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EX-31.1 - Texas South Energy, Inc.ex31-1.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K/A

Amendment No. 2

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: October 31, 2013

or

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

For the transition period from __________ to __________

Commission File No. 333-171064
TEXAS SOUTH ENERGY, INC.
(Exact name of the issuer as specified in its charter)

Nevada
99-0362471
(State or Other Jurisdiction of incorporation or organization)
(I.R.S. Employer I.D. No.)

3 Riverway, Suite 1800
Houston, Texas 77056
(Address of Principal Executive Offices)

(713) 209-2950
(Issuer’s Telephone Number)

Securities registered pursuant to Section 12(b) of the Exchange Act: None

Securities registered pursuant to Section 12(g) of the Exchange Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes [ ] No [X]

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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.
(1) Yes [X] No [ ] (2) Yes [X] No [ ]

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 [ ] No [X]

Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company:

Large accelerated filer
[ ]
Accelerated filer
[ ]
Non-accelerated filer
[ ]
Smaller reporting company
[X]

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

State the aggregate market value of the voting and non-voting common stock held by non-affiliates computed by reference to the price at which the common stock was last sold, or the average bid and asked price of such common stock, as of the last business day of the Registrant’s most recently completed second fiscal quarter.

The market value of the voting stock held by non-affiliates was $14,424,301 based on 46,530,004 shares held by non-affiliates. These computations are based upon the closing bid price of $0.31 for the common stock of the Company on the OTC Bulletin Board of the Financial Industry Regulatory Authority, Inc. (“FINRA”) on January 31, 2014.

Indicate the number of shares outstanding of each of the Registrant’s classes of common equity, as of the latest practicable date:

Class
 
Outstanding as of January 31, 2014
Common Capital Voting Stock, $0.001 par value per share
 
295,530,004


Documents incorporated by reference: None

 
 

 
 
EXPLANATORY NOTE
  
Texas South Energy, Inc. (the “Company,” “we,” or “our” unless the context indicates otherwise) is filing this Amendment No. 2 on Form 10-K (this “Amendment”) to our Annual Report on Form 10-K for the twelve months ended October 31, 2013, as filed on February 13, 2014 (the “Original Filing”), as amended by  Amendment No. 1 thereto filed on March 24, 2014 (“First Amendment”), to correct the following:

·  
The report of independent auditors has been revised to clarify that LBB & Associates Ltd., LLP (our current auditors) did not audit the balance sheet as of October 31, 2012, or the statements of operations, stockholders’ deficit and cash flows for the year then ended and for the period from March 15, 2010 (inception) to October 31, 2012, as those financial statements and cumulative totals were audited by the Company’s prior auditors, whose audit report dated February 12, 2013 is included in this filing.

·  
Add the certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, which were inadvertently omitted from the First Amendment.   Such certifications, currently dated, are attached hereto as Exhibits 31.1 and 32.1 to this Amendment No. 2.

This Amendment No. 2 on Form 10-K/A only amends the Original Filing and the Amendment No. 1 as noted above. This Amendment No. 2 does not affect any other parts of or exhibits to the Original Filing or the Amendment No. 1. Except for the amendments described above, this Amendment No. 2 on Form 10-K/A continues to describe conditions as of the date of the Original Filing, and the disclosures contained herein have not been updated to reflect events, results or developments that occurred after the Original Filing, or to modify or update those disclosures affected by subsequent events. Among other things, forward-looking statements made in the Original Filing or Amendment No. 1 have not been revised to reflect events, results or developments that occurred or facts that became known to us after the date of the Original Filing or Amendment No. 1, and such forward-looking statements should be read in their historical context.


Item 1.  Description of Business

The Company’s Business

Beginning in September 2013, we changed our business plan from performing traditional Peruvian dances to an oil and gas royalties and leasing company focused primarily on properties in the Gulf Coast Region.   We plan to obtain and manage:  (1) existing royalty interest; (2) mineral rights, which we intend to lease to oil and gas operators in exchange for a royalty payment, and (3) other passive interests or rights in oil and gas properties.  Our focus is on identifying and acquiring mineral rights and royalty interests, which we believe will generate royalty or other passive income without significant ongoing expense to the Company.

In January 2014, we acquired our first mineral interest, which consists of a 37.5% interest in mineral rights covering 86.69 acres in Lavaca County, Texas.   To date, no economically viable oil and gas reserve have been discovered on our acreage, and there is no assurance that viable oil and gas reserves will ever be discovered on our acreage.  We are a development stage company that has limited operating history and has earned no revenues.

We do not intend to engage in oil and gas exploration, development or production; instead we intend to lease any mineral rights we acquire to oil and gas operators granting them the right to explore, drill and produce oil and gas from the mineral rights in exchange for a royalty payment.   In addition to royalty payments, the leases will contain standard commercial terms.  At this time, we are subject to one outstanding lease on our current mineral rights.
 
Although we are not in the business of exploring, drilling and producing oil and gas, our business is still subject to multiple factors effecting the production of oil and gas, including, but not limited to:  market prices; national and international economic conditions; import and export quotas; availability of drilling rigs, casing, pipe, and other equipment and supplies; availability of and proximity to pipelines and other transportation facilities; the supply and price of competitive fuels; and the regulation of prices, production, transportation, and marketing by domestic and foreign governmental authorities.  Additionally, the Company generally will have no control over whether the owner or operator of the lease will elect to explore for oil and gas on such properties, or to develop them following discoveries that may occur. Each of these factors may affect the rate at which oil and gas are produced, if ever, on properties in which the Company has or may have an interest.
 
Finally, because we do not intend to drill, produce or operate oil and gas properties, we do not intend to bear ordinary production and operating costs and will have limited direct exposure to risk associated with exploring and producing oil and gas; instead, those costs and risks will likely be born by the owner or operator of the lease.  However, our potential royalty revenues, if any, may be negatively affected by any decreases in the operator’s production volumes and revenues due to these risks.

 
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Our Current Mineral Interests

In January 2014, we acquired a 37.5% interest in mineral rights covering 86.69 acres in Lavaca County.  Our acreage is included in the Eagle Ford Shale located in South Texas.  To date, no economically viable oil and gas reserve have been discovered on our acreage, and there is no assurance that viable oil and gas reserves will ever be discovered on our acreage.

