I read the whole complaint yesterday.......
There is no way for me to know anything....You need names on where the shares went. I would have to have the books to really see what's going on. What's really puzzling is how would the accounts sign off on it if it's a share ploy.
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
The following is a list of unregistered sales of securities for the year ended December 31, 2012. For the accounting treatment of these issuances, see Note 7 to the financial statements.
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On June 7, 2012, the Company issued 177,143 shares of common stock to a related party, to relieve $5,000 of debt. The fair value of the shares was $6,377 resulting in a loss of $1,377.
●
On August 3, 2012, the Company issued 15,872,936 shares of common stock valued at $427,500 for cash payments from unrelated investors.
●
Also on August 3, 2012, the Company issued 4,592,986 shares of common stock valued at $229,649, to a related party controlled by our Chairman, Andrew Reid, to relieve debt of $126,275 to that company, resulting in a loss of $103,374.
●
Also on August 3, 2012, the Company issued 1,000,000 shares of common stock valued at $50,000, for services rendered to the Company by consultants.
●
Also on August 3, 2012, the Company issued 557,143 shares of common stock valued at $27,857 for the purchase of equipment. This amount exceeded the invoice amount by $11,357, which was therefore expensed.
●
Also on August 3, 2012, the Company issued 1,962,490 shares of common stock valued at $98,125, to pay an outstanding balance to one of our legal consultants.
●
On August 8, 2012, the Company issued 22,185,893 shares of common stock valued at $1,082,672 to a principal in a related company controlled by our Chairman and Chief Executive Officer, Andrew Reid as recognition for his efforts in providing shares for fund raising on behalf of the Company and for unpaid and unreimbursed fees and expenses. The value of the shares were expensed.
●
On August 9, 2012, the Company issued 7,616,533 shares of common stock valued at 373,210 to our Chairman and Chief Executive Officer, Andrew Reid as recognition for his efforts in providing shares for fund raising on behalf of the Company and for unpaid and unreimbursed fees and expenses. The value of the shares were expensed.
●
On August 20, 2012, the Company issued 3,943,750 shares of common stock valued at $104,250 for cash payments from unrelated investors.
●
Also on August 20, 2012, the Company issued 28,506,812 shares of common stock valued at $1,331,268, to a related party controlled by our Chairman, Andrew Reid, to relieve debt of $578,400 to that company, resulting in a loss of $752,868.
●
Also on August 20, 2012, the Company issued 8,347,188 shares of common stock valued at $389,814, for services rendered to the Company by consultants.
●
On August 27, 2012, the Company issued 7,500,000 shares of common stock valued at $345,000, to the Company’s new Chief Financial Officer, George Warren, in recognition of his efforts in raising capital for the company. The value of the shares were expensed.
●
On August 29, 2012, the Company issued 18,662,011 shares of common stock valued at $839,791, to consultants and others who had provided services to the company.
●
On September 5, 2012, the Company issued 600,000 shares of common stock, valued at $60,000 for the conversion of preferred stock. The conversion was consistent with the original issuance agreement, therefore no gain or loss was recognized.
●
On September 6, 2012, the Company issued 20,180,000 shares of common stock valued at $864,200, to consultants and others who had provided services to the company.
●
On September 17, 2012, the Company issued 5,000,000 shares of common stock valued at $180,000, to consultants and others who had provided services to the company.
●
On October 4, 2012, the Company issued 7,380,952 shares of common stock valued at $300,461, to consultants and others who had provided services to the company.
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On October 9, 2012, the Company issued 30,000,000 shares of common stock valued at $1,200,000, to complete the purchase of the 3K Oil Trust.
●
Also on October 9, 2012, the Company issued 5,000,000 shares of common stock valued at $150,000, to a consultant who had provided services to the company.
●
On October 16, 2012, the Company issued 1,500,000 shares of common stock valued at $66,500, to a consultant who had provided services to the company.
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On November 26, 2012, the Company issued 5,000,000 shares of common stock valued at $150,000, to a consultant who had provided services to the company.
●
On November 28, 2012, the Company issued 714,286 shares of common stock valued at $20,000 for cash payments from unrelated investors.
●
On December 20, 2012, the Company issued 2,500,000 shares of common stock valued at $47,500, to a consultant who had provided services to the company.
As noted in the 10-K filed for the year ended December 31, 2012, we entered into an agreement with an investor to sell a 5% permanent royalty and a 15% temporary royalty to be paid until production reaches 200 barrels per day for $600,000. The interests for both the permanent and temporary royalties relate to all current and future Texas leases. Once total Texas production exceeds 200 barrels per day, the temporary 15% royalties will revert to Treaty Energy Corporation.
In recording the temporary portion of the royalties sold, an advance on a production payment liability was established. Since the amount of proceeds to be paid out in the future is not readily determinable and the Company is not responsible for any shortfall in payment related to future production, the temporary 15% is treated as a “Carved-Out Production Payment Payable in Product” consistent with the guidance in ASC 932-10. Moreover, since the payout amounts are uncertain, no allocation of the proceeds between the permanent 5% and the temporary 15% Overriding Royalty was made, and therefore, no gain or loss was recorded on the transaction.
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Consistent with the aforementioned guidance, the cash received related to the 15% carved-out production interest is treated as deferred revenue and amortized with production and payment to the holder. The proportional amount of carrying value of oil and gas assets will be amortized with production to match the costs to the production periods.
Amortization was based on the independent reserve report and is subject to future changes in estimates.
On April 19, 2013, the Company sold the Great 8 leases, effectively eliminating the carve-out balance. As such, no amortization was recognized for the three months ended June 30, 2013. For the six months ended June 30, 2013 and 2012, amortization of the carve out production was $11,132 and $2,197, respectively.
For the same reason, the deferred revenue was eliminated with the sale of the Great 8 leases. No deferred revenue was recorded for the three months ended June 30, 2013. For the six months ended June 30, 2013 and 2012, recognition of the deferred revenue was $79,899 and $30,805, respectively.
Sale of Oil & Gas Properties
During the quarter ended March 31, 2013, the Company returned the property to the lender and was released from further obligations. The carrying value on the Converse lease was zero and the debt relief and ARO were $258,566 and $166,882 resulting in a gain of $425,448.
During the first quarter of 2013 the Company sold a 5% net revenue interest within the San Juan #3 well located within the Company’s Belize lease for $45,000. The well is currently being drilled and is unproved at the time of this filing. The agreement entails that the Company return the $45,000 to the investor within 60 days if the well is considered to be a dry hole. Based on the uncertainty of the well at this time the $45,000 was accrued within liabilities as of June 30, 2013...
During the first quarter of 2013 the Company transferred the Willingham lease and equipment to the former lender on the property. The carrying value at the time of the disposition for the related lease and well equipment was $54,741 and the carrying value of the related asset retirement obligation was $1,700. The Company recorded a loss of $53,041 on this disposition.
On April 19, 2013, the Company sold the Great 8 leases for a total of $550,000. There have been subsequent amendments allowing full payment to be deferred until November 13, 2013. However, the history of slow or minor payments resulted in our recognizing a bad debt loss against the note of $455,777. After adjusting for the Carve-out production, various impairments, deferred revenues, asset retirement obligations and the effect of the bad debt loss, the Company is recognizing a net gain of $130,661. Should further payments be made on the note they will be recognized as a gain.
NOTE 6 – PROPERTY, PLANT AND EQUIPMENT
Other property, plant and equipment consist principally of drilling rigs, and office furniture and equipment. Historical cost and accumulated depreciation are as follows:
06/30/13
12/31/12
Drilling rigs and related equipment
$ 841,647 $ 835,146
Office equipment
5,165 5,165
Furniture and fixtures
1,049 1,049
Vehicles
211,853 188,521
Equipment
24,598 24,598
Total property, plant and equipment - at cost
1,084,312 1,054,479
Less: accumulated depreciation
(323,220 ) (218,170 )
Net property, plant and equipment - other
$ 761,092 $ 836,309
Assets other than drilling equipment and vehicles generally have estimated useful lives of three years. Estimated useful life of drilling equipment and vehicles is five years. Depreciation for the six months ended June 30, 2013 and 2012 was $106,757 and $64,806, respectively.
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NOTE 7 – NOTES PAYABLE
As of June 30, 2013 and December 31, 2012 the Company had the following debt principal amounts outstanding:
Note
6/30/2013
12/31/2012
Great 8 Lease note (original)
$ - $ 211,494
11/14/11 Promissory Note
465,579 120,239
1/30/12 Promissory Note
150,000 150,000
8/12/12 Promissory Note
744,577 746,071
Converse Lease note
- 258,368
11/28/12 Promissory Note
110,000 110,000
12/11/12 Promissory Note
- 37,120
Great 8 Lease note (new lender)
300,000 -
Loan on Belize property
30,245 14,435
Equipment Loan
13,001 13,001
Belize 5% NRI
45,000 -
Accrued Interest/Charges
153,565 139,867
Total Debt Outstanding
2,011,967 1,800,595
Debt Discount
(77,411 ) (111,816 )
Net Debt Outstanding
$ 1,934,556 $ 1,688,779
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See footnote 12 for information on notes payable to related parties.
None of our debts outstanding are contractually convertible. All conversions noted below were mutually agreed to between the lender and the Company which resulted in extinguishment accounting with gains or losses recorded based on the differences between the value of the shares issued compared to the debts relieved.
Promissory Note Issued for the Acquisition of the Great 8 lease (principal of $-0- and $211,494 as of June 30, 2013 and December 31, 2012, respectively, and accrued interest of $-0- and $6,461 as of June 30, 2013 and December 31, 2012, respectively)
On May 31, 2011, we issued a promissory note in the amount of $692,539 for the Great 8 leases in Texas, the payment terms of which are: monthly payments including interest and principal with the final payment due on June 1, 2012. This note accrues interest at 5%. During the quarter ended March 31, 2013, the Company paid off the note and accrued interest in full through borrowing from other lenders who the company is now indebted to for $275,000. The difference was charged to interest expense. As an additional expense related to the original default on the former note payable, the Company transferred the Willingham lease and equipment to the former lender. The carrying value at the time of the disposition for the related lease and well equipment was $54,741, and the carrying value of the related asset retirement obligation was $1,700. The Company recorded a loss of $53,041 on this disposition.
Promissory Note Issued for Cash Deposit (principal of $ 465,578 and $120,239 as of June 30, 2013 and December 31, 2012, respectively, and accrued interest of $ 22,058068 and $59,057 as of June 30, 2013 and December 31, 2012, respectively
On November 14, 2011, we issued a promissory note in the amount of $150,000 in return for a cash advance. Stated interest on the loan is at 12% with quarterly payments starting June 30, 2012. On February 26, 2013, an additional loan advance of $400,000 was received. During the quarter ended June 30, 2013, no principal or interest payments were made.
