Texas South Energy 10Q 2015 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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

For the quarterly period ended July 31, 2015

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

For the transition period from ______________________ to ______________________

Commission file number 333-171064

TEXAS SOUTH ENERGY, INC.

(Exact name of registrant as specified in its charter)

Nevada	99-0362471
(State or other jurisdiction of incorporation or	(I.R.S. Employer Identification No.)
organization)


3 Riverway, Suite 1800 Houston, Texas	77056
(Address of principal executive offices)	(Zip Code)

(713) 209-2950

(Registrant’s telephone number)

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was require to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 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 whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

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]

As of September 10, 2015 the registrant’s outstanding common stock consisted of 362,215,670 shares.

TEXAS SOUTH ENERGY, INC.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements Balance Sheets as of July 31, 2015 and October 31, 2014 (Unaudited) Unaudited Statements of Operations and Comprehensive Income (Loss) for the Three Months and Nine Months Ended July 31, 2015 and 2014 Unaudited Statements of Cash Flows for the Nine Months Ended July 31, 2015 and 2014 Unaudited Notes to Financial Statements	3
Item 2.	Management Discussion and Analysis of Financial Condition and Results of Operations	4
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	7
Item 4.	Controls and Procedures	7

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	8
Item 2.	Unregistered Sales of Equity Securities	8
Item 3.	Defaults upon Senior Securities	8
Item 4.	Mine Safety Disclosures	8
Item 5.	Other Information	8
Item 6.	Exhibits	9
Item 7.	Signatures	9

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

The accompanying unaudited financial statements have been prepared in all material respects in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information. Pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”), certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The accompanying unaudited financial statements have been prepared on the same basis as the audited financial statements for the year ended October 31, 2014.

Because certain information and footnote disclosures have been condensed or omitted, these unaudited financial statements should be read in conjunction with the audited financial statements and notes thereto as of and for the year ended October 31, 2014, which are included in the Company’s annual report for the year ended October 31, 2014 (the “2014 Annual Report”). In management’s opinion, all normal and recurring adjustments considered necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented have been included. Management believes that the disclosures made in these unaudited financial statements are adequate to make the information not misleading. Interim period operating results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year.

There have been no changes in the Company’s significant accounting policies from those that were disclosed in the Company’s 2014 Annual Report.

TEXAS SOUTH ENERGY, INC.

FINANCIAL STATEMENTS

July 31, 2015

UNAUDITED BALANCE SHEETS	Page F-2

UNAUDITED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)	Page F-3

UNAUDITED STATEMENTS OF CASH FLOWS	Page F-4

UNAUDITED NOTES TO FINANCIAL STATEMENTS	Page F-5 to F-7

F-1

TEXAS SOUTH ENERGY, INC.

BALANCE SHEETS

(Unaudited)

	July 31, 2015		October 31, 2014
ASSETS

CURRENT ASSETS
Cash	$	137	$	84,482
Investment securities – available for sale		250,000		950,000
TOTAL CURRENT ASSETS		250,137		1,034,482

Advances – mineral interests		8,200,000		8,200,000
Oil & Gas property		370,000		370,000
TOTAL ASSETS	$	8,820,137	$	9,604,482

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES
Accounts payable and accrued liabilities	$	205,563		$	124,347
Accounts payable – related party		297,728			-
Accrued expenses		77,387			27,542
Notes payable
(net of debt discount of $0 and $36,479 as of July 31, 2015 and October 31, 2014, respectively)		1,000,000			963,521
Due to related party		52,152			52,152
TOTAL CURRENT LIABILITIES		1,632,830			1,167,562

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ EQUITY
Preferred stock		-			-
50,000,000 shares preferred stock authorized, none issued and outstanding
Common stock
950,000,000 shares common stock authorized, $0.001 par value, 362,215,670 shares of common stock issued and outstanding		362,215			362,215
Additional paid-in capital		13,231,996			13,231,996
Accumulated other comprehensive income (loss)		(18,000	)		682,000
Accumulated deficit		(6,388,904	)		(5,839,291	)
Total stockholders’ equity		7,187,307			8,436,920
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	8,820,137		$	9,604,482

The accompanying notes are an integral part of these financial statements

F-2

TEXAS SOUTH ENERGY, INC.

STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)

	Three months ended July 31,						Nine months ended July 31,
	2015			2014			2015			2014
EXPENSES

General and administrative expense	$	147,457		$	555,906		$	513,134		$	1,515,821
Interest expense		7,296			18,730			36,479			26,272

NET LOSS		(154,753	)		(574,636	)		(549,613	)		(1,542,093	)

Other comprehensive income (loss):
Unrealized gain (loss) on securities available for sale		(250,000	)		600,000			(700,000	)		932,000
Total comprehensive income (loss)	$	(404,753	)	$	25,364		$	(1,249,613	)	$	(610,093	)

NET LOSS PER COMMON SHARE
Basic and diluted	$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.01	)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Basic and diluted		362,215,670			326,138,004			362,215,670			302,568,817

The accompanying notes are an integral part of these financial statements

F-3

TEXAS SOUTH ENERGY, INC.

STATEMENTS OF CASHFLOWS

(Unaudited)

	Nine months ended July 31,
	2015			2014

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(549,613	)	$	(1,542,093	)
Adjustments to reconcile net loss to net cash used in operating activities
Amortization of debt discount		36,479			-
Change in prepaid expenses		-			10,838
Change in accounts payable and accrued expenses		131,061			69,698
Change in accounts payable – related party		297,728			-
NET CASH USED IN OPERATING ACTIVITIES		(84,345	)		(1,461,557	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of marketable securities		-			(268,000	)
Advances of mineral interests		-			(8,200,000	)
Acquisition of oil and gas property		-			(270,000	)
NET USED IN INVESTING ACTIVITIES		-			(8,738,000	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of notes payable		-			8,027,950
Proceeds from sale of common stock (issued)		-			1,982,900
Proceeds from sale of common stock (to be issued)		-			160,000
NET CASH PROVIDED BY FINANCING ACTIVITIES		-			10,170,850

NET INCREASE (DECREASE) IN CASH		(84,345	)		(28,707)

CASH, BEGINNING OF PERIOD		84,482			374,086

CASH, END OF PERIOD	$	137		$	345,379

Supplemental cash flow information and noncash financing activities:
Cash paid for:
Interest	$	-		$	-
Income taxes	$	-		$	-

Non-cash activity:
Issuance of shares for oil & gas property	$	-		$	100,000
Issuance of shares for accrued compensation	$	-		$	3,001,000

Unrealized gain (loss) on securities:
Available for sale	$	(700,000	)	$	932,000

The accompanying notes are an integral part of these financial statements

F-4

Texas South Energy, Inc.

NOTES TO THE FINANCIAL STATEMENTS

July 31, 2015

(Unaudited)

NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Texas South Energy, Inc., (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. The Company is engaged in the oil and gas business.

The Company has limited operating history and has earned no revenues. The Company has devoted its activities to the acquisition of oil and gas assets. The Company has incurred losses since inception of $6,388,904.

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

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

There have been no changes in the Company’s significant accounting policies from those that were disclosed in the Company’s 2014 Annual Report.

Use of Estimates and Assumptions

The preparation of financial statements in conformity with U.S. GAAP 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. While management believes that such estimates are reasonable when considered in conjunction with the financial position and results of operations taken as a whole, actual results could differ from those estimates, and such differences may be material to the financial statements.

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. Diluted 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.

Recent Accounting Pronouncements

The Company has elected to adopt application of Accounting Standards Update No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements; it no longer presents or discloses inception-to-date information and other remaining disclosure requirements of Topic 915.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. On July 9, 2015, the FASB deferred the effective date to reporting periods (including interim periods) beginning after December 15, 2017. Early application is permitted for reporting periods (including interim periods) beginning after December 15, 2016. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. Because the Company has no revenues, the new guidance is not expected to have a material impact on its financial statements and related disclosures.

F-5

In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis (“ASU 2015-02”), which eliminates the deferral of FAS 167 and makes changes to both the variable interest model and the voting model. These changes will require re-evaluation of certain entities for consolidation and will require the Company to revise its documentation regarding the consolidation or deconsolidation of such entities. ASU 2015-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015, and is to be applied retrospectively, with early adoption permitted. The new guidance is not expected to have a material impact on its financial statements and related disclosures.

