UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2016
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________________ to ______________________
Commission file number 333-171064
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 ☒ 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 ☒
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 ☒ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of September 13, 2016, the registrant’s outstanding common stock consisted of 541,990,670 shares.
TEXAS SOUTH ENERGY, INC.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION |
PART II - OTHER INFORMATION |
Item 1. | Legal Proceedings | 5 |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 5 |
Item 3. | Defaults Upon Senior Securities | 5 |
Item 4. | Mine Safety Disclosures | 5 |
Item 5. | Other Information | 5 |
Item 6. | Exhibits | 6 |
Item 7. | Signatures | 7 |
PART I - FINANCIAL INFORMATION
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, 2015.
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, 2015, which are included in the Company’s annual report for the year ended October 31, 2015 (the “2015 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 2015 Annual Report.
F-1 |
TEXAS SOUTH ENERGY, INC.
July 31, 2016
UNAUDITED BALANCE SHEETS | Page F-3 |
UNAUDITED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS | Page F-4 |
UNAUDITED STATEMENTS OF CASH FLOWS | Page F-5 |
UNAUDITED NOTES TO FINANCIAL STATEMENTS | Page F-6 |
F-2 |
TEXAS SOUTH ENERGY, INC
(Unaudited)
July
31, 2016 | October
31, 2015 | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash | $ | 57,338 | $ | 2,135 | ||||
Prepaid expenses | — | 3,948 | ||||||
Investment securities - available for sale | — | 235,000 | ||||||
TOTAL CURRENT ASSETS | 57,338 | 241,083 | ||||||
Oil and gas properties | 10,041,684 | 10,375,955 | ||||||
TOTAL ASSETS | $ | 10,099,022 | $ | 10,617,038 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable | $ | 93,963 | $ | 5,479 | ||||
Accrued expenses | 284,675 | 191,831 | ||||||
Accrued expenses - related party | 131,083 | 475,125 | ||||||
Notes payable | — | 1,100,000 | ||||||
Due to related party | 52,152 | 70,070 | ||||||
TOTAL CURRENT LIABILITIES | 561,873 | 1,842,505 | ||||||
Notes payable - long term | 1,700,000 | 700,000 | ||||||
TOTAL LIABILITIES | 2,261,873 | 2,542,505 | ||||||
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, 539,490,670 and 362,215,670 shares of common stock issued and outstanding at July 31, 2016 and October 31, 2015, respectively. | 539,490 | 362,215 | ||||||
Additional paid-in capital | 16,602,496 | 13,233,296 | ||||||
Additional paid-in capital - shares to be issued | — | 1,297,000 | ||||||
Subscriptions receivable | (1,115,000 | ) | — | |||||
Accumulated other comprehensive income | — | (33,000 | ) | |||||
Accumulated deficit | (8,189,837 | ) | (6,784,978 | ) | ||||
Total stockholders’ equity | 7,837,149 | 8,074,533 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 10,099,022 | $ | 10,617,038 |
The accompanying notes are an integral part of these financial statements.
F-3 |
TEXAS SOUTH ENERGY, INC.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
Three months ended | Nine months ended | |||||||||||||||
July 31, 2016 | July 31, 2015 | July 31, 2016 | July 31, 2015 | |||||||||||||
EXPENSES | ||||||||||||||||
Revenue | $ | 482 | $ | — | $ | 6,827 | $ | — | ||||||||
Impairment expense | — | — | (200,000 | ) | — | |||||||||||
General and administrative expense | (292,938 | ) | (147,457 | ) | (656,792 | ) | (513,134 | ) | ||||||||
LOSS FROM OPERATIONS | (292,456 | ) | (147,457 | ) | (849,965 | ) | (513,134 | ) | ||||||||
Other expense | ||||||||||||||||
Realized loss on sale of investment securities | — | — | (218,000 | ) | — | |||||||||||
Interest expense | (245,775 | ) | (7,296 | ) | (336,894 | ) | (36,479 | ) | ||||||||
TOTAL OTHER EXPENSE | (245,775 | ) | (7,296 | ) | (554,894 | ) | (36,479 | ) | ||||||||
NET LOSS | (538,231 | ) | (154,753 | ) | (1,404,859 | ) | (549,613 | ) | ||||||||
Other comprehensive income / (loss): | ||||||||||||||||
Unrealized loss on securities available for sale | — | (250,000 | ) | (185,000 | ) | (700,000 | ) | |||||||||
Amounts reclassified to statement of operations | — | — | 218,000 | — | ||||||||||||
Total other comprehensive income / (loss) | — | (250,000 | ) | 33,000 | (700,000 | ) | ||||||||||
Total comprehensive loss | $ | (538,231 | ) | $ | (404,753 | ) | $ | (1,371,859 | ) | $ | (1,249,613 | ) | ||||
NET LOSS PER COMMON SHARE | ||||||||||||||||
Basic and diluted | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | ||||
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | ||||||||||||||||
Basic and diluted | 457,259,692 | 362,215,670 | 429,196,874 | 362,215,670 |
The accompanying notes are an integral part of these financial statements.
F-4 |
TEXAS SOUTH ENERGY, INC.
