FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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

For the Quarterly Period Ended June 30, 2016

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 x No o

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 or a smaller reporting 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)

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 18, 2016, there were outstanding 16,289,908 shares of the common stock of West Texas Resources, Inc.

		Page

	PART I — FINANCIAL INFORMATION

Item 1.	Financial Statements	3

	Balance Sheets	3

	Statements of Operations	4

	Statements of Cash Flows	5

	Notes to Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16

	Cautionary Statement	16

	General	16

	Results of Operations	17

	Financial Condition	18

	Off-Balance Sheet Arrangements	18

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	18

Item 4.	Controls and Procedures	19

	PART II — OTHER INFORMATION

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	20

Item 6.	Exhibits	20

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

West Texas Resources, Inc.

BALANCE SHEETS

	June 30,			September 30,
	2016			2015
	(Unaudited)
ASSETS
Current Assets
Cash	$	40,273		$	142,762
Receivable from shareholder		3,558
Total Current Assets		43,831			142,762

Equipment, pumping unit held in storage		13,200			–
Oil and gas properties, using successful effort accounting		267,433			217,433

TOTAL ASSETS	$	324,464		$	360,195

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities
Accrued expenses	$	142,052		$	161,370
Payroll liabilities		4,000			978
Investment payable		13,600			13,600
Lease payable		5,000			5,000
Asset retirement obligation		10,000			10,000
Shareholder advances		–			45,000
Other payable		24,843			40,414
Total Current Liabilities		199,495			276,362

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; 16,149,908 and 14,515,400 shares issued and outstanding at June 30, 2016 and September 30, 2015, respectively		16,150			14,515
Additional paid-in capital		2,569,122			1,947,896
Common stock issuable		60,000			501,754
Accumulated deficit		(2,520,303	)		(2,380,332	)
Total Shareholders' Equity		124,969			83,833

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	324,464		$	360,195

See accompanying notes to these financial statements

West Texas Resources, Inc.

STATEMENTS OF OPERATIONS (UNAUDITED)

	For the Three Months Ended June 30,						For the Nine Months Ended June 30,
	2016			2015			2016			2015
Revenues
Oil and gas sales	$	227		$	91		$	657		$	81,231

General and administrative expenses		33,205			86,003			139,674			298,000
Operating Loss		(32,978	)		(85,912	)		(139,017	)		(216,769	)

Other income (expenses)
Interest expense		–			(10,732	)		(954	)		(25,266	)
Amortization of debt discount		–			(26,110	)		–			(115,830	)
Loss on sale of oil and gas interest		–			(150,050	)		–			(150,050	)
Impairment loss on oil and gas properties		–			–			–			(317,876	)
Other income		–			–			–			30,000
Loss Before Income Taxes		(32,978	)		(272,804	)		(139,971	)		(795,791	)

Tax provision		–			–			–			–
Net Loss	$	(32,978	)	$	(272,804	)	$	(139,971	)	$	(795,791	)
Loss per share
Basic and diluted weighted average number of common shares outstanding		16,042,064			14,415,400			15,306,461			14,415,400
Basic and diluted net loss per share	$	(0.00	)	$	(0.02	)	$	(0.01	)	$	(0.06	)

See accompanying notes to these financial statements

West Texas Resources, Inc.

STATEMENTS OF CASH FLOWS (UNAUDITED)

	For the Nine Months Ended June 30,
	2016			2015
Cash used for operating activities
Net loss	$	(139,971	)	$	(795,791	)
Adjustments to reconcile net loss to net cash from operating activities:
Stock-based compensation		26,357			19,491
Loss on sale of oil and gas interest		–			150,050
Impairment loss on investment		–			317,876
Depletion expense		–			20,000
Amortization of debt discount		–			115,830
Changes in operating assets and liabilities:
Accounts receivable		–			45,055
Payroll liabilities		3,022			(2,521	)
Other payable - Bank of America		(15,571	)		3,583
Interest payable		–			18,852
Accrued expenses		(19,318	)		1,693
Net cash provided by (used) in operating activities		(145,481	)		(105,882	)

