Table of Contents

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

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

 

For the Quarterly Period Ended June 30, 2017

 

OR

 

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

 

For the transition period from             to             .

 

Commission file number: 333-178437

 

West Texas Resources, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada   99-0365272
(State or other jurisdiction of
incorporation or organization) 		  (I.R.S. Employer
Identification no.)

 

5729 Lebanon Road, Suite 144

Frisco, Texas  75034

(Address of principal executive offices, including zip code)

 

(972) 712-2154

(Registrant’s telephone number, including area code)

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

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

 

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

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging company (as defined in Rule 12b-2 of the Act):

 

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

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

 

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

 

As of August 10, 2017, there were outstanding 17,315,908 shares of the common stock of West Texas Resources, Inc.

 

 

 

 

 

     

 

 

      Page
       
    PART I — FINANCIAL INFORMATION  
       
Item 1.   Financial Statements 1
       
    Balance Sheets 1
       
    Statements of Operations 2
       
    Statements of Cash Flows 3
       
    Notes to Financial Statements 4
       
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations 12
       
    General 12
       
    Results of Operations 14
       
    Financial Condition 15
       
Item 3.   Quantitative and Qualitative Disclosures about Market Risk 15
       
Item 4.   Controls and Procedures 15
       
    PART II — OTHER INFORMATION  
       
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds  
       
Item 6.   Exhibits 16

 

 

 

 

  i  

 

 

PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

West Texas Resources, Inc.

 

CONSOLIDATED BALANCE SHEETS

 

    June 30,     September 30,  
    2017     2016  
    (Unaudited)        
ASSETS            
Current Assets                
Cash   $ 10,704     $ 13,209  
Refundable deposit     10,000       –  
Prepaid & other current assets     4,275       –  
Total Current Assets     24,979       13,209  
                 
Equipment, net of accumulated depreciation     52,740       13,200  
                 
Oil and gas properties, using successful efforts accounting     408,893       267,433  
(net of accumulated depletion)                
TOTAL ASSETS   $ 486,612     $ 293,842  
                 
                 
LIABILITIES AND SHAREHOLDERS' EQUITY                
                 
Current Liabilities                
Accounts payables   $ 152,189     $ 172,765  
Payroll liabilities     56,793       4,000  
Short-term note payable     2,919       –  
Asset retirement obligation     56,444       10,000  
Shareholder advances     36,832       13,442  
Credit card liabilities     56,494       48,009  
                 
Total Current Liabilities     361,671       248,216  
                 
Commitments and Contingencies     –       –  
                 
Shareholders' Equity                
Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued and outstanding     –       –  
Common stock, $0.001 par value; 200,000,000 shares authorized;17,315,908 and 16,289,908 shares issued and outstanding at June 30, 2017 and September 30, 2016, respectively     17,316       16,290  
Additional paid-in capital     2,929,833       2,609,056  
Common stock issuable     25,000       25,000  
Accumulated deficit     (2,847,208 )     (2,604,720 )
Total Shareholders' Equity     124,941       45,626  
                 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $ 486,612     $ 293,842  

 

See accompanying notes to these consolidated financial statements

 

 

 

  1  

 

 

West Texas Resources, Inc.

 

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

 

    For the Three Months Ended June 30,       For the Nine Months Ended June 30,  
    2017     2016     2017     2016  
Revenues                                
Oil and gas sales   $ 4,036     $ –     $ 7,205     $ –  
Royalty income from leased oil and gas properties     915       227       1,045       657  
Total revenues     4,951       227       8,250       657  
                                 
Cost of oil and gas produced     8,487       –       13,948       –  
Gross profit (Loss)     (3,536 )     227       (5,698 )     657  
                                 
General and administrative expenses     93,445       33,205       252,029       139,674  
Operating Loss     (96,981 )     (32,978 )     (257,727 )     (139,017 )
                                 
Other income (expenses)                                
Interest expense     (1,106 )     –       (6,603 )     (954 )
Other income (expense)     (4,450 )     –       21,842       –  
Loss Before Income Taxes     (102,537 )     (32,978 )     (242,488 )     (139,971 )
                                 
Tax provision     –       –       –       –  
Net Loss   $ (102,537 )   $ (32,978 )   $ (242,488 )   $ (139,971 )
                                 
Loss per share                                
Basic and diluted weighted average number of common shares outstanding     17,239,341       16,042,064       17,015,180       15,306,461  
Basic and diluted net loss per share   $ (0.01 )   $ (0.00 )   $ (0.01 )   $ (0.01 )

 

See accompanying notes to these consolidated financial statements

 

 

 

 

  2  

 

 

 

West Texas Resources, Inc.