(Unaudited)
Nine months ended July 31, | ||||||||
2016 | 2015 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net loss | $ | (1,404,859 | ) | $ | (549,613 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
Loss on securities – available for sale | 218,000 | — | ||||||
Impairment expense | 200,000 | — | ||||||
Non-cash interest | 975 | — | ||||||
Amortization of debt discount | — | 36,479 | ||||||
Common stock paid for interest expense | 200,000 | — | ||||||
Stock compensation | 120,000 | — | ||||||
Changes in operating assets and liabilities: | ||||||||
Change in prepaid expenses | 3,948 | — | ||||||
Change in accounts payable and accrued expenses | 315,598 | 131,061 | ||||||
Change in accrued expenses - related party | 105,959 | 297,728 | ||||||
NET CASH USED IN OPERATING ACTIVITIES | (240,379 | ) | (84,345 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Proceeds from sale of securities – available for sale | 50,000 | — | ||||||
NET CASH PROVIDED BY INVESTING ACTIVITIES | 50,000 | — | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Proceeds from issuance of notes payable - related party | 46,734 | — | ||||||
Repayment of notes payable - related party | (64,652 | ) | — | |||||
Proceeds from issuance of notes payable | 153,000 | — | ||||||
Repayment of notes payable | (153,000 | ) | — | |||||
Proceeds from sale of common stock | 263,500 | — | ||||||
NET CASH PROVIDED BY FINANCING ACTIVITIES | 245,582 | — | ||||||
NET INCREASE (DECREASE) IN CASH | 55,203 | (84,345 | ) | |||||
CASH, BEGINNING OF PERIOD | 2,135 | 84,482 | ||||||
CASH, END OF PERIOD | $ | 57,338 | $ | 137 | ||||
Supplemental cash flow information and noncash financing activities: | ||||||||
Cash paid for: | ||||||||
Interest | $ | — | $ | — | ||||
Income taxes | $ | — | $ | — | ||||
Noncash activities: | ||||||||
Acquisition of oil and gas property | $ | 400,000 | $ | — | ||||
Sale of interest in oil and gas property | $ | 400,000 | $ | — | ||||
Issuance of common stock for related party debt | $ | 280,000 | $ | — | ||||
Issuance of common stock for accrued expense | $ | 170,000 | $ | — | ||||
Issuance of common stock for convertible debt | $ | 100,000 | $ | — | ||||
Sale of mineral property for debt, related party | $ | 170,000 | $ | — | ||||
Accruals for capital expenditures | $ | 35,730 | $ | — | ||||
Unrealized loss on securities – available for sale | $ | 185,000 | $ | 700,000 |
The accompanying notes are an integral part of these financial statements.
F-5 |
Texas South Energy, Inc.
NOTES TO THE FINANCIAL STATEMENTS
July 31, 2016
(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 devoted its activities to the acquisition of oil and gas assets.
The Company has established a fiscal year end of October 31.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
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, 2015.
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, 2015, which are included in the Company’s annual report for the year ended October 31, 2015 (the “2015 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 2015 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. 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.
F-6 |
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued its final standard on revenue from contracts with customers. The standard, issued as Accounting Standards Update (“ASU”) No. 2014-09: Revenue from Contracts with Customers (Topic 606), outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” ASU 2014-09 becomes effective for 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. This new standard permits the use of either the retrospective or cumulative effect transition method. Because the Company has no revenues, the new guidance is not expected to have a material impact on its financial statements and related disclosures.
In August 2014, the FASB issued Accounting Standard Update No. 2014-15, Presentation of Financial Statements Going Concern (Subtopic 205-40) which requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, this standard provides a definition of the term substantial doubt and requires an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). It also requires certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans and requires an express statement and other disclosures when substantial doubt is not alleviated. The standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early application is permitted. The Company is currently evaluating the accounting impact that this pronouncement will have on its financial statements.
Other new pronouncements issued but not effective until after July 31, 2016 are not expected to have a material impact on the Company’s financial position, results of operations, or cash flows.
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 operational costs in order to allow it to continue as a going concern. The Company has accumulated losses as of July 31, 2016, of $8,189,837. 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 PROPERTIES
In January 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. During the nine months ended July 31, 2016, the Company incurred revenues of $6,827 associated with these interests. During the nine months ended July 31, 2016, the Company recorded impairment expense of $200,000 associated with these interests. In June 2016, the Company entered into a contract for sale with James M. Askew, an affiliate, to sell its mineral interests in 86.69 acres in Lavaca County, Texas in which the Company owns a 37.5% interest in the Acreage’s mineral rights, in consideration of Mr. Askew forgiving $170,000 of indebtedness owed by the Company to him.
In March 2014, the Company entered into a farm out letter agreement with GulfSlope Energy, Inc. (“GulfSlope”), relating to certain 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, as amended in September 2015, the Company acquired contractual rights to a 20% working interest in six prospects for aggregate consideration of $10,000,000. In accordance with the agreement, the Company will pay its proportionate share of the net rental costs related to the prospects. GulfSlope is the operator of record and has the right to negotiate all future joint operating agreements. The mineral interests are unproved as of July 31, 2016.
F-7 |
In May 2016, the Company entered into a letter agreement with, and during the nine months ended July 31, 2016 paid $400,000 to, GulfSlope for the right to enter into mutually agreeable future definitive agreements to provide for the participation by the Company in drilling one well on Vermilion Area, South Addition Block 378 (“Canoe Prospect”) and one well on Vermilion Area South Addition Block 375 (“Selectron Prospect”). In June 2016, EnerGulf Resources Inc. (“EnerGulf”) paid the Company $400,000 to participate in the Canoe Prospect and the Selectron Prospect. Subject to the negotiation of future definitive agreements with GulfSlope and EnerGulf and financing being raised by the Company, it is expected that GulfSlope shall commence operations for, and the Company and EnerGulf shall participate in, the drilling of the well in an approximate 5,000 MD/TVD “C” sand test surface and bottomhole location on each of the Canoe Prospect and Selectron Prospect.
NOTE 5 - COMMON STOCK
During September and October 2015, the Company received cash and services of $1,297,000 for the issuance of 64,850,000 shares at $0.02 per share. The shares were issued in the first quarter of fiscal 2016.