Cash used for investing activities
Cash to purchase oil and gas properties		(10,000	)		–
Purchase of pumping unit		(7,200	)		–
Proceeds from sale of oil and gas interest		–			185,450
Net cash provided by (used in) investing activities		(17,200	)		185,450

Cash flows from financing activities
Proceeds from sale of common stock		72,750			–
Repayment on note payable		–			(66,005	)
Shareholder Advances		(6,558	)		13,000
Purchase of equipment on credit		(6,000	)		–
Net cash provided by (used in) financing activities		60,192			(53,005	)

Net increase (decrease) in cash		(102,489	)		26,563

Cash, beginning of period		142,762			144,506

Cash, end of period	$	40,273		$	171,069

Supplemental cash flow disclosure:
Interest paid	$	954		$	6,414
Income taxes paid	$	–		$	–

Supplemental disclosure of non-cash transactions:
Conversion of shareholder advances to common stock	$	42,000		$	–
Common stock issued for investments in oil and gas properties	$	40,000		$	–

See accompanying notes to these financial statements

WEST TEXAS RESOURCES, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

June 30, 2016 and 2015

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., a Texas corporation. 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.

Basis of presentation

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S.) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”) and reflect all adjustments, consisting of normal recurring adjustments and other adjustments, which management believes are necessary to fairly present the financial position, results of operations and cash flows of the Company, for the respective periods presented. The results of operations for an interim period are not necessarily indicative of the results that may be expected for any other interim period or the year as a whole. The accompanying unaudited financial statements should be read in conjunction with the financial statements and notes for the year ended September 30, 2015.

Going concern

The accompanying 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, 2016 and 2015, the Company incurred a net loss of $139,971 and $795,791, respectively. In addition, the Company had an accumulative deficit of $2,520,303 and $2,380,332, as of June 30, 2016 and September 30, 2015, 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.

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.

WEST TEXAS RESOURCES, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

June 30, 2016 and 2015

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.

Except for the Eastland County investment, the asset retirement obligations for the other properties are recognized by the operators of these properties and deducted against the revenue interest of the Company.

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

Cash is commonly considered to consist of currency and demand in 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 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. Accordingly, actual results could differ from those estimates.

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 2012 to the present, generally for three years after they are filed.

WEST TEXAS RESOURCES, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

June 30, 2016 and 2015

The Company has not filed its income tax returns for fiscal years 2012 to 2015. The Company plans to file these tax returns in the fourth calendar quarter of 2016. The Company believes that it should not have any material impact on the financials because the Company did not have any tax liabilities due to net loss incurred for these years.

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 six months ended June 30, 2016 and 2015, 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. The Company has no awards with market or performance conditions. Excess tax benefits will be recognized as an addition to additional paid-in-capital.

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, 2016 and September 30, 2015, 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.

Certain reclassifications have been made to the prior year financial statements in order for them to be in conformity with the current year presentation.

WEST TEXAS RESOURCES, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

June 30, 2016 and 2015

Recent accounting pronouncement

In May 2014, the FASB issued ASU No. 2014-09 " Revenue from Contracts with Customers " (Topic 606). 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. Early application is not permitted. Management is currently evaluating the impact this guidance will have on Company’s financial position and statement of operations.

In June 2014, the FASB issued ASU No. 2014-12, "Compensation - Stock Compensation (Topic 718)," which makes amendments to the codification topic 718, "Accounting for Share-Based Payments.” when the terms of an award provide that a performance target could be achieved after the requisite service period. The new guidance becomes effective for annual reporting periods beginning after December 15, 2015, early adoption is permitted. Management is currently evaluating the impact this guidance will have on our financial position and results of operations.

In August 2014, the FASB issued Accounting Standards Update ("ASU") 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. Management is currently evaluating the impact this guidance will have on Company’s financial position and results 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.

Port Hudson Field, Baton Rouge Parish, Louisiana

Effective April 1, 2013, the Company acquired a 7.24625% working interest in the oil and gas leases, wells and attendant production in the Port Hudson field, Baton Rouge Parish, Louisiana, for a total consideration of $702,900. The Company’s working interest was subject to certain overriding royalty interests, subject to which it had a 5.65158% net revenue interest in the Port Hudson Field.