Our mineral rights are currently subject to an existing oil, gas and mineral lease with an independent producer of oil and gas in the Eagle Ford Shale.  Pursuant to the lease, Texas South is entitled to a royalty payment equal to 37.5% of 0.1875% of the sale proceeds, if any, actually received from the production of oil and gas from our acreage.  As of January 31, 2014, no wells were drilled on the acreage and no definitive plans were announced as to when, if ever, the lessee would commence drilling on the acreage.  If the lessee does not produce oil or gas in paying quantities by December 2014, the lease will terminate.  If the lease expires, Texas South will seek to extend our current lease or lease the mineral rights to another oil and gas operator, but can be uncertain as to whether it will obtain a new lease or a new lease on favorable terms.

In addition, in connection with this acquisition, we acquired the right to lease 100% of the mineral rights underlying the 86.69 acres to any third party; so long as such lease requires a royalty payment of at least 1/6 of the oil and gas produced from the property to the holders of the mineral rights.   We believe this right will provide us with additional leverage any entering to any potential future lease.
 
Business and Acquisition Strategy

Our primary business strategy includes:

·             Continuing to grow our interests in mineral rights through additional investments in prospective property in the Eagle Ford Shale.  The Eagle Ford Shale is one of the fastest growing unconventional shale trends in North America.  The Eagle Ford Shale is a geological formation located in South Texas that lies directly beneath the Austin Chalk formation and above the Buda Limestone formation. It is considered to be the "source rock," or the original source of hydrocarbons that are contained in the Austin Chalk formation. The Eagle Ford Shale produces from various depths between 4,000 and 14,000 feet.  

·             Pursuing royalty opportunities.   We will consider opportunities to expand our interest through acquisitions of oil and gas reserves, existing royalty interests or other passive investments in oil and gas properties.  We will consider opportunities that we believe will maximize income from royalty based arrangements. We plan to pursue royalty opportunities that are complementary to our business plan.
 
·             Expand and diversify our interests to property located outside the Eagle Ford Shale.   We intend to acquire interests in oil and gas properties throughout the Gulf Coast Region, including off-shore prospects.  We will consider acquisitions that serve as a platform for complementary acquisitions .

The cost of implementing the forgoing programs will depend on what oil and gas interests are identified and available on terms acceptable to us.  Even if we identify oil and gas interests that are available, the cost of pursuing and acquiring them could be significant. Our ability to pursue any such opportunities will be dependent on our ability to obtain financings through private equity, debt financings or agreements with joint venture partners. We can provide no assurance that we have the necessary cash available or will be able to successfully obtain the necessary financing or joint venture partners to pursue such opportunities.
 
Oil and Gas Industry

The oil and gas industry is a complex, multi-disciplinary sector that varies greatly across geographies. As a heavily regulated industry, operating conditions are subject to political regimes and changing legislation. Governments can either induce or deter investment in exploration and production, depending on legal requirements, fiscal and royalty structures and regulation. Beyond political considerations, exploration and production for hydrocarbons is an extremely risky business with multiple failure modes. Exploration and production wells require substantial investment and are long-term projects, sometimes exceeding twenty to thirty years. Regardless of the effort spent on an exploration or production prospect, success is difficult to attain. Even though modern equipment, including seismic equipment and advanced software, has helped geologists find producing structures and map reservoirs, they do not guarantee any outcome. Drilling is the only method to ultimately determine whether a prospect will be productive, and even then, many complications can arise during drilling (e.g., those relating to drilling depths, pressure, porosity, weather conditions, permeability of the formation and rock hardness) among others.

Typically, there is a significant chance that exploratory wells will result in non-producing holes, leaving investors with the cost of seismic data and a dry well which can total millions of dollars. Even if oil or gas is produced from a particular well, there is always the possibility that treatment, at additional cost, may be required to make production commercially viable. Further, production profiles decline over time. In summary, oil and gas exploration and production is an industry with high risks and high entry barriers, but it is also potentially lucrative.

Oil and gas prices determine the commercial feasibility of a project. Certain projects may become feasible with higher prices or, conversely, may falter with lower prices. Volatility in the price of oil, gas and other commodities has increased during the last few years, complicating the assessment of revenue projections. Most governments have enforced strict regulations to uphold high standards of environmental awareness; thus, holding companies to a high degree of responsibility vis-à-vis protecting the environment. Aside from such environmental factors, oil and gas drilling is often conducted near populated areas. For a company to be successful in its drilling endeavors, working relationships with local communities are crucial to promote business strategies and to avoid the repercussions of disputes that might arise over local business operations. At this time, the Company does not have any production or proved oil or gas reserves.

 
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Governmental Regulation

The operator of the oil and gas operations will be subject to various federal, state, and local governmental regulations. Matters subject to regulation include discharge permits for drilling operations, drilling and abandonment bonds, reports concerning operations, the spacing of wells, pooling of properties, and taxation. From time to time, regulatory agencies have imposed price controls and limitations on production by restricting the rate of flow of oil and gas wells below actual production capacity in order to conserve supplies of oil and gas. The production, handling, storage, transportation, and disposal of oil and gas, by-products thereof, and other substances and materials produced or used in connection with oil and gas operations are also subject to regulation under federal, state, and local laws and regulations relating primarily to the protection of human health and the environment. State and local laws and regulations may affect the prices at which royalty owners are paid for their leases by requiring more stringent disclosure and certification requirements, adjusting interest rates for late payments, raising legal and administrative costs and imposing more costly default contractual terms. The requirements imposed by such laws and regulations are frequently changed and subject to interpretation, and we are unable to predict the ultimate cost of compliance with these requirements or their ultimate effect, if any, on the lessee to pay royalties.   
 
Environmental laws provide for, among other things, restrictions and prohibitions on spills, releases, or emissions of various substances produced in association with oil and gas operations. The laws also require that wells and facility sites be operated, maintained, abandoned, and reclaimed to the satisfaction of the applicable regulatory authorities. Compliance with such laws can require significant expenditures and a breach may result in the imposition of fines and penalties, some of which may be material. Environmental legislation is evolving in a manner expected to result in stricter standards and enforcement, larger fines and liability, and potentially increased capital expenditures and operating costs. The discharge of oil or gas or other pollutants into the air, soil, or water may give rise to liabilities to governments and third parties and may require the operator to incur costs to remedy such discharge.  In addition, the operator could incur fines, penalties or significant liability for damages, clean-up costs, and penalties in the event of discharges into the environment, environmental damage caused by the operator or previous owners of the property, or non-compliance with environmental laws or regulations. In addition to actions brought by governmental agencies, the operator could face actions brought by private parties or citizens groups. There can be no assurance that the forgoing will not increase the cost of production, development, or exploration activities for the operator or otherwise adversely affect the payment of royalties on the property.