In December 2015, the Company received cash of $105,000 for the issuance of 5,250,000 shares at $0.02 per share, which were issued in January 2016.
In December 2015, the Company received services of $11,000 for the issuance of 550,000 shares at $0.02 per share.
In May 2016, the Company entered into a $200,000 non-interest bearing line of credit with a third party. The Company drew down $153,000 of this line of credit and then paid the line off in full in June 2016. The Company issued to such creditor 10 million shares of Company common stock as consideration for this line of credit.
In June 2016, John B. Connally III exchanged $170,000 in accrued consulting fees for 8.5 million shares of Company common stock, valued at $.02 per share, and James M. Askew exchanged $280,000 owed to him by the Company for 14.0 million shares of Company common stock, valued at $.02 per share.
In June 2016, the Company issued 5,625,000 shares of Company common stock for $112,500 cash, valued at $.02 per share
In July 2016, the Company issued 5 million shares of common stock for $100,000 of debt, valued at $0.02 per share.
In July 2016, the Company issued 6 million shares of common stock for services rendered, valued at $0.02 per share.
In July 2016, the Company issued 1,750,000 shares of common stock for $35,000 cash, valued at $0.02 per share. At July 31, 2016 there were 55,750,000 subscriptions receivable, all of which were collected in August, 2016.
In August 2016, the Company received cash of $1,115,000 for the issuance of 55,750,000 shares at $0.02 per share in July 2016.
NOTE 6 - RELATED PARTY TRANSACTIONS
As of July 31, 2016 and October 31, 2015, 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. These advances are recorded within the “Due to related party” line on the balance sheet.
In September 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. In March 2014, Company entered into an indemnification agreement with Mr. Askew tracking the statutory provisions of the Nevada Statutes and extended the term of the agreement for one year. In September 2015, James Askew’s employment agreement was further amended to extend the term of the agreement to September 30, 2018. During the nine months ended July 31, 2016, the Company issued Mr. Askew 14 million shares of common stock in exchange for $280,000 of compensation owed to Mr. Askew, with the balance of $98,500 accrued compensation at July 31, 2016.
In June 2016, the Company sold to Mr. Askew its mineral interests in 86.69 acres in Lavaca County, Texas in which the Company owns a 37.5% interest in the Acreage’s mineral rights, in exchange for $170,000 of compensation owed to Mr. Askew.
In March 2014, the Company acquired 5,000,000 shares of restricted GulfSlope common stock from the Company’s sole officer and director James 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 and nine months ended July 31, 2016, the Company recorded an unrealized loss of $0 and $185,000, respectively, to adjust the investment securities to fair market value. In February 2016, the Company sold 5,000,000 shares of GulfSlope common stock with a cost value of $268,000 for cash proceeds of $50,000 and recorded a realized loss of $218,000.
F-8 |
In October 2015 and November 2015, the Company entered into related party promissory note payable agreements with its director and chief executive officer James Askew for $82,918 and $46,734, respectively. As of October 31, 2015, the outstanding principal balance was $17,918. In December 2015, the Company made payments of $64,652, which extinguished the principle balances for both promissory notes.
As of July 31, 2016, the Company had $32,583 accrued within the ‘Accrued expenses - related party’ line on the balance sheet related to various vendor payments and other expenses incurred on behalf of the Company by the Company’s chief executive officer and sole director.
NOTE 7 - NOTES PAYABLE
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 bears interest at a fixed rate of 10% per annum. In June 2015, the subscription agreement was amended to extend the maturity date from June 30, 2015 to June 30, 2016 and increase the principal amount of the note to $1,100,000. On March 11, 2016, the maturity date the of the $1,100,000 note payable balance was extended from June 31, 2016 to October 1, 2017. As of July 31, 2016, the outstanding principal balance was $1,100,000 and is included in ‘Notes payable – long term’ on the Company’s balance sheet.
In October 2015 and November 2015, the Company entered into related party promissory notes payable agreements with its director and chief executive officer James Askew. In December 2015, the principal balances were repaid in full by the Company (see Note 6 - Related Party Transactions).
In October 2015, the Company entered into a note payable agreement with an accredited investor for $700,000. The note expires on October 1, 2017 and bears interest at a fixed rate of 10% per annum. As of July 31, 2016, the holder entered into an agreement to convert $100,000 of principal amount into 5 million shares of common stock, resulting in a balance of $600,000 outstanding principal amount that is included in ‘Notes payable - long term’ on the Company’s balance sheet.
In May 2016, the Company entered into a $200,000 non-interest bearing line of credit with a third party. The Company drew down $153,000 of this line of credit and then paid the line off in full in June 2016. The Company issued to such creditor 10 million shares of Company common stock as consideration for this line of credit.
NOTE 8 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company’s financial instruments are cash and accounts payable, and notes payable. The recorded values of cash, accounts payable and notes payable approximate their fair values based on their short-term nature.
As of October 31, 2015, the Company’s Level 2 asset consists of investment securities, in which the fair value of investment securities (common stock in GulfSlope) was based on $0.02 per share, derived from recent GulfSlope private placement financing transactions. In February 2016, the Company sold 5,000,000 shares of GulfSlope common stock with a cost value of $268,000 for cash proceeds of $50,000 and recorded a realized loss of $218,000.
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, as discussed in Note 6 – Related Party Transactions.