During the first quarter, we converted some of this debt through issuances of stock. The conversion of 10,593,313 shares for relief of $62,500 of principal and interest resulted in a loss of $76,065.
Promissory Note Issued for Cash Deposit (principal of $ 150,000 and $150,000 as of June 30, 2013 and December 31, 2012, respectively, and accrued interest of $50,000 and $77,500 as of June 30, 2013 and December 31, 2012, respectively)
On January 30, 2012, we issued a promissory note in the amount of $100,000 in return for a cash advance. Payments are interest only at 5% per month for one year at which time the principal amount is due and payable. This note is collateralized with 10,000,000 common shares of the Company. In the event the Company defaults on the note these shares would be owed to the lender. The agreement requires that the Company provide additional collateral if the fair value of the shares decreases below $200,000 while the note is outstanding. As of June 30, 2013, the collateral exceeded $200,000. At December 31, 2012, in accordance with the terms of the contract we added $50,000 to the note as a penalty for delinquent payments. During the quarter ended June 30, 2013, no payments of principal or interest were made.
During the first quarter, we converted some of this debt through issuances of stock. The conversion of 12,598,360 shares valued at $144,228 for relief of $72,500 of principal and interest, resulted in a loss of $71,278.
Promissory Note Issued for Cash Deposit (principal of $744,577 and $746,071 as of June 30, 2013 and December 31, 2012, respectively, and a discount of $77,411 and $111,816 as of June 30, 2013 and December 31, 2012, respectively)
On August 12, 2012, we issued a promissory note in the amount of $750,000 in return for a cash advance. Payments are structured to be paid at a rate of 7% of royalties earned on three of the East Texas leases, plus one-half (1/2) of the net income derived from those wells until the note is paid in full. The note specifies that repayment must be completed within 24 months.
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There is no stated interest rate on the note; however, the Company has assigned a 7% royalty interest to the lender that will continue after the note is paid in full. The Company has recognized the royalty interest as a discount on the note for $137,620 and is amortizing it over a 24 month period. Amortization of $ 34,900 and $23,983 was recognized for the six months ended June 30, 2013 and June 30, 2012, respectively. During the six months ended June 30, 2013, $1,494 of principal was repaid on this loan.
Promissory Note Issued for Purchase of property (principal of $-0- and $258,368 as of June 30, 2013 and December 31, 2012, respectively, and accrued interest of $-0- and $198 as of June 30, 2013and December 31, 2012, respectively)
On September 21, 2012, the Company purchased the Converse lease and issued a promissory note in the amount of $328,012. The note requires two (2) $20,000 payments in October, 2012, and $20,000 per month thereafter. Interest accrues at a rate of 7%. As of December 31, 2012, the Company was in default by $2,500 on the December payment. During the quarter ended March 31, 2013, the Company returned the property to the lender and was released from further obligations. The carrying value on the Converse lease was zero and the debt relief and ARO were $258,566 and $166,882 resulting in a gain of $425,448.
Promissory Note Issued for Cash Deposit (principal of $ 110,000 and $110,000 as of June 30, 2013 and December 31, 2012, respectively, and accrued interest of $6,618 and $1,009 as of June 30, 2013 and December 31, 2012, respectively)
On November 28, 2012 and December 31, 2012, we received $40,000 and $70,000 from the same lender. Interest accrues at the rate of 12% per annum. The terms of this note required payment by February 28, 2013, which the Company did not make. The note is considered to be in default.
Promissory Note Issued for Cash Deposit (principal of $ -0- and $37,120 as of June 30, 2013 and December 31, 2012, respectively, and accrued interest of $-0- and $-0- as of June 30, 2013 and2013and December 31, 2012, respectively)
On December 11, 2012, we issued a note for a cash advance of $20,000. The note bears an interest rate of 18%. Per the terms, payment was due on December 21, 2012, after which, in addition to interest on the outstanding amount, the Company is obligated to issue 100,000 shares per day until it is paid in full. As of December 31, 2012, we have accrued $100 in interest and $17,110 for the value of the stock that was due on that date. The stock was priced at the closing price of the stock on each day of accrual. During January, 2013, a cash payment of $12,500 was made on this note, and on February 19, 2013, $65,100 was converted to 4,650,000 shares valued at $72,700 resulted in a $7,600 loss. An additional gain of $45,914 was recognized for amounts forgiven by the holder with the extinguishment, resulting in a net gain with settlement of $38,314.
Promissory Note Issued for Cash Deposit (principal of $300,000 and $ -0- as of June 30, 2013 and December 31, 2012, respectively, and accrued interest of $12,362 and $-0- as of June 30, 2013 and December 31, 2012, respectively)
On March 28, 2013, we issued a note for a cash advance of $300,000. $275,000 of the related proceeds from this note was used to pay off the aforementioned note in default relating to the Great 8 leases. The remaining $25,000 was received in cash. The note is collateralized by the note receivable we have from the sale of the Great 8 leases. The balance of this note is due on 7/1/13 or when the leases are sold, whichever comes sooner. As noted above, the leases have been sold; however, payment from the buyer has not been received as of June 30, 2013.
Payable related to 5% NRI in Belize Well ($45,000 and $0 as of June 30, 2013 and December 31, 2012)
During the first quarter of 2013 the Company sold a 5% net revenue interest within the San Juan #3 well located within the Company’s Belize lease for $45,000. The well is currently being drilled and is unproved at the time of this filing. The agreement entails that the Company return the $45,000 to the investor within 60 days if the well is considered to be a dry hole. Based on the uncertainty of the well at this time the $45,000 was accrued within debt as of June 30, 2013.
15
Equipment Loan ($13,001 as of June 30, 2013 and December 31, 2012)
On May 1, 2012, we purchased wire-line truck for $73,101, and issued a promissory note for $67,101. The purchase was treated as a rent to own agreement and in lieu of interest, rental payments of $9,138 were paid in 2012. As of December 31, 2012 and June 30, 2013 this note was in default.
Borrowing from Princess Entertainment for Belize interest ($30,245 and $14,435 as of June 30, 2013 and December 31, 2012)
During 2012 and 2013, Princess Entertainment, our concession partner in Belize has advanced us operating funds. There is no stated interest rate or terms on these advances. Imputed interest for these advances was considered to be immaterial. The balance is held as a current liability and is considered to be due upon demand.
Promissory Note Issued for Cash Deposit (principal of $10,000 and $ -0- as of June 30, 2013 and December 31, 2012, respectively, and accrued interest of $2,500 and $-0- as of June 30, 2013 and December 31, 2012, respectively)
On April 8, 2013, we issued a note for a cash advance of $10,000. The terms called for interest of $2,500 and 2,000,000 shares of the Company’s common stock. At June 30, 2013, we accrued the $2,500 of stated interest and $17,000 of interest attributable to the valuation of the stock. Terms of the note required payment of principal, interest and issuance of stock within 15 days. We are currently in default on this note.
NOTE 8 – SHAREHOLDERS’ EQUITY
We are authorized to issue 1.25 Billion shares of our common stock. At December 31, 2012, we had 945,249,192 shares issued and outstanding. During the six months ended June 30, 2013, we issued 305,799,844 shares.
During the quarter ended March 31, 2013, the Company issued 108,034,016 shares to relieve stock payable valued at $1,112,243. No gain or loss was recorded for these issuances as the number of shares issued was consistent with the amounts owed.
During the quarter ended March 31, 2013, the Company issued 25,341,673 shares to extinguish notes and accrued interest payable of $187,600. The shares were valued at the closing stock price on the conversion agreement date equal to $330,493. A loss of $142,893 was recorded due to the value of the shares exceeding the amount converted.
During the quarter ended March 31, 2013, the Company issued 35,024,370 shares to extinguish related party notes and accrued interest payable of $374,500. The shares were valued at the closing stock price on the conversion agreement date equal to $464,571. Any gains on individual conversions were recorded to additional paid in capital rather than gain based on the related party relationship. As a result of the conversions, an additional $66,129 beyond the shares value was recorded to additional paid in capital and a loss of $156,200 was recorded.
During the quarter ended March 31, 2013, the Company issued 400,000 shares to extinguish accounts payable of $3,000. The shares were valued at the closing stock price on the conversion agreement date equal to $5,400. A loss of $2,400 was recorded due to the value of the shares exceeding the amount converted.
During the quarter ended March 31, 2013, the Company issued 113,310,345 shares for services. The shares were expensed for the value at the closing stock price on the grant date equal to $2,329,404.
During the quarter ended March 31, 2013, an additional 4% ORRI in a lease already held by the Company was repurchased. The 1,000,000 shares issued with the acquisition were valued at $38,000 based on the closing price of the stock on the acquisition date, but were immediately impaired and expensed based on the December 31, 2012 reserve report.
During the quarter ended June 30, 2013, the Company issued 12,949,440 shares to relieve stock payable valued at $112,688. No gain or loss was recorded for these issuances as the number of shares issued was consistent with the amounts owed, with 425,000 shares for services.
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During the quarter ended June 30, 2013, the Company issued 2,300,000 shares for services. The shares were expensed for the value at the closing stock price on the grant date equal to $25,400.
During the quarter ended June 30, 2013, the Company issued 90,000 shares that were previously granted and accounted for but had not been issued. Since the shares had been properly expensed and recorded to additional paid in capital on the grant the shares were recorded at par value with the issuance.
Stock Payable
On March 6, 2013 the Company and a lender agreed to extinguish $12,500 of amounts owed in accrued interest to 2,500,000 shares. The value of the shares owed according to the closing stock price on the agreement date was $25,000. The loss on debt conversion was $12,500.
During the quarter ended March 31, 2013, the Company received cash payments of $314,654 for 37,016,178 shares owed.
During the quarter ended June 30, 2013, the Company received cash payments of $607,201 for 118,105,173 shares owed.
During the quarter ended June 30, 2013, the Company became in default on a note payable which requires the Company to issue 2,000,000 common shares as a result of the default. The shares were valued upon default based on the closing price of the stock and recorded to common stock payable for $17,000.
During the quarter ended June 30, 2013, the Company agreed to issue 1,774,648 common shares to relieve an accrued payable to a consultant of $13,000. The shares value on the agreement date based on the closing price of the stock was $29,094. The difference between the value of the shares and amount of debt relief was recorded as a loss for $16,094.
During the quarter ended June 30, 2013, the Company agreed to issue 594,718 common shares for equipment. The value of the shares on the agreement date based on the closing price of the stock was $23,788.
At June 30, 2013, the Company had obligations to issue 156,591,277 common shares recorded at $1,066,382. As the Company had already issued shares in excess of their authorization, the entire balance was reclassed to Derivative Liabilities (See Note 10).