Environmental Regulation

The operator of our future oil and gas interests will be subject to numerous federal, state and local laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. Applicable U.S. federal environmental laws include, but are not limited to, the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), the Clean Water Act (“CWA”) and the Clean Air Act (“CAA”). These laws and regulations govern environmental cleanup standards, require permits for air, water, underground injection, solid and hazardous waste disposal and set environmental compliance criteria. In addition, state and local laws and regulations set forth specific standards for drilling wells, the maintenance of bonding requirements in order to drill or operate wells, the spacing and location of wells, the method of drilling and casing wells, the surface use and restoration of properties upon which wells are drilled, the plugging and abandoning of wells, and the prevention and cleanup of pollutants and other matters. Typically, operators maintain insurance against costs of clean-up operations, but may not be fully insured against all such risks. Additionally, Congress and federal and state agencies frequently revise the environmental laws and regulations, and any changes that result in delay or more stringent and costly permitting, waste handling, disposal and clean-up requirements for the oil and gas industry could have a significant impact on the operator’s costs, resulting in a negative impact on payment of royalties.

The environmental laws and regulations that could have a material impact on the oil and natural gas exploration and production industry, including on the operators of our future oil and gas interests, thereby indirectly impacting our business, including the following:

Hazardous Substances and Wastes.   CERCLA, also known as the “Superfund law,” imposes liability, without regard to fault or the legality of the original conduct, on certain classes of persons that are considered to be responsible for the release of a “hazardous substance” into the environment. These persons include the owner or operator of the disposal site or sites where the release occurred and companies that transported or disposed or arranged for the transport or disposal of the hazardous substances found at the site. Persons who are or were responsible for releases of hazardous substances under CERCLA may be subject to joint and several liability for the costs of cleaning up the hazardous substances that have been released into the environment and for damages to natural resources, and it is not uncommon for neighboring landowners and other third parties to file corresponding common law claims for personal injury and property damage allegedly caused by the hazardous substances released into the environment.

Waste Discharge .  The CWA and analogous state laws impose restrictions and strict controls with respect to the discharge of pollutants, including spills and leaks of oil and other substances, into waters of the United States. The discharge of pollutants into regulated waters is prohibited, except in accordance with the terms of a permit issued by the EPA or an analogous state agency. The CWA and regulations implemented thereunder also prohibit the discharge of dredge and fill material into regulated waters, including jurisdictional wetlands, unless authorized by an appropriately issued permit. Spill prevention, control and countermeasure requirements of federal laws require appropriate containment beams and similar structures to help prevent the contamination of navigable waters by a petroleum hydrocarbon tank spill, rupture or leak. In addition, the CWA and analogous state laws require individual permits or coverage under general permits for discharges of storm water runoff from certain types of facilities. Federal and state regulatory agencies can impose administrative, civil and criminal penalties as well as other enforcement mechanisms for noncompliance with discharge permits or other requirements of the CWA and analogous state laws and regulations.

 
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Air Emissions .   The CAA and associated state laws and regulations restrict the emission of air pollutants from many sources, including oil and gas operations. New facilities may be required to obtain permits before construction can begin, and existing facilities may be required to obtain additional permits and incur capital costs in order to remain in compliance. More stringent regulations governing emissions of toxic air pollutants and greenhouse gases (“GHGs”) have been developed by the EPA and may increase the costs of compliance for some facilities.

Oil Pollution Act .   The Oil Pollution Act of 1990, as amended (“OPA”) and regulations thereunder impose a variety of requirements on “responsible parties” related to the prevention of oil spills and liability for damages resulting from such spills in United States waters. A “responsible party” includes the owner or operator of an onshore facility, pipeline or vessel, or the lessee or permittee of the area in which an offshore facility is located. OPA assigns liability to each responsible party for oil cleanup costs and a variety of public and private damages. While liability limits apply in some circumstances, a party cannot take advantage of liability limits if the spill was caused by gross negligence or willful misconduct or resulted from violation of a federal safety, construction or operating regulation. If the party fails to report a spill or to cooperate fully in the cleanup, liability limits likewise do not apply. Few defenses exist to the liability imposed by OPA. OPA imposes ongoing requirements on a responsible party, including the preparation of oil spill response plans and proof of financial responsibility to cover environmental cleanup and restoration costs that could be incurred in connection with an oil spill.

National Environmental Policy Act .  Oil and natural gas exploration and production activities on federal lands are subject to the National Environmental Policy Act (“NEPA”). NEPA requires federal agencies, including the Department of Interior, to evaluate major agency actions having the potential to significantly impact the environment. The process involves the preparation of either an environmental assessment or environmental impact statement depending on whether the specific circumstances surrounding the proposed federal action will have a significant impact on the human environment. The NEPA process involves public input through comments which can alter the nature of a proposed project either by limiting the scope of the project or requiring resource-specific mitigation. NEPA decisions can be appealed through the court system by process participants. This process may result in delaying the permitting and development of projects, increase the costs of permitting and developing some facilities and could result in certain instances in the cancellation of existing leases.

Worker Safety .   The Occupational Safety and Health Act (“OSHA”) and comparable state statutes regulate the protection of the health and safety of workers. The OSHA hazard communication standard requires maintenance of information about hazardous materials used or produced in operations and provision of such information to employees. Other OSHA standards regulate specific worker safety aspects. Failure to comply with OSHA requirements can lead to the imposition of penalties.

Safe Drinking Water Act .   The Safe Drinking Water Act and comparable state statutes restrict the disposal, treatment or release of water produced or used during oil and gas development. Subsurface emplacement of fluids (including disposal wells or enhanced oil recovery) is governed by federal or state regulatory authorities that, in some cases, includes the state oil and gas regulatory authority or the state’s environmental authority. These regulations may increase the costs of compliance for some facilities.

Offshore Drilling.   In 2011, the U.S. Department of Interior issued new rules designed to improve drilling and workplace safety in the U.S. Gulf of Mexico, and various congressional committees began pursuing legislation to regulate drilling activities and increase liability. The Bureau of Ocean Energy Management, BSEE and Office of National Resources Revenue are expected to continue to issue new safety and environmental guidelines or regulations for drilling in the U.S. Gulf of Mexico, and other regulatory agencies could potentially issue new safety and environmental guidelines or regulations in other geographic regions, and may take other steps that could increase the costs of exploration and production, reduce the area of operations and result in permitting delays.  We are monitoring legislation and regulatory developments; however, it is difficult to predict the ultimate impact of any new guidelines, regulations or legislation. A prolonged suspension of drilling activity or permitting delays in the U.S. Gulf of Mexico and new regulations and increased liability for companies operating in this sector, whether or not caused by a new incident in the region, could adversely affect the business and planned operations of oil and gas companies.