On October 11, 2013, the Company entered into a consulting agreement with John B. Connally, III. The agreement provided for a one-time issuance of 60,000,000 shares of common stock, $25,000 cash signing bonus, and $10,000 cash compensation per month. The stock was issued in November 2013. In September 2015, the Company amended the consulting agreement to extend the term of the consulting agreement to December 31, 2016. During the nine months ended July 31, 2016, the Company converted $170,000 in accrued consulting fees for 8.5 million shares of Company common stock, valued at $0.02 per share, with the balance of $30,000 accrued at July 31, 2016.
F-9 |
NOTE 10 - SUBSEQUENT EVENTS
In August 2016, the Company issued 2,500,000 shares for $50,000 cash, valued at $0.02 per share.
In August 2016, the Company paid Mr. Askew $32,583 of accrued expenses as of July 31, 2016, and $98,500 of accrued compensation as of July 31, 2016. In August 2016, the Company paid Mr. Connally $30,000 of accrued consulting fees as of July 31, 2016.
F-10 |
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 and nine months ended July 31, 2016 and 2015, and with our audited financial statements and notes thereto for the year ended October 31, 2015 included in the Company’s Annual Report on Form 10-K (the “2015 Annual Report”) and (ii) the discussion under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the 2015 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 working and non-working interests in oil and gas properties.
Although we are not currently 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, we may not have 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 we or may have an interest.
Our Current Mineral Interests
In May 2016, the Company entered into a letter agreement with and during the nine months ended July 31, 2016, paid $400,000 to GulfSlope for the right to enter into mutually agreeable future definitive agreements to provide for the participation by the Company in drilling one well on Vermilion Area, South Addition Block 378 (“Canoe Prospect”) and one well on Vermilion Area South Addition Block 375 (“Selectron Prospect”). In June 2016, EnerGulf Resources Inc. (“EnerGulf”) paid the Company $400,000 to participate in the Canoe Prospect and the Selectron Prospect. Subject to the negotiation of future definitive agreements with GulfSlope and EnerGulf and financing being raised by the Company, it is expected that GulfSlope shall commence operations for, and the Company and EnerGulf shall participate in, the drilling of the well in an approximate 5,000 MD/TVD “C” sand test surface and bottomhole location on each of the Canoe Prospect and Selectron Prospect.
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. 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 April 30, 2016, 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. Currently, one drilled well is producing. During the three and nine months ended July 31, 2016, the Company incurred revenues of $6,345 associated with these interests. During the three and nine months ended July 31, 2016, the Company recorded impairment expense of $200,000 associated with these interests. In June 2016, the Company sold these mineral interests to an affiliate of the Company, James M. Askew in exchange for Mr. Askew forgiving $170,000 of indebtedness owed by the Company to him.
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In March 2014, we entered into a farm out letter agreement with GulfSlope, relating to certain prospects GulfSlope bid on at the Central Gulf of Mexico Lease Sale 231, located within 2.2 million acres of 3D seismic licensed and interpreted by GulfSlope. Under the terms of the farm-out letter agreement as amended in September 2015, we acquired contractual rights to a 20% working interest in six prospects for $10,000,000. We have agreed to pay our proportionate share of the net rental costs related to the prospects. GulfSlope is the operator of record and has 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 we entered into the farm-out agreement in March 2014.
Business and Acquisition Strategy
Our primary business strategy includes acquiring both working and non-working interests in oil and gas properties throughout the Gulf Coast Region and Texas, including offshore prospects. We will consider acquisitions that serve as a platform for complementary operations.
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 primarily upon the sale of our equity securities to fund operations.
Liquidity and Capital Resources
As of July 31, 2016, we had a cash balance of $57,338 and a working capital deficit of $504,535. Our accumulated deficit from inception (March 15, 2010) to July 31, 2016 was $8,189,837. For the three and nine months ended July 31, 2016, our net loss of $538,231 and $1,404,859, respectively, was mostly funded by proceeds raised from equity financings since September 2013. During the nine months ended July 31, 2016, our cash position increased by $55,203.
During the nine months ended July 31, 2016, we issued 177,275,000 shares of common stock, of which 133,225,000 shares were issued for cash in the amount of $263,500 and 16,550,000 shares were issued for services rendered valued at $0.02 per share and 27,500,000 shares were issued for the extinguishment of debt in the amount of $550,000.
We will need additional financing to carry out our business plan. Specifically, we will need cash to fund our obligations with respect to (i) drilling the Canoe Prospect and Selectron Prospect, both of which are subject to negotiation of acceptable participation agreements and joint operating agreements, amongst other conditions precedent, and (ii) funding our farm-out obligations with GulfSlope pursuant to our March 2014 farm-out letter agreement. 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, 2016 compared to the Three months ended July 31, 2015
We incurred revenue of $482 and zero during the three months ended July 31, 2016 and 2015. General and administrative expenses were $292,938 for the three months ended July 31, 2016, compared to $147,457 for the three months ended July 31, 2015. Interest expense was $245,775 for the three months ended July 31, 2016, compared to $7,296 for the three months ended July 31, 2015. The increase in interest expense is due to an increase in the notes payable balances for the three months ended July 31, 2016 compared to the same period in the prior year.
We had a net loss of $538,231 for the three months ended July 31, 2016, compared to $154,753 for the three months ended July 31, 2015. The increase in net loss of approximately $383,478 was primarily due to the consideration given to secure the line of credit and an increase in interest expense and costs of procuring investments during the three months ended July 31, 2016.
The basic and diluted loss per share for the three months ended July 31, 2016 and 2015 was ($0.00).
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During the three months ended July 31, 2016 and 2015, the Company recorded an unrealized loss of $0 and $250,000, respectively, to adjust the investment securities to fair market value. In February 2016, the Company sold 5,000,000 shares of GulfSlope common stock with a cost value of $268,000 for cash proceeds of $50,000 and recorded a realized loss of $218,000.