On April 5, 2014, the Company entered into an agreement with EnTek Partners, LLC for the sale of 44.1% of the Company’s working interest in the Port Hudson field for the total consideration of $290,000, less any payments received by the Company for production from the Port Hudson field occurring after January 1, 2014. Pursuant to the Company’s agreement with EnTek Partners, the Company sold to EnTek an undivided 3.1956% of 8/8th working interest (2.4926% net revenue interest) out of the working interests in the Port Hudson field owned by the Company at that time. The transactions under the Entek Partners agreement closed on April 16, 2014, with an effective date of January 1, 2014. After giving effect to the sale, the Company continued to hold a 4.0506% working interest (3.1595% net revenue interest) in Port Hudson field. During the year ended September 30, 2014, the Company recorded a loss on sale of the working interest of $19,983.

WEST TEXAS RESOURCES, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

June 30, 2016 and 2015

Pursuant to the same agreement, EnTek Partners had also agreed to provide to the Company $275,000 in non-recourse financing to pay for its share of a dual recompletion in the D-1 well at West Cam 225 property in exchange for its agreement to provide EnTek Partners with 75% of the net profits derived by the Company from the West Cam 225 property until such time as EnTek Partners has recouped 100% of the recompletion costs advanced on the Company’s behalf and 50% of the net profits thereafter.

West Cam 225, Louisiana

On August 16, 2013, the Company entered into an agreement with Enovation Resources, LLC to purchase a 10.0167% working interest (7.2120% net revenue interest) in an offshore oil and gas field, known as West Cam 225, located in the shallow waters of the Gulf of Mexico near Cameron, Louisiana. The Company’s purchase price for the working interest was $50,000. In addition to the purchase price, the Company paid $230,459 as advance for costs for development.

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.

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 the Companying 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.

Wolfcamp Field, Hale County, Texas

In June and July 2014, the Company acquired non-operating leases covering approximately 1,070 gross mineral acre leases in the Wolfcamp field 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.

WEST TEXAS RESOURCES, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

June 30, 2016 and 2015

Sale of Port Hudson Field and West Cam 225

During the quarter ended March 31, 2015, the Company decided to sell 100% of its interest in Port Hudson field and West Cam 225. The net investment of $653,376 was reclassed as oil and gas properties held for sale and recorded at market value of $335,500. The Company recorded impairment loss of $317,876 due to reduction of the market value comparing to the cost of these investments.

On April 6, 2015, the Company entered into agreements with Hi-Tech exploration, LLC to sell its entire interests in the Port Hudson field and the West Cam 225 for a total consideration of $335,500. The Company completed the sale and paid $150,050 for outstanding costs and recorded it as loss on sale of oil and gas interest.

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 will be 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.

As of June 30, 2016 and September 30, 2015, total oil and gas properties amounted to $267,433 and $217,433, respectively.

3. Notes Payable – Related Parties

On August 14, 2013, the Company entered into a loan agreement with a shareholder, Gary Bryant, pursuant to which Mr. Bryant loaned the Company $417,762, the proceeds of which were used to partially finance the acquisition of the Port Hudson interest described in Note 2 above. The loan beared interest on the unpaid principal amount at the rate of 8% per annum. All principal and interest were payable over a four year period, commencing November 1, 2013, at the amortized rate of $10,198 per month. The Company’s obligations under the loan were secured by our working interest in the Port Hudson field.

On September 6, 2013, the Company entered into another loan agreement with Mr. Gary Bryant, pursuant to which Mr. Bryant loaned the Company $130,000, the proceeds of which were used to partially finance the Company’s payment of its allocable expenses associated with its working interest in the West Cam 225 field, described in Note 2 above. The loan beared interest on the unpaid principal amount at the rate of 6% per annum. All principal and interest were payable on December 6, 2013 and were convertible into shares of the Company’s common stock, at the option of the holder, at the rate of $0.50 per share. In December 2013, Mr. Bryant and the Company entered to an agreement to extend the due date of the loan to February 6, 2016. The Company’s obligations under the loan were secured by its working interest in the Port Hudson field. The Company also entered into an amendment to its loan agreement with Mr. Bryant dated August 14, 2013, in the original principal amount of $417,762, to provide that all principal and interest under that loan agreement were convertible into shares of the Company’s common stock, at the option of the holder, at the rate of $0.50 per share.