Management does not anticipate that the recently issued but not yet effective accounting pronouncements will materially impact the Company’s financial condition.

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 does it have operations or a source of revenue sufficient to cover its operating costs and allow it to continue as a going concern. The Company has accumulated losses as of July 31, 2015, of $6,388,904. The Company will be dependent upon the raising of additional capital through the best-efforts placement of its equity and/or debt securities in order to implement its business plan. There can be no assurance that the Company will be successful in either situation in order to continue as a going concern. 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 – OIL & GAS PROPERTY

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 (the “Acreage”) pursuant to which the Company acquired a 37.5% interest in the Acreage’s mineral rights, including the oil and gas rights (the “Acquired Interest”). In exchange for the Acquired Interest, 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.

NOTE 5 – ADVANCES - MINERAL INTERESTS

On March 10, 2014, the Company entered into a farm-out letter agreement with GulfSlope Energy, Inc. (“GulfSlope”), relating to five prospects (the “Prospects”) located within 2.2 million acres of 3D seismic licensed and interpreted by GulfSlope. At the time the farm out agreement was entered into, the Company’s chief executive officer and sole director, Mr. Askew, was also a director of GulfSlope. Mr. Askew resigned as a director of GulfSlope effective March 27, 2014. Under the terms of the farm-out letter agreement, the Company may acquire up to a 20% working interest in the Prospects for up to $10,000,000 payable by the Company to GulfSlope. As of July 31, 2015, the Company had paid $8,200,000 of the $10,000,000 resulting in a farm-out investment asset of $8,200,000. The transfer of the contractual rights to the working interests is expected to occur in 2015. In addition, the Company has agreed to pay its proportionate share of the net rental costs related to the Prospects. GulfSlope will be the operator of record and shall have the right to negotiate all future joint operating agreements.

NOTE 6 – RELATED PARTY TRANSACTIONS

As of July 31, 2015 and October 31, 2014 the Company had received advances from a prior director in the amount of $52,152. The amounts due to the related party remain outstanding, unsecured due on demand and non-interest bearing with no set terms of repayment.

On September 27, 2013, the Company entered into a one-year employment agreement with its director and chief executive officer James Askew. The agreement provided for a one-time issuance of 69,000,000 shares of common stock, $75,000 cash signing bonus, and $35,000 cash compensation per month. Per the agreement, Mr. Askew was paid a $75,000 cash bonus in September 2013, and issued 69,000,000 shares of the Company’s common stock in September 2013. The stock was valued at $23,000 based upon the Company’s recent stock sales. In October 2013, the Company awarded a $600,000 cash bonus to Mr. Askew for his success in raising capital for the Company prior to October 31, 2013. On March 17, 2014, the Company and Mr. Askew amended the employment agreement to extend the term for one year, expiring September 2015, and to provide that Mr. Askew is entitled to receive base compensation through the end of the term if such agreement is terminated prior to the end of the term. On March 17, 2014, the Company also entered into an indemnification agreement with Mr. Askew tracking the statutory provisions of the Nevada Statutes. As of July 31, 2015, the Company owed $280,000 to James Askew pursuant to his employment agreement.

On March 21, 2014, the Company acquired five million shares of restricted GulfSlope common stock from our sole officer and director James M. Askew for a purchase price of $268,000. At the time of the acquisition, Mr. Askew was also a director of GulfSlope. Mr. Askew resigned as a director of GulfSlope effective March 27, 2014. During the three month and nine months ended July 31, 2015, the Company recorded an unrealized loss of $250,000 and $700,000, respectively, to adjust the investment securities to fair market value.

In May 2015, the Company’s chief executive officer and sole director paid numerous vendors a total of $17,728 on behalf of the Company. This liability is reflected in the balance sheet line ‘Accounts payable – related party’.

F-6

NOTE 7 – NOTES PAYABLE

In connection with the Company’s funding obligations pursuant to the farm-out letter agreement (see Note 5 – Advances – Mineral Interests above), on March 10, 2014, the Company entered into a financing arrangement for up to $10,000,000 in connection with the issuance of 1% unsecured convertible promissory notes (the “Notes”), convertible into shares of the Company’s common stock at a conversion price of $0.20 per share. The conversion occurred in August 2014. The holders converted the total outstanding principal amount of $6,992,950 and accrued interest of $27,437 into 35,102,181 shares of common stock. The Conversion extinguishes the Company’s obligations under the Note Agreement, including the promissory notes underlying the Note Agreement.

