UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the year ended December 31, 2018

Commission File No. 333-171064

TEXAS SOUTH ENERGY, INC.

(Exact name of the issuer as specified in its charter)

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

4550 Post Oak Place Dr., Suite 300

Houston, Texas 77027

(Address of Principal Executive Offices)

(713) 820-6300

(Issuer’s Telephone Number)

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

Securities registered pursuant to Section 12(g) of the Exchange Act: Common Stock

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

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

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 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 if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

State the aggregate market value of the voting and non-voting common stock held by non-affiliates computed by reference to the price at which the common stock was last sold, or the average bid and asked price of such common stock, as of the last business day of the Registrant’s most recently completed second quarter: $13,102,619 on June 30, 2018.

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

Class	Outstanding as of April 1, 2019
Common Capital Voting Stock, $0.001 par value per share	999,199,769

Documents incorporated by reference: None

TABLE OF CONTENTS

PART 1
ITEM 1. Business	1
ITEM 1A. Risk Factors	7
ITEM 1B. Unresolved Staff Comments	14
ITEM 2. Properties	14
ITEM 3. Legal Proceedings	15
ITEM 4. Mine Safety Disclosures	15
PART II
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	16
ITEM 6. Selected Financial Data	16
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk	20
ITEM 8. Financial Statements and Supplementary Data	F-1
ITEM 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	21
ITEM 9A. Controls and Procedures	21
ITEM 9B. Other Information	21
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance	22
ITEM 11. Executive Compensation	23
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	24
ITEM 13. Certain Relationships and Related Transactions, and Director Independence	26
ITEM 14. Principal Accounting Fees and Services	27
PART IV
ITEM 15. Exhibits, Financial Statement Schedules	28
ITEM 16. Form 10-K Summary	28
Signatures	29

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PART I

FORWARD LOOKING STATEMENTS

In this Annual Report, references to “Texas South Energy,” the “Company,” “we,” “us,” and “our” refer to “Texas South Energy, Inc., and its wholly owned subsidiary Texas South Operating Company, Inc.” the Registrant.

This Annual Report contains certain forward-looking statements and for this purpose any statements contained in this Annual Report that are not statements of historical fact may be deemed to be forward-looking statements. Forward-looking statements can be identified by the use of forward-looking terminology such as “believes,” “projects,” “expects,” “may,” “goal,” “estimates,” “should,” “plans,” “targets,” “intends,” “could,” or “anticipates,” or the negative thereof, or other variations thereon, or comparable terminology, or by discussions of strategy or objectives. Forward-looking statements relate to anticipated or expected events, activities, trends or results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties. These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially depending on a variety of factors, many of which are not within our control. These factors include but are not limited to economic conditions generally and in the markets in which the Company may participate, competition within the Company’s chosen industry, technological advances and failure by us to successfully develop business relationships. Except as otherwise required by the federal securities laws, we disclaim any obligations or undertaking to publicly release any updates or revisions to any forward-looking statement contained in this Annual Report on Form 10-K to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

ITEM 1. BUSINESS

The Company

Our business plan as an oil and gas company is to focus primarily on properties in the Gulf Coast Region. We plan to obtain and manage working and non-working interests in oil and gas properties.

We are in the business of exploring for, drilling and producing oil and gas. Our business is 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 the properties 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 may have an interest.

In March 2014, we entered into a farm out letter agreement with GulfSlope Energy, Inc. (“GulfSlope”) relating to certain prospects GulfSlope bid on at the Central Gulf of Mexico Lease Sale 231, located within 2.2 million acres of 3-D seismic licensed and interpreted by GulfSlope. Under the terms of the farm-out letter agreement, as amended, we acquired contractual rights to a 20% working interest in 12 blocks covered in 9 prospects for approximately $10,720,000 paid to GulfSlope through September 30, 2018. We have agreed to pay our proportionate share of the net rental costs related to the prospects. GulfSlope has conducted extensive seismic work on all of the prospects focusing on the high potential subsalt play at depths of 15,000’ to 25,000’ and will be the operator of record for the initial well on each of the prospects. In August 2017, the Company acquired a 20% working interest from GulfSlope in Ship Shoal Block 351 and in Ship Shoal Block 336, which are collectively referred to as the Tau Prospect. In October 2017, the Company acquired a 20% working interest from GulfSlope in Eugene Island Block 397 and Green Canyon Block 4, which are collectively referred to as the Quark Prospect. In January 2018, the Company acquired a 20% working interest in the Vermilion South Addition Block 378 (“Canoe Prospect”) and in the Vermilion South Addition Block 375 (“Corvette Prospect”) from GulfSlope.

1

On January 8, 2018, the Company entered into a participation agreement dated effective January 1, 2018 (the “Agreement”) with Delek GOM Investments, LLC, a subsidiary of Delek Group Ltd. (“Delek”), and GulfSlope (collectively, the “Parties”) for the partial farm-out of the Company’s interests in its Gulf of Mexico oil and gas leases (the “Farm-out”). The Agreement sets out the terms and conditions of the Parties participation in the drilling of up to a nine well multi-phase exploration program targeting the Company’s prospects (the “Prospects”) located on the Company’s existing leases (the “Leases”).

Under the terms of the Agreement, the Parties have committed to initially drill two of the Company’s prospects in Phase I (the “Initial Phase”) with Delek having the option to participate in two additional two-well drilling phases and a final, three-well drilling phase (collectively, the “Phases”). In each Phase, Delek will earn a 75% working interest upon paying 90% of the exploratory costs associated with drilling each exploratory well. The Company will thus retain a 5% working interest while paying 2% of the exploratory costs associated with drilling each well. In addition, Delek will pay the Company $405,000 upon the filing of each exploration plan with BOEM and/or BSEE on a Prospect in each Phase. During March 2018 Delek made its first payment of $405,000 to the Company as the initial plan was filed. Delek made a second payment of $405,000 to the Company during May 2018. Also, each Party will be responsible for its pro rata share (based on working interest) of delay rentals associated with the Prospects. GulfSlope will be the Operator during exploratory drilling of a Prospect, however, subsequent to a commercial discovery, Delek will have the right to become the Operator. Delek will have the right to terminate this Agreement at the conclusion of any drilling Phase. Delek will also have the option to purchase up to 5% of the Company’s common stock upon fulfilling its obligation for each Phase (maximum of 20% in the aggregate) at a price per share equal to a 10% discount to the 30-day weighted average closing price for the Company’s common stock preceding the acquisition. This option will expire on January 8, 2020. The Company has not recorded any cost associated with the option due to the future performance obligation of Delek. If Delek meets the obligation and exercises its option the Company will record the option value at that time as an increase to Oil and Gas Properties. The likelihood of Delek exercising its options to purchase shares of the Company’s common stock will be dependent on the drilling results from Phase 1 and the Company’s operating results which will affect the price of the Company’s common stock. We currently do not anticipate Delek fully exercising this option before the expiration date. At December 31, 2018, the potential value of issuing 20% of our outstanding stock is approximately $5,800,000. The foregoing description of the Agreement does not purport to be a complete description of the terms, provisions and conditions of such document, and represents only a summary of certain of the principal terms, provisions and conditions thereof.