On April 3, 2015, Mr. Bryant agreed to release the security interest in the Port Hudson field as the Company engaged in negotiations to sell the property.

WEST TEXAS RESOURCES, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

June 30, 2016 and 2015

The Company determined that the fair value of the above conversion options and the warrants using the Black–Scholes model with the variables listed below:

	·	Volatility: 160%

	·	Risk free rate of return: 0.01% to 0.875%

	·	Expected term: 0.25 to 4 years

On September 16, 2014, the Company entered into a Note purchase agreement with Lake Oswego Oil Company, LLC, an Oregon limited liability company controlled by one of the shareholders, pursuant to which the Company sold a secured promissory note in the principal amount of $50,000, for a purchase price of $50,000. Interest accrues on the unpaid principal balance of the note at the rate of six percent per annum. This note was fully paid off in the quarter ended December 31, 2014. As an inducement to the note holder to enter into this agreement, the Company also granted the note holder a warrant to purchase 100,000 shares of the Company’s common stock, and exercisable at $0.50 per share over a two year period expiring on September 16, 2019.

The Company determined that the fair value of the warrants using Black–Scholes model with the variable listed below:

	·	Volatility: 340%

	·	Risk free rate of return: 1.688%

	·	Expected term: 2 years

On September 30, 2015, Mr. Bryant agreed to convert the outstanding principal amounts of $325,146 and $130,000 and accrued interest to the Company’s common stock at $0.5 and $0.5 per share respectively.

In connection with the issuance of the above notes, the Company recorded a note discount of $50,000 and $647,762 for the years ended September 30, 2014 and 2013, respectively, which are to be amortized over the lives of the notes. On September 30, 2015, due to conversion of the full outstanding principal amount owed to Mr. Bryant, the related note discount was fully amortized.

4. Shareholder Advances

During the year ended September 30, 2014 and 2013, a shareholder made advances to the Company to support its daily operations. These advances were due on demand and do not bear any interest.

During the year ended September 30, 2015, a shareholder paid a total amount of $15,000 for payment of legal fees on behalf of the Company through his personal credit line. The outstanding balance was due on demand and bears variable interest of 25.99%. As of September 30, 2015, the total outstanding amount due to the shareholder was $45,000.

The Company repaid $6,558 during the six months ended March 31, 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. As of June 30, 2016, the Company had a receivable from shareholder of $3,558.

WEST TEXAS RESOURCES, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

June 30, 2016 and 2015

5. Shareholders’ 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.

In September 2015, the Company entered into a subscription agreement with an accredited investor to sell 100,000 shares of the Company’s common stock at $0.25 per share. The total amount of $25,000 was received and shares were issued in September 2015.

On September 30, 2015, Mr. Bryant, a shareholder and convertible note holder, agreed to convert the outstanding principal amounts of $325,146 and $130,000 due to him to the Company’s common stock at $0.50 per share. The Company issued 1,003,508 shares in February 2016 as repayment of the outstanding principal and accrued interest.

In January 2016, the Company issued 450,000 shares of its common stock upon conversion of the outstanding amount of shareholder advances of $45,000. In addition, the shareholder retired 30,000 shares in exchange for $3,000 overpayment made to him.

During the quarter ended March 31, 2016, the Company entered into subscription agreements with various accredited investors to sell 191,000 shares of the Company’s common stock at $0.25 per share. The total amount of $47,750 was received and recorded as common stock issuable.

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 known as T.W. Lee located in Gregg County, Texas. 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. As of June 30, 2016, the shares had not been issued and were recorded as common stock issuable.

During the quarter ended June 30, 2016 the Company entered into subscription agreements with various accredited investors to sell 100,000 shares of the Company’s common stock at $0.25 per share. The total amount of $25,000 was received and $5,000 worth of the shares were issued as of June 30, 2016 with the remaining $20,000 recorded as common stock issuable.