Effective June 2014, Texas South Energy, Inc. entered into a subscription agreement with an accredited investor under which the Company issued (i) a promissory note in the original principal amount of $1,000,000, and (ii) a one-year warrant to purchase 2,000,000 shares of the Company’s common stock at an exercise price of $0.25 per share with a fair value of $58,367. The promissory note matured on June 30, 2015 and bears interest at a fixed rate of 10% per annum. As of July 31, 2015, and October 31, 2014, the balance outstanding on the notes payable was $1,000,000 and $963,521, respectively, net of debt discount.

In June 2014, the Company entered into a non-convertible promissory note for $35,000. This note expired on August 15, 2014 when proceeds of the note were then provided to the Company for the issuance of 175,485 shares of common stock at $.20 per share.

NOTE 8 – FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s financial instruments are cash, accounts payable, and investment securities. The recorded values of cash and accounts payable approximate their fair values based on their short-term nature.

The Company’s Level 2 asset consists of investment securities. The fair value of investment securities (common stock in GulfSlope) is based on $0.05 per share, derived from GulfSlope's trading price.

NOTE 9 – COMMITMENTS AND CONTINGENCIES

In September 2013, the Company entered into a one-year employment arrangement with its director and chief executive officer James Askew. Among other compensation (see Note 6 – Related Party Transactions above), the agreement provides for $35,000 cash compensation per month. On March 17, 2014, the Company and Mr. Askew amended the employment agreement to extend the term for one year, expiring September 2015, and to provide that Mr. Askew is entitled to receive base compensation through the end of the term if such agreement is terminated prior to the end of the term.

NOTE 10 – SUBSEQUENT EVENTS

On September 8, 2015 Texas South paid GulfSlope $1,000,000 to amend the farm-out agreement dated March 10, 2014 with GulfSlope, whereby the parties (i) revised the percentage of working interest to be to be acquired by Texas South in certain oil and gas Prospects in the Gulf of Mexico and (ii) modified, substituted and/or replaced the Prospects in the March 2014 agreement with a list of new Prospects. Under the amended agreement, Texas South has acquired an 18.4% working interest in the Prospects and may, but is not obligated to, increase its working interest further by 1.6% to 20% by paying an additional $800,000 to GulfSlope on or before September 15, 2015. Texas South financed the $1,000,000 payment by a private placement of its common stock at a price of $0.02 per share and to date has received a total of approximately $1,600,000 related to that financing.

Subsequent to July 31, 2015, the Company’s chief executive officer and sole director paid numerous vendors a total of $45,528 on behalf of the Company.

F-7

ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis summarizes the significant factors affecting our operating results, financial condition, liquidity and cash flows as of and for the periods presented below. The following discussion and analysis should be read in conjunction with (i) the accompanying unaudited financial statements and notes thereto for the three months and nine months ended July 31, 2014 and 2015, and with our audited financial statements and notes thereto for the year ended October 31, 2014 included in the Company’s Annual Report on Form 10-K (the “2014 Annual Report”) and (ii) the discussion under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the 2014 Annual Report.

Forward Looking Statements

This report on Form 10-Q contains certain forward-looking statements. All statements other than statements of historical fact are “forward-looking statements” for purposes of these provisions, including any projections of earnings, revenues, or other financial items; any statements of the plans, strategies, and objectives of management for future operation; any statements concerning proposed new products, services, or developments; any statements regarding future economic conditions or performance; statements of belief; and any statement of assumptions underlying any of the foregoing. Such forward-looking statements are subject to inherent risks and uncertainties, and actual results could differ materially from those anticipated by the forward-looking statements.

Business Overview

Beginning in September 2013, we changed our business plan from performing traditional Peruvian dances to an oil and gas company focused primarily on properties in the Gulf Coast Region. We plan to obtain and manage: (1) existing royalty interests and other passive interests or rights in oil and gas properties; (2) mineral rights, which we intend to lease to oil and gas operators in exchange for a royalty payment, and (3) working interests in oil and gas properties.