 

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

    For the Nine Months Ended June 30,  
    2017     2016  
             
Cash flows from operating activities                
Net loss   $ (242,488 )   $ (139,971 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation and depletion     2,677       –  
Accretion expense     2,238       –  
Stock-based compensation     18,003       26,357  
Gain on forgiveness of debt     (26,292 )     –  
Bad debt expense     –       –  
Loss on asset disposal     10,450       –  
Stock for consulting services     14,000       –  
Changes in operating assets and liabilities:                
Refundable deposits     (10,000 )     –  
Prepaid & other current assets     (1,356 )     –  
Accounts payable     5,716       –  
Payroll liabilities     52,793       3,022  
Other payable     8,485       (34,889 )
                 
Net cash used in operating activities     (165,774 )     (145,481 )
                 
Cash flows from investing activities                
Oil and gas properties, using successful efforts accounting     (2,671 )     (10,000 )
Purchase of pumping unit     –       (7,200 )
Sale of pumping unit     2,750       –  
                 
Net cash provided by / (used in) investing activities     79       (17,200 )
                 
Cash flows from financing activities                
Proceeds from sale of common stock     145,800       72,750  
Proceeds from shareholder advances     27,655       –  
Return of shareholder advances     (4,265 )     (6,558 )
Purchase of equipment on credit     –       (6,000 )
Costs of raising capital     (6,000 )     –  
                 
Net cash provided by financing activities     163,190       60,192  
                 
Net (decrease) in cash     (2,505 )     (102,489 )
                 
Cash, beginning of period     13,209       142,762  
                 
Cash, end of period   $ 10,704     $ 40,273  
                 
Supplemental cash flow disclosure:                
Interest paid   $ 6,603     $ 954  
                 
Supplemental disclosure of non-cash transactions:                
Conversion of shareholder advances to common stock   $ –     $ 42,000  
               
Purchase of oil and gas investments using common stock, net of asset retirement obligations of $44,206   $ 150,000     $ 40,000  

 

 

See accompanying notes to these consolidated financial statements

 

 

  3  

 

 

 

WEST TEXAS RESOURCES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017 AND 2016

 

 

1. Organization and Summary of Significant Accounting Policies

 

Organization and business

 

West Texas Resources, Inc. (the “Company”) was incorporated under the laws of Nevada on December 9, 2010 under the name Texas Resources Energy, Inc. On June 30, 2011, the Company changed its name to West Texas Resources, Inc. The Company intends to engage in the acquisition, exploration and development of oil and gas properties in North America. From its inception, the Company has devoted its activities to developing a business plan, raising capital and acquiring operating assets. On August 5, 2016, the Company formed a wholly owned subsidiary in the State of Texas, WTXR Operating (Texas) Inc., to operate oil and gas wells in Texas. This subsidiary was incorporated to operate oil and gas wells in which West Texas Resources, Inc. owns interests. The subsidiary began the operation of several leases in South Texas and a lease in East Texas, with operations beginning in December 2016.

 

Going concern

 

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (GAAP) that contemplate continuation of the Company as a going concern. The Company has not earned any significant revenues since inception. During the nine months ended June 30, 2017 and 2016, the Company incurred a net operating loss of $242,488 and $139,971, respectively. In addition, the Company had an accumulative deficit of $2,847,208 and $2,604,720, as of June 30, 2017 and September 30, 2016, respectively. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

The Company will require up to $1 million of additional capital in order to fund its proposed operations over the next 12 months. Management plans to continue to seek sources of financing on favorable terms; however, there are no assurances that any such financing can be obtained on favorable terms, if at all. Management expects to monitor and control the Company’s operating costs until cash is available through financing or operating activities. There are no assurances that the Company will be successful in achieving these plans. The Company anticipates that losses will continue until such time, if ever, as the Company is able to generate sufficient revenues to support its operations.

 

Unaudited Interim Financial Information

 

We have prepared the accompanying consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the ‘SEC”) for interim financial reporting. These consolidated financial statements are unaudited and, in our opinion, include all adjustments, consisting of normal recurring adjustments and accruals necessary for a fair presentation of our consolidated balance sheets, operating results, and cash flows for the periods presented. Operating results for the periods presented are not necessarily indicative of the results that may be expected for 2017 due to seasonal and other factors. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been omitted in accordance with the rules and regulations of the SEC. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes in Item 8 of Part VI, “ Financial Statements and Supplementary Data,” of our 2016 Annual Report on Form 10-K.

 

Oil and gas properties

 

The Company uses the successful efforts method of accounting for oil and gas producing activities. Costs to acquire mineral interests in oil and gas properties, to drill and equip exploratory wells that find proved reserves, to drill and equip development wells and related asset retirement costs are capitalized. Costs to drill exploratory wells that do not find proved reserves, geological and geophysical costs, and costs of carrying and retaining unproved properties are expensed.

 

Unproved oil and gas properties that are individually significant are periodically assessed for impairment of value, and a loss is recognized at the time of impairment by providing an impairment allowance. Other unproved properties are amortized based on the Company's experience of successful drilling and average holding period. Capitalized costs of producing oil and gas properties, after considering estimated residual salvage values, are depreciated and depleted by the unit-of-production method.

 

 

 

  4  

 

 

WEST TEXAS RESOURCES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017 AND 2016

 

 

On the sale or retirement of a complete unit of a proved property, the cost and related accumulated depreciation, depletion, and amortization are eliminated from the property accounts, and the resultant gain or loss is recognized. On the retirement or sale of a partial unit of proved property, the cost is charged to accumulated depreciation, depletion, and amortization with a resulting gain or loss recognized in income. On the sale of an entire interest in an unproved property for cash or cash equivalent, gain or loss on the sale is recognized, taking into consideration the amount of any recorded impairment if the property had been assessed individually. If a partial interest in an unproved property is sold, the amount received is treated as a reduction of the cost of the interest retained.

 

Impairment of long-lived assets

 

The Company accounts for the impairment and disposition of long-lived assets in accordance with ASC 360-10-35, Impairment or Disposal of Long-Lived Assets . In accordance with ASC 360-10-35, long-lived assets are reviewed for events of changes in circumstances, which indicate that their carrying value may not be recoverable.