The Company will assign a two-tenths of one percent of 8/8ths net profits interest in certain of the Company’s oil and gas leases in the two Phase I prospects to Hi-View Investment Partners, LLC (“Hi-View”) in consideration for consulting services provided pursuant to a non-exclusive consulting engagement dated October 25, 2017, by and between Hi-View, the Company, and GulfSlope (the “Advisory Agreement”). Hi-View will be entitled to additional assignments on the same terms and conditions as described above related to any of Leases in which Delek elects to participate in the drilling of an exploratory well. In addition, the Company issued an aggregate of twenty million shares of its common stock to Hi-View in consideration for those consulting services provided pursuant to the Advisory Agreement.

In accordance with the Delek Agreement and on behalf of the Company and the other working interest owners, GulfSlope as operator, spudded the OCS-G-35589 # 1 well on the Canoe Prospect on Vermilion Block 378 where the Company holds a 5% working interest in July 2018. The well was drilled and evaluated to a total depth of 5,765’ MD (5,700’ TVD). Based on logging-while-drilling (LWD) and other test results, thin oil bearing sands were encountered which require further study. As a result, open-hole plugs were set across several intervals in accordance with governmental regulations and the well is now plugged and abandoned at this time. Since the well is equipped with a mud-line suspension system, it is available for future re-entry as warranted.

At the beginning of September 2018, the Company and the other working interest owners began drilling operations at the Tau Prospect on Ship Shoal Blocks 336 and 351 offshore Louisiana. The well, OCS-G 36121 #1, is planned to test Miocene reservoirs beneath thick salt sheets in approximately 300’ of water depth. Operated by GulfSlope, the well is currently drilling below 14,500’ to an expected total depth below 16,500’ TVD. As a result of drilling difficulties on the well there have been substantial cost over-runs to date which the Company has not yet fully funded. As of March 15, 2019, the Company has been declared to be in default under the terms of its joint operating agreement by the operator regarding the payment of $1,299,229 due as of February 12, 2019 with respect to drilling the Tau Prospect. The operator of the Tau Prospect asserts that additional joint interest billings to the Company during the past 30 days have increased the total amount due to $1,915,304 as of March 15, 2019. The Company’s share of the original AFE to drill to 29,800’ Measured Depth (MD) was approximately $800,000. Drilling of the Tau Prospect continues which will result in further amounts owed by the Company to GulfSlope. The operating agreement grants a lien and security interest on the Company’s interest in the leases comprising the Tau Prospect, and grants to the operator the right to pursue foreclosure of the lien and security interest. The Company is using its best efforts to raise capital to fund its obligations under the operating agreement with GulfSlope regarding the drilling of the Tau Prospect. If the Company fails to raise needed capital and foreclosure is pursued and is successful, this could result in a loss of all of the Company’s rights in the Tau Prospect.

2

In January 2017, the Company entered into an asset purchase agreement with Sydson Energy, Inc. (“Sydson Energy”) and Sydson Resources, L.P. (“Sydson Resources” and collectively with Sydson Energy, “Sydson”), where Sydson assigned to us certain onshore oil and gas assets and interests and certain tangible assets and additionally, certain employees and a consultant of Sydson have agreed to become employees and a consultant of the Company. Sydson is a private oil and gas company with land operations in Texas and Louisiana that has been in business since 1982. The oil and gas assets include the following:

● In Texas, we acquired a 50% working interest in the undrilled acreage above 4,500’ in the West Tuleta Field, Bee County, Texas comprised of approximately 1,800 gross acres and 900 net acres with a net revenue interest of approximately 75%. The primary drilling objectives are the Vicksburg and Hockley sands which are structurally high on this acreage compared to the prior downdip production.

● In the adjacent Ray Field, also in Bee County, Texas, we acquired a 50% working interest in the undrilled, acreage on the Walton, Campbell, and Ray leases comprising approximately 75 gross acres with a net revenue interest of approximately 75%. The primary drilling objectives on this acreage are also the Vicksburg and Hockley sands updip to prior production above 3,700’.

● Southeast of San Antonio at the Wilinda Project we are acquiring leases with working interest partners covering more than 4,400 acres for horizontal projects above 6,000’ in the Austin Chalk, Eagle Ford, and Buda Lime formation. These projects are adjacent to substantial prior production and contain both conventional and unconventional oil targets.

● In September of 2018, we commenced drilling on the TXSO Richter Unit #1H well. The well was drilled, cased and cemented to a depth of 9,442’ with a horizontal lateral exceeding 4,000’. The well was frac’d and is now being evaluated with flowback testing. During the flowback period, the well initially produced at rates exceeding 1,000 barrels of frac load water per day with minor amounts of oil and gas. Subsequently, the oil and gas rates did not improve and the Company now believes that the water production is from a deeper zone which is obstructing the oil and gas flow from the Austin Chalk completion zone. The Company plans to isolate the section of the lateral that appears to be the source of the extraneous water and produce the remaining part of the lateral, using a comparable procedure to that used on a nearby well that encountered a similar problem.

In connection with the asset acquisition, certain officers and employees of Sydson have become officers, a consultant and employees of the Company, including Michael J. Mayell as chief executive officer, James L. Gunderson as manager of land, Robert F. Goldstein as a geological consultant, and Lecia Alexander as controller. Certain other non-executive employees and consultants of Sydson became at-will employees of the Company. Also at that time, John B. Connally III joined our Company board as chairman.

3

Oil and Gas Industry

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

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

For any given rate of production and volume of hydrocarbons recovered, oil and gas prices determine the commercial feasibility of a project. Certain projects may become feasible with higher prices or, conversely, may falter with lower prices. Volatility in the price of oil, gas and other commodities has increased during the last few years, complicating the assessment of revenue projections. Most governments have enforced strict regulations to uphold high standards of environmental awareness; thus, holding companies to a high degree of responsibility vis-а-vis protecting the environment. Aside from such environmental factors, oil and gas drilling is often conducted near populated areas. For a company to be successful in its drilling endeavors, working relationships with local communities are often crucial to promote business strategies and avoid the repercussions of disputes that might arise over local business operations. As of December 31, 2018, the Company does not have any production or proved oil or gas reserves.

Governmental Regulation

The operator of any oil and gas operations will be subject to various federal, state, and local governmental regulations. Matters subject to regulation include discharge permits for materials used in drilling operations, drilling and abandonment bonds, reports concerning operations, the spacing of wells, pooling of properties, and taxation. From time to time, regulatory agencies have imposed price controls and limitations on production by restricting the rate of flow of oil and gas wells below actual production capacity in order to conserve supplies of oil and gas. The production, handling, storage, transportation, and disposal of oil and gas, by-products thereof, and other substances and materials produced or used in connection with oil and gas operations are also subject to regulation under federal, state, and local laws and regulations relating primarily to the protection of safety, human health and the environment. State and local laws and regulations may affect the prices at which owners are paid for their leases by requiring more stringent disclosure and certification requirements, adjusting interest rates for late payments, raising legal and administrative costs and imposing more costly default contractual terms. The requirements imposed by such laws and regulations are frequently changed and subject to interpretation, and we are unable to predict the ultimate cost of compliance with these requirements or their ultimate effect, if any, on the lessee to pay royalties.