NOTE 9 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at June 30, 2013 and December 31, 2012 consist of the following:
06/30/13
12/31/12
Trade accounts payable
$ 970,787 $ 846,784
Royalties payable
48,546 33,120
Liabilities associated with our reverse merger in December, 2008 200,380 200,380
Due to AFEC 120,000 120,000
All-Secure payable
17,473 17,473
Total
$ 1,357,186 $ 1,217,757
As of June 30, 2013, the Company owed four related parties a combined liability of $185,714 for cash advances and for accrued consulting fees.
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NOTE 10 – DERIVATIVE LIABILITY
On April 15, 2013, the Company issued 1,049,036 shares that exceeded our authorized amount of shares. To account for this error, we have recorded a Derivative Liability of $26,750 related to these shares. Fair values for exchange traded securities and derivatives are based on quoted market prices. Where market prices are not readily available, fair values are determined using market based pricing models incorporating readily observable market data and requiring judgment and estimates. Upon recognition of the derivative liability, the Company reclassed the value initially recorded to additional paid in capital with the issuance for $10,490 related to the 1,049,036 shares to derivative liabilities. In adjusting the related derivative liability to the market price at June 30, 2013, the Company realized a loss of $16,260.
At June 30, 2013, the Company a stock payable obligation recorded of $1,066,019. Until the increase of authorized shares is completed during the fourth quarter of 2013, we have re-classed the stock payable to Derivative Liability as there are not any authorized shares to settle this obligation. In conformance with Generally Accepted Accounting Principles we have recorded a liability of $3,993,078 and recognized a loss of $2,926,696. Where market prices are not readily available, fair values are determined using market based pricing models incorporating readily observable market data and requiring judgment and estimates.
At June 30, 2013, the Company had a total Derivative Liability of $4,019,828 and has recognized a Loss on Derivatives of $2,942,956 during the three and six months then ended.
NOTE 11 – ASSET RETIREMENT OBLIGATION
A reconciliation of the aggregate carrying amount of asset retirement obligations is as follows:
The Company recorded an accretion expense of $948 and $11,061 for the three months ended June 30, 2013 and June 30, 2012, respectively and $2,381 and $12,237 for the six months ended June 30, 2013 and June 30, 2012, respectively.
As noted in the 10-K filed for the year ended December 31, 2012, we entered into an agreement with an investor to sell a 5% permanent royalty and a 15% temporary royalty to be paid until production reaches 200 barrels per day for $600,000. The interests for both the permanent and temporary royalties relate to all current and future Texas leases. Once total Texas production exceeds 200 barrels per day, the temporary 15% royalties will revert to Treaty Energy Corporation.
In recording the temporary portion of the royalties sold, an advance on a production payment liability was established. Since the amount of proceeds to be paid out in the future is not readily determinable and the Company is not responsible for any shortfall in payment related to future production, the temporary 15% is treated as a “Carved-Out Production Payment Payable in Product” consistent with the guidance in ASC 932-10. Moreover, since the payout amounts are uncertain, no allocation of the proceeds between the permanent 5% and the temporary 15% Overriding Royalty was made, and therefore, no gain or loss was recorded on the transaction.
11
Consistent with the aforementioned guidance, the cash received related to the 15% carved-out production interest is treated as deferred revenue and amortized with production and payment to the holder. The proportional amount of carrying value of oil and gas assets will be amortized with production to match the costs to the production periods.
Amortization was based on the independent reserve report and is subject to future changes in estimates.
On April 19, 2013, the Company sold the Great 8 leases, effectively eliminating the carve-out balance. As such, no amortization was recognized for the three months ended June 30, 2013. For the six months ended June 30, 2013 and 2012, amortization of the carve out production was $11,132 and $2,197, respectively.
For the same reason, the deferred revenue was eliminated with the sale of the Great 8 leases. No deferred revenue was recorded for the three months ended June 30, 2013. For the six months ended June 30, 2013 and 2012, recognition of the deferred revenue was $79,899 and $30,805, respectively.
Sale of Oil & Gas Properties
During the quarter ended March 31, 2013, the Company returned the property to the lender and was released from further obligations. The carrying value on the Converse lease was zero and the debt relief and ARO were $258,566 and $166,882 resulting in a gain of $425,448.
During the first quarter of 2013 the Company sold a 5% net revenue interest within the San Juan #3 well located within the Company’s Belize lease for $45,000. The well is currently being drilled and is unproved at the time of this filing. The agreement entails that the Company return the $45,000 to the investor within 60 days if the well is considered to be a dry hole. Based on the uncertainty of the well at this time the $45,000 was accrued within liabilities as of June 30, 2013...
During the first quarter of 2013 the Company transferred the Willingham lease and equipment to the former lender on the property. The carrying value at the time of the disposition for the related lease and well equipment was $54,741 and the carrying value of the related asset retirement obligation was $1,700. The Company recorded a loss of $53,041 on this disposition.
On April 19, 2013, the Company sold the Great 8 leases for a total of $550,000. There have been subsequent amendments allowing full payment to be deferred until November 13, 2013. However, the history of slow or minor payments resulted in our recognizing a bad debt loss against the note of $455,777. After adjusting for the Carve-out production, various impairments, deferred revenues, asset retirement obligations and the effect of the bad debt loss, the Company is recognizing a net gain of $130,661. Should further payments be made on the note they will be recognized as a gain.
NOTE 6 – PROPERTY, PLANT AND EQUIPMENT
Other property, plant and equipment consist principally of drilling rigs, and office furniture and equipment. Historical cost and accumulated depreciation are as follows:
06/30/13
12/31/12
Drilling rigs and related equipment
$ 841,647 $ 835,146
Office equipment
5,165 5,165
Furniture and fixtures
1,049 1,049
Vehicles
211,853 188,521
Equipment
24,598 24,598
Total property, plant and equipment - at cost
1,084,312 1,054,479
Less: accumulated depreciation
(323,220 ) (218,170 )
Net property, plant and equipment - other
$ 761,092 $ 836,309
Assets other than drilling equipment and vehicles generally have estimated useful lives of three years. Estimated useful life of drilling equipment and vehicles is five years. Depreciation for the six months ended June 30, 2013 and 2012 was $106,757 and $64,806, respectively.
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NOTE 7 – NOTES PAYABLE
As of June 30, 2013 and December 31, 2012 the Company had the following debt principal amounts outstanding:
Note
6/30/2013
12/31/2012
Great 8 Lease note (original)
$ - $ 211,494
11/14/11 Promissory Note
465,579 120,239
1/30/12 Promissory Note
150,000 150,000
8/12/12 Promissory Note
744,577 746,071
Converse Lease note
- 258,368
11/28/12 Promissory Note
110,000 110,000
12/11/12 Promissory Note
- 37,120
Great 8 Lease note (new lender)
300,000 -
Loan on Belize property
30,245 14,435
Equipment Loan
13,001 13,001
Belize 5% NRI
45,000 -
Accrued Interest/Charges
153,565 139,867
Total Debt Outstanding
2,011,967 1,800,595
Debt Discount
(77,411 ) (111,816 )
Net Debt Outstanding
$ 1,934,556 $ 1,688,779
13
See footnote 12 for information on notes payable to related parties.
None of our debts outstanding are contractually convertible. All conversions noted below were mutually agreed to between the lender and the Company which resulted in extinguishment accounting with gains or losses recorded based on the differences between the value of the shares issued compared to the debts relieved.
Promissory Note Issued for the Acquisition of the Great 8 lease (principal of $-0- and $211,494 as of June 30, 2013 and December 31, 2012, respectively, and accrued interest of $-0- and $6,461 as of June 30, 2013 and December 31, 2012, respectively)
On May 31, 2011, we issued a promissory note in the amount of $692,539 for the Great 8 leases in Texas, the payment terms of which are: monthly payments including interest and principal with the final payment due on June 1, 2012. This note accrues interest at 5%. During the quarter ended March 31, 2013, the Company paid off the note and accrued interest in full through borrowing from other lenders who the company is now indebted to for $275,000. The difference was charged to interest expense. As an additional expense related to the original default on the former note payable, the Company transferred the Willingham lease and equipment to the former lender. The carrying value at the time of the disposition for the related lease and well equipment was $54,741, and the carrying value of the related asset retirement obligation was $1,700. The Company recorded a loss of $53,041 on this disposition.
Promissory Note Issued for Cash Deposit (principal of $ 465,578 and $120,239 as of June 30, 2013 and December 31, 2012, respectively, and accrued interest of $ 22,058068 and $59,057 as of June 30, 2013 and December 31, 2012, respectively
On November 14, 2011, we issued a promissory note in the amount of $150,000 in return for a cash advance. Stated interest on the loan is at 12% with quarterly payments starting June 30, 2012. On February 26, 2013, an additional loan advance of $400,000 was received. During the quarter ended June 30, 2013, no principal or interest payments were made.
During the first quarter, we converted some of this debt through issuances of stock. The conversion of 10,593,313 shares for relief of $62,500 of principal and interest resulted in a loss of $76,065.
Promissory Note Issued for Cash Deposit (principal of $ 150,000 and $150,000 as of June 30, 2013 and December 31, 2012, respectively, and accrued interest of $50,000 and $77,500 as of June 30, 2013 and December 31, 2012, respectively)
On January 30, 2012, we issued a promissory note in the amount of $100,000 in return for a cash advance. Payments are interest only at 5% per month for one year at which time the principal amount is due and payable. This note is collateralized with 10,000,000 common shares of the Company. In the event the Company defaults on the note these shares would be owed to the lender. The agreement requires that the Company provide additional collateral if the fair value of the shares decreases below $200,000 while the note is outstanding. As of June 30, 2013, the collateral exceeded $200,000. At December 31, 2012, in accordance with the terms of the contract we added $50,000 to the note as a penalty for delinquent payments. During the quarter ended June 30, 2013, no payments of principal or interest were made.
During the first quarter, we converted some of this debt through issuances of stock. The conversion of 12,598,360 shares valued at $144,228 for relief of $72,500 of principal and interest, resulted in a loss of $71,278.
Promissory Note Issued for Cash Deposit (principal of $744,577 and $746,071 as of June 30, 2013 and December 31, 2012, respectively, and a discount of $77,411 and $111,816 as of June 30, 2013 and December 31, 2012, respectively)
On August 12, 2012, we issued a promissory note in the amount of $750,000 in return for a cash advance. Payments are structured to be paid at a rate of 7% of royalties earned on three of the East Texas leases, plus one-half (1/2) of the net income derived from those wells until the note is paid in full. The note specifies that repayment must be completed within 24 months.
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There is no stated interest rate on the note; however, the Company has assigned a 7% royalty interest to the lender that will continue after the note is paid in full. The Company has recognized the royalty interest as a discount on the note for $137,620 and is amortizing it over a 24 month period. Amortization of $ 34,900 and $23,983 was recognized for the six months ended June 30, 2013 and June 30, 2012, respectively. During the six months ended June 30, 2013, $1,494 of principal was repaid on this loan.