Results of Operations for the Nine months Ended July 31, 2016 compared to the Nine months ended July 31, 2015
We incurred revenue of $6,827 and zero during the nine months ended July 31, 2016 and 2015. General and administrative expenses were $656,792 for the nine months ended July 31, 2016, compared to $513,134 for the nine months ended July 31, 2015. The increase in general and administrative expenses is due primarily to the consideration given to secure the line of credit. Impairment expense was $200,000 for the nine months ended July 31, 2016 compared to $0 for the nine months ended July 31, 2015. Interest expense was $336,894 for the nine months ended July 31, 2016, compared to $36,479 for the nine months ended July 31, 2015. The increase in interest expense is due to an increase in the notes payable balances for the nine months ended July 31, 2016 compared to the same period in the prior year.
We had a net loss of $1,404,859 for the nine months ended July 31, 2016, compared to $549,613 for the nine months ended July 31, 2015.
The basic and diluted loss per share for the nine months ended July 31, 2016 and 2015 was ($0.00).
During the nine months ended July 31, 2016 and 2015, the Company recorded an unrealized loss of $185,000 and $700,000, respectively, to adjust the investment securities to fair market value. In February 2016, the Company sold 5,000,000 shares of GulfSlope common stock with a cost value of $268,000 for cash proceeds of $50,000 and recorded a realized loss of $218,000.
As of July 31, 2016, the Company’s cash balance was $57,338, compared to a cash balance of $2,135 as of October 31, 2015. Total assets decreased by $518,016 from October 31, 2015 to July 31, 2016. This decrease is primarily driven by the sale of the 5,000,000 shares of GulfSlope common stock in February 2016 that realized a loss of $218,000 and impairment expense of $200,000 recorded during the nine months ended July 31, 2016 associated with the Company’s oil and gas assets.
Off-Balance Sheet Arrangements
As of July 31, 2016, 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, 2016, 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, 2016.
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.
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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.
Management is not aware of any legal proceedings contemplated by any governmental authority or any other party against us. None of our directors, officers or affiliates are (i) a party adverse to us in any legal proceedings, or (ii) have an adverse interest to us in any legal proceedings. Management is not aware of any other legal proceedings that have been threatened against us.
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.
In the Company’s Form 10-K filed with the SEC on February 12, 2016, disclosure in Item 5 reflected the issuance of 70,650,000 shares of common stock during the first quarter of fiscal 2016. In order to describe these issuances in a manner consistent with the disclosure in our financial statements, the Company has restated the transactions (the number of shares issued has not changed) as follows:
The issuances of these securities did not involve the payment of any sales commissions and were exempt pursuant to Section 4(a)(2) of the Securities Act of 1933.
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Exhibit Number | Exhibit Description |
31.1 (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 (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 (1) | XBRL Instance Document |
EX-101.SCH (1) | XBRL Taxonomy Extension Schema |
EX-101.CAL (1) | XBRL Taxonomy Extension Calculation Linkbase |
EX-101.LAB (1) | XBRL Taxonomy Extension Label Linkbase |
EX-101.PRE (1) | XBRL Taxonomy Extension Presentation Linkbase |
EX-101.DEF (1) | XBRL Taxonomy Extension Definition Linkbase |
(1) | Filed herewith. |
6 |
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.
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Date: September 19, 2016 | By: | /s/ James Askew |
James Askew | ||
Chief Executive Officer, Principal Financial Officer, and Sole Director |
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EXHIBIT 31.1
CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO RULE 13A - 14(A) AND RULE 15D - 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, James M. Askew, certify that:
1. |
I have reviewed this Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2016 of Texas South Energy, Inc. (the “Registrant”);
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
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4. |
The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13(a)-15(f) and 15(d)-15(f)) for the Registrant and have:
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a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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c. |
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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d. |
Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
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5. |
The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
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a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
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b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting. |
Date: September 19, 2016
/s/ JAMES M. ASKEW
James M. Askew
Principal Executive Officer and Principal Financial Officer
EXHIBIT 32.1
CERTIFICATION OF
PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
UNDER SECTION 906 OF THE
SARBANES OXLEY ACT OF 2002, 18 U.S.C. § 1350
In connection with this quarterly report on Form 10-Q of Texas South Energy, Inc. (the “Company”), as filed with the Securities and Exchange Commission on the date hereof (the “Report”), James M. Askew, Chief Executive Officer and Chief Financial Officer of the Company, certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: September 19, 2016
/s/ JAMES M. ASKEW
James M. Askew
Principal Executive Officer and Principal Financial Officer
Document and Entity Information - shares |
9 Months Ended | |
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Jul. 31, 2016 |
Sep. 13, 2016 |
|
Document and Entity Information [Abstract] | ||
Entity Registrant Name | Texas South Energy, Inc. | |
Entity Central Index Key | 0001506742 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --10-31 | |
Document Type | 10-Q | |
Document Period End Date | Jul. 31, 2016 | |
Document Fiscal Period Focus | Q3 | |
Document Fiscal Year Focus | 2016 | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 541,990,670 |
Balance Sheets (Unaudited) (Parenthetical) - $ / shares |
Jul. 31, 2016 |
Oct. 31, 2015 |
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Statement of Financial Position [Abstract] | ||
Preferred stock, shares authorized | 50,000,000 | 50,000,000 |
Preferred stock, shares issued | ||
Preferred stock, shares outstanding | ||
Common stock, shares authorized | 950,000,000 | 950,000,000 |
Common stock, par value per share | $ 0.001 | $ 0.001 |
Common stock, shares issued | 539,490,670 | 362,215,670 |