Environmental laws provide for, among other things, restrictions and prohibitions on spills, releases, or emissions of various substances produced in association with oil and gas operations. The laws also require that wells and facility sites be operated, maintained, abandoned, and reclaimed to the satisfaction of the applicable regulatory authorities. Compliance with such laws can require significant expenditures and a breach may result in the imposition of fines and penalties, some of which may be material. Environmental legislation is evolving in a manner expected to result in stricter standards and enforcement, larger fines and liability, and potentially increased capital expenditures and operating costs. The discharge of oil or gas or other pollutants into the air, soil, or water may give rise to liabilities to governments and third parties and may require the operator to incur costs to remedy such discharge. In addition, the operator and other working interest owners could incur fines, penalties or significant liability for damages, clean-up costs, and penalties in the event of discharges into the environment, environmental damage caused by the operator or previous owners of the property, or non-compliance with environmental laws or regulations. In addition to actions brought by governmental agencies, the operator and owners could face actions brought by private parties or citizens groups. There can be no assurance that the forgoing will not increase the cost of production, development, or exploration activities for the operator or otherwise adversely affect the payment of royalties on the property.

Environmental Regulation

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

4

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

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

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

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

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

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

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

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

5

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

Effect of Existing or Probable Governmental Regulations on our Business

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

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

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

Exchange Act Reporting Requirements. We are subject to the reporting requirements of Section 14 and 16 of the Exchange Act, are required to file annual reports on SEC Form 10-K and quarterly reports on SEC Form 10-Q with the SEC on a regular basis, and will be required to timely disclose certain material events (e.g., changes in corporate control and acquisitions or dispositions of a significant amount of assets other than in the ordinary course of business) in a current report on SEC Form 8-K.

Competition

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

Employees

As of April 1, 2019, the Company has six employees and one consultant.

Historical Background

The Company was incorporated under the laws of the State of Nevada on March 15, 2010, as “INKA Productions Corp.” In September 2013, we changed our business to an oil and gas company focused primarily on properties in the Gulf Coast Region and changed the name of the Company from “INKA Productions, Corp.” to “Texas South Energy, Inc.”

In January 2017, we issued Mr. Mayell 100,000,000 shares of common stock in connection with the Sydson transaction, and Mr. Mayell was appointed president, chief executive officer and a director. Mr. Connally was appointed as chairman of the board and entered into an employment agreement whereby we issued him 65,100,000 shares of common stock. Mr. Askew resigned as an executive officer and as a director and entered into a consulting agreement pursuant to which he was issued 27,000,000 shares of common stock.

In January 2017, pursuant to the laws of the State of Texas, the Company formed Texas South Operating Company, Inc. as a wholly owned subsidiary of the Company. Texas South Energy, Inc. and Texas South Operating Company, Inc. (collectively, the “Company”) began filing consolidated financial statements effective with the March 31, 2017 filing.

6

General

Our address is 4550 Post Oak Place Dr., Suite 300, Houston, TX 77027 and our telephone number is (713) 820-6300 and our corporate website is Texasouth.com. Our SEC filings are accessible through the Company’s website for dates after January 4, 2017 and through the SEC’s web site (http:www.sec.gov) prior to that date. This site contains reports, proxy and information statements and other information regarding registrants, including us, that file electronically with the SEC.

ITEM 1A.  RISK FACTORS

Risks Related to Our Business and Financial Condition

We have no proved reserves as of December 31, 2018, and our planned drilling operations may not yield any oil or gas in commercial quantity or quality.

We have no proved reserves as of December 31, 2018. While, based on available seismic and geological information, we believe the potential presence of oil or gas exists. We have commenced drilling on our prospects. Some of our current prospects may require additional seismic data, including reprocessing and interpretation. Even when properly used and interpreted, seismic data and visualization techniques are only tools used to assist geoscientists in identifying structures and hydrocarbon indicators and do not enable the interpreter to have certainty as to whether hydrocarbons are, in fact, present in those structures. We do not know if any such prospect will contain oil or gas in sufficient quantities or quality to recover drilling and completion costs or to be economically viable. Even if oil or gas is found on our prospects, development, facility construction and transportation costs may prevent such prospects from being economically viable. Accordingly, there is no assurance we will ever report proved reserves in our SEC filings.

Areas that we decide to drill may not yield oil and natural gas in commercial quantities or quality, or at all.

As of April 1, 2019, we currently own 12 blocks in nine offshore prospects in the Gulf of Mexico in conjunction with GulfSlope, in water depths between 300’ and 450’. The Company currently owns a 5% working interest in the Canoe and Tau offshore prospects and a 20% working interest in the others. Leases on eight of the prospects will expire on June 20, 2019 if no drilling activity or other activity to extend the leases is undertaken. GulfSlope, as operator, has filed an exploration permit on the Corvette Prospect in Vermillion Block 375 and is planning to extend that lease by drilling. There can be no assurance that the commencement of drilling will actually occur prior to the expiration of the lease. Further, the lease at the Canoe prospect on Vermillion Block 378, which has been tested and plugged and abandoned in the section down to 6,000’, expires in mid-2020. The Tau Prospect is currently drilling and includes the leases on Ship Shoal Blocks 336 and 351. Unless the well encounters commercial oil and gas pay, the lease on Ship Shoal Block 336 will expire on June 30, 2019. There can be no assurance that there will be commercial oil or gas production in the Canoe Prospect and/or the Tau Prospect. Other lease expirations occur between June of 2020 and August of 2022.

The prospects in the Gulf of Mexico were identified based on available seismic and geological information that indicates the potential presence of oil and natural gas. Additionally, we plan to acquire onshore oil and gas interests in Texas. However, the areas we decide to drill may not yield oil and natural gas in commercial quantities or quality, or at all. At the Wilinda project in Wilson County, Texas, the Company has drilled the initial well, the TXSO Richter Unit 1H but has not yet been able to establish nor can there be any assurance we will establish commercial oil or gas production. Even when properly used and interpreted, 2-D and 3-D seismic data and visualization techniques are only tools used to assist geoscientists in identifying subsurface structures and hydrocarbon indicators and do not enable the interpreter to know whether hydrocarbons are, in fact, present in those structures. Accordingly, we do not know if any of our prospects will contain oil and natural gas in sufficient quantities or quality to recover drilling and completion costs or to be economically viable. Even if oil and natural gas is found on our prospects in commercial quantities, construction costs of pipelines and other transportation costs may prevent such prospects from being economically viable. If one or more of our prospects do not prove to be successful, our business, financial condition and results of operations may be materially adversely affected and we may be forced to curtail operations. 

We may lose our interest in the Tau Prospect.

In September 2018, the Company and the other working interest owners began drilling operations at the Tau Prospect on Ship Shoal Blocks 336 and 351 offshore Louisiana. As a result of drilling difficulties on the well there have been substantial cost over-runs to date which the Company has not yet fully funded. As of March 15, 2019, the Company has been declared to be in default under the terms of its joint operating agreement by the operator regarding the payment of $1,299,229 due as of February 12, 2019 with respect to drilling the Tau Prospect. The operator of the Tau Prospect asserts that additional joint interest billings to the Company during the past 30 days have increased the total amount due to $1,915,304 as of March 15, 2019. The Company’s share of the original AFE to drill to 29,800’ Measured Depth (MD) was approximately $800,000. Drilling of the Tau Prospect continues which will result in further amounts owed by the Company to GulfSlope. The operating agreement grants a lien and security interest on the Company’s interest in the leases comprising the Tau Prospect, and grants to the operator the right to pursue foreclosure of the lien and security interest. The Company is using its best efforts to raise capital to fund its obligations under the operating agreement with GulfSlope regarding the drilling of the Tau Prospect. If the Company fails to raise needed capital and foreclosure is pursued and is successful, this could result in a loss of all of the Company’s rights in the Tau Prospect. Accordingly, there can be no assurance that the Company will be able to maintain its interest in the Tau Prospect and, the failure of which, could have a material adverse effect on the Company.

