| Basis of Presentation | NOTE 3 BASIS OF PRESENTATION Basis of Presentation The Company
prepares its financial statements in conformity with generally accepted accounting principles in the United States of America. As discussed
above in Note 2, the Company merged with Dala Petroleum Corp., a Nevada corporation (Dala) on June 2, 2014 (the
Merger). Dala is focused on the acquisition and development of oil and natural gas resources in the United States.
Prior to the Merger, Westcott was considered a shell company, as defined in SEC Rule 12b-2. For financial reporting purposes,
the Merger represents a reverse merger rather than a business combination. Consequently, the assets and liabilities
and the operations that are reflected in the historical financial statements are those of Dala immediately following the consummation
of the reverse merger. 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 the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. Significant estimates in the accompanying financial statements include
the amortization period for intangible assets, valuation and impairment valuation of intangible assets, allowance for accounts
receivable, depreciable lives of the web site, valuation of warrants and beneficial conversion feature debt discounts, valuation
of derivatives, and valuation of share-based payments. Accounting
for Derivatives The Company
evaluates its convertible debt, options, warrants or other contracts to determine if those contracts or embedded components of
those contracts qualify as derivatives to be separately accounted for. The result of this accounting treatment is that under certain
circumstances the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the
event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other
income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion
date and then that fair value is reclassified to equity. Equity instruments that are initially classified as equity that become
subject to reclassification under this accounting standard are reclassified to liability at the fair value of the instrument on
the reclassification date. Impairment
of Long-Lived Assets The Company
accounts for long-lived assets in accordance with the provisions of Statement of Financial Accounting Standards ASC 360-10, Accounting
for the Impairment or Disposal of Long-Lived Assets. This statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an
asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. The Company
measures its financial assets and liabilities in accordance with generally accepted accounting principles. For certain of our
financial instruments, including cash, accounts payable, accrued expenses, deposits received from customers for layaway sales
and short term loans the carrying amounts approximate fair value due to their short maturities. We follow
accounting guidance for financial and non-financial assets and liabilities. This standard defines fair value, provides guidance
for measuring fair value and requires certain disclosures. This standard does not require any new fair value measurements, but
rather applies to all other accounting pronouncements that require or permit fair value measurements. This guidance does not apply
to measurements related to share-based payments. This guidance discusses valuation techniques, such as the market approach (comparable
market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the
service capacity of an asset or replacement cost). The guidance utilizes a fair value hierarchy that prioritizes the inputs to
valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels: Level 1: Observable
inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: Inputs
other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar assets or
liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. Level 3: Unobservable
inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect
those that a market participant would use. Unproved oil
and natural gas properties are accounted for and measured under Regulation S-X,Rule 4-10. We currently
measure and report at fair value other intangible assets (due to our impairment analysis) and derivative liabilities using ASC
820-10, Fair Value Measurement. The fair value of intangible assets has been determined using the present value of estimated future
cash flows method. The fair value of derivative liabilities is measured using the Black-Scholes option pricing method. The following
tables summarizes our non-financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2015:
Fair
Value Measurements at September 30, 2015
Quoted
Prices
In
Active Significant
Markets
for Other Significant
Identical Observable Unobservable Total
Assets Inputs Inputs Carrying
(Level
1) (Level
2) (Level
3) Value
Description
Unproved
oil and natural gas properties $ - $ - $ 608,000 $ 608,000
Change
in
Activity Fair
During Value
of
September
30, Fiscal Intangible September
30,
2014 Year Asset 2015
Description
Unproved
oil and natural gas properties $ 1,898,947 $ 181,786 $ (1,472,733) $ 608,000
Fair
Value Measurements at September 30, 2014 Fair
Value Measurements at September 30, 2015
Quoted Quoted
Prices Prices
In
Active Significant In
Active Significant
Markets
for Other Significant Markets
for Other Significant
Identical Observable Unobservable Total Identical Observable Unobservable Total
Assets Inputs Inputs Carrying Assets Inputs Inputs Carrying
(Level
1) (Level
2) (Level
3) Value (Level
1) (Level
2) (Level
3) Value
Description
Derivative
liability $ - $ - $ 2,819,739 $ 2,819,739 $ - $ - $ 54,240 $ 54,240
Change
in Change
in
Activity Fair Activity Fair
During Value
of During Value
of
Fiscal Intangible September
30, Fiscal Intangible September
30,
Inception Year Asset 2014 Year Asset 2015
Description
Derivative
liability $ - $ 817,807 $ 2,001,932 $ 2,819,739 $ (7,723) $ (2,757,776) $ 54,240 Oil and
Natural Gas Properties The Company
follows the full cost method of accounting for oil and natural gas operations whereby all costs related to the exploration and
development of oil and natural gas properties are initially capitalized into a single cost center (full cost pool).
