART III

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, 2010, the directors and executive officers and their positions, are as follows:

Name		Position
Andrew Reid		Chairman and Chief Executive Officer
		Corporate Secretary and Director
Dan Olson		Director

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.

Andrew Reid, Chairman and Chief Executive Officer

Andrew V. Reid has served as President and Director of Treaty Energy Corporation since March 2010 and appointed to serve in the additional roles Chairman and CEO of the Company since April 2010.

Andrew Reid has more than 20 years of corporate finance and management experience. In 2006 Mr. Reid started NOLA Commercial Finance Inc., a commercial finance company. During the past 4 years he has focused on helping small regional Oil & Gas companies with debt and equity funding. He has helped fund in excess of $50 million for various types of income producing properties.

In 1998 Mr. Reid started his own investment firm where he focused on the Oil & Gas Industry. In 2004 he sold the business to spend more time with family, but continued to do consulting work.

Mr. Reid grew up in the Houston, Texas and went on to attend St. Edwards University and the University of Texas in Austin. After college, he joined the GMS Group LLC in Houston, a small boutique investment firm his father helped found. There Mr. Reid specialized in municipal and corporate debt finance, mergers, and restructurings.

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.

Paul Fourt, Jr., Director

Paul L. Fourt, Jr. has served as a Director of Treaty Energy Corporation in May 2010.

Mr. Fourt is currently Managing Partner of the Law Offices of Paul L. Fourt, Jr. of Brownsville, Texas, a general practice law firm with a main focus on civil and criminal litigation. From 1999 to 2000 M. Fourt served as an Assistant District Attorney in the Dallas County District Attorney Office.

In prior years, Mr. Fourt was affiliated with a number of Texas law firms, and handled a broad spectrum of legal cases, giving him the broad legal credentials that have prepared him for his current responsibilities.

Mr. Fourt has a J.D. Degree from Oklahoma City University School of Law and a B.A. Degree in History from the University of Texas at Austin

Board of Directors and Committees

Our Board of Directors presently consists of three members: Andrew V. Reid, Dan Olson and Paul Fort, Jr. 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. 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.

SUMMARY COMPENSATION TABLE
Name and Principal Position	Year Ended 12/31	Base Salary		Option Awards		Dollar Value of Total Compensation for the Covered Fiscal Year

Andrew V. Reid	2010	$	95,000	$	-	$	95,000
Chairman and CEO	2009		-		-		-

Dan Olson	2010		-		-		-
Director	2009		19,650		-		19,650

Paul Fourt, Jr.	2010		-		-		-
Director	2009		-		-		-

John Barksdale	2010		20,000		-		20,000
President	2009		-		-		-

Randall Newton	2010		97,499		-		97,499
Former Chairman and CEO	2009		167,455		-		167,455

Joe Grace	2010		-		-		-
Former President and Director	2009		209,600		-		209,600

·	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

Andrew V. Reid and John Barksdale currently have compensation agreements with the Company.

Mr. Reid’s agreement provides for cash payment of $10,000 per month.

Mr. Barksdale’s agreement provides for cash payment of $5,000 per month.

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 has outstanding equity awards as December 31, 2010.

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, 2010, 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 2010 and 2009.

DIRECTOR COMPENSATION TABLE
Name and Principal Position	Year Ended 12/31	Fees Earned or Paid in Cash		Stock Awards		Option Awards		Non-equity Deferred Comp. Earnings		Non-Qualified Deferred Comp. Earnings		All Other		Total

Andrew V. Reid	2010	$	95,000	$	-	$	-	$	-	$	-	$	-	$	95,000
Chairman	2009		-		-		-		-		-		-		-

Dan Olson	2010		-		-		-		-		-		-		-
Director	2009		-		19,650		-		-		-		-		19,650

Paul Fourt, Jr.	2010		-		-		-		-		-		-		-
Director	2009		-		-		-		-		-		-		-

Randall Newton	2010		-		-		-		-		-		-		-
Former Chairman	2009		-		116,499		-		-		-		-		116,499

Joe Grace	2010		-		-		-		-		-		-		-
Former Director	2009		-		209,600		-		-		-		-		209,600

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.