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Our business plan requires substantial additional capital, which we may be unable to raise on acceptable terms, if at all, in the future, which may in turn limit our ability to execute our business strategy.

As of April 1, 2019, we believe that we have sufficient cash on hand to fund limited operations. We have budgeted required capital expenditures and other operating expenses during calendar 2019 of approximately $7.5 million. These estimates are projections only and will vary depending upon a number of factors, including timing of and actual drilling operations commenced and maintained, completion and transportation costs, bonding and insurance costs, seismic expenses, other customary and ordinary drilling costs that are difficult to estimate, farm-in and farm-out arrangements, and ability to attract partners that are willing to bear some or all of our portion of the costs of conducting exploration drilling activities on offshore prospects. Additionally, depending upon the execution of our business plan, we may determine to acquire additional leasehold interests and fund the acquisition of additional seismic data and seismic processing. It is expected, but not guaranteed, that these expenditures will be funded through future revenues, best-efforts equity offerings, debt offerings, future production revenues from planned drilling activity, or a combination of all.

Of the $7.5 million of budgeted expenditures in calendar 2019, approximately $2.5 million is budgeted to cover salaries, consulting and professional services, other G&A expenses, and required working capital needs. Approximately $3.25 million is budgeted for the completion of the Tau Prospect in the Gulf of Mexico and $1.75 million is budgeted for additional onshore drilling at the Wilinda project. The exact amounts of capital ultimately allocated to each of these projects will depend upon available capital, proposals from working interest owners, success of prior drilling operations, problems encountered while drilling and/or completing existing wells and other factors.

The proposed expenditures for the calendar year 2019 are subject to change based on the execution of our business plan, actual drilling expenses that exceed our budget, any potential competition for leasehold interests and our ability to obtain additional funding. This represents our current best estimate of our capital needs through December 31, 2019. Drilling activity commenced on the onshore and the offshore prospects during the third quarter 2018 and is ongoing in both areas at this time.

Future equity financings may be dilutive to our stockholders. Alternative forms of future financings may include preferences or rights superior to our common stock. Debt financings may involve a pledge of assets and will rank senior to our common stock. We have historically financed our operations through best efforts private equity and debt financings. We do not have any credit or equity facilities currently available with financial institutions, stockholders or third party investors, and will continue to rely on best efforts financings. There is no assurance that we can raise the capital necessary to fund our operations and business plan. Failure to raise the required capital to fund operations, on favorable terms or at all, will have a material adverse effect on our operations, and will likely cause us to curtail or cease operations.

Our 2018 audited financial statements contain a going-concern qualification, raising questions as to our continued existence.

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 operation costs and allow it to continue as a going concern. The Company has accumulated a net loss since inception (March 15, 2010) through December 31, 2018, of $15,987,504. Further losses are anticipated as we continue in the development stage of our business. We will be dependent upon the raising of additional capital through placement of our equity and/or debt securities in order to implement our business plan. There can be no assurance that we will be successful in either situation in order to continue as a going concern. Failure to raise the required capital to fund operations (including the exploitation of, and actual funding of drilling expenses with respect to, our contractual rights to working interests in the Gulf of Mexico and our working interests onshore), on favorable terms or at all, will have a material adverse effect on our operations, and will likely cause us to curtail or cease operations.

As a result, in their audit report contained in this Annual Report, our independent auditors expressed substantial doubt about our ability to continue as a going concern. As of the date of this Annual Report, we will require additional funds for calendar year 2019. If we cannot raise these funds, we may be required to cease business operations or alter our business plan. 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.

We are dependent on Mr. Mayell, our chief executive officer.

Investors in our common stock must rely upon the ability, expertise, judgment and discretion of Mr. Mayell, our chief executive officer. The loss of Mr. Mayell could be detrimental to our future success. In making a decision to invest in our common stock, you must be willing to rely to a significant extent on our management’s discretion and judgment. The loss of Mr. Mayell would have a material adverse effect on our results of operations and financial condition, as well as on the market price of our common stock. We may not be able to find replacement personnel with comparable skills. If we are unable to attract and retain key personnel, our business may be adversely affected. We do not currently maintain key-man insurance on the life of Mr. Mayell.

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We are a development stage company with limited operating history, and there can be no assurance that we will be successful in executing our business plan. We may never attain profitability.

We commenced our business activity in September 2013 and we intend to engage in the drilling, development, and production of oil and natural gas from our working interests onshore and offshore. As we are a relatively new business, we are subject to all the risks and uncertainties which are characteristic of a new business enterprise, including the substantial problems, expenses and other difficulties typically encountered in the course of its business, in addition to normal business risks, as well as those risks that are specific to the oil and gas industry. Investors should evaluate us in light of the delays, expenses, problems and uncertainties frequently encountered by undercapitalized companies in the oil and gas sector. We may never overcome these obstacles. Failure to raise the required capital to fund operations, on favorable terms or at all, will have a material adverse effect on our operations, and will likely cause us to curtail or cease operations.

We may be unable to access the capital markets to obtain additional capital that we will require to implement our business plan, which would restrict our ability to grow.

Our current capital on hand is limited and insufficient to enable us to fully execute our business strategy in calendar year 2019. We will need to raise significant additional funds in order to fully execute our business strategy and our drilling expenses. Because we are a development stage company with limited resources, we may not be able to compete in the capital markets with much larger, established companies that have ready access to capital. Our ability to obtain needed financing may be impaired by conditions and instability in the capital markets (both generally and in the oil and gas industry in particular), our status as a new enterprise without a demonstrated operating history, and the location of our prospects and/or the loss of key consultants and management. Further, if oil and/or natural gas prices on the commodities markets decrease, then potential revenues, if any, will decrease, this may increase our requirements for capital. Some of the future contractual arrangements governing our operations may require us to maintain minimum capital (both from a legal and practical perspective), and we may lose our working interests and/or contractual rights to working interests if we do not have the required minimum capital. If the amount of capital we can raise is not sufficient, we may be required to curtail or cease our operations.

We have a limited operating history with significant losses and expect losses to continue for the foreseeable future.

We have incurred annual operating losses since our inception. As a result, at December 31, 2018, we had an accumulated deficit of $15,987,504. We had nominal revenues in 2018 and do not anticipate receiving significant revenues in 2019 unless we are successful in developing economically recoverable oil or gas reserves with respect to certain of our onshore working interests. We expect that our operating expenses will increase in future periods. We expect continued losses in 2019.

Our lack of diversification increases the risk of an investment in our common stock.

Our business will focus on the oil and gas industry in Texas and the Gulf of Mexico. Larger companies have the ability to manage their risk by diversification. However, we lack substantial diversification, in terms of both the nature and geographic scope of our business. As a result, factors affecting our industry, or the regions in which we operate, will likely impact us more acutely than if our business was more diversified. Moreover, the failure of any one drilling project will be significant to the Company and likely adversely affect us.

Strategic relationships upon which we rely are subject to change, which may diminish our ability to conduct our operations.

Our ability to successfully bid on and acquire interests in prospects, to discover resources, to participate in drilling opportunities through farm-in arrangements and to identify and enter into commercial arrangements with customers and partners, depends on our ability to obtain adequate capital to fund our commitments (historically this has been difficult), developing and maintaining close working relationships with industry participants and on our ability to select and evaluate suitable properties. Further, we must consummate transactions in a highly competitive environment. These realities are subject to change and may impair our ability to grow. Our historic undercapitalization has negatively impacted our ability to develop and maintain strategic relationships.