Promissory Note Issued for Purchase of property (principal of $-0- and $258,368 as of June 30, 2013 and December 31, 2012, respectively, and accrued interest of $-0- and $198 as of June 30, 2013and December 31, 2012, respectively)
On September 21, 2012, the Company purchased the Converse lease and issued a promissory note in the amount of $328,012. The note requires two (2) $20,000 payments in October, 2012, and $20,000 per month thereafter. Interest accrues at a rate of 7%. As of December 31, 2012, the Company was in default by $2,500 on the December payment. During the quarter ended March 31, 2013, the Company returned the property to the lender and was released from further obligations. The carrying value on the Converse lease was zero and the debt relief and ARO were $258,566 and $166,882 resulting in a gain of $425,448.
Promissory Note Issued for Cash Deposit (principal of $ 110,000 and $110,000 as of June 30, 2013 and December 31, 2012, respectively, and accrued interest of $6,618 and $1,009 as of June 30, 2013 and December 31, 2012, respectively)
On November 28, 2012 and December 31, 2012, we received $40,000 and $70,000 from the same lender. Interest accrues at the rate of 12% per annum. The terms of this note required payment by February 28, 2013, which the Company did not make. The note is considered to be in default.
Promissory Note Issued for Cash Deposit (principal of $ -0- and $37,120 as of June 30, 2013 and December 31, 2012, respectively, and accrued interest of $-0- and $-0- as of June 30, 2013 and2013and December 31, 2012, respectively)
On December 11, 2012, we issued a note for a cash advance of $20,000. The note bears an interest rate of 18%. Per the terms, payment was due on December 21, 2012, after which, in addition to interest on the outstanding amount, the Company is obligated to issue 100,000 shares per day until it is paid in full. As of December 31, 2012, we have accrued $100 in interest and $17,110 for the value of the stock that was due on that date. The stock was priced at the closing price of the stock on each day of accrual. During January, 2013, a cash payment of $12,500 was made on this note, and on February 19, 2013, $65,100 was converted to 4,650,000 shares valued at $72,700 resulted in a $7,600 loss. An additional gain of $45,914 was recognized for amounts forgiven by the holder with the extinguishment, resulting in a net gain with settlement of $38,314.
Promissory Note Issued for Cash Deposit (principal of $300,000 and $ -0- as of June 30, 2013 and December 31, 2012, respectively, and accrued interest of $12,362 and $-0- as of June 30, 2013 and December 31, 2012, respectively)
On March 28, 2013, we issued a note for a cash advance of $300,000. $275,000 of the related proceeds from this note was used to pay off the aforementioned note in default relating to the Great 8 leases. The remaining $25,000 was received in cash. The note is collateralized by the note receivable we have from the sale of the Great 8 leases. The balance of this note is due on 7/1/13 or when the leases are sold, whichever comes sooner. As noted above, the leases have been sold; however, payment from the buyer has not been received as of June 30, 2013.
Payable related to 5% NRI in Belize Well ($45,000 and $0 as of June 30, 2013 and December 31, 2012)
During the first quarter of 2013 the Company sold a 5% net revenue interest within the San Juan #3 well located within the Company’s Belize lease for $45,000. The well is currently being drilled and is unproved at the time of this filing. The agreement entails that the Company return the $45,000 to the investor within 60 days if the well is considered to be a dry hole. Based on the uncertainty of the well at this time the $45,000 was accrued within debt as of June 30, 2013.
15
Equipment Loan ($13,001 as of June 30, 2013 and December 31, 2012)
On May 1, 2012, we purchased wire-line truck for $73,101, and issued a promissory note for $67,101. The purchase was treated as a rent to own agreement and in lieu of interest, rental payments of $9,138 were paid in 2012. As of December 31, 2012 and June 30, 2013 this note was in default.
Borrowing from Princess Entertainment for Belize interest ($30,245 and $14,435 as of June 30, 2013 and December 31, 2012)
During 2012 and 2013, Princess Entertainment, our concession partner in Belize has advanced us operating funds. There is no stated interest rate or terms on these advances. Imputed interest for these advances was considered to be immaterial. The balance is held as a current liability and is considered to be due upon demand.
Promissory Note Issued for Cash Deposit (principal of $10,000 and $ -0- as of June 30, 2013 and December 31, 2012, respectively, and accrued interest of $2,500 and $-0- as of June 30, 2013 and December 31, 2012, respectively)
On April 8, 2013, we issued a note for a cash advance of $10,000. The terms called for interest of $2,500 and 2,000,000 shares of the Company’s common stock. At June 30, 2013, we accrued the $2,500 of stated interest and $17,000 of interest attributable to the valuation of the stock. Terms of the note required payment of principal, interest and issuance of stock within 15 days. We are currently in default on this note.
NOTE 8 – SHAREHOLDERS’ EQUITY
We are authorized to issue 1.25 Billion shares of our common stock. At December 31, 2012, we had 945,249,192 shares issued and outstanding. During the six months ended June 30, 2013, we issued 305,799,844 shares.
During the quarter ended March 31, 2013, the Company issued 108,034,016 shares to relieve stock payable valued at $1,112,243. No gain or loss was recorded for these issuances as the number of shares issued was consistent with the amounts owed.
During the quarter ended March 31, 2013, the Company issued 25,341,673 shares to extinguish notes and accrued interest payable of $187,600. The shares were valued at the closing stock price on the conversion agreement date equal to $330,493. A loss of $142,893 was recorded due to the value of the shares exceeding the amount converted.
During the quarter ended March 31, 2013, the Company issued 35,024,370 shares to extinguish related party notes and accrued interest payable of $374,500. The shares were valued at the closing stock price on the conversion agreement date equal to $464,571. Any gains on individual conversions were recorded to additional paid in capital rather than gain based on the related party relationship. As a result of the conversions, an additional $66,129 beyond the shares value was recorded to additional paid in capital and a loss of $156,200 was recorded.
During the quarter ended March 31, 2013, the Company issued 400,000 shares to extinguish accounts payable of $3,000. The shares were valued at the closing stock price on the conversion agreement date equal to $5,400. A loss of $2,400 was recorded due to the value of the shares exceeding the amount converted.
During the quarter ended March 31, 2013, the Company issued 113,310,345 shares for services. The shares were expensed for the value at the closing stock price on the grant date equal to $2,329,404.
During the quarter ended March 31, 2013, an additional 4% ORRI in a lease already held by the Company was repurchased. The 1,000,000 shares issued with the acquisition were valued at $38,000 based on the closing price of the stock on the acquisition date, but were immediately impaired and expensed based on the December 31, 2012 reserve report.
During the quarter ended June 30, 2013, the Company issued 12,949,440 shares to relieve stock payable valued at $112,688. No gain or loss was recorded for these issuances as the number of shares issued was consistent with the amounts owed, with 425,000 shares for services.
16
During the quarter ended June 30, 2013, the Company issued 2,300,000 shares for services. The shares were expensed for the value at the closing stock price on the grant date equal to $25,400.
During the quarter ended June 30, 2013, the Company issued 90,000 shares that were previously granted and accounted for but had not been issued. Since the shares had been properly expensed and recorded to additional paid in capital on the grant the shares were recorded at par value with the issuance.
Stock Payable
On March 6, 2013 the Company and a lender agreed to extinguish $12,500 of amounts owed in accrued interest to 2,500,000 shares. The value of the shares owed according to the closing stock price on the agreement date was $25,000. The loss on debt conversion was $12,500.
During the quarter ended March 31, 2013, the Company received cash payments of $314,654 for 37,016,178 shares owed.
During the quarter ended June 30, 2013, the Company received cash payments of $607,201 for 118,105,173 shares owed.
During the quarter ended June 30, 2013, the Company became in default on a note payable which requires the Company to issue 2,000,000 common shares as a result of the default. The shares were valued upon default based on the closing price of the stock and recorded to common stock payable for $17,000.
During the quarter ended June 30, 2013, the Company agreed to issue 1,774,648 common shares to relieve an accrued payable to a consultant of $13,000. The shares value on the agreement date based on the closing price of the stock was $29,094. The difference between the value of the shares and amount of debt relief was recorded as a loss for $16,094.
During the quarter ended June 30, 2013, the Company agreed to issue 594,718 common shares for equipment. The value of the shares on the agreement date based on the closing price of the stock was $23,788.
At June 30, 2013, the Company had obligations to issue 156,591,277 common shares recorded at $1,066,382. As the Company had already issued shares in excess of their authorization, the entire balance was reclassed to Derivative Liabilities (See Note 10).
NOTE 9 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at June 30, 2013 and December 31, 2012 consist of the following:
06/30/13
12/31/12
Trade accounts payable
$ 970,787 $ 846,784
Royalties payable
48,546 33,120
Liabilities associated with our reverse merger in December, 2008 200,380 200,380
Due to AFEC 120,000 120,000
All-Secure payable
17,473 17,473
Total
$ 1,357,186 $ 1,217,757
As of June 30, 2013, the Company owed four related parties a combined liability of $185,714 for cash advances and for accrued consulting fees.
17
NOTE 10 – DERIVATIVE LIABILITY
On April 15, 2013, the Company issued 1,049,036 shares that exceeded our authorized amount of shares. To account for this error, we have recorded a Derivative Liability of $26,750 related to these shares. Fair values for exchange traded securities and derivatives are based on quoted market prices. Where market prices are not readily available, fair values are determined using market based pricing models incorporating readily observable market data and requiring judgment and estimates. Upon recognition of the derivative liability, the Company reclassed the value initially recorded to additional paid in capital with the issuance for $10,490 related to the 1,049,036 shares to derivative liabilities. In adjusting the related derivative liability to the market price at June 30, 2013, the Company realized a loss of $16,260.
At June 30, 2013, the Company a stock payable obligation recorded of $1,066,019. Until the increase of authorized shares is completed during the fourth quarter of 2013, we have re-classed the stock payable to Derivative Liability as there are not any authorized shares to settle this obligation. In conformance with Generally Accepted Accounting Principles we have recorded a liability of $3,993,078 and recognized a loss of $2,926,696. Where market prices are not readily available, fair values are determined using market based pricing models incorporating readily observable market data and requiring judgment and estimates.
At June 30, 2013, the Company had a total Derivative Liability of $4,019,828 and has recognized a Loss on Derivatives of $2,942,956 during the three and six months then ended.
NOTE 11 – ASSET RETIREMENT OBLIGATION
A reconciliation of the aggregate carrying amount of asset retirement obligations is as follows:
The Company recorded an accretion expense of $948 and $11,061 for the three months ended June 30, 2013 and June 30, 2012, respectively and $2,381 and $12,237 for the six months ended June 30, 2013 and June 30, 2012, respectively.