 

Asset retirement obligations

 

ASC 410-20, Asset Retirement Obligations , clarifies that a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and/or method of settlement. ASC 410-20 requires a liability to be recognized for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated.

 

In general, our future asset retirement obligations relate to future costs associated with plugging and abandoning our oil and natural gas wells, removing equipment and facilities from leased acreage, and returning land to its original condition. The fair value of a liability for an asset retirement obligation is recorded in the period in which it is incurred, discounted to its present value using our credit-adjusted-risk-free interest rate, and a corresponding amount capitalized by increasing the carrying amount of the related long-lived asset. The liability is accreted each period, and the capitalized cost is depreciated over the useful life of the related asset. Revisions to estimated retirement obligations will result in an adjustment to the related capitalized asset and corresponding liability. If the liability for an oil or natural gas well is settled for an amount other than the recorded amount, the difference is recorded to current period earnings, unless significant.

 

Cash, cash equivalents, and other cash flow statement supplemental information

 

Cash is commonly considered to consist of currency and demand deposits. The Company considers all liquid investments with an original maturity of three months or less that are readily convertible into cash to be cash equivalents. The Company places its cash with high credit quality financial institutions. Accounts at these institutions are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. The Company performs ongoing evaluations of these institutions to limit its concentration of risk exposure. Management believes this risk is not significant due to the financial strength of the financial institutions utilized by the Company.

 

Use of estimates

 

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Management believes its estimates and assumptions are reasonable; however, such estimates and assumptions are subject to a number of risks and uncertainties that may cause actual results to differ materially from such estimates.

 

 

 

  5  

 

 

WEST TEXAS RESOURCES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017 AND 2016

 

 

Income taxes

 

The Company reports certain expenses differently for financial and tax reporting purposes and, accordingly, provides for the related deferred taxes. Income taxes are accounted for under the liability method in accordance with ASC 740, Income Taxes.

 

Management has considered its tax positions and believes that all of the positions taken by the Company in its Federal and State tax returns are more likely than not to be sustained upon examination. The Company is subject to examination by U.S. Federal and State tax authorities from 2013 to the present, generally for three years after they are filed.

 

The Company has not filed its income tax return for fiscal year 2016. The Company plans to file this tax return in the third quarter 2017. The Company believes that it should not have a material impact on the financials because the Company did not have any tax liabilities due to the net loss incurred in fiscal year 2016.

 

Basic and diluted net income (loss) per share

 

Basic net income (loss) per share is based upon the weighted average number of common shares outstanding. Diluted net income (loss) per share is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. For the nine months ended June 30, 2017 and 2016, all common stock equivalents were anti-dilutive.

 

Stock-based payments

 

Compensation costs for all share-based awards are measured based on the grant date fair value and are recognized over the vesting period. Expense related to awards with performance conditions is recognized when it becomes probable that the performance conditions will be met, at which time the grant date fair value will be amortized over any requisite service period, net of estimated pre-vesting forfeitures.

 

Revenue recognition

 

In accordance with the requirements ASC topic 605 “Revenue Recognition”, revenues are recognized at such time as (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the seller’s price to the buyer is fixed or determinable and (4) collectability is reasonably assured.

 

Fair value of financial instruments

 

The accounting standards regarding fair value of financial instruments and related fair value measurements defines financial instruments and requires disclosure of the fair value of financial instruments held by the Company. The Company considers the carrying amount of cash and other current assets and liabilities to approximate their fair values because of the short period of time between the origination of such instruments and their expected realization.

 

The Company has also adopted ASC 820-10 which defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined as follows:

 

· Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
     
  · Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.
     
· Level 3 inputs to the valuation methodology are unobservable and significant to the fair value.

 

As of June 30, 2017 and September 30, 2016, the Company did not identify any assets or liabilities that are required to be presented on the balance sheet at fair value in accordance with ASC 820-10.

 

 

 

  6  

 

 

WEST TEXAS RESOURCES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017 AND 2016

 

 

New Accounting Pronouncements

 

In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This update addresses a diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. We adopted this ASU in 2016 and the implementation did not have a material impact on our financial position or statement of operations.

 

In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718) (“ASU 2016-09”), which simplified certain aspects of the accounting for share-based payment transactions, including income taxes, classification of awards and classification in the statement of cash flows. ASU 2016-09 will be effective for the Company beginning in its first quarter of 2018. We are currently evaluating the impact of adopting the new stock compensation standard on our consolidated financial statements.

 

In August 2014, the FASB issued Accounting Standards Update No. 2014-15, “ Presentation of Financial Statements – Going Concern” , Subtopic 205-40, “ Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.”  The amendments in this ASU apply to all entities and require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term  substantial doubt,  (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. We adopted this ASU in 2016 and the implementation did not have a material impact on our financial position or results of operations.

 

In May 2014, the FASB issued ASU No. 2014-09 “ Revenue from Contracts with Customers ” (Topic 606). This ASU was subsequently amended by ASU No. 2016-10 and 2016-12. As amended, Topic 606 supersedes the revenue recognition requirements in Topic 605,  “Revenue Recognition”  including most industry-specific revenue recognition guidance throughout the Industry Topics of the Codification. In addition, the amendments create a new Subtopic 340-40,  “Other Assets and Deferred Costs—Contracts with Customers”.  In summary, the core principle of Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. For a public entity, the amendments in this update are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. We are currently evaluating the impact this guidance will have on our financial position and statement of operations.