To develop our business, we will endeavor to use the relationships of our management to enter into strategic relationships, which may take the form of working interest acquisitions, joint ventures with other private parties or contractual arrangements with other oil and gas companies, including those that supply equipment and other resources that we will use in our business. We may not be able to establish these strategic relationships, or if established, we may not be able to maintain them. In addition, the dynamics of our relationships with strategic partners may require that we incur expenses or undertake activities we would not otherwise incur or undertake in order to fulfill our obligations to these partners or maintain our relationships. If our strategic relationships are not established or maintained, our business prospects may be limited, which could diminish our ability to conduct our operations and result in the curtailment of our business.

Competition in obtaining interests in mineral rights and existing royalties may impair our business.

The oil and gas industry is extremely competitive. Present levels of competition for oil and gas interests are high worldwide. Other oil and gas companies with greater resources may compete with us in acquiring oil and gas interests. Additionally, other companies may compete with us in obtaining capital from investors. Competitors include larger, established exploration and production companies, which have access to greater financial and other resources than we have currently, and may be more successful in the recruitment and retention of qualified employees. In addition, actual or potential competitors may be strengthened through the acquisition of additional assets and interests. Because of some or all of these factors, we may not be able to compete effectively.

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We may not be able to effectively manage our growth, which may harm our profitability.

Our strategy envisions building and expanding our business. If we fail to effectively manage our growth, our financial results will be adversely affected. Growth may place a strain on our management systems and resources. We must continue to refine and expand our business development capabilities, our systems, processes, and our access to financing sources. As we grow, we must continue to hire, train, supervise and manage new employees. While our recent transaction with Sydson is an intended step in this direction, we still cannot assure that we will be able to:

● expand our systems effectively or efficiently or in a timely manner;

● optimally allocate our human resources; or

● identify and hire qualified employees or retain valued employees.

If we are unable to manage our growth and our operations, our financial results could be adversely affected, which could prevent us from ever attaining profitability.

Any change to government regulation/administrative practices may have a negative impact on our ability to operate and profitability.

The laws, regulations, policies or current administrative practices of any government body, organization or regulatory agency impacting any jurisdiction where we might conduct our business activities, including the BOEM, may be changed, applied or interpreted in a manner which may fundamentally alter the ability of the Company to conduct business. The actions, policies or regulations, or changes thereto, of any government body or regulatory agency or other special interest groups, may have a detrimental effect on us. Any or all of these situations may have a negative impact on our ability to operate profitably. Additionally, certain bonding and/or insurance may be required in jurisdictions in which we chose to have operations, increasing our costs to operate.

Risks Related to the Industry in Which We Intend to Compete

Current volatile market conditions and significant fluctuations in energy prices may continue indefinitely, negatively affecting our business prospects and viability.

The oil and gas markets are very volatile, and we cannot predict future oil and natural gas prices. Historically, oil and natural gas prices have been volatile and are subject to fluctuations in response to changes in supply and demand, market uncertainty and a variety of additional factors that are beyond our control. Any substantial decline in the price of oil and natural gas will likely have a material adverse effect on our planned operations and financial condition. The amount of revenue we receive, if any, from the production of oil and gas from our oil and gas interests will depend on numerous factors beyond our control. These factors include, but are not limited to, the following:

● changes in global supply and demand for oil and natural gas by both refineries and end users;

● the ability of the members of the Organization of Petroleum Exporting Countries to agree to and maintain oil price and production controls;

● the price and volume of imports of foreign oil and natural gas;

● political and economic conditions, including embargoes, in oil-producing countries or affecting other oil-producing activity;

● the level of global oil and gas exploration and production activity;

● the level of global oil and gas inventories;

● weather conditions;

● technological advances affecting energy consumption;

● domestic and foreign governmental regulations and taxes;

● proximity and capacity of oil and gas pipelines and other transportation facilities;

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● the price and availability of competitors’ supplies of oil and gas in captive market areas;

● the introduction, price and availability of alternative forms of fuel to replace or compete with oil and natural gas;

● import and export regulations for LNG and/or refined products derived from oil and gas production from the US;

● speculation in the price of commodities in the commodity futures market;

● the availability of drilling rigs and completion equipment; and

● the overall economic environment.

Further, oil and natural gas prices do not necessarily fluctuate in direct relationship to each other. The price of oil has been extremely volatile, and we expect this volatility to continue for the foreseeable future. Recent volatility during the last three years has seen WTI oil prices drop from a high of $107.26 on June 20, 2014, to a price dipping below $27 in intra-day trading on January 20, 2016. This near-term volatility may affect future prices in 2019 and beyond. The volatility of the energy markets makes it difficult to predict future oil and natural gas price movements with any certainty.

Exploration for oil and natural gas is risky and may not be commercially successful, impairing our ability to generate revenues.

Oil and natural gas exploration involves a high degree of risk. These risks are more acute in the early stages of exploration. We may not discover oil or natural gas in commercially viable quantities, if at all. It is difficult to project the costs of implementing our drilling program due to the inherent uncertainties of drilling in unknown formations, the costs associated with encountering various drilling conditions, such as over pressured zones and tools lost in the hole, and changes in drilling plans, locations as a result of prior exploratory wells or additional seismic data and interpretations thereof, and final commercial terms negotiated with partners. Developing developmental and exploratory oil and gas properties requires significant capital expenditures and involves a high degree of financial risk. The budgeted costs of drilling, completing, and operating exploratory wells are often exceeded and can increase significantly when drilling costs rise. Drilling may be unsuccessful for many reasons, including title problems, weather, cost overruns, equipment shortages, and mechanical difficulties. There is no assurance that we will successfully complete any wells or if successful, that the wells would be economically successful. Moreover, the successful drilling or completion of any oil or gas well does not ensure a profit on investment. Exploratory wells bear a much greater risk of loss than development wells. We cannot assure that our exploration, exploitation and development activities will result in profitable operations, the result of which will materially adversely affect our business.

Oil and gas operations are subject to comprehensive regulation which may cause substantial delays or require capital outlays in excess of those anticipated, causing an adverse effect on the Company.

Oil and gas operations are subject to national and local laws relating to the protection of the environment, including laws regulating removal of natural resources from the ground and the discharge of materials into the environment. Oil and gas operations are also subject to national and local laws and regulations which seek to maintain health and safety standards by regulating the design and use of drilling methods and equipment. Environmental standards imposed by national or local authorities may be changed and any such changes may have material adverse effects on our potential royalties. Moreover, compliance with such laws may cause substantial delays or require capital outlays in excess of those anticipated, thus causing an adverse effect on any potential revenue to us.

We will be dependent upon the third party operator of our offshore oil and gas interests.

While we intend to be the operator with respect to our onshore drilling operations, third parties will act as the operators and control the drilling and operating activities to be conducted on our offshore properties. Therefore, we may have limited control over certain decisions related to activities on our offshore properties relating to the timing, costs, procedure, and location of drilling or production activities, which could affect the Company’s results. As a result of the high daily costs involved with offshore drilling, any unexpected drilling problems can very quickly cause cost over-runs that are multiples of the original cost estimate to the Company’s interest.

We may not be able to develop oil and gas reserves on an economically viable basis.

To the extent that we succeed in discovering oil and/or natural gas reserves on our prospects, we cannot assure that these reserves will be capable of production levels we project or in sufficient quantities to be commercially viable. Our future reserves, if any, will depend not only on our ability to develop then-existing properties, but also on our ability to identify and acquire additional suitable producing properties or prospects, to find markets for the oil and natural gas we develop and to effectively distribute our production into markets.