On May 10, 2016, the Company entered into an agreement with Two Eagle Resources, a Texas corporation, to purchase 25% working interest in the properties know as T.A. Greer located in Panola County, Texas. The purchase price for the subject interests under this agreement is $10,000 in cash and $15,000, which will be paid in the Company’s common shares at the per share price of $0.25. As of June 30, 2016, the shares had not been issued and were recorded as common stock issuable. The cash portion was paid May 12, 2016.

As of June 30, 2016 and September 30, 2015, the Company had 16,149,908 and 14,515,400 shares of common stock issued and outstanding and had not issued any of its preferred stock.

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.

In 2011, the Company granted options to certain consultants to purchase 400,000 shares of the Company’s common stock. The options vest immediately and expire on September 15, 2016. The fair value of each share-based award was estimated using the Black-Scholes option pricing model or a lattice model. The fair value of these options, determined to be $65,402, was included in general and administrative expenses for the year ended September 30, 2011.

WEST TEXAS RESOURCES, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

June 30, 2016 and 2015

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

	·	Volatility: 83%

	·	Risk free rate of return: 1%

	·	Expected term: 5 years

On March 7, 2014, the Company granted options to certain consultants to purchase 1,500,000 shares of the Company’s common stock, of which 200,000 options vested upon the date of grant and the balance of 1,300,000 options expired in October 2014 in connection with the termination of the consulting arrangement. The 200,000 vested options expire on March 7, 2019. The fair value of the vested options for 200,000 shares, determined to be $116,137, was recorded in general and administrative expenses for the year ended September 30, 2014.

On March 11, 2014, the Company granted options to its officers to purchase a total of 200,000 shares of the Company’s common stock. The options expire on March 11, 2019 and vest immediately. The fair value of these options determined to be $116,119 and was included in general and administrative expenses for the year ended September 30, 2014.

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

	·	Volatility: 190%

	·	Risk free rate of return: 1.5%

	·	Expected term: 5 years

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 $0.5 per share and expire on April 16, 2020 and 66,667 shares vest immediately with the rest vest equally on April 16, 2016 and 2017. The fair value of these options was determined to be $99,712, of which $26,357 was amortized and included in general and administrative expenses for the nine months ended June 30, 2016. As of June 30, 2016, the unrecognized compensation expense related the non-vested stock options was $26,313 to be amortized over the vesting period.

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 information applies to all options outstanding at June 30, 2016:

	·	Weighted average exercise price: $0.44

	·	Options outstanding and exercisable: 947,223

	·	Average remaining life: 1.81 years

6. 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 September 30, 2015 and 2014 will not be fully realizable. Accordingly, management has recorded a full valuation allowance against its net deferred tax assets at September 30, 2015 and 2014. As of September 30, 2015 and 2014, the Company had federal net operating loss carry-forwards of approximately $2,400,000 and $1,300,000, respectively, expiring beginning in 2032.

WEST TEXAS RESOURCES, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

June 30, 2016 and 2015

Deferred tax assets consist of the following components:

	September 30, 2015			September 30, 2014
Net loss carryforward	$	840,000		$	455,000
Valuation allowance		(840,000	)		(455,000	)
Total deferred tax assets	$	–		$	–

7. Subsequent Event

Events subsequent to June 30, 2016 have been evaluated through the date these financial statements were issued to determine whether they should be disclosed to keep the financial statements from being misleading. Management noted the following subsequent event that should be disclosed:

On August 9, 2016, the Company issued 60,000 shares of the Company’s common stock at $0.25 per share to a shareholder in exchange for additional investment in the Greer property.

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, 2015 filed with the SEC on December 30, 2015 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, 2015 filed with the SEC on December 30, 2015. 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

Port Hudson Field

In August 2013, we acquired a 7.24625% working interest (5.65158% net revenue interest) in the oil and gas leases, wells and attendant production in the Port Hudson field, Baton Rouge Parish, Louisiana. On April 15, 2014, we sold 44.1% of our original working interest in the Port Hudson field for the total consideration of $290,000, less any payments received by us for production from the Port Hudson field occurring after January 1, 2014. On April 6, 2015, we entered into an agreement with Hi-Tech Exploration, LLC to sell to Hi-Tech our entire 4.0506% working interest (3.1595% net revenue interest) in the Port Hudson field for the total consideration of $205,000, less any payments received by us for production from the Port Hudson field occurring after March 1, 2015.