Common stock, shares outstanding | 539,490,670 | 362,215,670 |
Statements of Operations and Comprehensive Loss (Unaudited) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Jul. 31, 2016 |
Jul. 31, 2015 |
Jul. 31, 2016 |
Jul. 31, 2015 |
|
EXPENSES | ||||
Revenue | $ 482 | $ 6,827 | ||
Impairment expense | (200,000) | |||
General and administrative expense | (292,938) | (147,457) | (656,792) | (513,134) |
LOSS FROM OPERATIONS | (292,456) | (147,457) | (849,965) | (513,134) |
Other expense | ||||
Realized loss on sale of investment securities | (218,000) | |||
Interest expense | (245,775) | (7,296) | (336,894) | (36,479) |
TOTAL OTHER EXPENSE | (245,775) | (7,296) | (554,894) | (36,479) |
Net loss | (538,231) | (154,753) | (1,404,859) | (549,613) |
Other comprehensive income / (loss): | ||||
Unrealized loss on securities available for sale | (250,000) | (185,000) | (700,000) | |
Amounts reclassified to statement of operations | 218,000 | |||
Total other comprehensive income / (loss) | (250,000) | 33,000 | (700,000) | |
Total comprehensive loss | $ (538,231) | $ (404,753) | $ (1,371,859) | $ (1,249,613) |
NET LOSS PER COMMON SHARE | ||||
Basic and diluted | $ 0.00 | $ 0.00 | $ 0.00 | $ 0.00 |
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | ||||
Basic and diluted | 457,259,692 | 362,215,670 | 429,196,874 | 362,215,670 |
Nature of Operations and Basis of Presentation |
9 Months Ended |
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Jul. 31, 2016 | |
Nature of Operations and Basis of Presentation [Abstract] | |
NATURE OF OPERATIONS AND BASIS OF PRESENTATION | 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 devoted its activities to the acquisition of oil and gas assets.
The Company has established a fiscal year end of October 31. |
Summary of Significant Accounting Policies |
9 Months Ended |
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Jul. 31, 2016 | |
Summary of Significant Accounting Policies [Abstract] | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation 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, 2015.
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, 2015, which are included in the Company’s annual report for the year ended October 31, 2015 (the “2015 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 2015 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. 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.
Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (“FASB”) issued its final standard on revenue from contracts with customers. The standard, issued as Accounting Standards Update (“ASU”) No. 2014-09: Revenue from Contracts with Customers (Topic 606), outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” ASU 2014-09 becomes effective for 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. This new standard permits the use of either the retrospective or cumulative effect transition method. Because the Company has no revenues, the new guidance is not expected to have a material impact on its financial statements and related disclosures.
In August 2014, the FASB issued Accounting Standard Update No. 2014-15, Presentation of Financial Statements Going Concern (Subtopic 205-40) which requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, this standard provides a definition of the term substantial doubt and requires an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). It also requires certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans and requires an express statement and other disclosures when substantial doubt is not alleviated. The standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early application is permitted. The Company is currently evaluating the accounting impact that this pronouncement will have on its financial statements.
Other new pronouncements issued but not effective until after July 31, 2016 are not expected to have a material impact on the Company’s financial position, results of operations, or cash flows. |
Going Concern |
9 Months Ended |
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Jul. 31, 2016 | |
Going Concern [Abstract] | |
GOING CONCERN | 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 operational costs in order to allow it to continue as a going concern. The Company has accumulated losses as of July 31, 2016, of $8,189,837. 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. |
Oil & Gas Properties |
9 Months Ended |
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Jul. 31, 2016 | |
Oil & Gas Properties [Abstract] | |
OIL & GAS PROPERTIES | NOTE 4 - OIL & GAS PROPERTIES
In January 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. During the nine months ended July 31, 2016, the Company incurred revenues of $6,827 associated with these interests. During the nine months ended July 31, 2016, the Company recorded impairment expense of $200,000 associated with these interests. In June 2016, the Company entered into a contract for sale with James M. Askew, an affiliate, to sell its mineral interests in 86.69 acres in Lavaca County, Texas in which the Company owns a 37.5% interest in the Acreage’s mineral rights, in consideration of Mr. Askew forgiving $170,000 of indebtedness owed by the Company to him.
In March 2014, the Company entered into a farm out letter agreement with GulfSlope Energy, Inc. (“GulfSlope”), relating to certain 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, as amended in September 2015, the Company acquired contractual rights to a 20% working interest in six prospects for aggregate consideration of $10,000,000. In accordance with the agreement, the Company will pay its proportionate share of the net rental costs related to the prospects. GulfSlope is the operator of record and has the right to negotiate all future joint operating agreements. The mineral interests are unproved as of July 31, 2016.
In May 2016, the Company entered into a letter agreement with, and during the nine months ended July 31, 2016 paid $400,000 to, GulfSlope for the right to enter into mutually agreeable future definitive agreements to provide for the participation by the Company in drilling one well on Vermilion Area, South Addition Block 378 (“Canoe Prospect”) and one well on Vermilion Area South Addition Block 375 (“Selectron Prospect”). In June 2016, EnerGulf Resources Inc. (“EnerGulf”) paid the Company $400,000 to participate in the Canoe Prospect and the Selectron Prospect. Subject to the negotiation of future definitive agreements with GulfSlope and EnerGulf and financing being raised by the Company, it is expected that GulfSlope shall commence operations for, and the Company and EnerGulf shall participate in, the drilling of the well in an approximate 5,000 MD/TVD “C” sand test surface and bottomhole location on each of the Canoe Prospect and Selectron Prospect. |
Common Stock |
9 Months Ended |
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Jul. 31, 2016 | |
Common Stock [Abstract] | |
COMMON STOCK | NOTE 5 - COMMON STOCK
During September and October 2015, the Company received cash and services of $1,297,000 for the issuance of 64,850,000 shares at $0.02 per share. The shares were issued in the first quarter of fiscal 2016.