Future oil and gas exploration may involve unprofitable efforts, not only from dry wells, but from wells that are productive but do not produce sufficient net revenues to return a profit after drilling, operating and other costs. Completion of a well does not assure a profit on the investment or recovery of drilling, completion and operating costs. In addition, drilling hazards or environmental damage could greatly increase the cost of operations and various field operating conditions may adversely affect the production from successful wells. These conditions include delays in obtaining governmental approvals or consents, shut-downs of wells resulting from extreme weather conditions, problems in storage and distribution and adverse geological and mechanical conditions. While we will endeavor to effectively manage these conditions, we cannot be assured of doing so optimally, and we will not be able to eliminate them completely in any case. Therefore, these conditions could adversely impact our operations and result in the cessation or curtailment of our operations.

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Risks Related to our Common Stock

There is not now, and there may never be, an active market for our common stock.

Shares of our common stock have historically been thinly traded. Currently there is a limited market for our common stock and no increased market for our common stock may develop in the future. As a result, our stock price as quoted in the over-the-counter market may not reflect an actual or perceived value. Moreover, several days may pass before any shares are traded; meaning that the number of persons interested in purchasing our common shares at or near ask prices at any given time may be relatively small or non-existent. This situation is attributable to a number of factors, including, but not limited to:

● we are a small company that is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume; and

● stock analysts, stock brokers and institutional investors may be risk-averse and reluctant to follow a company such as ours that faces substantial doubt about its ability to continue as a going concern or to purchase or recommend the purchase of our shares until such time as we become more viable.

As a result, an investor may find it difficult to dispose of, or to obtain accurate quotations of the price of our common stock. Accordingly, investors must assume they may have to bear the economic risk of an investment in our common stock for an indefinite period of time, and may lose their entire investment. There can be no assurance that a more active market for our common stock will develop, or if one should develop, there is no assurance that it will be sustained. This severely limits the liquidity of our common stock and would likely have a material adverse effect on the market price of our common stock and on our ability to raise additional capital.

We cannot assure that our common stock will become liquid or that it will be listed on a national securities exchange.

Until our common stock is listed on a national securities exchange such as the NASDAQ Capital Market or the NYSE, we expect our common stock to remain eligible for quotation on the over-the-counter market. If we fail to meet the criteria set forth in SEC regulations, various requirements govern the conduct of broker-dealers who sell our securities to persons other than established customers and accredited investors. Consequently, such regulations may deter broker-dealers from recommending or selling our common stock, which may further affect the liquidity of our common stock. This would also make it more difficult for us to raise capital.

We may issue preferred stock.

Our Articles of Incorporation authorizes the issuance of up to 50 million shares of “blank check” preferred stock with designations, rights and preferences determined from time to time by the Board of Directors. Accordingly, our Board of Directors is empowered, without stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting, or other rights which could adversely affect the voting power or other rights of the holders of the common stock. In the event of issuance, the preferred stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of the Company. Although we have no present intention to issue any shares of its authorized preferred stock, there can be no assurance that we will not do so in the future.

Future sales of our common stock could lower our stock price.

We will likely sell additional shares of common stock to fund working capital obligations in future periods. We cannot predict the size of future issuances of our common stock or the effect, if any, that future issuances and sales of shares of our common stock will have on the market price of our common stock. Sales of substantial amounts of our common stock, or the perception that such sales could occur, may adversely affect prevailing market prices for our common stock. Moreover, sales of our common stock by existing shareholders could also depress the price of our common stock.

Our common stock is subject to the “penny stock” rules of the SEC, which makes transactions in our common stock cumbersome and may reduce the value of an investment in the stock.

The SEC has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:

● that a broker or dealer approve a person’s account for transactions in penny stocks; and

● the broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

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In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:

● obtain financial information and investment experience and objectives of the person; and

● make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form sets forth:

● the basis on which the broker or dealer made the suitability determination; and

● that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of common stock and cause a decline in the market value of stock.

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

The price of our common stock is likely to remain volatile, which could lead to losses by investors and costly securities litigation.

The trading price of our common stock is likely to be highly volatile and could fluctuate in response to factors such as:

● actual or anticipated variations in our operating results including but not limited to leasing, drilling, and discovery of oil and gas;

● announcements of developments by us, our strategic partners or our competitors;

● announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;

● adoption of new accounting standards affecting our Company’s industry;

● additions or departures of key personnel;

● sales of our common stock or other securities in the open market;

● our ability to acquire seismic data and other intellectual property on commercially reasonable terms and to defend such intellectual property from third party claims;

● litigation; and

● other events or factors, many of which are beyond our control.

The stock market is subject to significant price and volume fluctuations. In the past, following periods of volatility in the market price of companies’ securities, securities class action litigation has often been initiated against those companies. Litigation initiated against us, whether or not successful, could result in substantial costs and diversion of our management’s attention and resources, which could harm our business and financial condition.

We do not anticipate paying any dividends on our common stock.

Cash dividends have never been declared or paid on our common stock, and we do not anticipate such a declaration or payment for the foreseeable future. We cannot assure stockholders of a positive return on their investment when they sell their shares, nor can we assure that stockholders will not lose the entire amount of their investment in the Company.

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ITEM 1B.  UNRESOLVED STAFF COMMENTS

None.

ITEM 2.  PROPERTIES

Office Space

We lease 4,360 square feet of office space pursuant to a lease that expires in December 2019, with lease obligations at market rate. We own limited office equipment, office furniture, and computer equipment.

Oil and Gas Properties

In March 2014, we entered into a farm out letter agreement with GulfSlope Energy, Inc. (“GulfSlope”) relating to certain prospects GulfSlope bid on at the Central Gulf of Mexico Lease Sale 231, located within 2.2 million acres of 3-D seismic licensed and interpreted by GulfSlope. Under the terms of the farm-out letter agreement, as amended, we acquired contractual rights to a 20% working interest in 12 blocks covered in 9 prospects for approximately $10,720,000 paid to GulfSlope through September 30, 2018. We have agreed to pay our proportionate share of the net rental costs related to the prospects. GulfSlope has conducted extensive seismic work on all of the prospects focusing on the high potential subsalt play at depths of 15,000’ to 25,000’ and will be the operator of record for the initial well on each of the prospects. In August 2017, the Company acquired a 20% working interest from GulfSlope in Ship Shoal Block 351 and in Ship Shoal Block 336, which are collectively referred to as the Tau Prospect. In October 2017, the Company acquired a 20% working interest from GulfSlope in Eugene Island Block 397 and Green Canyon Block 4, which are collectively referred to as the Quark Prospect. In January 2018, the Company acquired a 20% working interest in the Vermilion South Addition Block 378 (“Canoe Prospect”) from GulfSlope.

On January 8, 2018, the Company entered into a participation agreement dated effective January 1, 2018 (the “Agreement”) with Delek GOM Investments, LLC, a subsidiary of Delek Group Ltd. (“Delek”), and GulfSlope (collectively, the “Parties”) for the partial farm-out of the Company’s interests in its Gulf of Mexico oil and gas leases (the “Farm-out”). The Agreement sets out the terms and conditions of the Parties participation in the drilling of up to a nine well multi-phase exploration program targeting the Company’s prospects (the “Prospects”) located on the Company’s existing leases (the “Leases”).