Such costs include land acquisition costs, a portion of employee salaries related to property development, geological and geophysical
expenses, carrying charges on non-producing properties, costs of drilling directly related to acquisition, and exploration activities.
Internal salaries are capitalized based on employee time allocated to the acquisition of leaseholds and development of oil and
natural gas properties. The Company did not capitalize interest for the period ended September 30, 2015 as it was not required. Proceeds from
property sales will generally be credited to the full cost pool, with no gain or loss recognized, unless such a sale would significantly
alter the relationship between capitalized costs and the proved reserves attributable to these costs. The Company
assesses all items classified as unproved property on a quarterly basis for possible impairment or reduction in value. The assessment
includes consideration of the following factors, among others: intent to drill, remaining lease term, geological and geophysical
evaluations, drilling results and activity, the assignment of proved reserves, and the economic viability of development if proved
reserves are assigned. During any period in which these factors indicate an impairment, the cumulative drilling costs incurred
to date for such property and all or a portion of the associated leasehold costs are transferred to the full cost pool and are
then subject to depletion and amortization. The costs of drilling exploratory dry holes are included in the amortization base
immediately upon determination that the well is dry. Capitalized
costs associated with impaired properties and properties having proved reserves, estimated future development costs, and asset
retirement costs under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC)
410-20-25 are depleted and amortized on the unit-of-production method based on the estimated gross proved reserves. The costs
of unproved properties are withheld from the depletion base until such time as they are developed, impaired, or abandoned. Under the
full cost method of accounting, capitalized oil and natural gas property costs less accumulated depletion, net of deferred income
taxes, may not exceed a ceiling amount equal to the present value, discounted at 10%, of estimated future net revenues from proved
oil and natural gas reserves plus the cost of unproved properties not subject to amortization (without regard to estimates of
fair value), or estimated fair value, if lower, of unproved properties that are subject to amortization. Should capitalized costs
exceed this ceiling, which is tested on a quarterly basis, an impairment is recognized. The present value of estimated future
net revenues is computed by applying prices based on a 12-month unweighted average of the oil and natural gas prices in effect
on the first day of each month, less estimated future expenditures to be incurred in developing and producing the proved reserves
(assuming the continuation of existing economic conditions), less any applicable future taxes. If such capitalized costs exceed
the ceiling, the Company will record a write-down to the extent of such excess as a non-cash charge to earnings. Any such write-down
will reduce earnings in the period of occurrence and result in a lower depreciation, depletion and amortization rate in future
periods. A write-down may not be reversed in future periods even though higher oil and natural gas prices may subsequently increase
the ceiling. In April,
2015, the Company participated in the completion of a well in which the Company owns a 10% non-operated working interest targeting
the Simpson and Viola formations, Kansas. That well was determined to be dry in June 2015. During the
period ended September 30, 2014, the Company incurred $260,723 in oil and natural gas expenditures, which is comprised of approximately
$172,000 in professional fees related to due diligence on prospective properties the Company ultimately did not purchase and approximately
$89,000 related to two dry holes related to exploration efforts directly related to our leased properties. The $172,000 in expenses
related to the impairment of oil and natural gas properties are comprised of geological and geophysical costs G & G
costs that were properly capitalized, for which the property was not subsequently acquired. Under the full cost method
of accounting, if G&G costs cannot be directly associated with specific unevaluated properties, they shall be included in
the amortization base as incurred. As the Company has no proved reserves as of September 30, 2014, any balance in the amortization
base is effectively impaired under the ceiling test. These cost were classified as impaired as of September 30, 2014 and are included
within operating expenses in the statement of operations. During the
year ended September 30, 2015, the Company incurred total $617,769 in oil and natural gas expenditures, of which $233,359 were
identified as being related to dry hole cost and $248,624 were general maintenance expenses and due diligence expenses of the
unproved properties. We incurred $135,786 leasehold costs and received sale proceeds of $4,000 from an unproved property during
the year ended September 30, 2015. As of September
30, 2015, the Companys oil and natural gas properties were determined to be impaired thereby reducing the unproved oil
and natural gas properties to $608,000. Revenue