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.

Our Current Onshore 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 reserves 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 July 31, 2015, one well has been drilled on the acreage and no definitive plans were announced as to when, if ever, the lessee would commence drilling on the remaining acreage. The lease on the undrilled acreage expired in December 2014. The results of the drilled well are not yet known.

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 may provide us with additional leverage when entering into any potential future leases.

Our Current Offshore Contractual Interests and Investment

On March 10, 2014, the Company entered into a farm-out letter agreement with GulfSlope Energy, Inc. ("GulfSlope"), relating to five prospects GulfSlope bid on at the Central Gulf of Mexico Lease Sale 231 conducted by the BOEM, of which four of the prospects were awarded to GulfSlope. These prospects are located within 2.2 million acres of 3D seismic licensed and interpreted by GulfSlope. Under the terms of the farm-out letter agreement, the Company may acquire up to a 20% working interest in the prospects for up to $10,000,000 payable by the Company to GulfSlope. As of July 31, 2015, the Company had funded $8,200,000. The transfer of the contractual rights to the working interests is expected to occur in 2015. In addition, the Company has agreed to pay its proportionate share of the net rental costs related to the prospects. GulfSlope will be the operator of record and shall have the right to negotiate all future joint operating agreements. Mr. Askew is a beneficial owner in excess of 5% of the common stock of GulfSlope and was a director of GulfSlope when the Company entered into the farm-out agreement.

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.

Expanding and diversifying our interests to property located outside the Eagle Ford Shale. We intend to acquire both working and non-working interests in oil and gas properties throughout the Gulf Coast Region, including off-shore prospects. We entered into a farm-out letter agreement with GulfSlope in March 2014. 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.

We have incurred losses since our inception and expect to incur losses in future periods. We rely upon the sale of our securities or loans from our President to fund our operations. We are not involved in any bankruptcy, receivership or similar proceedings.

Liquidity and Capital Resources

As of July 31, 2015, we had a cash balance of $137 and a working capital deficit of $1,382,693. Our accumulated deficit as of July 31, 2015 was $6,388,904. Our net loss of $549,613 for the nine months ended July 31, 2015 was mostly funded by proceeds raised from equity financings since September 2013. During the nine months ended July 31, 2015, our cash position decreased by $84,345.

We will need additional financing to carry out our business plan. Obtaining additional financing will be subject to a number of factors including market conditions, investor acceptance of our business plan, and investor sentiment. These factors may make the timing, amount, terms and conditions of additional financing unattractive or unavailable to us. If we cannot raise additional funds, we will not be able to carry out our business plans and may cease operations.

Results of Operations for the Three months Ended July 31, 2015 compared to the Three months ended July 31, 2014

We had no sales during the three month periods ended July 31, 2015 and July 31, 2014. General and administrative expenses were $147,457 for the three months ended July 31, 2015, compared to $555,906 for the three months ended July 31, 2014. The decrease in general and administrative expenses of approximately $408,000 for the three months ended July 31, 2015 compared to the three months ended July 31, 2014 was primarily attributed to a decrease in consulting fees, legal fees, compensation and travel expense. Interest expense was $7,296 for the three months ended July 31, 2015, compared to $18,730 in the prior period. The decrease in interest expense is due to amortization of the debt discount associated with the notes payable.

We had a net loss of $154,753 for the three months ended July 31, 2015, compared to $574,636 for the three months ended July 31, 2014. The decrease in net loss of approximately $420,000 was due to the decrease in aforementioned general and administrative expenses.

The basic and diluted loss per share for the three months ended July 31, 2015 and 2014 was $0.00.

We recorded other comprehensive loss of $250,000 for the three months ended July 31, 2015. This represents an unrealized loss on the 5,000,000 shares of GulfSlope common stock our Company purchased from our sole officer and director James Askew in March 2014. Other comprehensive income of $600,000 was recorded during the three months ended July 31, 2014.

As of July 31, 2015, the Company’s cash balance was $137, compared to a cash balance of $84,482 as of October 31, 2014. Total assets decreased by $784,345 from October 31, 2014 to July 31, 2015. This decrease is driven by less cash on hand at July 31, 2015 and the unrealized loss associated with the investment securities of $700,000 recorded in the nine month period ended July 31, 2015.