In December 2015, the Company received cash of $105,000 for the issuance of 5,250,000 shares at $0.02 per share, which were issued in January 2016.
In December 2015, the Company received services of $11,000 for the issuance of 550,000 shares at $0.02 per share.
In May 2016, the Company entered into a $200,000 non-interest bearing line of credit with a third party. The Company drew down $153,000 of this line of credit and then paid the line off in full in June 2016. The Company issued to such creditor 10 million shares of Company common stock as consideration for this line of credit.
In June 2016, John B. Connally III exchanged $170,000 in accrued consulting fees for 8.5 million shares of Company common stock, valued at $.02 per share, and James M. Askew exchanged $280,000 owed to him by the Company for 14.0 million shares of Company common stock, valued at $.02 per share.
In June 2016, the Company issued 5,625,000 shares of Company common stock for $112,500 cash, valued at $.02 per share
In July 2016, the Company issued 5 million shares of common stock for $100,000 of debt, valued at $0.02 per share.
In July 2016, the Company issued 6 million shares of common stock for services rendered, valued at $0.02 per share.
In July 2016, the Company issued 1,750,000 shares of common stock for $35,000 cash, valued at $0.02 per share. At July 31, 2016 there were 55,750,000 subscriptions receivable, all of which were collected in August, 2016.
In August 2016, the Company received cash of $1,115,000 for the issuance of 55,750,000 shares at $0.02 per share in July 2016. |
Related Party Transactions |
9 Months Ended |
---|---|
Jul. 31, 2016 | |
Related Party Transactions [Abstract] | |
RELATED PARTY TRANSACTIONS | NOTE 6 - RELATED PARTY TRANSACTIONS
As of July 31, 2016 and October 31, 2015, 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. These advances are recorded within the “Due to related party” line on the balance sheet.
In September 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. In March 2014, Company entered into an indemnification agreement with Mr. Askew tracking the statutory provisions of the Nevada Statutes and extended the term of the agreement for one year. In September 2015, James Askew’s employment agreement was further amended to extend the term of the agreement to September 30, 2018. During the nine months ended July 31, 2016, the Company issued Mr. Askew 14 million shares of common stock in exchange for $280,000 of compensation owed to Mr. Askew, with the balance of $98,500 accrued compensation at July 31, 2016.
In June 2016, the Company sold to Mr. Askew its mineral interests in 86.69 acres in Lavaca County, Texas in which the Company owns a 37.5% interest in the Acreage’s mineral rights, in exchange for $170,000 of compensation owed to Mr. Askew.
In March 2014, the Company acquired 5,000,000 shares of restricted GulfSlope common stock from the Company’s sole officer and director James 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 and nine months ended July 31, 2016, the Company recorded an unrealized loss of $0 and $185,000, respectively, to adjust the investment securities to fair market value. In February 2016, the Company sold 5,000,000 shares of GulfSlope common stock with a cost value of $268,000 for cash proceeds of $50,000 and recorded a realized loss of $218,000. In October 2015 and November 2015, the Company entered into related party promissory note payable agreements with its director and chief executive officer James Askew for $82,918 and $46,734, respectively. As of October 31, 2015, the outstanding principal balance was $17,918. In December 2015, the Company made payments of $64,652, which extinguished the principle balances for both promissory notes.
As of July 31, 2016, the Company had $32,583 accrued within the ‘Accrued expenses - related party’ line on the balance sheet related to various vendor payments and other expenses incurred on behalf of the Company by the Company’s chief executive officer and sole director. |
Notes Payable |
9 Months Ended |
---|---|
Jul. 31, 2016 | |
Notes Payable [Abstract] | |
NOTES PAYABLE | NOTE 7 - NOTES PAYABLE
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 bears interest at a fixed rate of 10% per annum. In June 2015, the subscription agreement was amended to extend the maturity date from June 30, 2015 to June 30, 2016 and increase the principal amount of the note to $1,100,000. On March 11, 2016, the maturity date the of the $1,100,000 note payable balance was extended from June 31, 2016 to October 1, 2017. As of July 31, 2016, the outstanding principal balance was $1,100,000 and is included in ‘Notes payable – long term’ on the Company’s balance sheet.
In October 2015 and November 2015, the Company entered into related party promissory notes payable agreements with its director and chief executive officer James Askew. In December 2015, the principal balances were repaid in full by the Company (see Note 6 - Related Party Transactions).
In October 2015, the Company entered into a note payable agreement with an accredited investor for $700,000. The note expires on October 1, 2017 and bears interest at a fixed rate of 10% per annum. As of July 31, 2016, the holder entered into an agreement to convert $100,000 of principal amount into 5 million shares of common stock, resulting in a balance of $600,000 outstanding principal amount that is included in ‘Notes payable - long term’ on the Company’s balance sheet.
In May 2016, the Company entered into a $200,000 non-interest bearing line of credit with a third party. The Company drew down $153,000 of this line of credit and then paid the line off in full in June 2016. The Company issued to such creditor 10 million shares of Company common stock as consideration for this line of credit. |
Fair Value of Financial Instruments |
9 Months Ended |
---|---|
Jul. 31, 2016 | |
Fair Value of Financial Instruments [Abstract] | |
FAIR VALUE OF FINANCIAL INSTRUMENTS | NOTE 8 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company’s financial instruments are cash and accounts payable, and notes payable. The recorded values of cash, accounts payable and notes payable approximate their fair values based on their short-term nature.