 Effect of Existing or Probable Governmental Regulations on our Business

We are subject to the following regulations of the SEC and applicable securities laws, rules and regulations:

Smaller Reporting Company.   We are subject to the reporting requirements of Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and subject to the disclosure requirements of Regulation S-K of the SEC, as a “smaller reporting company.” That designation will relieve us of some of the informational requirements of Regulation S-K applicable to larger companies.

Sarbanes/Oxley Act .    Except Section 302 and 404, we are also subject to the Sarbanes/Oxley Act of 2002. The Sarbanes/Oxley Act created a strong and independent accounting oversight board to oversee the conduct of auditors of public companies and strengthens auditor independence. It also requires steps to enhance the direct responsibility of senior members of management for financial reporting and for the quality of financial disclosures made by public companies; establishes clear statutory rules to limit, and to expose to public view, possible conflicts of interest affecting securities analysts; creates guidelines for audit committee members’ appointment, compensation and oversight of the work of public companies’ auditors; management's assessment of our internal controls; prohibits certain insider trading during pension fund blackout periods; requires companies to evaluate internal controls and procedures; and establishes a federal crime of securities fraud, among other provisions. Compliance with the requirements of the Sarbanes/Oxley Act has and will continue to substantially impact our legal and accounting costs.

 
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Jumpstart Our Business Startups Act of 2012.   As a company with less than $1 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include:

 
·
Only two years of audited financial statements in addition to any required unaudited interim financial statements with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure.
 
 
·
Reduced disclosure about our executive compensation arrangements.
 
 
·
Not having to obtain non-binding advisory votes on executive compensation or golden parachute arrangements.
 
 
·
Exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting.

As an “emerging growth company” under the JOBS Act, we are permitted to delay the adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. However, we are electing not to take advantage of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to not take advantage of the extended transition period for complying with new or revised accounting standards is irrevocable.

We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1 billion in annual revenue, we have more than $700 million in market value of our stock held by non-affiliates, or we issue more than $1 billion of non-convertible debt over a three-year period. We may choose to take advantage of some but not all of these reduced burdens. We have taken advantage of these reduced reporting burdens in this prospectus, and the information that we provide may be different than what you might get from other public companies in which you hold stock.

Exchange Act Reporting Requirements.   We are not subject to the reporting requirements of Section 14 or 16 of the Exchange Act.  We are required to file Annual Reports on SEC Form 10-K and Quarterly Reports on SEC Form 10-Q with the SEC on a regular basis, and will be required to timely disclose certain material events (e.g., changes in corporate control; acquisitions or dispositions of a significant amount of assets other than in the ordinary course of business; and bankruptcy) in a Current Report on SEC Form 8-K.

 Competition

The Company is competing with other oil companies for oil and gas leases and concessions. The oil and gas industry is highly competitive in all of its phases, with competition for favorable producing royalties, overriding royalties, and good oil and gas leases being particularly intense.
 
The oil and gas industry is highly competitive in all of its phases, with competition for favorable producing royalties, overriding royalties, and good oil and gas leases being particularly intense.  The Company believes that the exploration program, promised expenditures, geological and geophysical skill, and familiarity with an area of operations are the primary competitive factors in the identification, selection, and acquisition of desirable leases. When attempting to purchase interests in such properties, the Company competes with independent operators and major oil companies, any of companies that possess and employ financial resources that allow them to obtain substantially greater technical and personnel resources than ours.  Competitors may be able to evaluate and purchase a greater number of mineral rights or royalty interests than our financial or personnel resources permit. Competitors may also be able to pay more for prospects than we are able or willing to pay.  If we are unable to compete successfully in these areas in the future, our future growth may be diminished or restricted.
 
Employees
 
Our chief executive officer is our sole employee.

Historical Background

The Company was incorporated under the laws of the State of Nevada on March 15, 2010, as “Inka Productions Corp.” The Company became an SEC reporting company in 2012, when a registration statement for its common stock was declared effective under the Exchange Act.  At that time, the Company was engaged in the business of producing and performing traditional Peruvian dances in Peru and the United States.  

In September 2013, certain shareholders of the Company sold an aggregate of 7,900,000 shares of the Company’s common stock at a price of $0.001 per share to certain accredited investors, which resulted in a change of control and management.  Following the change of control, in November 2013, the Company amended its certificate of incorporation to: (i) increase the Company’s authorized shares of common stock from 75,000,000 shares to 950,000,000 shares, (ii) authorize the issuance of 50,000,000 shares of blank check preferred stock, (iii) effect a 3-for-1 forward stock split of the Company’s common stock, and (iv) change the name of the Company from “INKA Productions, Corp.” to “Texas South Energy, Inc.”

General

Our address is 3 Riverway, Suite 1800, Houston, TX 77056 and our telephone number is (713) 209-2950. We currently do not have a corporate website. You may access and read our SEC filings through the SEC’s web site (http:www.sec.gov). This site contains reports, proxy and information statements and other information regarding registrants, including us, that file electronically with the SEC.

 
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


Texas South Energy, Inc.
[Formerly Known as Inka Productions Corp.]
[A Development Stage Company]

TABLE OF CONTENTS


 
Page
Report of Independent Registered Public Accounting Firm
8
   
Report of Independent Registered Public Accounting Firm
 9
   
Balance Sheets - October 31, 2013 and 2012
10
   
Statements of Operations for the Years Ended October 31, 2013 and 2012 and for the period from inception [March 15, 2010] through October 31, 2013
11
   
Statements of Stockholders’ Equity for the period from inception [March 15, 2010] through October 31, 2013
12
   
Statements of Cash Flows for the Years Ended October 31, 2013 and 2012 and for the period from inception [March 15, 2010] through October 31, 2013
13
   
Notes to the Financial Statements
14 - 17


 
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LBB & ASSOCIATES LTD., LLP
10260 Westheimer Road, Suite 310
Houston, TX 77042
Phone: (713) 800-4343 Fax: (713) 456-2408

Report of Independent Registered Public Accounting Firm

To the Board of Directors of
Texas South Energy, Inc.
(formerly Inka Productions Corp.)
(A Development Stage Company)
Houston, Texas