Under the terms of the Agreement, the Parties have committed to initially drill two of the Company’s prospects in Phase I (the “Initial Phase”) with Delek having the option to participate in two additional two-well drilling phases and a final, three-well drilling phase (collectively, the “Phases”). In each Phase, Delek will earn a 75% working interest upon paying 90% of the exploratory costs associated with drilling each exploratory well. The Company will thus retain a 5% working interest while paying 2% of the exploratory costs associated with drilling each well. In addition, Delek will pay the Company $405,000 upon the filing of each exploration plan with BOEM and/or BSEE on a Prospect in each Phase. During March 2018 Delek made its first payment of $405,000 to the Company as the initial plan was filed. Delek made a second payment of $405,000 to the Company during May 2018. Also, each Party will be responsible for its pro rata share (based on working interest) of delay rentals associated with the Prospects. GulfSlope will be the Operator during exploratory drilling of a Prospect, however, subsequent to a commercial discovery, Delek will have the right to become the Operator. Delek will have the right to terminate this Agreement at the conclusion of any drilling Phase. Delek will also have the option to purchase up to 5% of the Company’s common stock upon fulfilling its obligation for each Phase (maximum of 20% in the aggregate) at a price per share equal to a 10% discount to the 30-day weighted average closing price for the Company’s common stock preceding the acquisition. This option will expire on January 8, 2020. The Company has not recorded any cost associated with the option due to the future performance obligation of Delek. If Delek meets the obligation and exercises its option the Company will record the option value at that time as an increase to Oil and Gas Properties. The likelihood of Delek exercising its options to purchase shares of the Company’s common stock will be dependent on the drilling results from Phase 1 and the Company’s operating results which will affect the price of the Company’s common stock. We currently do not anticipate Delek fully exercising this option before the expiration date. At December 31, 2018, the potential value of issuing 20% of our outstanding stock is approximately $5,800,000. The foregoing description of the Agreement does not purport to be a complete description of the terms, provisions and conditions of such document, and represents only a summary of certain of the principal terms, provisions and conditions thereof.

In accordance with the Delek Agreement and on behalf of the Company and the other working interest owners, GulfSlope as operator, spudded the OCS-G-35589 # 1 well on the Canoe Prospect on Vermilion Block 378 where the Company holds a 5% working interest in July 2018. The well was drilled and evaluated to a total depth of 5,765’ MD (5,700’ TVD). Based on LWD and other test results, thin oil bearing sands were encountered which require further study. As a result, open-hole plugs were set across several intervals in accordance with governmental regulations and the well is now plugged and abandoned at this time. Since the well is equipped with a mud-line suspension system, it is available for future re-entry as warranted.

14

At the beginning of September 2018, the Company and the other working interest owners began drilling operations at the Tau Prospect on Ship Shoal Blocks 336 and 351 offshore Louisiana. The well, OCS-G 36121 #1, is planned to test Miocene reservoirs beneath thick salt sheets in approximately 300’ of water depth. Operated by GulfSlope, the well is currently drilling below 14,500’ to an expected total depth below 16,500’ TVD. As a result of drilling difficulties on the well there have been substantial cost over-runs to date which the Company has not yet fully funded. As of March 15, 2019, the Company has been declared to be in default under the terms of its joint operating agreement by the operator regarding the payment of $1,299,229 due as of February 12, 2019 with respect to drilling the Tau Prospect. The operator of the Tau Prospect asserts that additional joint interest billings to the Company during the past 30 days have increased the total amount due to $1,915,304 as of March 15, 2019. The Company’s share of the original AFE to drill to 29,800’ MD was approximately $800,000. Drilling of the Tau Prospect continues which will result in further amounts owed by the Company to GulfSlope. The operating agreement grants a lien and security interest on the Company’s interest in the leases comprising the Tau Prospect, and grants to the operator the right to pursue foreclosure of the lien and security interest. The Company is using its best efforts to raise capital to fund its obligations under the operating agreement with GulfSlope regarding the drilling of the Tau Prospect. If the Company fails to raise needed capital and foreclosure is pursued and is successful, this could result in a loss of all of the Company’s rights in the Tau Prospect.

The Company will assign a two-tenths of one percent of 8/8ths net profits interest in certain of the Company’s oil and gas leases in the two Phase I prospects to Hi-View Investment Partners, LLC (“Hi-View”) in consideration for consulting services provided pursuant to a non-exclusive consulting engagement dated October 25, 2017, by and between Hi-View, the Company, and GulfSlope (the “Advisory Agreement”). Hi-View will be entitled to additional assignments on the same terms and conditions as described above related to any of Leases in which Delek elects to participate in the drilling of an exploratory well. In addition, the Company issued an aggregate of twenty million shares of its common stock to Hi-View in consideration for those consulting services provided pursuant to the Advisory Agreement

In January 2017, the Company entered into an asset purchase agreement with Sydson Energy, Inc. (“Sydson Energy”) and Sydson Resources, L.P. (“Sydson Resources” and collectively with Sydson Energy, “Sydson”), where Sydson assigned to us certain onshore oil and gas assets and interests and certain tangible assets and additionally, certain employees and a consultant of Sydson have agreed to become employees and a consultant of the Company. Sydson is a private oil and gas company with land operations in Texas and Louisiana that has been in business since 1982. The oil and gas assets include the following:

● In Texas, we acquired a 50% working interest in the undrilled acreage above 4,500’ in the West Tuleta Field, Bee County, Texas comprised of approximately 1,800 gross acres and 900 net acres with a net revenue interest of approximately 75%. The primary drilling objectives are the Vicksburg and Hockley sands which are structurally high on this acreage compared to the prior downdip production.

● In the adjacent Ray Field, also in Bee County, Texas, we acquired a 50% working interest in the undrilled, acreage on the Walton, Campbell, and Ray leases comprising approximately 75 gross acres with a net revenue interest of approximately 75%. The primary drilling objectives on this acreage are also the Vicksburg and Hockley sands updip to prior production above 3,700’.

● Southeast of San Antonio at the Wilinda Project we are acquiring leases with working interest partners covering more than 4,400 acres for horizontal projects above 6,000’ in the Austin Chalk, Eagle Ford, and Buda Lime formation. These projects are adjacent to substantial prior production and contain both conventional and unconventional oil targets.

● In September of 2018, we commenced drilling on the TXSO Richter Unit #1H well. The well was drilled, cased and cemented to a depth of 9,442’ with a horizontal lateral exceeding 4,000’. The well was frac’d and is now being evaluated with flowback testing. During the flowback period, the well initially produced at rates exceeding 1,000 barrels of frac load water per day with minor amounts of oil and gas. Subsequently, the oil and gas rates did not improve and the Company now believes that the water production is from a deeper zone which is obstructing the oil and gas flow from the Austin Chalk completion zone. The Company plans to isolate the section of the lateral that appears to be the source of the extraneous water and produce the remaining part of the lateral, using a comparable procedure to that used on a nearby well that encountered a similar problem.

ITEM 3.  LEGAL PROCEEDINGS

From time to time, the Company may become involved in litigation relating to claims arising out of its operations in the normal course of business. No legal proceedings, government actions, administrative actions, investigations or claims are currently pending against us or involve the Company.

ITEM 4.  MINE SAFETY DISCLOSURES

Not applicable.

15

PART II

ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common shares are quoted on the OTCPK under the symbol “TXSO”. Shares of our common stock have historically been thinly traded, and currently there is no active trading market for our common stock. As a result, our stock price as quoted by the OTCPK may not reflect an actual or perceived value.