 

2. Oil and Gas Properties

 

Eastland County Field

 

In September 2011, we acquired our initial property consisting of a 31.25% working interest in an explanatory oil and gas drilling prospect covering 120 acres in Eastland County, Texas. After explanatory work was performed, we determined that, as of the three months ended June 30, 2013, our investment in the Eastland County prospect was impaired due to an unsuccessful fracture stimulation. The value of this property, subsequent the impairment, was $20,449. The operator has undertaken no further activity on the Eastland County prospect as of the date of this report.

 

Sunshine Prospect, Landry Parish, Louisiana

 

On August 1, 2014, the Company entered into an agreement with Restech Resources, LLC to purchase a 15% (14.25% net revenue interest) in an oil and gas prospect located in Landry Parish, Louisiana. The working interest concerns 248 gross acres and net acres in the Sunshine Prospect. Our purchase price for the working interest was $76,500.

 

 

 

  7  

 

 

WEST TEXAS RESOURCES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017 AND 2016

 

 

Birnie Field, Motley County, Texas

 

On September 17, 2014, the Company entered into an agreement with Escopeta Oil and Gas Corporation to purchase a 10% working interest (7.5% net revenue interest) in a natural gas prospect located in the Birnie field in Motley County, Texas. The working interest concerns 5,760 leased acres in the Palo Duro Basin prospect. Our purchase price for the working interest was $70,000. In 2014, the operator drilled an initial well on the prospect, however the drilling was unsuccessful and resulted in a dry hole. The operator agreed to provide us, for no additional consideration, a 1% working interest in the Stansell field prospect described below.

 

Stansell Field, Floyd County, Texas

 

We hold a 1% working interest in an oil prospect located in Floyd County, Texas. The working interest comprises 15,000 leased acres in the southern section of the Palo Duro basin. The initial project will be the re-entry of the Stansell #1-A well, an existing wellbore that was drilled in 2006. The original drilling encountered oil shows in three separate reservoirs and the operator intends to re-enter and recomplete the Stansell #1-A using current fracture stimulation technology. We have a carried 1% working interest in the Stansell #1-A well through the tanks. In April 2015, the operator has started the re-entry of the Stansell #1-A well.

 

Hale County Field, Hale County, Texas

 

In June and July 2014, the Company acquired non-operating leases covering approximately 1,070 gross mineral acre leases in a property located in Hale County, Texas. The leases were acquired for cash payments of $45,484. The leases have a primary term of five years with the Company option to extend the term for another five years. The leased properties constitute the surface acreage comprising a natural gas prospect, for which we hold 50% of the working interest and 40% net revenue interest. The leased properties are subject to a 20% royalty interest held by the owners and a third party. The Company is currently evaluating the Company options for the exploitation of the leased properties, including the Company sale of the leases or the Company farm-out of the leases to a natural gas operator.

 

Leased Properties from Kiowa Oil Company

 

On September 30, 2015, the Company entered into an agreement with Kiowa Oil Company to lease 100% of interests, for a period of five years, of properties in North Dakota, Florida, Illinois, and Kentucky. The total price for the subject interests under this lease agreement is $5,000 and a 15% royalty interest in all the subject interests leased. The total price was paid in the Company’s common shares at the per share price of $0.50.

 

TW Lee Field, Gregg County, Texas

 

On March 3, 2016, the Company entered into an agreement with Two Eagle Resources, a Texas corporation, to purchase 25% working interest (18.75% net revenue interest) in the properties located in Gregg County, Texas. The property is known as T.W. Lee. The purchase price for the subject interests under this agreement is $25,000, which will be paid in the Company’s common shares at the per share price of $0.25.

 

T.A. Greer Lease

 

On May 10, 2016, the Company acquired a 25% working interest (19.5% net revenue interest) in an East Texas oil and gas property. The property is known as the T.A. Greer lease and includes two tracts of land totaling approximately 407 acres in Panola County, Texas. We acquired the property from an unaffiliated party in consideration of our payment of $10,000 and issuance of 60,000 shares of our common stock at $0.25 per share for a total consideration of $25,000.

 

 

 

  8  

 

 

WEST TEXAS RESOURCES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017 AND 2016

 

 

Origin Acquisition

 

On November 10, 2016, the Company acquired from Origin Production Co. Inc. interests in various producing and non-producing leases; primarily in Gonzales, Caldwell, and Wilson County, Texas. We acquired the property from an unaffiliated party in for the purchase of 500,000 units of the Company’s securities for a purchase price of $0.30 per unit for a total of $150,000. Each Unit consists of one share of the Company’s common stock and one common stock warrant that entitles its holder to purchase one share of the Company’s common stock at an exercise price of $0.50 per share over a three year period ending November 1, 2019.

 

As of June 30, 2017 and September 30, 2016, total oil and gas properties amounted to $408,893 and $267,433, respectively.

 

3. Shareholder Advances

 

During the nine months ended June 30, 2017 and 2016, a shareholder made advances to the Company to support its daily operations. These advances were due on demand and do not bear any interest.

 

The Company repaid $6,558 during the nine months ended June 30, 2016. In January 2016, the Company issued 450,000 shares of its common stock upon conversion of the outstanding amount of $45,000. In addition, the shareholder retired 30,000 shares in exchange for $3,000 overpayment made to him.