We have audited the accompanying balance sheet of Texas South Energy, Inc (formerly Inka Productions Corp.) (the “Company”) as of October 31, 2013, and the related statements of operations, stockholders' deficit, and cash flows for the year ended October 31, 2013 and for the period from March 15, 2010 (inception) through October 31, 2013. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We did not audit the balance sheet as of October 31, 2012, or the statements of operations, stockholders’ deficit and cash flows for the period from March 15, 2010 (inception) to October 31, 2012, which totals reflected a deficit of $55,895 accumulated during the development stage. Those financial statements and cumulative totals were audited by other auditors whose report dated February 12, 2013, expressed an unqualified opinion on those statements and cumulative totals, and included an explanatory paragraph regarding the Company’s ability to continue as a going concern. Our opinion, insofar as it relates to amounts included for that period is based on the report of other independent auditors, mentioned above.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Texas South Energy, Inc (formerly Inka Productions Corp.) as of October 31, 2013, and the results of its operations and its cash flows for the year ended October 31, 2013 and for the period from March 15, 2010 (inception) through October 31, 2013 in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 3 to the financial statements, the Company's absence of significant revenues, recurring losses from operations, and its need for additional financing in order to fund its projected loss in 2014 raise substantial doubt about its ability to continue as a going concern. The 2013 financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ LBB & Associates Ltd., LLP
LBB & Associates Ltd., LLP

Houston, Texas
February 10, 2014

 
8

 

 
Report of Independent Registered Public Accounting Firm

To the Board of Directors
Inka Productions Corp.
(A Development Stage Company)

We have audited the accompanying balance sheet of Texas South Energy, Inc (formerly Inka Productions Corp.) (the “Company”) as of October 31, 2013, and the related statements of operations, stockholders' deficit, and cash flows for the year ended October 31, 2013 and for the period from March 15, 2010 (inception) through October 31, 2013. We did not audit the financial statements for the period from March 15, 2010 (inception) to October 31, 2012. Those financial statements were audited by other auditors whose report dated February 12, 2013, expressed an unqualified opinion on those statements and included an explanatory paragraph regarding the Company’s ability to continue as a going concern. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. Our opinion, insofar as it relates to amounts included for that period is based on the report of other independent auditors, mentioned above.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Inka Productions Corp. as of October 31, 2012 and 2011, and the results of its operations and cash flows for the periods described above in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 2 to the financial statements, the Company has insufficient working capital, which raises substantial doubt about its ability to continue as a going concern.  Management's plans regarding those matters also are described in Note 2.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ M&K CPAS, PLLC

www.mkacpas.com
Houston, Texas
February 12, 2013


 
9

 

Texas South Energy, Inc.
[Formerly Known as Inka Productions Corp.]
[A Development Stage Company]

BALANCE SHEETS

   
October 31, 2013
   
October 31, 2012
 
ASSETS
           
             
CURRENT ASSETS
           
Cash
 
$
374,086
   
$
540
 
Prepaid expenses
   
10,838
     
-
 
TOTAL CURRENT ASSETS
 
$
384,924
   
$
540
 
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
               
                 
CURRENT LIABILITIES
               
Accounts payable and accrued liabilities
 
$
27,677
   
$
21,481
 
Accrued expenses
   
3,030,244
     
-
 
Due to related party (Note 5)
   
52,152
     
31,954
 
TOTAL CURRENT LIABILITIES
   
3,110,073
   
$
53,435
 
                 
 Commitments
               
STOCKHOLDERS’ DEFICIT
               
Preferred stock
               
    50,000,000 shares preferred stock authorized, none issued and outstanding
               
Common stock (Note 4)
               
950,000,000 shares common stock authorized, $0.001 par value, 198,000,000 and 24,000,000 shares of common stock issued and outstanding,  for October 31, 2013 and 2012, respectively
   
198,000
     
24,000
 
Additional paid in capital
   
(134,278
)
   
(21,000
)
Additional paid in capital – shares to be issued
   
1,174,000
     
-
 
Deficit accumulated during the development stage
   
(3,962,871
)
   
(55,895
)
Total Stockholders’ Deficit
   
(2,725,149
)
   
(52,895
)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
 
$
384,924
   
$
540
 

 
The accompanying notes are an integral part of these financial statements

 
10

 

Texas South Energy, Inc.
[Formerly Known as Inka Productions Corp.]
[A Development Stage Company]

STATEMENTS OF OPERATIONS
 
   
Year ended
October 31, 2013
   
Year ended
October 31, 2012
   
March 15, 2010 (date of Inception)
to October 31, 2013
 
                   
EXPENSES
                 
                   
General & administrative expenses
 
$
3,906,976
   
$
33,079
   
$
(3,962,871
)
                         
NET LOSS
 
$
(3,906,976
)
 
$
(33,079
)
 
$
(3,962,871
)
                         
BASIC AND DILUTED NET LOSS PER COMMON SHARE
 
$
(0.10
)
 
$
(0.00
)
       
Weighted average number of  common shares outstanding – basic and diluted
   
38,194,521
     
24,000,000
         

 
The accompanying notes are an integral part of these financial statements

 
11

 

Texas South Energy, Inc.
[Formerly Known as Inka Productions Corp.]
[A Development Stage Company]

STATEMENTS OF STOCKHOLDERS’ DEFICIT

FROM INCEPTION (March 15, 2010) TO OCTOBER 31, 2013

   
Common Stock
                         
   
Number of shares
   
Amount
   
Additional Paid-in Capital
   
Additional
Paid-in
Capital
Shares to be Issued
   
Deficit Accumulated During the Development Stage
   
Total
 
Founder’s shares
   
15,000,000
   
$
15,000
   
$
(15,000
)
 
$
-
   
$
-
   
$
-
 
Stock issued for cash at $0.003 per share
   
9,000,000
     
9,000
     
(6,000
   
-
     
-
     
3,000
 
Net Loss for the year ended October 31, 2010
   
-
     
-
     
-
     
-
     
(13,189
)
   
(13,189
)
Balance, October 31, 2010
   
24,000,000
     
24,000
     
(21,000
)
   
-
     
(13,189
)
   
(10,189
)
                                                 
Net Loss for the year ended October 31, 2011
   
-
     
-
     
-
     
-
     
(9,627
)
   
(9,627
)
Balance, October 31, 2011
   
24,000,000
     
24,000
     
(21,000
)
   
-
     
(22,816
)
   
(19,816
)
                                                 