There is no way for me to know anything....You need names on where the shares went. I would have to have the books to really see what's going on. What's really puzzling is how would the accounts sign off on it if it's a share ploy.
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
The following is a list of unregistered sales of securities for the year ended December 31, 2012. For the accounting treatment of these issuances, see Note 7 to the financial statements.
●
On June 7, 2012, the Company issued 177,143 shares of common stock to a related party, to relieve $5,000 of debt. The fair value of the shares was $6,377 resulting in a loss of $1,377.
●
On August 3, 2012, the Company issued 15,872,936 shares of common stock valued at $427,500 for cash payments from unrelated investors.
●
Also on August 3, 2012, the Company issued 4,592,986 shares of common stock valued at $229,649, to a related party controlled by our Chairman, Andrew Reid, to relieve debt of $126,275 to that company, resulting in a loss of $103,374.
●
Also on August 3, 2012, the Company issued 1,000,000 shares of common stock valued at $50,000, for services rendered to the Company by consultants.
●
Also on August 3, 2012, the Company issued 557,143 shares of common stock valued at $27,857 for the purchase of equipment. This amount exceeded the invoice amount by $11,357, which was therefore expensed.
●
Also on August 3, 2012, the Company issued 1,962,490 shares of common stock valued at $98,125, to pay an outstanding balance to one of our legal consultants.
●
On August 8, 2012, the Company issued 22,185,893 shares of common stock valued at $1,082,672 to a principal in a related company controlled by our Chairman and Chief Executive Officer, Andrew Reid as recognition for his efforts in providing shares for fund raising on behalf of the Company and for unpaid and unreimbursed fees and expenses. The value of the shares were expensed.
●
On August 9, 2012, the Company issued 7,616,533 shares of common stock valued at 373,210 to our Chairman and Chief Executive Officer, Andrew Reid as recognition for his efforts in providing shares for fund raising on behalf of the Company and for unpaid and unreimbursed fees and expenses. The value of the shares were expensed.
●
On August 20, 2012, the Company issued 3,943,750 shares of common stock valued at $104,250 for cash payments from unrelated investors.
●
Also on August 20, 2012, the Company issued 28,506,812 shares of common stock valued at $1,331,268, to a related party controlled by our Chairman, Andrew Reid, to relieve debt of $578,400 to that company, resulting in a loss of $752,868.
●
Also on August 20, 2012, the Company issued 8,347,188 shares of common stock valued at $389,814, for services rendered to the Company by consultants.
●
On August 27, 2012, the Company issued 7,500,000 shares of common stock valued at $345,000, to the Company’s new Chief Financial Officer, George Warren, in recognition of his efforts in raising capital for the company. The value of the shares were expensed.
●
On August 29, 2012, the Company issued 18,662,011 shares of common stock valued at $839,791, to consultants and others who had provided services to the company.
●
On September 5, 2012, the Company issued 600,000 shares of common stock, valued at $60,000 for the conversion of preferred stock. The conversion was consistent with the original issuance agreement, therefore no gain or loss was recognized.
●
On September 6, 2012, the Company issued 20,180,000 shares of common stock valued at $864,200, to consultants and others who had provided services to the company.
●
On September 17, 2012, the Company issued 5,000,000 shares of common stock valued at $180,000, to consultants and others who had provided services to the company.
●
On October 4, 2012, the Company issued 7,380,952 shares of common stock valued at $300,461, to consultants and others who had provided services to the company.
●
On October 9, 2012, the Company issued 30,000,000 shares of common stock valued at $1,200,000, to complete the purchase of the 3K Oil Trust.
●
Also on October 9, 2012, the Company issued 5,000,000 shares of common stock valued at $150,000, to a consultant who had provided services to the company.
●
On October 16, 2012, the Company issued 1,500,000 shares of common stock valued at $66,500, to a consultant who had provided services to the company.
●
On November 26, 2012, the Company issued 5,000,000 shares of common stock valued at $150,000, to a consultant who had provided services to the company.
●
On November 28, 2012, the Company issued 714,286 shares of common stock valued at $20,000 for cash payments from unrelated investors.
●
On December 20, 2012, the Company issued 2,500,000 shares of common stock valued at $47,500, to a consultant who had provided services to the company.
As noted in the 10-K filed for the year ended December 31, 2012, we entered into an agreement with an investor to sell a 5% permanent royalty and a 15% temporary royalty to be paid until production reaches 200 barrels per day for $600,000. The interests for both the permanent and temporary royalties relate to all current and future Texas leases. Once total Texas production exceeds 200 barrels per day, the temporary 15% royalties will revert to Treaty Energy Corporation.
In recording the temporary portion of the royalties sold, an advance on a production payment liability was established. Since the amount of proceeds to be paid out in the future is not readily determinable and the Company is not responsible for any shortfall in payment related to future production, the temporary 15% is treated as a “Carved-Out Production Payment Payable in Product” consistent with the guidance in ASC 932-10. Moreover, since the payout amounts are uncertain, no allocation of the proceeds between the permanent 5% and the temporary 15% Overriding Royalty was made, and therefore, no gain or loss was recorded on the transaction.
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Consistent with the aforementioned guidance, the cash received related to the 15% carved-out production interest is treated as deferred revenue and amortized with production and payment to the holder. The proportional amount of carrying value of oil and gas assets will be amortized with production to match the costs to the production periods.
Amortization was based on the independent reserve report and is subject to future changes in estimates.
On April 19, 2013, the Company sold the Great 8 leases, effectively eliminating the carve-out balance. As such, no amortization was recognized for the three months ended June 30, 2013. For the six months ended June 30, 2013 and 2012, amortization of the carve out production was $11,132 and $2,197, respectively.
For the same reason, the deferred revenue was eliminated with the sale of the Great 8 leases. No deferred revenue was recorded for the three months ended June 30, 2013. For the six months ended June 30, 2013 and 2012, recognition of the deferred revenue was $79,899 and $30,805, respectively.
Sale of Oil & Gas Properties
During the quarter ended March 31, 2013, the Company returned the property to the lender and was released from further obligations. The carrying value on the Converse lease was zero and the debt relief and ARO were $258,566 and $166,882 resulting in a gain of $425,448.
During the first quarter of 2013 the Company sold a 5% net revenue interest within the San Juan #3 well located within the Company’s Belize lease for $45,000. The well is currently being drilled and is unproved at the time of this filing. The agreement entails that the Company return the $45,000 to the investor within 60 days if the well is considered to be a dry hole. Based on the uncertainty of the well at this time the $45,000 was accrued within liabilities as of June 30, 2013...
During the first quarter of 2013 the Company transferred the Willingham lease and equipment to the former lender on the property. The carrying value at the time of the disposition for the related lease and well equipment was $54,741 and the carrying value of the related asset retirement obligation was $1,700. The Company recorded a loss of $53,041 on this disposition.
On April 19, 2013, the Company sold the Great 8 leases for a total of $550,000. There have been subsequent amendments allowing full payment to be deferred until November 13, 2013. However, the history of slow or minor payments resulted in our recognizing a bad debt loss against the note of $455,777. After adjusting for the Carve-out production, various impairments, deferred revenues, asset retirement obligations and the effect of the bad debt loss, the Company is recognizing a net gain of $130,661. Should further payments be made on the note they will be recognized as a gain.
NOTE 6 – PROPERTY, PLANT AND EQUIPMENT
Other property, plant and equipment consist principally of drilling rigs, and office furniture and equipment. Historical cost and accumulated depreciation are as follows:
06/30/13
12/31/12
Drilling rigs and related equipment
$ 841,647 $ 835,146
Office equipment
5,165 5,165
Furniture and fixtures
1,049 1,049
Vehicles
211,853 188,521
Equipment
24,598 24,598
Total property, plant and equipment - at cost
1,084,312 1,054,479
Less: accumulated depreciation
(323,220 ) (218,170 )
Net property, plant and equipment - other
$ 761,092 $ 836,309
Assets other than drilling equipment and vehicles generally have estimated useful lives of three years. Estimated useful life of drilling equipment and vehicles is five years. Depreciation for the six months ended June 30, 2013 and 2012 was $106,757 and $64,806, respectively.
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NOTE 7 – NOTES PAYABLE
As of June 30, 2013 and December 31, 2012 the Company had the following debt principal amounts outstanding:
Note
6/30/2013
12/31/2012
Great 8 Lease note (original)
$ - $ 211,494
11/14/11 Promissory Note
465,579 120,239
1/30/12 Promissory Note
150,000 150,000
8/12/12 Promissory Note
744,577 746,071
Converse Lease note
- 258,368
11/28/12 Promissory Note
110,000 110,000
12/11/12 Promissory Note
- 37,120
Great 8 Lease note (new lender)
300,000 -
Loan on Belize property
30,245 14,435
Equipment Loan
13,001 13,001
Belize 5% NRI
45,000 -
Accrued Interest/Charges
153,565 139,867
Total Debt Outstanding
2,011,967 1,800,595
Debt Discount
(77,411 ) (111,816 )
Net Debt Outstanding
$ 1,934,556 $ 1,688,779
13
See footnote 12 for information on notes payable to related parties.
None of our debts outstanding are contractually convertible. All conversions noted below were mutually agreed to between the lender and the Company which resulted in extinguishment accounting with gains or losses recorded based on the differences between the value of the shares issued compared to the debts relieved.
Promissory Note Issued for the Acquisition of the Great 8 lease (principal of $-0- and $211,494 as of June 30, 2013 and December 31, 2012, respectively, and accrued interest of $-0- and $6,461 as of June 30, 2013 and December 31, 2012, respectively)
On May 31, 2011, we issued a promissory note in the amount of $692,539 for the Great 8 leases in Texas, the payment terms of which are: monthly payments including interest and principal with the final payment due on June 1, 2012. This note accrues interest at 5%. During the quarter ended March 31, 2013, the Company paid off the note and accrued interest in full through borrowing from other lenders who the company is now indebted to for $275,000. The difference was charged to interest expense. As an additional expense related to the original default on the former note payable, the Company transferred the Willingham lease and equipment to the former lender. The carrying value at the time of the disposition for the related lease and well equipment was $54,741, and the carrying value of the related asset retirement obligation was $1,700. The Company recorded a loss of $53,041 on this disposition.
Promissory Note Issued for Cash Deposit (principal of $ 465,578 and $120,239 as of June 30, 2013 and December 31, 2012, respectively, and accrued interest of $ 22,058068 and $59,057 as of June 30, 2013 and December 31, 2012, respectively
On November 14, 2011, we issued a promissory note in the amount of $150,000 in return for a cash advance. Stated interest on the loan is at 12% with quarterly payments starting June 30, 2012. On February 26, 2013, an additional loan advance of $400,000 was received. During the quarter ended June 30, 2013, no principal or interest payments were made.