Name of Beneficial Owner	Address	Amount and Nature of Beneficial Ownership		% of Class

Ron Blackburn	201 St. Charles Ave., Suite 2558		67,353,946		13.6	%
	New Orleans, LA 70170

Richard Daniel Bass, Jr.	201 St. Charles Ave., Suite 2558		32,500,000		6.5	%
	New Orleans, LA 70170

Directors and officers as a group (4 persons)1	201 St. Charles Ave., Suite 2558		-		0.0	%
	New Orleans, LA 70170

(1)	Applicable percentage owned is based on 496,605,424 shares outstanding at December 31, 2010.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Certain Relationships and Related Transactions

As is discussed in Note 7 to the financial statements, during 2009 Ron Blackburn paid expenses totaling $61,822, contributed $104,000 in cash and paid expenses totaling $162,695 in personal holdings of common stock. During 2010, Mr. Blackburn paid $22,480 of expenses on the Company’s behalf, purchased oil and gas properties on our behalf totaling $119,500, and was paid $123,900 in cash. At December 31, 2010, Mr. Blackburn owns 13.6% of the outstanding stock of the Company.

During 2010, an affiliate company controlled by our Chief Executive Officer, Andrew Reid, loaned the Company $85,455, paid $18,310 of expenses on our behalf and was repaid $25,000.

Director Independence

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.

We have however, adopted our own rules governing director independence. That is, a director is deemed not independent if

·	The director owns more than 5% of the outstanding common stock of the Company.

·	The director is an officer of the Company

Our directors and their independence at December 31, 2010 is as follows:

Andrew V. Reid, Chairman – not independent

Paul Fourt, Jr. – Director –independent

Dan Olson – Director - independent

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

We paid M&K, CPAS, PLLC audit and review fees of $28,400 for 2009 and $45,517 for 2010.

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. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, SIGNATURES

Exhibit No.		Description of Exhibit

3.1		Articles of Incorporation, as filed August 1, 1997 (included as Exhibit 3.1 to the Form 10-SB12G filed November 10, 1999, and incorporated herein by reference).

3.2		Bylaws (included as Exhibit 3.2 to the Form 10-SB12G filed November 10, 1999, and incorporated herein by reference).

3.3		Articles of Amendment to the Articles of Incorporation, as filed August 23, 1997 (included as Exhibit 3.3 to the Form 10-SB12G filed November 10, 1999, and incorporated herein by reference).

3.4		Articles of Amendment to the Articles of Incorporation, as filed November 20, 1998 (included as Exhibit 3.4 to the Form 10-SB12G filed November 10, 1999, and incorporated herein by reference).

3.5		Articles of Amendment to the Articles of Incorporation, as filed May 16, 2003 (included as Exhibit 3.5 to the Form 10-SB12G filed November 10, 1999, and incorporated herein by reference).

4.1		2003 Stock Benefit Plan, dated July, 1, 2003 (included as Exhibit 4.1 to the Form S-8 filed July 23, 2003, and incorporated herein by reference).

4.2		Form of Class A Warrant (included as Exhibit 4 to the Form 8-K filed March 15, 2005, and incorporated herein by reference).

4.3		Form of Class B Warrant (included as Exhibit 4 to the Form 8-K filed March 15, 2005, and incorporated herein by reference).

4.4		Form of Class C Warrant (included as Exhibit 4 to the Form 8-K filed March 15, 2005, and incorporated herein by reference).

4.5		Subscription Agreement between the Company and various subscribers (included as Exhibit 10.1 to the Form SB-2/A filed September 14, 2005, and incorporated herein by reference).

4.6		Subscription Agreement between the Company and various subscribers (included as Exhibit 4 to the Form 8-K filed March 15, 2005, and incorporated herein by reference).

14.1		Corporate Code of Ethics (included as Exhibit 14 to From 10-KSB filed March 16, 2004, and incorporated herein by reference).

2.1		Subsidiaries of the registrant (filed herewith).

31.1		Certification of President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

32.1		Certification of Officers pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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, 2011	By: /s/ Andrew V. Reid
	Andrew V. Reid
	Chairman and Chief Executive Officer

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