Net Loss for the year ended October 31, 2012
   
-
     
-
     
-
     
-
     
(33,079
)
   
(33,079
 
Balance, October 31, 2012
   
24,000,000
     
24,000
     
(21,000
)
   
-
     
(55,895
)
   
(52,895
)
                                                 
Imputed interest
   
 -
     
 -
     
2,722
     
 -
     
 -
     
2,722
 
Stock issued for services rendered
   
69,000,000
     
69,000
     
(46,000
   
-
     
 -
     
23,000
 
Stock issued for cash at $0.003 per share
   
105,000,000
     
105,000
     
 (70,000
   
 -
     
 -
     
35,000
 
Stock sold for cash – to be issued
   
 -
     
 -
     
 -
     
1,174,000
     
-
     
1,174,000
 
Net Loss for the year ended October 31, 2013
   
-
     
-
     
-
     
 -
     
(3,906,976
)
   
(3,906,976
)
Balance, October 31, 2013
   
198,000,000
   
$
198,000
   
$
(134,278
)
 
$
1,174,000
   
$
(3,962,871
)
 
$
(2,725,149
)
 
 
The accompanying notes are an integral part of these financial statements

 
12

 
 
Texas South Energy, Inc.
[Formerly Known as Inka Productions Corp.]
[A Development Stage Company]

STATEMENTS OF CASH FLOWS

   
Year ended October 31, 2013
   
Year ended October 31, 2012
   
March 15,
2010 (date of Inception) through
October 31, 2013
 
                   
CASH FLOWS FROM OPERATING ACTIVITIES
                 
Net loss
 
$
(3,906,976
)
 
$
(33,079
)
 
$
(3,962,871
)
Adjustment to reconcile net loss to net cash provided by (used in) operating activities
                       
Non-cash interest
   
2,722
     
-
     
2,722
 
Stock compensation expense
   
23,000
     
 -
     
23,000
 
Changes in operating assets and liabilities:
                       
Increase in prepaid expenses
   
(10,838
)
   
 -
     
(10,838
)
Increase in accounts payable and accrued liabilities
   
3,036,440
     
5,355
     
3,057,921
 
                         
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
   
(855,652
)
   
(27,724
)
   
(890,066
)
                         
CASH FLOWS FROM FINANCING ACTIVITIES
                       
Proceeds from sale of common stock (issued)
   
35,000
     
-
     
35,000
 
Proceeds from sale of common stock (to be issued)
   
1,174,000
     
-
     
1,177,000
 
Increase in due to related party
   
20,198
     
20,361
     
52,152
 
                         
NET CASH PROVIDED BY FINANCING ACTIVITIES
   
1,229,198
     
20,361
     
1,264,152
 
                         
NET INCREASE (DECREASE) IN CASH
   
373,546
     
(7,363
)
   
374,086
 
                         
CASH, BEGINNING OF PERIOD
   
540
     
7,903
     
-
 
                         
CASH, END OF PERIOD
 
$
374,086
   
$
540
   
$
374,086
 
                         
Supplemental cash flow information and noncash financing activities:
                       
Cash paid for:
                       
Interest
 
$
-
   
$
-
   
$
-
 
Income taxes
 
$
-
   
$
-
   
$
-
 
 
 
The accompanying notes are an integral part of these financial statements

 
13

 

Texas South Energy, Inc.
[Formerly Known as Inka Productions Corp.]
[A Development Stage Company]

NOTES TO THE AUDITED FINANCIAL STATEMENTS
October 31, 2013

NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION
 
Texas South Energy, Inc., formerly known as “Inka Productions Corp.”, (the “Company”) was incorporated pursuant to the laws of the State of Nevada on March 15, 2010.  The Company had initially intended to commence business operations by producing and performing traditional Peruvian dances both in Peru and the United States.  On September 24, 2013, there was a change in control of the Company.  On October 7, 2013, the board of directors and majority shareholders of the Company approved an amendment changing the name of the Company to “Texas South Energy, Inc.”.   The Company intends to pursue business activities related to the oil and gas industry.
 
The Company is a development stage company that has limited operating history and has earned no revenues.  Since the inception, the company has devoted its activities to the following: developing a business plan, determining the market for the company business activities, developing a business marketing plan and capital formation.  Texas South Energy, Inc. (the “Company”), is in the initial development stage and has incurred losses since inception totalling $3,962,871.

The Company has established a fiscal year end of October 31.


NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Basis of Presentation
The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America.
 
Cash and Cash Equivalents
The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents.
 
Use of Estimates and Assumptions
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.
 
Financial Instruments
The carrying value of the Company's financial instruments approximates their fair value because of the short maturity of these instruments.
 
Basic and Diluted Net Loss per Share
The Company computes loss per share in accordance with ASC 260, “Earnings per Share” which requires presentation of both basic and diluted earnings per share on the face of the statement of operations. Basic loss per share is computed by dividing net loss available to common shareholders by the weighted average number of outstanding common shares during the period. Diluted loss per share gives effect to all dilutive potential common shares outstanding during the period.  Dilutive loss per share excludes all potential common shares if their effect is anti-dilutive. The Company has no potential dilutive instruments and accordingly basic loss and diluted loss per share are the same.
 
Fair Value
In accordance with the requirements of ASC 825 and ASC 820, the Company has determined the estimated fair value of financial instruments using available market information and appropriate valuation methodologies.  The fair value of financial instruments classified as current assets or liabilities approximate their carrying value due to the short-term maturity of the instruments.  

Income Taxes
The Company has adopted ASC 740 for reporting purposes.  As of October 31, 2013 the Company had net operating loss carry forwards of approximately $940,000 that may be available to reduce future years’ taxable income and will expire beginning in 2028.  Availability of loss usage is subject to change of ownership limitations under Internal Revenue Code 382.  Future tax benefits which may arise as a result of these losses have not been recognized in these financial statements, as their realization is determined not likely to occur and accordingly, the Company has recorded a valuation allowance for the future tax loss carryforwards.

 
14

 
 
Net Loss per Share
Basic loss per share includes no dilution and is computed by dividing loss available to common stockholders by the weighted average number of common shares outstanding for the period.  Dilutive loss per share reflects the potential dilution of securities that could share in the losses of the Company.  Because the Company does not have any potentially dilutive securities, the accompanying presentation is only of basic loss per share.
 
Stock-based Compensation
The Company has not adopted a stock option plan and has not granted any stock options.  Common stock has been granted to numerous third parties for services (see Note 4).
 