During the first quarter, we converted some of this debt through issuances of stock. The conversion of 10,593,313 shares for relief of $62,500 of principal and interest resulted in a loss of $76,065.
Promissory Note Issued for Cash Deposit (principal of $ 150,000 and $150,000 as of June 30, 2013 and December 31, 2012, respectively, and accrued interest of $50,000 and $77,500 as of June 30, 2013 and December 31, 2012, respectively)
On January 30, 2012, we issued a promissory note in the amount of $100,000 in return for a cash advance. Payments are interest only at 5% per month for one year at which time the principal amount is due and payable. This note is collateralized with 10,000,000 common shares of the Company. In the event the Company defaults on the note these shares would be owed to the lender. The agreement requires that the Company provide additional collateral if the fair value of the shares decreases below $200,000 while the note is outstanding. As of June 30, 2013, the collateral exceeded $200,000. At December 31, 2012, in accordance with the terms of the contract we added $50,000 to the note as a penalty for delinquent payments. During the quarter ended June 30, 2013, no payments of principal or interest were made.
During the first quarter, we converted some of this debt through issuances of stock. The conversion of 12,598,360 shares valued at $144,228 for relief of $72,500 of principal and interest, resulted in a loss of $71,278.
Promissory Note Issued for Cash Deposit (principal of $744,577 and $746,071 as of June 30, 2013 and December 31, 2012, respectively, and a discount of $77,411 and $111,816 as of June 30, 2013 and December 31, 2012, respectively)
On August 12, 2012, we issued a promissory note in the amount of $750,000 in return for a cash advance. Payments are structured to be paid at a rate of 7% of royalties earned on three of the East Texas leases, plus one-half (1/2) of the net income derived from those wells until the note is paid in full. The note specifies that repayment must be completed within 24 months.
14
There is no stated interest rate on the note; however, the Company has assigned a 7% royalty interest to the lender that will continue after the note is paid in full. The Company has recognized the royalty interest as a discount on the note for $137,620 and is amortizing it over a 24 month period. Amortization of $ 34,900 and $23,983 was recognized for the six months ended June 30, 2013 and June 30, 2012, respectively. During the six months ended June 30, 2013, $1,494 of principal was repaid on this loan.
Promissory Note Issued for Purchase of property (principal of $-0- and $258,368 as of June 30, 2013 and December 31, 2012, respectively, and accrued interest of $-0- and $198 as of June 30, 2013and December 31, 2012, respectively)
On September 21, 2012, the Company purchased the Converse lease and issued a promissory note in the amount of $328,012. The note requires two (2) $20,000 payments in October, 2012, and $20,000 per month thereafter. Interest accrues at a rate of 7%. As of December 31, 2012, the Company was in default by $2,500 on the December payment. During the quarter ended March 31, 2013, the Company returned the property to the lender and was released from further obligations. The carrying value on the Converse lease was zero and the debt relief and ARO were $258,566 and $166,882 resulting in a gain of $425,448.
Promissory Note Issued for Cash Deposit (principal of $ 110,000 and $110,000 as of June 30, 2013 and December 31, 2012, respectively, and accrued interest of $6,618 and $1,009 as of June 30, 2013 and December 31, 2012, respectively)
On November 28, 2012 and December 31, 2012, we received $40,000 and $70,000 from the same lender. Interest accrues at the rate of 12% per annum. The terms of this note required payment by February 28, 2013, which the Company did not make. The note is considered to be in default.
Promissory Note Issued for Cash Deposit (principal of $ -0- and $37,120 as of June 30, 2013 and December 31, 2012, respectively, and accrued interest of $-0- and $-0- as of June 30, 2013 and2013and December 31, 2012, respectively)
On December 11, 2012, we issued a note for a cash advance of $20,000. The note bears an interest rate of 18%. Per the terms, payment was due on December 21, 2012, after which, in addition to interest on the outstanding amount, the Company is obligated to issue 100,000 shares per day until it is paid in full. As of December 31, 2012, we have accrued $100 in interest and $17,110 for the value of the stock that was due on that date. The stock was priced at the closing price of the stock on each day of accrual. During January, 2013, a cash payment of $12,500 was made on this note, and on February 19, 2013, $65,100 was converted to 4,650,000 shares valued at $72,700 resulted in a $7,600 loss. An additional gain of $45,914 was recognized for amounts forgiven by the holder with the extinguishment, resulting in a net gain with settlement of $38,314.
Promissory Note Issued for Cash Deposit (principal of $300,000 and $ -0- as of June 30, 2013 and December 31, 2012, respectively, and accrued interest of $12,362 and $-0- as of June 30, 2013 and December 31, 2012, respectively)
On March 28, 2013, we issued a note for a cash advance of $300,000. $275,000 of the related proceeds from this note was used to pay off the aforementioned note in default relating to the Great 8 leases. The remaining $25,000 was received in cash. The note is collateralized by the note receivable we have from the sale of the Great 8 leases. The balance of this note is due on 7/1/13 or when the leases are sold, whichever comes sooner. As noted above, the leases have been sold; however, payment from the buyer has not been received as of June 30, 2013.
Payable related to 5% NRI in Belize Well ($45,000 and $0 as of June 30, 2013 and December 31, 2012)
During the first quarter of 2013 the Company sold a 5% net revenue interest within the San Juan #3 well located within the Company’s Belize lease for $45,000. The well is currently being drilled and is unproved at the time of this filing. The agreement entails that the Company return the $45,000 to the investor within 60 days if the well is considered to be a dry hole. Based on the uncertainty of the well at this time the $45,000 was accrued within debt as of June 30, 2013.
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Equipment Loan ($13,001 as of June 30, 2013 and December 31, 2012)
On May 1, 2012, we purchased wire-line truck for $73,101, and issued a promissory note for $67,101. The purchase was treated as a rent to own agreement and in lieu of interest, rental payments of $9,138 were paid in 2012. As of December 31, 2012 and June 30, 2013 this note was in default.
Borrowing from Princess Entertainment for Belize interest ($30,245 and $14,435 as of June 30, 2013 and December 31, 2012)
During 2012 and 2013, Princess Entertainment, our concession partner in Belize has advanced us operating funds. There is no stated interest rate or terms on these advances. Imputed interest for these advances was considered to be immaterial. The balance is held as a current liability and is considered to be due upon demand.
Promissory Note Issued for Cash Deposit (principal of $10,000 and $ -0- as of June 30, 2013 and December 31, 2012, respectively, and accrued interest of $2,500 and $-0- as of June 30, 2013 and December 31, 2012, respectively)
On April 8, 2013, we issued a note for a cash advance of $10,000. The terms called for interest of $2,500 and 2,000,000 shares of the Company’s common stock. At June 30, 2013, we accrued the $2,500 of stated interest and $17,000 of interest attributable to the valuation of the stock. Terms of the note required payment of principal, interest and issuance of stock within 15 days. We are currently in default on this note.
NOTE 8 – SHAREHOLDERS’ EQUITY
We are authorized to issue 1.25 Billion shares of our common stock. At December 31, 2012, we had 945,249,192 shares issued and outstanding. During the six months ended June 30, 2013, we issued 305,799,844 shares.
During the quarter ended March 31, 2013, the Company issued 108,034,016 shares to relieve stock payable valued at $1,112,243. No gain or loss was recorded for these issuances as the number of shares issued was consistent with the amounts owed.
During the quarter ended March 31, 2013, the Company issued 25,341,673 shares to extinguish notes and accrued interest payable of $187,600. The shares were valued at the closing stock price on the conversion agreement date equal to $330,493. A loss of $142,893 was recorded due to the value of the shares exceeding the amount converted.
During the quarter ended March 31, 2013, the Company issued 35,024,370 shares to extinguish related party notes and accrued interest payable of $374,500. The shares were valued at the closing stock price on the conversion agreement date equal to $464,571. Any gains on individual conversions were recorded to additional paid in capital rather than gain based on the related party relationship. As a result of the conversions, an additional $66,129 beyond the shares value was recorded to additional paid in capital and a loss of $156,200 was recorded.
During the quarter ended March 31, 2013, the Company issued 400,000 shares to extinguish accounts payable of $3,000. The shares were valued at the closing stock price on the conversion agreement date equal to $5,400. A loss of $2,400 was recorded due to the value of the shares exceeding the amount converted.
During the quarter ended March 31, 2013, the Company issued 113,310,345 shares for services. The shares were expensed for the value at the closing stock price on the grant date equal to $2,329,404.
During the quarter ended March 31, 2013, an additional 4% ORRI in a lease already held by the Company was repurchased. The 1,000,000 shares issued with the acquisition were valued at $38,000 based on the closing price of the stock on the acquisition date, but were immediately impaired and expensed based on the December 31, 2012 reserve report.
During the quarter ended June 30, 2013, the Company issued 12,949,440 shares to relieve stock payable valued at $112,688. No gain or loss was recorded for these issuances as the number of shares issued was consistent with the amounts owed, with 425,000 shares for services.
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During the quarter ended June 30, 2013, the Company issued 2,300,000 shares for services. The shares were expensed for the value at the closing stock price on the grant date equal to $25,400.
During the quarter ended June 30, 2013, the Company issued 90,000 shares that were previously granted and accounted for but had not been issued. Since the shares had been properly expensed and recorded to additional paid in capital on the grant the shares were recorded at par value with the issuance.
Stock Payable
On March 6, 2013 the Company and a lender agreed to extinguish $12,500 of amounts owed in accrued interest to 2,500,000 shares. The value of the shares owed according to the closing stock price on the agreement date was $25,000. The loss on debt conversion was $12,500.
During the quarter ended March 31, 2013, the Company received cash payments of $314,654 for 37,016,178 shares owed.
During the quarter ended June 30, 2013, the Company received cash payments of $607,201 for 118,105,173 shares owed.
During the quarter ended June 30, 2013, the Company became in default on a note payable which requires the Company to issue 2,000,000 common shares as a result of the default. The shares were valued upon default based on the closing price of the stock and recorded to common stock payable for $17,000.
During the quarter ended June 30, 2013, the Company agreed to issue 1,774,648 common shares to relieve an accrued payable to a consultant of $13,000. The shares value on the agreement date based on the closing price of the stock was $29,094. The difference between the value of the shares and amount of debt relief was recorded as a loss for $16,094.
During the quarter ended June 30, 2013, the Company agreed to issue 594,718 common shares for equipment. The value of the shares on the agreement date based on the closing price of the stock was $23,788.
At June 30, 2013, the Company had obligations to issue 156,591,277 common shares recorded at $1,066,382. As the Company had already issued shares in excess of their authorization, the entire balance was reclassed to Derivative Liabilities (See Note 10).