 

During the quarter ended September 30, 2016, a shareholder paid a total amount of $17,000 for payment of legal fees on behalf of the Company through his personal credit line.

 

During the nine months ended June 30, 2017, a shareholder paid a total amount of $27,655 for payment of legal fees on behalf of the Company through his personal credit line and the company repaid $4,265 of advances received. The outstanding balance is due on demand and does not bear any interest. As of June 30, 2017, and September 30, 2016, the total outstanding amount due to the shareholder was $36,832 and $13,442, respectively.

 

4. Shareholders’ Equity

 

Common Equity

 

The Company is authorized to issue 200,000,000 shares of common stock, par value of $0.001, and 10,000,000 shares of preferred stock, par value of $0.001.

 

During the nine months ended June 30, 2017, the Company entered into subscription agreements with various accredited investors to sell 486,000 shares of the Company’s common stock at $0.30 per share. The total amount of $145,800 was received and all of the shares were issued.

 

During the nine months ended June 30, 2017, the Company exchanged 540,000 units of WTXR securities valued at $0.30 per unit, for a total consideration of $164,000, in exchange for $14,000 of professional services and $150,000 of equipment and various producing and non-producing leases primarily in Gonzales, Caldwell, and Wilson County, Texas. Each Unit consists of one share of the Company’s common stock and one common stock warrant that entitles its holder to purchase one share of the Company’s common stock at an exercise price of $0.50 per share over a three year period ending November 1, 2019.

 

As of June 30, 2017 and September 30, 2016, the Company had 17,315,908 and 16,289,908 shares of common stock issued and outstanding and had not issued any of its preferred stock.

 

 

 

  9  

 

 

WEST TEXAS RESOURCES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017 AND 2016

 

 

Share-based Compensation

 

On September 15, 2011, the Company adopted the West Texas Resources, Inc. 2011 Stock Incentive Plan (the “Plan”) providing for the grant of non-qualified stock options and incentive stock options to purchase its common stock and for grant of restricted and unrestricted grants. The Company has reserved 3,000,000 shares of its common stock under the Plan. All officers, directors, employees and consultants to the Company are eligible to participate under the Plan. The purpose of the Plan is to provide eligible participants with an opportunity to acquire an ownership interest in the Company.

 

On April 16, 2015, the Company granted options to Mr. Paul Brogan, the Company’s director, to purchase a total of 200,000 shares of the Company’s common stock. The options have an exercise price of $0.50 per share, expire on April 16, 2020, and 66,667 shares vest immediately with the rest vesting equally on April 16, 2016 and 2017. The fair value of these options was determined to be $99,712, of which $18,003 was amortized and included in general and administrative expenses for the nine months ended June 30, 2017. As of June 30, 2017, all compensation expense related to these options has been recognized.

 

The following assumptions were used in the fair value method calculation:

 

· Volatility: 266%

 

· Risk free rate of return: 1.375%

 

· Expected term: 5 years

 

On October 19, 2016, the Company granted options to Mr. William Sawyer, the Company’s new CEO, to purchase a total of 1,500,000 shares of the Company’s common stock.  The options have an exercise price of $0.50 per share, and expire on October 18, 2021. The stock options vest in 375,000 increments based on the CEO’s ability to raise additional capital ($1M and $10M), get company’s share price to above $2.00 with 10,000 shares daily trading volume for 30 consecutive days, or increase daily production to 500 boepd.  The fair value of the options was determined to be $448,500, but the Company does not consider it probable that the performance conditions will be met. Therefore no compensation expense has been recognized.

 

The following assumptions were used in the fair value method calculation:

 

· Volatility: 266%

 

· Risk free rate of return: 1.375%

 

· Expected term: 5 years

 

The following is a rollforward of the options outstanding and exercisable for the six months ended June 30, 2017:

 

      Options     Weighted Average Exercise Price     Average Remaining Life  
  Outstanding and exercisable – September 30, 2016       563,889     $ 0.57       2.73  
  Vested       36,111                  
  Expired       –                  
  Outstanding and exercisable – June 30, 2017       600,000     $ 0.57       2.06  

 

 

 

  10  

 

 

WEST TEXAS RESOURCES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017 AND 2016

 

 

5. Income Taxes

 

Based on the available information and other factors, management believes it is more likely than not that the net deferred tax assets at June 30, 2017 and September 30, 2016 will not be fully realizable. Accordingly, management has recorded a full valuation allowance against its net deferred tax assets at June 30, 2017 and September 30, 2016. As of June 30, 2017 and September 30, 2016, the Company had federal net operating loss carry-forwards of approximately $2,847,488 and $2,605,000, respectively, expiring beginning in 2032.

 

Deferred tax assets consist of the following components:

 

     

June 30,

2017

   

September 30,

2016

 
  Net loss carryforward     $ 1,005,638     $ 920,000  
  Valuation allowance       (1,005,638 )     (920,000 )
  Total deferred tax assets     $ –     $ –  

 

  6. New CEO’s employment and stock options agreement highlights.

 

On October 19, 2016, the Company hired a new CEO and entered into an employment agreement providing for the following compensation:

 

Base Salary: The base salary is $90,000 per year ($7,500 per month), with $2,000 guaranteed and paid on a monthly basis, and the remaining $5,500 accruing each month until certain benchmarks are reached. Accrual reduction happens at the one year mark, at which point $4,000 is guaranteed and paid on a monthly basis, with the remaining $3,500 accruing each month until certain benchmarks are reached. At the two year mark, accrual ends and any unpaid balance is paid out on a monthly basis at $500, with the final lump sum paid at the three year mark.