Share Based Expenses
In December 2004, the Financial Accounting Standards Board (“FASB”) issued ASC 718 "Compensation - Stock Compensation" and 505-50 “Equity-Based Payments to Non-Employees.”  This statement requires a public entity to expense the cost of employee services received in exchange for an award of equity instruments.  This statement also provides guidance on valuing and expensing these awards, as well as disclosure requirements of these equity arrangements.  The Company adopted ASC 718 and 505-50 upon creation of the company and expenses share based costs in the period incurred.
 
Recent Accounting Pronouncements
In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income , to improve the transparency of reporting these reclassifications. Other comprehensive income includes gains and losses that are initially excluded from net income for an accounting period. Those gains and losses are later reclassified out of accumulated other comprehensive income into net income. The amendments in the ASU do not change the current requirements for reporting net income or other comprehensive income in financial statements. All of the information that this ASU requires already is required to be disclosed elsewhere in the financial statements under U.S. GAAP. The new amendments will require an organization to:
 
 
-          Present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income - but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period; and
 
-          Cross-reference to other disclosures currently required under U.S. GAAP for other reclassification items (that are not required under U.S. GAAP) to be reclassified directly to net income in their entirety in the same reporting period. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is initially transferred to a balance sheet account (e.g., inventory for pension-related amounts) instead of directly to income or expense.

The amendments apply to all public and private companies that report items of other comprehensive income. Public companies are required to comply with these amendments for all reporting periods (interim and annual). The amendments are effective for reporting periods beginning after December 15, 2012, for public companies. Early adoption is permitted. The adoption of ASU No. 2013-02 is not expected to have a material impact on our financial position or results of operations.

In January 2013, the FASB issued ASU No. 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, which clarifies which instruments and transactions are subject to the offsetting disclosure requirements originally established by ASU 2011-11. The new ASU addresses preparer concerns that the scope of the disclosure requirements under ASU 2011-11 was overly broad and imposed unintended costs that were not commensurate with estimated benefits to financial statement users. In choosing to narrow the scope of the offsetting disclosures, the Board determined that it could make them more operable and cost effective for preparers while still giving financial statement users sufficient information to analyze the most significant presentation differences between financial statements prepared in accordance with U.S. GAAP and those prepared under IFRSs. Like ASU 2011-11, the amendments in this update will be effective for fiscal periods beginning on, or after January 1, 2013. The adoption of ASU 2013-01 is not expected to have a material impact on our financial position or results of operations.

In October 2012, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2012-04, ''Technical Corrections and Improvements" in Accounting Standards Update No. 2012-04. The amendments in this update cover a wide range of Topics in the Accounting Standards Codification. These amendments include technical corrections and improvements to the Accounting Standards Codification and conforming amendments related to fair value measurements. The amendments in this update will be effective for fiscal periods beginning after December 15, 2012. The adoption of ASU 2012-04 is not expected to have a material impact on our financial position or results of operations.

In August 2012, the FASB issued ASU 2012-03, "Technical Amendments and Corrections to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (SAB) No. 114, Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB Accounting Standards Update 2010-22 (SEC Update)" in Accounting Standards Update No. 2012-03. This update amends various SEC paragraphs pursuant to the issuance of SAB No. 114. The adoption of ASU 2012-03 is not expected to have a material impact on our financial position or results of operations.
 
In July 2012, the FASB issued ASU 2012-02, "Intangibles -Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment" in Accounting Standards Update No. 2012-02. This update amends ASU 2011-08, Intangibles -Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment and permits an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles -Goodwill and Other -General Intangibles Other than Goodwill. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity's financial statements for the most recent annual or interim period have not yet been issued or, for non-public entities, have not yet been made available for issuance. The adoption of ASU 2012-02 is not expected to have a material impact on our financial position or results of operations.

 
15

 
 
NOTE 3 – GOING CONCERN
 
The Company’s financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern.  This contemplates the realization of assets and the liquidation of liabilities in the normal course of business.  Currently, the Company does not have sufficient cash nor material assets, nor does it have operations or a source of revenue sufficient to cover its operation costs and allow it to continue as a going concern.  The Company has accumulated losses since Inception (March 15, 2010) through October 31, 2013, of $3,962,871.  The Company will be dependent upon the raising of additional capital through placement of our common and/or preferred stock in order to implement its business plan, or merge with an operating company.  There can be no assurance that the Company will be successful in either situation in order to continue as a going concern.  The Company is funding its initial operations by way of issuing common shares.  As of October 31, 2013, the Company had issued 137,480,004 at $0.003 per share, for net funds to the Company of $1,212,000.  These factors raise substantial doubt regarding the Company’s ability to continue as a going concern.  These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.


NOTE 4 – CAPITAL STOCK

On March 15, 2010, a director of the Company was issued 15,000,000 Founder’s shares of the common stock in the Company at $0.0003 per share in exchange for services rendered.  No cash was paid for the founder’s shares.

During March 2010, the Company sold 9,000,000 shares of common stock at $0.0003 per share for $3,000 cash.

On September 24, 2013, the Company issued 69,000,000 shares of common stock to James Askew, the Company’s Chief Executive Officer and sole Director, for services rendered.   The stock was valued at $23,000.

On October 4, 2013, the Company sold 105,000,000 shares of common stock at $0.0003 for $35,000 cash.

On October 7, 2013, the Company’s board of directors and majority shareholders approved increasing the number of the Company’s authorized common shares from 75,000,000 to 950,000,000, the issuance of 50,000,000 shares of blank check preferred stock, and effecting a 3-for-1 forward stock split of the Company’s common stock.  Pursuant to the 3-for-1 common stock split, the Company issued two additional shares of common stock for each issued share of the Company’s common stock outstanding prior to the forward split.  The 3-for-1 forward split became effective November 12, 2013.  The forward split has been shown retroactively. No preferred shares have been issued.

During October 2013, the Company received cash and subscriptions to purchase 23,480,004 shares of common stock at $0.05 per share for $1,174,000 cash.   The shares were unissued as of October 31, 2013, and are reflected in the financial statements as “Additional Paid in Capital – Shares to be issued”.   The shares were subsequently issued in November 2013.

As of October 31, 2013, the Company has not granted any stock options.


NOTE 5 – RELATED PARTY TRANSACTIONS
 
As of October 31, 2013 the Company had received advances from a prior Director in the amount of $52,152 ($31,954 at October 31, 2012). The amounts due to the related party remain existing, unsecured due on demand and non-interest bearing with no set terms of repayment.  Imputed interest of $2,722 was recorded as donated capital during the twelve months ended October 31, 2013.
 