Results of Operations for the Nine Months Ended July 31, 2015 Compared to the Nine Months Ended July 31, 2014

We had no sales during the nine month periods ended July 31, 2015 and 2014. General and administrative expenses were $513,134 for the nine months ended July 31, 2015, compared to $1,515,821 for the nine months ended July 31, 2014. The decrease in general and administrative expense of approximately $1,003,000 for the nine months ended July 31, 2015 compared to the nine months ended July 31, 2014 was primarily attributed to a decrease in consulting fees, legal fees, compensation expense and travel expenses. Interest expense was $36,479 for the nine months ended July 31, 2015, compared to interest expense of $26,272 in the prior year. The increase in interest expense is due to the debt associated with the farm-out agreement as outlined above.

We had a net loss of $549,613 for the nine months ended July 31, 2015, compared to $1,542,093 for the nine months ended July 31, 2014. The decrease in net loss of approximately $992,000 was due to the decrease in the aforementioned general and administrative expense.

The basic and diluted loss per share for the nine months ended July 31, 2015 and 2014 was $0.00 and $0.01, respectively.

We recorded other comprehensive loss of $700,000 for the nine months ended July 31, 2015. This represents an unrealized loss on the 5,000,000 shares of GulfSlope Energy Inc. common stock our Company purchased from our sole officer and director James Askew in March 2014. Other comprehensive income of $932,000 was recorded during the nine months ended July 31, 2014.

Cash Flow from Operating Activities

Net cash used in operating activities decreased by $1,377,212 from November 1, 2014 to July 31, 2015 compared to the period from November 1, 2013 to July 31 2014. This decrease is primarily due to the impact of general and administrative expenses incurred during the nine month period ended July 31, 2015 compared to July 31, 2014.

Cash Flow from Investing Activities

During the nine month period ended July 31, 2015, we used no cash in investing activities compared to $8,738,000 in the nine month period ended July 31, 2014, when we used $270,000 to acquire mineral rights, $268,000 to acquire common stock in related party GulfSlope, and $8,200,000 to acquire up to a 20% working interest in various prospects in an agreement with GulfSlope.

Cash Flow from Financing Activities

During the nine month period ended July 31, 2015, we received no proceeds from financing activities compared to financing proceeds of $10,170,850 received in the nine month period ended July 31, 2014. The decrease is attributed financing activities that occurred in the nine month period ended July 31, 2014, when we received approximately $2,143,000 in the sale of the Company’s common stock and the issuance of convertible notes of approximately $8,028,000.

Off-Balance Sheet Arrangements

As of July 31, 2015, we had no off-balance sheet transactions that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of July 31, 2015, our exposure to market risk is limited. We do not expect unfavorable changes in concentration of credit risk and interest rates impacting our current balances as of July 31, 2015.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer (who also serves as our principal financial officer) of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the period covered by this Form 10-Q. Based upon that evaluation, our principal executive officer (who also serves as our principal financial officer) concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were effective to ensure that information required to be disclosed in reports filed by us under the Exchange Act is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosure.

Our management, including our principal executive officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Accordingly, management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.

Management’s Interim Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.

Changes in Internal Control over Financial Reporting

There have been no changes in internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibit Number	Exhibit Description
31.1	Certification of the Chief Executive Officer and Chief Financial Officer Pursuant to Rule 13a-14 or 15d-14 of the Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
EX-101.INS	XBRL Instance Document
EX-101.SCH	XBRL Taxonomy Extension Schema
EX-101.CAL	XBRL Taxonomy Extension Calculation Linkbase
EX-101.LAB	XBRL Taxonomy Extension Label Linkbase
EX-101.PRE	XBRL Taxonomy Extension Presentation Linkbase
EX-101.DEF	XBRL Taxonomy Extension Definition Linkbase

SIGNATURES

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

	TEXAS SOUTH ENERGY, INC.
Date: September 11, 2015	By:	/s/ James Askew
		James Askew
		Chief Executive Officer, Principal Financial Officer, and Sole Director

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Texas South Energy (TXSO) 10-Q2015 Q3 Quarterly report

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