West Cam 225 Field

In September 2013, we acquired a 10.0167% working interest (7.2120% net revenue interest) in an offshore oil and gas field, known as West Cam 225, located in the shallow waters of the Gulf of Mexico near Cameron, Louisiana. On April 6, 2015, we entered into an agreement with Hi-Tech to sell Hi-Tech our entire 10.0167% working interest (7.2118% net revenue interest) in the West Cam 225 property for the total consideration of $130,500. We had acquired our working interest in the West Cam 225 in September 2013.

Wolfcamp 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.

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. The operator intends to drill an initial well in the prospect in 2016.

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.

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 will be 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.

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.

Results of Operations

We commenced revenue producing oil and gas operations effective as of April 1, 2013. From April 1, 2013 to December 2013, all of our revenue was derived from our working interest in the Port Hudson field. Commencing in January 2014, we derived revenue from our working interest in the West Cam 225 field. During the three month periods ended June 30, 2016 and 2015, we had $227 and $91 of revenue, respectively. During the nine month periods ended June 30, 2016 and 2015, we had $657 and $81,231 of revenue, respectively. The decrease in revenue was due to our sale of our entire interests in Port Hudson and West Cam in April 2015.

For the three month period ended June 30, 2016, we had general and administrative expenses of $33,205 compared to general and administrative expenses of $86,003 during the prior year period. The decrease in expenses is attributable to a decrease in consulting and professional fees. During the nine month periods ended June 30, 2016 and 2015, we had $139,674 and $298,000 of general and administrative expenses, respectively. The decrease in expenses is attributable to a decrease in consulting and professional fees.

For the three month period ended June 30, 2016, we had nil expenses compared to other expenses of $186,892 during the prior year period. The other expenses in 2015 were driven by a loss on the sale of oil and gas interests in the amount of $150,050. During the nine month period ended June 30, 2016, we had $954 of other expenses, compared to $579,022 of other expenses, net of $30,000 of other income, for the prior year period. The increase was attributable to the aforementioned loss on sale, debt related charges and an impairment change in the amount of $317,876.

For the three month periods ended June 30, 2016 and 2015, we incurred a net loss of $(32,978) and $(272,804), respectively. The decrease in our net loss was the result of lower expenses in 2016. For the nine month periods ended June 30, 2016 and 2015, we incurred a net loss of $(139,971) and $(795,791), respectively.

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 one employee, our chief executive officer and chief financial officer, John Kerr, who has limited experience in the oil and gas exploration and development business. Subject to our receipt of significant additional capital, we intend to hire senior management and staff with experience in oil and gas exploration. Until such time, we intend to pursue an operating strategy that is based on our participation in exploration prospects as a non-operator. 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 expect that 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 operator’s 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.

Financial Condition

As of June 30, 2016, we had total assets of $324,464 and a working capital deficit of $(155,664). Our ability to achieve commercial success is dependent on our ability to obtain additional 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. We seek to obtain 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. However, we have no agreements or understandings with any third parties at this time for our receipt of additional working capital and we have a limited history of generating cash from oil and gas operations. We may not be able to obtain access to capital as and when needed and, if so, the terms of any available financing may not be subject to commercially reasonable terms. In addition, any continuation in the recent decline in the price of oil and gas may have an material adverse effect on our ability to raise capital as well as our financial condition and results of operations.

The report of our independent registered public accounting firm for the fiscal year ended September 30, 2015 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 March 31, 2016 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, 2015, and included in our annual report on Form 10-K filed with the SEC on December 30, 2015, 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, 2016 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II — OTHER INFORMATION

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

During the quarter ended June 30, 2016, we sold to accredited investors 100,000 shares of our common stock at $0.25 per share. We have also agreed to issue to Two Eagle Resources, a Texas corporation, 60,000 shares of our common stock as partial consideration for our purchase of a 25% working interest in an oil and gas property. All of the aforementioned shares were issued pursuant to section 4(a)(2) of the Securities Act of 1933, as amended.

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

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 22, 2016	By:	/s/ John D. Kerr
			John D. Kerr,
			President, Chief Executive Officer and Chief Financial Officer

West Texas Resources, Inc. 10-Q