 

Option Compensation: The CEO was granted 1,500,000 stock options. The stock options vest in 375,000 increments based on the CEO’s ability to raise additional capital ($1M and $10M), get Company’s share price to above $2.00 with 10,000 shares daily trading volume for 30 consecutive days, or increase daily production to 500 boepd. All benchmarks must be reached within two years of the October 18, 2016 grant date. If there is a change in control, then all options vest and become immediately exercisable. As of June 30, 2017, the Company concluded that the vesting conditions were not probable, and therefore no compensation expense has been recorded related to these options.

 

Annual Bonus: The annual bonus is not guaranteed, however the Company will track the performance criteria throughout the year.

 

Other Perks: Among the various perks, the CEO gets two weeks paid vacation each calendar year.

 

 

  7. Debt Forgiveness

 

During the nine months ended June 30, 2017, the Company’s legal counsel forgave $26,292 in legal fees payable. The Company recognized a gain as a result of this forgiveness within other income on the Consolidated Statement of Operations.

 

  8. Subsequent Event

 

Events subsequent to June 30, 2017 have been evaluated through the date these consolidated financial statements were issued to determine whether they should be disclosed to keep the consolidated financial statements from being misleading.

 

 

  11  

 

 

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

 

Cautionary Statement

 

The following discussion and analysis should be read in conjunction with our unaudited financial statements and the related notes thereto contained elsewhere in this report. The information contained in this quarterly report on Form 10-Q is not a complete description of our business or the risks associated with an investment in our common stock. We urge you to carefully review and consider the various disclosures made by us in this report and in our other filings with the Securities and Exchange Commission, or SEC, including our Annual Report on Form 10-K for the fiscal year ended September 30, 2016 filed with the SEC on February 10, 2017 and our subsequently filed periodic reports, which discuss our business in greater detail.

 

In this report we make, and from time to time we otherwise make, written and oral statements regarding our business and prospects, such as projections of future performance, statements of management’s plans and objectives, forecasts of market trends, and other matters that are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Statements containing the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimates,” “projects,” “believes,” “expects,” “anticipates,” “intends,” “target,” “goal,” “plans,” “objective,” “should” or similar expressions identify forward-looking statements, which may appear in documents, reports, filings with the SEC, news releases, written or oral presentations made by officers or other representatives made by us to analysts, stockholders, investors, news organizations and others, and discussions with management and other of our representatives.

 

Our future results, including results related to forward-looking statements, involve a number of risks and uncertainties, including those risks included in the section “Risk Factors” set forth in our Annual Report on Form 10-K for the fiscal year ended September 30, 2016 filed with the SEC on February 10, 2017. No assurance can be given that the results reflected in any forward-looking statements will be achieved. Any forward-looking statement speaks only as of the date on which such statement is made. Our forward-looking statements are based upon assumptions that are sometimes based upon estimates, data, communications and other information from suppliers, government agencies and other sources that may be subject to revision. Except as required by law, we do not undertake any obligation to update or keep current either (i) any forward-looking statement to reflect events or circumstances arising after the date of such statement, or (ii) the important factors that could cause our future results to differ materially from historical results or trends, results anticipated or planned by us, or which are reflected from time to time in any forward-looking statement.

 

General

 

We were formed on December 9, 2010 under the laws of Nevada for the purpose of oil and gas exploration and development in North America. We commenced revenue producing oil and gas operations effective as of April 1, 2013.

 

Eastland County Field

 

In September 2011, we acquired our initial property consisting of a 31.25% working interest in an explanatory oil and gas drilling prospect covering 120 acres in Eastland County, Texas. After explanatory work was performed, we determined that, as of the three months ended June 30, 2013, our investment in the Eastland County prospect was impaired due to an unsuccessful fracture stimulation. The value of this property, subsequent the impairment, was $20,449. The operator has undertaken no further activity on the Eastland County prospect as of the date of this report.

 

Sunshine Prospect

 

We hold a 15% working interest (14.25% net revenue interest) in a non-operating oil and gas prospect located in Landry Parish, Louisiana. The working interest concerns 248 gross acres and net acres in the Sunshine Prospect.

 

 

 

  12  

 

 

Stansell Field

 

We hold a 1% working interest in an oil prospect located in Floyd County, Texas. The working interest comprises 15,000 leased acres in the southern section of the Palo Duro basin. The initial project will be the re-entry of the Stansell #1-A well, an existing well bore that was drilled in 2006. The original drilling encountered oil shows in three separate reservoirs and the operator intends to re-enter and recomplete the Stansell #1-A using current fracture stimulation technology. We have a carried 1% working interest in the Stansell #1-A well through to the tanks. The operator commenced the re-entry of the Stansell #1-A well in January 2015 and is currently evaluating the drilling results.

