Organization and business
Texas Resources Energy, Inc. (TREI)
was incorporated under the laws of Nevada on December 9, 2010, as a wholly-owned subsidiary of Russian Resources Energy, Inc.,
a Texas corporation (RREI), and then spun off to the shareholders of RRIE on the same date. On June 30, 2011,
TREI changed its name to West Texas Resources, Inc. (the Company). 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.
The Company is in the development stage, it
has not generated any revenues from operations, it has no assurance of any future revenues or its ability to obtain additional
capital to fund future acquisitions, or, if such funds might be available, that they will be obtainable on terms satisfactory to
Liquidity and managements plans
The Company has not generated any revenues from
oil and gas exploration and there is no assurance that the Company will generate revenues in the future. The Companys ability
to generate revenue primarily depends on its success in investigation and exploration of oil and gas properties. The
Company incurred a net loss of $166,370 during the year ended September 30, 2012 and a net loss of $248,417 from inception to September
30, 2012. Also, the Company had a cash balance of $8,611, a working capital deficit of $113,092 and a stockholders equity
of $57,485 at September 30, 2012.
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 Companys 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.
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.
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. The Company believes there has been no impairment of the value of such assets at September 30, 2012.
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
Cash, cash equivalents, and other cash flow
statement supplemental information
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 equivalents 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.
Furniture, fixtures and equipment
Furniture, fixtures and equipment are carried
at cost depreciated using the straight-line method over their estimated useful lives. Gain or loss on retirement or sale or other
disposition of these assets is included in income in the period of disposition.
Use of estimates
The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could differ from those estimates.
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 2009 to the present,
generally for three years after they are filed.
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 years ended September 30, 2012 and 2011, all common stock equivalents were anti-dilutive.
Compensation costs for all share-based awards
are measured based on the grant date fair value and are recognized over the vesting period. The Company has no awards with market
or performance conditions. Excess tax benefits will be recognized as an addition to additional paid-in-capital.
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 September 30, 2012, 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
Recent Accounting Pronouncements
In December 2011, the Financial Accounting Standards
Board (FASB) issued Accounting Standards Update 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective
Date for Amendments to the Presentation of Reclassification of Items Out of Accumulated Other Comprehensive Income in Accounting
Standards Update (ASU) No. 2011-05, in order to defer only those changes in ASU 2011-05 that relate to the presentation
of reclassification adjustments. The amendments are being made to allow the FASB time to redeliberate whether to present on the
face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components
of net income and other comprehensive income for all periods presented. All other requirements in ASU 2011-05 not affected by this
ASU are effective for fiscal years beginning after December 15, 2011. The Company does not expect the adoption of the standard
update to impact its financial position or results of operations, as it only requires a change in the format of presentation.
In July 2012, the Financial Accounting Standards
Board (FASB) issued ASU 2012-02, IntangiblesGoodwill and Other (Topic 350): Testing Indefinite-Lived Intangible
Assets for Impairment, to simplify the manner in which entities test indefinite-lived intangible assets for impairment. The ASU
permits an entity to first assess qualitative factors to determine whether events and circumstances indicate that it is more likely
than not that the indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform a
quantitative impairment test. The ASU is effective for annual and interim impairment tests performed for fiscal years beginning
after September 15, 2012, with early adoption permitted. The Company does not expect the adoption to have a significant impact
on its financial statements.