NOTE 9 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at June 30, 2013 and December 31, 2012 consist of the following:
06/30/13
12/31/12
Trade accounts payable
$ 970,787 $ 846,784
Royalties payable
48,546 33,120
Liabilities associated with our reverse merger in December, 2008 200,380 200,380
Due to AFEC 120,000 120,000
All-Secure payable
17,473 17,473
Total
$ 1,357,186 $ 1,217,757
As of June 30, 2013, the Company owed four related parties a combined liability of $185,714 for cash advances and for accrued consulting fees.
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NOTE 10 – DERIVATIVE LIABILITY
On April 15, 2013, the Company issued 1,049,036 shares that exceeded our authorized amount of shares. To account for this error, we have recorded a Derivative Liability of $26,750 related to these shares. Fair values for exchange traded securities and derivatives are based on quoted market prices. Where market prices are not readily available, fair values are determined using market based pricing models incorporating readily observable market data and requiring judgment and estimates. Upon recognition of the derivative liability, the Company reclassed the value initially recorded to additional paid in capital with the issuance for $10,490 related to the 1,049,036 shares to derivative liabilities. In adjusting the related derivative liability to the market price at June 30, 2013, the Company realized a loss of $16,260.
At June 30, 2013, the Company a stock payable obligation recorded of $1,066,019. Until the increase of authorized shares is completed during the fourth quarter of 2013, we have re-classed the stock payable to Derivative Liability as there are not any authorized shares to settle this obligation. In conformance with Generally Accepted Accounting Principles we have recorded a liability of $3,993,078 and recognized a loss of $2,926,696. Where market prices are not readily available, fair values are determined using market based pricing models incorporating readily observable market data and requiring judgment and estimates.
At June 30, 2013, the Company had a total Derivative Liability of $4,019,828 and has recognized a Loss on Derivatives of $2,942,956 during the three and six months then ended.
NOTE 11 – ASSET RETIREMENT OBLIGATION
A reconciliation of the aggregate carrying amount of asset retirement obligations is as follows:
The Company recorded an accretion expense of $948 and $11,061 for the three months ended June 30, 2013 and June 30, 2012, respectively and $2,381 and $12,237 for the six months ended June 30, 2013 and June 30, 2012, respectively.
As noted in the 10-K filed for the year ended December 31, 2012, we entered into an agreement with an investor to sell a 5% permanent royalty and a 15% temporary royalty to be paid until production reaches 200 barrels per day for $600,000. The interests for both the permanent and temporary royalties relate to all current and future Texas leases. Once total Texas production exceeds 200 barrels per day, the temporary 15% royalties will revert to Treaty Energy Corporation.
In recording the temporary portion of the royalties sold, an advance on a production payment liability was established. Since the amount of proceeds to be paid out in the future is not readily determinable and the Company is not responsible for any shortfall in payment related to future production, the temporary 15% is treated as a “Carved-Out Production Payment Payable in Product” consistent with the guidance in ASC 932-10. Moreover, since the payout amounts are uncertain, no allocation of the proceeds between the permanent 5% and the temporary 15% Overriding Royalty was made, and therefore, no gain or loss was recorded on the transaction.
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Consistent with the aforementioned guidance, the cash received related to the 15% carved-out production interest is treated as deferred revenue and amortized with production and payment to the holder. The proportional amount of carrying value of oil and gas assets will be amortized with production to match the costs to the production periods.
Amortization was based on the independent reserve report and is subject to future changes in estimates.
On April 19, 2013, the Company sold the Great 8 leases, effectively eliminating the carve-out balance. As such, no amortization was recognized for the three months ended June 30, 2013. For the six months ended June 30, 2013 and 2012, amortization of the carve out production was $11,132 and $2,197, respectively.
For the same reason, the deferred revenue was eliminated with the sale of the Great 8 leases. No deferred revenue was recorded for the three months ended June 30, 2013. For the six months ended June 30, 2013 and 2012, recognition of the deferred revenue was $79,899 and $30,805, respectively.
Sale of Oil & Gas Properties
During the quarter ended March 31, 2013, the Company returned the property to the lender and was released from further obligations. The carrying value on the Converse lease was zero and the debt relief and ARO were $258,566 and $166,882 resulting in a gain of $425,448.
During the first quarter of 2013 the Company sold a 5% net revenue interest within the San Juan #3 well located within the Company’s Belize lease for $45,000. The well is currently being drilled and is unproved at the time of this filing. The agreement entails that the Company return the $45,000 to the investor within 60 days if the well is considered to be a dry hole. Based on the uncertainty of the well at this time the $45,000 was accrued within liabilities as of June 30, 2013...
During the first quarter of 2013 the Company transferred the Willingham lease and equipment to the former lender on the property. The carrying value at the time of the disposition for the related lease and well equipment was $54,741 and the carrying value of the related asset retirement obligation was $1,700. The Company recorded a loss of $53,041 on this disposition.
On April 19, 2013, the Company sold the Great 8 leases for a total of $550,000. There have been subsequent amendments allowing full payment to be deferred until November 13, 2013. However, the history of slow or minor payments resulted in our recognizing a bad debt loss against the note of $455,777. After adjusting for the Carve-out production, various impairments, deferred revenues, asset retirement obligations and the effect of the bad debt loss, the Company is recognizing a net gain of $130,661. Should further payments be made on the note they will be recognized as a gain.
NOTE 6 – PROPERTY, PLANT AND EQUIPMENT
Other property, plant and equipment consist principally of drilling rigs, and office furniture and equipment. Historical cost and accumulated depreciation are as follows:
06/30/13
12/31/12
Drilling rigs and related equipment
$ 841,647 $ 835,146
Office equipment
5,165 5,165
Furniture and fixtures
1,049 1,049
Vehicles
211,853 188,521
Equipment
24,598 24,598
Total property, plant and equipment - at cost
1,084,312 1,054,479
Less: accumulated depreciation
(323,220 ) (218,170 )
Net property, plant and equipment - other
$ 761,092 $ 836,309
Assets other than drilling equipment and vehicles generally have estimated useful lives of three years. Estimated useful life of drilling equipment and vehicles is five years. Depreciation for the six months ended June 30, 2013 and 2012 was $106,757 and $64,806, respectively.
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NOTE 7 – NOTES PAYABLE
As of June 30, 2013 and December 31, 2012 the Company had the following debt principal amounts outstanding:
Note
6/30/2013
12/31/2012
Great 8 Lease note (original)
$ - $ 211,494
11/14/11 Promissory Note
465,579 120,239
1/30/12 Promissory Note
150,000 150,000
8/12/12 Promissory Note
744,577 746,071
Converse Lease note
- 258,368
11/28/12 Promissory Note
110,000 110,000
12/11/12 Promissory Note
- 37,120
Great 8 Lease note (new lender)
300,000 -
Loan on Belize property
30,245 14,435
Equipment Loan
13,001 13,001
Belize 5% NRI
45,000 -
Accrued Interest/Charges
153,565 139,867
Total Debt Outstanding
2,011,967 1,800,595
Debt Discount
(77,411 ) (111,816 )
Net Debt Outstanding
$ 1,934,556 $ 1,688,779
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See footnote 12 for information on notes payable to related parties.
None of our debts outstanding are contractually convertible. All conversions noted below were mutually agreed to between the lender and the Company which resulted in extinguishment accounting with gains or losses recorded based on the differences between the value of the shares issued compared to the debts relieved.
Promissory Note Issued for the Acquisition of the Great 8 lease (principal of $-0- and $211,494 as of June 30, 2013 and December 31, 2012, respectively, and accrued interest of $-0- and $6,461 as of June 30, 2013 and December 31, 2012, respectively)
On May 31, 2011, we issued a promissory note in the amount of $692,539 for the Great 8 leases in Texas, the payment terms of which are: monthly payments including interest and principal with the final payment due on June 1, 2012. This note accrues interest at 5%. During the quarter ended March 31, 2013, the Company paid off the note and accrued interest in full through borrowing from other lenders who the company is now indebted to for $275,000. The difference was charged to interest expense. As an additional expense related to the original default on the former note payable, the Company transferred the Willingham lease and equipment to the former lender. The carrying value at the time of the disposition for the related lease and well equipment was $54,741, and the carrying value of the related asset retirement obligation was $1,700. The Company recorded a loss of $53,041 on this disposition.
Promissory Note Issued for Cash Deposit (principal of $ 465,578 and $120,239 as of June 30, 2013 and December 31, 2012, respectively, and accrued interest of $ 22,058068 and $59,057 as of June 30, 2013 and December 31, 2012, respectively
On November 14, 2011, we issued a promissory note in the amount of $150,000 in return for a cash advance. Stated interest on the loan is at 12% with quarterly payments starting June 30, 2012. On February 26, 2013, an additional loan advance of $400,000 was received. During the quarter ended June 30, 2013, no principal or interest payments were made.
During the first quarter, we converted some of this debt through issuances of stock. The conversion of 10,593,313 shares for relief of $62,500 of principal and interest resulted in a loss of $76,065.
Promissory Note Issued for Cash Deposit (principal of $ 150,000 and $150,000 as of June 30, 2013 and December 31, 2012, respectively, and accrued interest of $50,000 and $77,500 as of June 30, 2013 and December 31, 2012, respectively)
On January 30, 2012, we issued a promissory note in the amount of $100,000 in return for a cash advance. Payments are interest only at 5% per month for one year at which time the principal amount is due and payable. This note is collateralized with 10,000,000 common shares of the Company. In the event the Company defaults on the note these shares would be owed to the lender. The agreement requires that the Company provide additional collateral if the fair value of the shares decreases below $200,000 while the note is outstanding. As of June 30, 2013, the collateral exceeded $200,000. At December 31, 2012, in accordance with the terms of the contract we added $50,000 to the note as a penalty for delinquent payments. During the quarter ended June 30, 2013, no payments of principal or interest were made.
During the first quarter, we converted some of this debt through issuances of stock. The conversion of 12,598,360 shares valued at $144,228 for relief of $72,500 of principal and interest, resulted in a loss of $71,278.
Promissory Note Issued for Cash Deposit (principal of $744,577 and $746,071 as of June 30, 2013 and December 31, 2012, respectively, and a discount of $77,411 and $111,816 as of June 30, 2013 and December 31, 2012, respectively)
On August 12, 2012, we issued a promissory note in the amount of $750,000 in return for a cash advance. Payments are structured to be paid at a rate of 7% of royalties earned on three of the East Texas leases, plus one-half (1/2) of the net income derived from those wells until the note is paid in full. The note specifies that repayment must be completed within 24 months.
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There is no stated interest rate on the note; however, the Company has assigned a 7% royalty interest to the lender that will continue after the note is paid in full. The Company has recognized the royalty interest as a discount on the note for $137,620 and is amortizing it over a 24 month period. Amortization of $ 34,900 and $23,983 was recognized for the six months ended June 30, 2013 and June 30, 2012, respectively. During the six months ended June 30, 2013, $1,494 of principal was repaid on this loan.