 

Hale County Field

 

In June and July 2014, we acquired non-operating leases covering approximately 1,070 gross mineral acre leases in the Wolfcamp field located in Hale County, Texas. The leases have a primary term of five years with our option to extend the term for another five years. The leased properties constitute the surface acreage comprising a natural gas prospect, for which we hold 50% of the working interest and 40% net revenue interest. The leased properties are subject to a 20% royalty interest held by the owners and a third party. We are currently evaluating our options for the exploitation of the leased properties, including our sale of the leases or our farm-out of the leases to a natural gas operator.

 

Kiowa Properties

 

On September 30, 2015, we leased 100% of interests, for a period of five years, of properties in North Dakota, Florida, Illinois, and Kentucky. The total price for the subject interests under this lease agreement is $5,000 and a 15% royalty interest in all the subject interests leased. The $5,000 purchase price was paid by us in our common shares at the per share price of $0.50, or 10,000 common shares.

 

T.W. Lee Lease

 

On March 3, 2016, we acquired a 25% working interest (18.75% net revenue interest) in an East Texas oil and gas property. The property is known as the T.W. Lee lease. We acquired the property from an unaffiliated party in consideration of issuance of 100,000 shares of our common stock.

 

T.A. Greer Lease

 

On May 10, 2016, we acquired a 25% working interest (19.5% net revenue interest) in an East Texas oil and gas property. The property is known as the T.A. Greer lease and includes two tracts of land totaling approximately 407 acres in Panola County, Texas. The property is held by production by two operating wells that the operator plans to re-work commencing in the third calendar quarter of 2016. We acquired the property from an unaffiliated party in consideration of our payment of $10,000 and issuance of 60,000 shares of our common stock at $0.25 for a total consideration of $25,000.

 

Origin Acquisition

 

On November 10, 2016, the Company acquired from Origin Production Co. Inc. interests in various producing and non-producing leases, primarily in Gonzales, Caldwell, and Wilson County, Texas. We acquired the property from an unaffiliated party in for the purchase of 500,000 units of the Company’s securities for a purchase price of $0.30 per unit for a total of $150,000. Each Unit consists of one share of the Company’s common stock and one common stock warrant that entitles its holder to purchase one share of the Company’s common stock at an exercise price of $0.50 per share over a three year period ending November 1, 2019.

 

On October 19, 2016, the Company appointed William A. Sawyer to serve as president and chief executive officer of West Texas Resources, Inc.

 

During the nine months ended June, 2017, the Company entered into subscription agreements with various accredited investors to sell 486,000 shares of the Company’s common stock at $0.30 per share. The total amount of $145,800 was received and all of the shares were issued.

 

Subject to our receipt of additional capital, we intend to pursue the acquisition of additional equity interests in other oil and gas properties in North America. However, as of the date of this report, we have no understandings or agreements in place concerning our acquisition of an interest in any other properties.

 

 

 

  13  

 

 

Results of Operations

 

During the three months ended June 30, 2017 and 2016, we had $4,951 and $227 of revenues, respectively.  The increase in revenues is driven by oil and gas sales generated by the Origin fields, which began operations in December 2016.  Revenues for the nine months ended June 30, 2017 totaled $8,250, compared to $657 for the nine months ended June 30, 2016.  The increase in revenues is driven by oil and gas sales generated by the Origin fields.

 

Cost of oil and gas produced increased from $0 for the three and nine months ended June 30, 2016 to $8,487 and $13,948 for the three and nine months ended June 30, 2017, respectively.  This is primarily comprised of lease operating expenses of $8,831 and depreciation expense of $2,260. The increase is driven by the operation of the wells in the Origin fields, which commenced operations in December 2016.

 

For the three months ended June 30, 2017, we had general and administrative expenses of $93,445 compared to general and administrative expenses of $33,205 during the prior year period.  The increase in general and administrative expenses is driven by increased professional fees and compensation due to the new CEO who was hired in October 2016.  During the nine months ended June 30, 2017 and 2016, general and administrative expenses totaled $252,029 and $139,674, respectively.  The increase in general and administrative expenses is driven by increased professional fees and compensation due to the new CEO who was hired in October 2016. 

 

For the three months ended June 30, 2017, we had interest expenses of $1,106 compared to interest expenses of nil during the prior year period. The increase is driven by increased interest expense.  Interest expenses totaled $6,603 and $954 for the nine months ended June 30, 2017 and 2016, respectively.

 

For the three months ended June 30, 2017, we had other expenses of $4,450 compared to other income of nil during the prior year period. Other income totaled $21,842 and nil for the nine months ended June 30, 2017 and 2016, respectively. The increase is driven by the debt forgiveness of legal expenses owed to a law firm in the amount of $26,292 offset by the loss on the sale of an asset in the amount of $4,450 respectively.

 

For the three months ended June 30, 2017 and 2016, we incurred a net loss of $(102,537) and $(32,978), respectively. The net loss for the nine months ended June 30, 2017 and 2016 totaled $(242,488) and $(139,971), respectively. The increase in net loss for both periods is driven by increased general and administrative expenses, offset by an increase in revenues and other income.

 

Subject to our receipt of additional capital, our plan of operations over the next 12 months is to pursue the acquisition of additional equity interests in oil and gas properties to be thereafter exploited by us in conjunction with other oil and gas producers. As of the date of this report, we have no understandings or agreements in place concerning our acquisition of an interest in any other properties.