Recognition The Company
recognizes oil and natural gas revenues from our interests in producing wells when production is delivered to, and title has transferred
to, the purchaser and to the extent the selling price is reasonably determinable. The Company
uses the sales method of accounting for balancing of natural gas production and would recognize a liability if the existing proven
reserves were not adequate to cover the current imbalance situation. As of the year ending September 30, 2015, no revenue has
been recognized as all wells are still unproved and non-producing. Asset Retirement
Obligation Asset retirement
obligation (ARO) reflects the estimated present value of the amount of dismantlement, removal, site reclamation
and similar activities associated with the Company's oil and natural gas properties. Inherent in the fair value calculation of
the ARO are numerous assumptions and judgments including the ultimate settlement amounts, inflation factors, credit adjusted discount
rates, timing of settlement and changes in the legal, regulatory, environmental and political environments. As of September 30,
2015, the Company had no ARO liability as no wells have been established. Stock-based
Compensation The Company
records stock based compensation in accordance with the guidance in ASC 718 which requires the Company to recognize expenses related
to the fair value of its employee stock option awards. This requires that such transactions be accounted for using a fair-value-based
method. The Company recognizes the cost of all share-based awards on a graded vesting basis over the vesting period of the award. The Company
accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance
with ASC 718-10 and the conclusions reached by the ASC 505-50. Costs are measured at the estimated fair market value of the consideration
received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity
instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or
completion of performance by the provider of goods or services as defined by ASC 505-50. Income
Taxes The Company
follows ASC Topic 740 for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon
the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate
applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits
are based on the changes in the asset or liability each period. If available evidence suggests that it is more likely than not
that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred
tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included
in the provision for deferred income taxes in the period of change. Deferred income
taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes
in different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities
to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified
as current or non-current depending on the periods in which the temporary differences are expected to reverse. The Company
applies a more-likely-than-not recognition threshold for all tax uncertainties. ASC Topic 740 only allows the recognition of those
tax benefits that have a greater than fifty percent likelihood of being sustained upon examination by the taxing authorities.
As of September 30, 2014, the Company reviewed its tax positions and determined there were no outstanding, or retroactive tax
positions with less than a 50% likelihood of being sustained upon examination by the taxing authorities, therefore this standard
has not had a material effect on the Company. Net Loss
Per Share The Company
follows ASC Topic 260 to account for the loss per share. Basic loss per common share calculations are determined by dividing net
loss by the weighted average number of shares of common stock outstanding during the period. Diluted loss per common share calculations
are determined by dividing net loss by the weighted average number of common shares and dilutive common share equivalents outstanding.
During periods when common stock equivalents, if any, are anti-dilutive they are not considered in the computation. As the Company
has incurred losses for the year ended September 30, 2015, the potentially dilutive shares totaling 6,362,296 are anti-dilutive
and are thus not added into the loss per share calculations. Segment
Information In accordance
with the provisions of ASC 280-10, Disclosures about Segments of an Enterprise and Related Information, the Company
is required to report financial and descriptive information about its reportable operating segments. The Company does not have
any operating segments as of September 30, 2015 and 2014. Effect
of Recent Accounting Pronouncements The Company
reviews new accounting standards and updates as issued. No new standards or updates had any material effect on these audited financial
statements. The accounting pronouncements and updates issued subsequent to the date of these audited financial statements that
were considered significant by management were evaluated for the potential effect on these audited financial statements. Management
does not believe any of the subsequent pronouncements will have a material effect on these audited financial statements as presented
and does not anticipate the need for any future restatement of these audited financial statements because of the retro-active
application of any accounting pronouncements issued subsequent to September 30, 2015 through the date these audited financial
statements were issued. |