Promissory Note Issued for Purchase of property (principal of $-0- and $258,368 as of June 30, 2013 and December 31, 2012, respectively, and accrued interest of $-0- and $198 as of June 30, 2013and December 31, 2012, respectively)
On September 21, 2012, the Company purchased the Converse lease and issued a promissory note in the amount of $328,012. The note requires two (2) $20,000 payments in October, 2012, and $20,000 per month thereafter. Interest accrues at a rate of 7%. As of December 31, 2012, the Company was in default by $2,500 on the December payment. During the quarter ended March 31, 2013, the Company returned the property to the lender and was released from further obligations. The carrying value on the Converse lease was zero and the debt relief and ARO were $258,566 and $166,882 resulting in a gain of $425,448.
Promissory Note Issued for Cash Deposit (principal of $ 110,000 and $110,000 as of June 30, 2013 and December 31, 2012, respectively, and accrued interest of $6,618 and $1,009 as of June 30, 2013 and December 31, 2012, respectively)
On November 28, 2012 and December 31, 2012, we received $40,000 and $70,000 from the same lender. Interest accrues at the rate of 12% per annum. The terms of this note required payment by February 28, 2013, which the Company did not make. The note is considered to be in default.
Promissory Note Issued for Cash Deposit (principal of $ -0- and $37,120 as of June 30, 2013 and December 31, 2012, respectively, and accrued interest of $-0- and $-0- as of June 30, 2013 and2013and December 31, 2012, respectively)
On December 11, 2012, we issued a note for a cash advance of $20,000. The note bears an interest rate of 18%. Per the terms, payment was due on December 21, 2012, after which, in addition to interest on the outstanding amount, the Company is obligated to issue 100,000 shares per day until it is paid in full. As of December 31, 2012, we have accrued $100 in interest and $17,110 for the value of the stock that was due on that date. The stock was priced at the closing price of the stock on each day of accrual. During January, 2013, a cash payment of $12,500 was made on this note, and on February 19, 2013, $65,100 was converted to 4,650,000 shares valued at $72,700 resulted in a $7,600 loss. An additional gain of $45,914 was recognized for amounts forgiven by the holder with the extinguishment, resulting in a net gain with settlement of $38,314.
Promissory Note Issued for Cash Deposit (principal of $300,000 and $ -0- as of June 30, 2013 and December 31, 2012, respectively, and accrued interest of $12,362 and $-0- as of June 30, 2013 and December 31, 2012, respectively)
On March 28, 2013, we issued a note for a cash advance of $300,000. $275,000 of the related proceeds from this note was used to pay off the aforementioned note in default relating to the Great 8 leases. The remaining $25,000 was received in cash. The note is collateralized by the note receivable we have from the sale of the Great 8 leases. The balance of this note is due on 7/1/13 or when the leases are sold, whichever comes sooner. As noted above, the leases have been sold; however, payment from the buyer has not been received as of June 30, 2013.
Payable related to 5% NRI in Belize Well ($45,000 and $0 as of June 30, 2013 and December 31, 2012)
During the first quarter of 2013 the Company sold a 5% net revenue interest within the San Juan #3 well located within the Company’s Belize lease for $45,000. The well is currently being drilled and is unproved at the time of this filing. The agreement entails that the Company return the $45,000 to the investor within 60 days if the well is considered to be a dry hole. Based on the uncertainty of the well at this time the $45,000 was accrued within debt as of June 30, 2013.
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Equipment Loan ($13,001 as of June 30, 2013 and December 31, 2012)
On May 1, 2012, we purchased wire-line truck for $73,101, and issued a promissory note for $67,101. The purchase was treated as a rent to own agreement and in lieu of interest, rental payments of $9,138 were paid in 2012. As of December 31, 2012 and June 30, 2013 this note was in default.
Borrowing from Princess Entertainment for Belize interest ($30,245 and $14,435 as of June 30, 2013 and December 31, 2012)
During 2012 and 2013, Princess Entertainment, our concession partner in Belize has advanced us operating funds. There is no stated interest rate or terms on these advances. Imputed interest for these advances was considered to be immaterial. The balance is held as a current liability and is considered to be due upon demand.
Promissory Note Issued for Cash Deposit (principal of $10,000 and $ -0- as of June 30, 2013 and December 31, 2012, respectively, and accrued interest of $2,500 and $-0- as of June 30, 2013 and December 31, 2012, respectively)
On April 8, 2013, we issued a note for a cash advance of $10,000. The terms called for interest of $2,500 and 2,000,000 shares of the Company’s common stock. At June 30, 2013, we accrued the $2,500 of stated interest and $17,000 of interest attributable to the valuation of the stock. Terms of the note required payment of principal, interest and issuance of stock within 15 days. We are currently in default on this note.
NOTE 8 – SHAREHOLDERS’ EQUITY
We are authorized to issue 1.25 Billion shares of our common stock. At December 31, 2012, we had 945,249,192 shares issued and outstanding. During the six months ended June 30, 2013, we issued 305,799,844 shares.
During the quarter ended March 31, 2013, the Company issued 108,034,016 shares to relieve stock payable valued at $1,112,243. No gain or loss was recorded for these issuances as the number of shares issued was consistent with the amounts owed.
During the quarter ended March 31, 2013, the Company issued 25,341,673 shares to extinguish notes and accrued interest payable of $187,600. The shares were valued at the closing stock price on the conversion agreement date equal to $330,493. A loss of $142,893 was recorded due to the value of the shares exceeding the amount converted.
During the quarter ended March 31, 2013, the Company issued 35,024,370 shares to extinguish related party notes and accrued interest payable of $374,500. The shares were valued at the closing stock price on the conversion agreement date equal to $464,571. Any gains on individual conversions were recorded to additional paid in capital rather than gain based on the related party relationship. As a result of the conversions, an additional $66,129 beyond the shares value was recorded to additional paid in capital and a loss of $156,200 was recorded.
During the quarter ended March 31, 2013, the Company issued 400,000 shares to extinguish accounts payable of $3,000. The shares were valued at the closing stock price on the conversion agreement date equal to $5,400. A loss of $2,400 was recorded due to the value of the shares exceeding the amount converted.
During the quarter ended March 31, 2013, the Company issued 113,310,345 shares for services. The shares were expensed for the value at the closing stock price on the grant date equal to $2,329,404.
During the quarter ended March 31, 2013, an additional 4% ORRI in a lease already held by the Company was repurchased. The 1,000,000 shares issued with the acquisition were valued at $38,000 based on the closing price of the stock on the acquisition date, but were immediately impaired and expensed based on the December 31, 2012 reserve report.
During the quarter ended June 30, 2013, the Company issued 12,949,440 shares to relieve stock payable valued at $112,688. No gain or loss was recorded for these issuances as the number of shares issued was consistent with the amounts owed, with 425,000 shares for services.
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During the quarter ended June 30, 2013, the Company issued 2,300,000 shares for services. The shares were expensed for the value at the closing stock price on the grant date equal to $25,400.
During the quarter ended June 30, 2013, the Company issued 90,000 shares that were previously granted and accounted for but had not been issued. Since the shares had been properly expensed and recorded to additional paid in capital on the grant the shares were recorded at par value with the issuance.
Stock Payable
On March 6, 2013 the Company and a lender agreed to extinguish $12,500 of amounts owed in accrued interest to 2,500,000 shares. The value of the shares owed according to the closing stock price on the agreement date was $25,000. The loss on debt conversion was $12,500.
During the quarter ended March 31, 2013, the Company received cash payments of $314,654 for 37,016,178 shares owed.
During the quarter ended June 30, 2013, the Company received cash payments of $607,201 for 118,105,173 shares owed.
During the quarter ended June 30, 2013, the Company became in default on a note payable which requires the Company to issue 2,000,000 common shares as a result of the default. The shares were valued upon default based on the closing price of the stock and recorded to common stock payable for $17,000.
During the quarter ended June 30, 2013, the Company agreed to issue 1,774,648 common shares to relieve an accrued payable to a consultant of $13,000. The shares value on the agreement date based on the closing price of the stock was $29,094. The difference between the value of the shares and amount of debt relief was recorded as a loss for $16,094.
During the quarter ended June 30, 2013, the Company agreed to issue 594,718 common shares for equipment. The value of the shares on the agreement date based on the closing price of the stock was $23,788.
At June 30, 2013, the Company had obligations to issue 156,591,277 common shares recorded at $1,066,382. As the Company had already issued shares in excess of their authorization, the entire balance was reclassed to Derivative Liabilities (See Note 10).
NOTE 9 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at June 30, 2013 and December 31, 2012 consist of the following:
06/30/13
12/31/12
Trade accounts payable
$ 970,787 $ 846,784
Royalties payable
48,546 33,120
Liabilities associated with our reverse merger in December, 2008 200,380 200,380
Due to AFEC 120,000 120,000
All-Secure payable
17,473 17,473
Total
$ 1,357,186 $ 1,217,757
As of June 30, 2013, the Company owed four related parties a combined liability of $185,714 for cash advances and for accrued consulting fees.
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NOTE 10 – DERIVATIVE LIABILITY
On April 15, 2013, the Company issued 1,049,036 shares that exceeded our authorized amount of shares. To account for this error, we have recorded a Derivative Liability of $26,750 related to these shares. Fair values for exchange traded securities and derivatives are based on quoted market prices. Where market prices are not readily available, fair values are determined using market based pricing models incorporating readily observable market data and requiring judgment and estimates. Upon recognition of the derivative liability, the Company reclassed the value initially recorded to additional paid in capital with the issuance for $10,490 related to the 1,049,036 shares to derivative liabilities. In adjusting the related derivative liability to the market price at June 30, 2013, the Company realized a loss of $16,260.
At June 30, 2013, the Company a stock payable obligation recorded of $1,066,019. Until the increase of authorized shares is completed during the fourth quarter of 2013, we have re-classed the stock payable to Derivative Liability as there are not any authorized shares to settle this obligation. In conformance with Generally Accepted Accounting Principles we have recorded a liability of $3,993,078 and recognized a loss of $2,926,696. Where market prices are not readily available, fair values are determined using market based pricing models incorporating readily observable market data and requiring judgment and estimates.
At June 30, 2013, the Company had a total Derivative Liability of $4,019,828 and has recognized a Loss on Derivatives of $2,942,956 during the three and six months then ended.
NOTE 11 – ASSET RETIREMENT OBLIGATION
A reconciliation of the aggregate carrying amount of asset retirement obligations is as follows:
The Company recorded an accretion expense of $948 and $11,061 for the three months ended June 30, 2013 and June 30, 2012, respectively and $2,381 and $12,237 for the six months ended June 30, 2013 and June 30, 2012, respectively.