As of October 31, 2015, the Company’s Level 2 asset consists of investment securities, in which the fair value of investment securities (common stock in GulfSlope) was based on $0.02 per share, derived from recent GulfSlope private placement financing transactions. In February 2016, the Company sold 5,000,000 shares of GulfSlope common stock with a cost value of $268,000 for cash proceeds of $50,000 and recorded a realized loss of $218,000. |
Commitments and Contingencies |
9 Months Ended |
---|---|
Jul. 31, 2016 | |
Commitments and Contingencies [Abstract] | |
COMMITMENTS AND CONTINGENCIES | 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, as discussed in Note 6 – Related Party Transactions.
On October 11, 2013, the Company entered into a consulting agreement with John B. Connally, III. The agreement provided for a one-time issuance of 60,000,000 shares of common stock, $25,000 cash signing bonus, and $10,000 cash compensation per month. The stock was issued in November 2013. In September 2015, the Company amended the consulting agreement to extend the term of the consulting agreement to December 31, 2016. During the nine months ended July 31, 2016, the Company converted $170,000 in accrued consulting fees for 8.5 million shares of Company common stock, valued at $0.02 per share, with the balance of $30,000 accrued at July 31, 2016. |
Subsequent Events |
9 Months Ended |
---|---|
Jul. 31, 2016 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | NOTE 10 - SUBSEQUENT EVENTS
In August 2016, the Company issued 2,500,000 shares for $50,000 cash, valued at $0.02 per share.
In August 2016, the Company paid Mr. Askew $32,583 of accrued expenses as of July 31, 2016, and $98,500 of accrued compensation as of July 31, 2016. In August 2016, the Company paid Mr. Connally $30,000 of accrued consulting fees as of July 31, 2016. |
Summary of Significant Accounting Policies (Policies) |
9 Months Ended |
---|---|
Jul. 31, 2016 | |
Summary of Significant Accounting Policies [Abstract] | |
Basis of Presentation | Basis of Presentation 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, 2015.
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, 2015, which are included in the Company’s annual report for the year ended October 31, 2015 (the “2015 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 2015 Annual Report. |
Use of Estimates and Assumptions | 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 | 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. |
Recent Accounting Pronouncements | Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (“FASB”) issued its final standard on revenue from contracts with customers. The standard, issued as Accounting Standards Update (“ASU”) No. 2014-09: Revenue from Contracts with Customers (Topic 606), outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” ASU 2014-09 becomes effective for 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. This new standard permits the use of either the retrospective or cumulative effect transition method. Because the Company has no revenues, the new guidance is not expected to have a material impact on its financial statements and related disclosures.
In August 2014, the FASB issued Accounting Standard Update No. 2014-15, Presentation of Financial Statements Going Concern (Subtopic 205-40) which requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, this standard provides a definition of the term substantial doubt and requires an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). It also requires certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans and requires an express statement and other disclosures when substantial doubt is not alleviated. The standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early application is permitted. The Company is currently evaluating the accounting impact that this pronouncement will have on its financial statements.
Other new pronouncements issued but not effective until after July 31, 2016 are not expected to have a material impact on the Company’s financial position, results of operations, or cash flows. |
Going Concern (Details) - USD ($) |
Jul. 31, 2016 |
Oct. 31, 2015 |
---|---|---|
Going Concern (Textual) | ||
Accumulated losses | $ (8,189,837) | $ (6,784,978) |
Fair Value of Financial Instruments (Details) - USD ($) |
1 Months Ended | 3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|---|
Feb. 29, 2016 |
Jul. 31, 2016 |
Jul. 31, 2015 |
Jul. 31, 2016 |
Jul. 31, 2015 |
Oct. 31, 2015 |
|
Fair Value of Financial Instruments (Textual) | ||||||
Proceeds from sale of securities - available for sale | $ 50,000 | |||||
Realized loss on sale of investment securities | $ (218,000) | |||||
GulfSlope Energy, Inc. [Member] | ||||||
Fair Value of Financial Instruments (Textual) | ||||||
Common stock shares sold | 5,000,000 | |||||
Value of common stock shares sold | $ 268,000 | |||||
Proceeds from sale of securities - available for sale | 50,000 | |||||
Realized loss on sale of investment securities | $ 218,000 | |||||
Level 2 [Member] | ||||||
Fair Value of Financial Instruments (Textual) | ||||||
Fair value of investment securities per share | $ 0.02 |
Commitments and Contingencies (Details) - USD ($) |
1 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Oct. 11, 2013 |
Sep. 30, 2013 |
Sep. 30, 2015 |
Jul. 31, 2016 |
Oct. 31, 2015 |
|
Commitments and Contingencies (Textual) | |||||
Accrued consulting fees | $ 30,000 | ||||
Common stock, shares issued | 539,490,670 | 362,215,670 | |||
John B. Connally III [Member] | Consulting Agreement [Member] | |||||
Commitments and Contingencies (Textual) | |||||
Shares issued as compensation | 60,000,000 | ||||
Bonus paid in cash | $ 25,000 | ||||
Compensation paid in cash | $ 10,000 | ||||
Consulting agreement expiration date, Description | Consulting agreement to extend the term of the consulting agreement to December 31, 2016. | ||||
Stock issuance date | Nov. 30, 2013 | ||||
Accrued consulting fees | $ 170,000 | ||||
Common stock, shares issued | 8,500,000 | ||||
Share price per share | $ 0.02 | ||||
James Askew [Member] | |||||
Commitments and Contingencies (Textual) | |||||
Term of employment agreement | 1 year |
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