On September 27, 2013, the Company entered into a one-year employment agreement with its Director and Chief Executive Officer James Askew.   The agreement provides for a one-time issuance of 69,000,000 shares of common stock, a $75,000 cash signing bonus, and $35,000 cash compensation per month.
 
On October 30, 2013 the board authorized a bonus to the Chief Executive Officer of $600,000.


NOTE 6 - INCOME TAXES

The Company follows ASC 740. Deferred income taxes reflect the net effect of (a) temporary difference between carrying amounts of assets and liabilities for financial purposes and the amounts used for income tax reporting purposes, and (b) net operating loss carry-forwards. No net provision for refundable Federal income tax has been made in the accompanying statement of loss because no recoverable taxes were paid previously. Similarly, no deferred tax asset attributable to the net operating loss carry-forward has been recognized, as it is not deemed likely to be realized.

 
16

 
 
The provision for refundable federal income tax consists of the following for the periods ending:

   
October 31, 2013
   
October 31, 2012
 
Federal income tax benefit attributed to:
           
Net operating loss
 
$
300,000
   
$
11,000
 
Valuation allowance
   
(300,000
)
   
(11,000
)
Net benefit
 
$
-
   
$
-
 
 
The cumulative tax effect at the expected rate of 34% of significant items comprising our net deferred tax amount is as follows:
 
October 31, 2013
   
October 31, 2012
 
Deferred tax attributed:
               
Net operating loss carryover
 
$
319,000
   
$
19,000
 
Less: change in valuation allowance
   
(319,000
)
   
(19,000
)
Net deferred tax asset
 
$
-
   
$
-
 

At October 31, 2013, the Company had an unused net operating loss carry-forward approximating $940,000 that is available to offset future taxable income; the loss carry-forward will start to expire in 2028.


NOTE 7 – FAIR VALUE OF FINANCIAL INSTRUMENTS
 
The Company adopted the FASB standard related to fair value measurement at inception. The standard defines fair value, establishes a framework for measuring fair value and expands disclosure of fair value measurements. The standard applies under other accounting pronouncements that require or permit fair value measurements and, accordingly, does not require any new fair value measurements. The standard clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The recorded values of long-term debt approximate their fair values, as interest approximates market rates. As a basis for considering such assumptions, the standard established a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows.
 
      Level 1. Observable inputs such as quoted prices in active markets;
      Level 2. Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
      Level 3. Unobservable inputs in which there is little or no market data, which require the entity to develop its own assumptions.
 
The Company’s financial instruments are cash, accounts receivable, and accounts payable. The recorded values of cash, accounts receivable, and accounts payable approximate their fair values based on their short-term nature.


NOTE 8 – COMMITMENTS AND CONTINGENCIES
 
In September 2013, the Company entered into a one-year employment arrangement with Mr. Askew, providing for a monthly salary of $35,000 and a sign-on bonus of $75,000. Mr. Askew was also issued 69,000,000 share of our common stock (after giving effect to the 3-for-1 forward split effected in November 2013) for services rendered. In October 2013, the Company awarded a $600,000 bonus to James M. Askew, Chief Executive Officer of the Company for his success in raising capital for the Company prior to October 31, 2013 (this bonus is in addition to the compensation set forth in section 4 of Mr. Askew’s employment agreement).
 
On October 11, 2013, the Company entered into a one-year consulting agreement with John B. Connally, III.   The agreement provides for a one-time issuance of 60,000,000 shares of common stock, a $25,000 cash signing bonus, and $10,000 cash compensation per month.   As of October 31, 2013, the stock had not been issued and the associated expense was accrued for $3,000,000.


NOTE 9 - SUBSEQUENT EVENTS

On November 12, 2013, the Company issued 3,000,000 shares of common stock to a third party for services rendered.   The stock was valued at $150,000.
 
On November 12, 2013, the Company issued 60,000,000 shares of common stock to John B. Connally III, pursuant to the aforementioned consulting agreement (see Note 8 above).
 
On November 26, 2013, the Company issued 23,480,004 shares of common stock related to cash and subscriptions received during October 2013 (see Note 4 above).
 
During November 2013 through January 2014, the Company sold 9,050,000 shares of common stock at $0.05 per share for $452,500.

On January 22, 2014, the Company entered into a Contract for Sale with the owner of mineral interests in 86.69 acres in Lavaca County, Texas pursuant to which the Company acquired a 37.5% interest in the Acreage’s mineral rights, including the oil and gas rights. The Company paid the seller $270,000 in cash and issued the seller 2,000,000 shares of the Company’s common stock, valued at $100,000.   Management valued the shares at $0.05 per share based on its recent sales of common stock.

 
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PART IV

ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES

Exhibits. The following exhibits are filed as part of this Annual Report:

Exhibit No.
Description
   
3.1
Amended and Restated Articles of Incorporation of Texas South Energy, Inc. incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed November 27, 2013.
3.2
Amended and Restated Bylaws of Texas South Energy, Inc. incorporated by reference to Exhibit 3.2 of the Company’s Form 8-K filed November 12, 2013.
4.1
Common Stock Specimen.
10.1* (1)
Employment Agreement, by and between the Company and James M. Askew.
10.2 (1)
Consulting Agreement by and between the Company and John Connally.
10.3
Contract For Sale, dated effective January 22, 2014, incorporated by reference to Exhibit 10.1 of Form 8-K filed January 27, 2014.
10.4 (1)
Form of Subscription Agreement.
14.1 (1)
Code of Ethics.
16.1
Letter of M&K CPAS, PLLC to the SEC dated January 30, 2014, incorporated by reference to Exhibit 16.1 of Form 8-K filed January 30, 2014.
31.1 (1)
Certification of Principal Executive Officer and Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)
32.1 (1)
Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 18 U.S.C. Section 1350, adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101
The following financial information from our Annual Report on Form 10-K for the year  ended September 30, 2013 formatted in Extensible Business Reporting language (XBRL); (i) Condensed Balance Sheets, (ii) Condensed Statements of Operations, (iii) Condensed Statements of Cash Flows and (iv) Notes to the Condensed Financial Statements (2)

*  Management contract or compensatory plan or arrangement.

(1)
Filed herewith.
(2)
Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

 
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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized.


Texas South Energy, Inc.

Date:
  April 8, 2014
 
By:
/s/ James M. Askew
       
James M. Askew
       
Chief Executive Officer,
Principal Financial Officer, and Sole Director
 



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