 

At the present time, we have two employees, our chief executive officer, William A. Sawyer, and our chief financial officer, John D. Kerr. Subject to our receipt of significant additional capital, we intend to hire additional senior management and staff with experience in oil and gas exploration. We intend to pursue an operating strategy that is based on our participation in exploration prospects with a preference to serving as the operator for the prospect; however, we will also participate as a non-operator from time to time. Based on that strategy, our plan of operations over the next 12 months is to pursue the acquisition of oil and natural gas interests in partnership with other companies with exploration, development and production expertise. We will also pursue alliances with partners in the areas of geological and geophysical services and prospect generation, evaluation and prospect leasing. Pursuant to this strategy, we intend to engage and rely on third party geologists and geophysicists, among others, to review the available data concerning each potential acquisition. In each case, we or the operator of the prospect will assemble the appropriate data and conduct the appropriate studies and that our consultants will conduct an independent review of the data and studies for purposes of advising us of the merits of each potential acquisition.

 

The business of oil and gas acquisition, drilling and development is capital intensive and the level of operations attainable by an oil and gas company is directly linked to and limited by the amount of available capital. Therefore, a principal part of our plan of operations is to acquire the additional capital required to finance the acquisition of such properties and our share of the development costs. As explained under “Financial Condition” below, we will seek additional working capital through the sale of our securities and, subject to the successful deployment of our cash on hand, we will endeavor to obtain additional capital through bank lines of credit and project financing.

 

 

 

  14  

 

 

Financial Condition

 

As of June 30, 2017, we had total assets of $486,612 and negative working capital of $336,692. We believe that our ability to achieve commercial success and our continued growth will be dependent on our ability to access capital either through the additional sale of our equity or debt securities, bank lines of credit, project financing or cash generated from oil and gas operations.  Therefore, a principal part of our plan of operations is to acquire the additional capital required to finance the acquisition of such properties and our share of the development costs.  We will seek additional working capital through the sale of our securities and, subject to the successful deployment of our cash on hand, we will endeavor to obtain additional capital through bank lines of credit and project financing. There can be no assurance that we will be able to obtain additional capital on a timely basis in order to complete our acquisition of additional oil and gas interests.

 

The report of our independent registered public accounting firm for the fiscal year ended September 30, 2016 states that due to our losses from operations and lack of working capital there is substantial doubt about our ability to continue as a going concern.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet financing arrangements.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risks

 

Not applicable.

 

Item 4. Controls and Procedures

 

(a)   Evaluation of Disclosure Controls and Procedures .

 

Our management, with the participation of our chief executive officer and chief financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 15d-15 of the Securities Exchange Act of 1934.  Based on this evaluation, our management, including our chief executive officer and chief financial officer, concluded that as of June 30, 2017 our disclosure controls and procedures were not effective due to existing material weaknesses in our internal control over financial reporting, as described below.

 

In connection with our evaluation of our internal control over financial reporting as of September 30, 2016, and included in our annual report on Form 10-K filed with the SEC on February 10, 2017, we determined that there were control deficiencies that constituted material weaknesses which are indicative of many small companies with small staff, including:

 

  · Due to our small size, we do not maintain effective internal controls to assure segregation of duties as we have only two employees who are responsible for initiating and approving of transactions, thereby creating the segregation of duties weakness;
  · Our board of directors does not have an audit committee or a financial expert to maintain effective oversight of our financial reporting process; and
  · Lack of formal policies or procedures to provide assurance that relevant information is identified, captured, processed, and reported in an appropriate and timely fashion.

 

(b)   Changes in Internal Control Over Financial Reporting.

 

There were no changes in our internal control over financial reporting that occurred during the three-month period ended June 30, 2017 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

 

 

 

  15  

 

 

PART II — OTHER INFORMATION

 

 

 

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

 

During the three months ended June 30, 2017, the Company entered into subscription agreements with various accredited investors to sell 147,000 units of the Company’s securities at $0.30 per unit, each unit consisting of one share of the Company’s common stock and one warrant to purchase one share of the Company’s common stock, over a three year period, at an exercise price of $0.50 per share. All of the aforementioned securities were issued pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, and Rule 506 thereunder.

 

Item 6. Exhibits

 

Exhibit
No. 		  Description   Method of Filing
         
31.1   Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.   Filed electronically herewith
         
31.2   Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.   Filed electronically herewith
         
32.1   Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).   Filed electronically herewith
         
101.INS   XBRL Instance Document   Filed electronically herewith  
         
101.SCH   XBRL Taxonomy Extension Schema Document   Filed electronically herewith
         
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document   Filed electronically herewith
         
101.LAB   XBRL Taxonomy Extension Label Linkbase Document   Filed electronically herewith
         
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document     Filed electronically herewith
         
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document     Filed electronically herewith

 

 

 

 

  16  

 

 

SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

    WEST TEXAS RESOURCES, INC.
     
     
     
Date: August 14, 2017 By: /s/ William A. Sawyer
      William A. Sawyer,
      President and Chief Executive Officer
       
       
    By: /s/ John D. Kerr
      John D. Kerr,
      Chief Financial Officer
       

 

 

 

 

 

 

 

 

 

 

  17  

West Texas Resources (PK) (USOTC:WTXR)
Gráfica de Acción Histórica
De Nov 2024 a Dic 2024 Haga Click aquí para más Gráficas West Texas Resources (PK).
West Texas Resources (PK) (USOTC:WTXR)
Gráfica de Acción Histórica
De Dic 2023 a Dic 2024 Haga Click aquí para más Gráficas West Texas Resources (PK).