The following table sets forth the approximate high and low bid prices for our common stock as reported by the OTCPK for the periods indicated. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

Period	High Bid		Low Bid
October 1, 2018 through December 31, 2018	$	0.026	$	0.013
July 1, 2018 through September 30, 2018		0.048		0.010
April 1, 2018 through June 30, 2018		0.029		0.015
January 1, 2018 through March 31, 2018		0.055		0.015
October 1, 2017 through December 31, 2017	$	0.11	$	0.02
July 1, 2017 through September 30, 2017		0.03		0.01
April 1, 2017 through June 30, 2017		0.02		0.01
January 1, 2017 through March 31, 2017		0.09		0.02

Holders

The number of record holders of the Company’s common stock, as of April 1, 2019, is approximately 185.

Dividends

The Company has not declared any dividends with respect to its common stock and does not intend to declare any dividends in the foreseeable future. The future dividend policy of the Company cannot be ascertained with any certainty. There are no material restrictions limiting the Company’s ability to pay cash dividends on its common stock.

Securities Authorized for Issuance Under Equity Compensation Plans

At the September 6, 2018 annual meeting, the stockholders approved the adoption of the Texas South Energy, Inc. 2018 Omnibus Incentive Plan (the “2018 Plan”), effective July 28, 2018. The 2018 Plan authorizes the issuance of 100,000,000 shares of common stock prior to its expiration on July 28, 2028. Incentives under the 2018 Plan may be granted to employees, directors, and consultants of the Company in any one or a combination of the following forms: incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards or performance stock awards which are valued in whole or in part by reference to, or otherwise based on, our common stock, including its appreciation in value. As of April 1, 2019, no awards have been granted.

Recent Sales of Unregistered Securities

None to report.

ITEM 6.  SELECTED FINANCIAL DATA

Not required for smaller reporting companies.

16

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

The following discussion highlights the principal factors that have affected our financial condition and results of operations as well as our liquidity and capital resources for the periods described. This discussion contains forward-looking statements. Please see “Forward-Looking Statements” above for a discussion of the uncertainties, risks and assumptions associated with these forward-looking statements. The following discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared on the accrual basis of accounting, whereby revenues are recognized when earned, and expenses are recognized when incurred. This management’s discussion and analysis of our financial condition and results of operations should be read in conjunction with our historical financial statements included elsewhere in this Annual Report. In addition to the impact of the matters discussed in “Risk Factors,” our future results could differ materially from our historical results due to a variety of factors, many of which are out of our control.

Overview

See Item 2 “Oil and Gas Properties” of this report for a detailed discussion of our participation agreements and various terms of these agreements under which the Company is currently operating. During 2018 drilling operations began both offshore and onshore and are discussed below.

In accordance with the Delek Agreement and on behalf of the Company and the other working interest owners, GulfSlope as operator spudded the OCS-G-35589 # 1 well on the Canoe Prospect on Vermilion Block 378 where the Company holds a 5% working interest in July 2018. The well was drilled and evaluated to a total depth of 5,765’ MD (5,700’ TVD). Based on LWD and other test results, thin oil bearing sands were encountered which require further study. As a result, open-hole plugs were set across several intervals in accordance with governmental regulations and the well is now plugged and abandoned at this time. Since the well is equipped with a mud-line suspension system, it is available for future re-entry as warranted.

At the beginning of September 2018, the Company and the other working interest owners began drilling operations at the Tau Prospect on Ship Shoal Blocks 336 and 351 offshore Louisiana. The well, OCS-G 36121 #1, is planned to test Miocene reservoirs beneath thick salt sheets in approximately 300’ of water depth. Operated by GulfSlope, the well is currently drilling below 14,500’ to an expected total depth below 16,500’ TVD. As a result of drilling difficulties on the well there have been substantial cost over-runs to date which the Company has not yet fully funded. As of March 15, 2019, the Company has been declared to be in default under the terms of its joint operating agreement by the operator regarding the payment of $1,299,229 due as of February 12, 2019 with respect to drilling the Tau Prospect. The operator of the Tau Prospect asserts that additional joint interest billings to the Company during the past 30 days have increased the total amount due to $1,915,304 as of March 15, 2019. The Company’s share of the original AFE to drill to 29,800’ MD was approximately $800,000. Drilling of the Tau Prospect continues which will result in further amounts owed by the Company to GulfSlope. The operating agreement grants a lien and security interest on the Company’s interest in the leases comprising the Tau Prospect, and grants to the operator the right to pursue foreclosure of the lien and security interest. The Company is using its best efforts to raise capital to fund its obligations under the operating agreement with GulfSlope regarding the drilling of the Tau Prospect. If the Company fails to raise needed capital and foreclosure is pursued and is successful, this could result in a loss of all of the Company’s rights in the Tau Prospect.

In September of 2018, we commenced drilling on the TXSO Richter Unit #1H well. The well was drilled, cased and cemented to a depth of 9,442’ with a horizontal lateral exceeding 4,000’. The well was frac’d and is now being evaluated with flowback testing. During the flowback period, the well initially produced at rates exceeding 1,000 barrels of frac load water per day with minor amounts of oil and gas. Subsequently, the oil and gas rates did not improve and the Company now believes that the water production is from a deeper zone which is obstructing the oil and gas flow from the Austin Chalk completion zone. The Company plans to isolate the section of the lateral that appears to be the source of the extraneous water and produce the remaining part of the lateral, using a comparable procedure to that used on a nearby well that encountered a similar problem.

The Company has incurred accumulated losses for the period from inception to December 31, 2018 of approximately $15,987,504. Further losses are anticipated in developing its business. As a result, the Company’s auditors have expressed substantial doubt about our ability to continue as a going concern. As of December 31, 2018, the Company had $1,501,766 of cash on hand. As of the date of this Annual Report, we will require additional funds for the balance of 2019. The Company plans to finance the Company through best-efforts equity and/or debt financings. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Of the $7.5 million of budgeted expenditures in calendar 2019, approximately $2.5 million is budgeted to cover salaries, consulting and professional services, other G&A expenses, and required working capital needs. Approximately $3.25 million is budgeted for the completion of the Tau Prospect in the Gulf of Mexico and $1.75 million is budgeted for additional onshore drilling at the Wilinda project. The exact amounts of capital ultimately allocated to each of these projects will depend upon available capital, proposals from working interest owners, success of prior drilling, problems encountered while drilling and/or completing existing wells and other factors.

17

Significant Accounting Policies

Investment Securities

The Company no longer owns any investment securities.

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.

Fair Value

In accordance with the requirements of ASC 825 and ASC 820, the Company has determined the estimated fair value of financial instruments using available market information and appropriate valuation methodologies. The fair value of financial instruments classified as current assets or liabilities approximate their carrying value due to the short-term maturity of the instruments.

Income Taxes

The Company has adopted ASC 740 for reporting purposes. As of December 31, 2018, the Company had net operating loss carryforwards of approximately $12,800,000 that may be available to reduce future years’ taxable income and will begin to expire in 2028. Availability of loss usage is subject to change of ownership limitations under Internal Revenue Code 382. Future tax benefits which may arise as a result of these losses have not been recognized in these financial statements, as their realization is determined not likely to occur and accordingly, the Company has recorded a valuation allowance for the tax loss carryforwards.

Stock-based Compensation

At the September 6, 2018 annual meeting, the stockholders approved the adoption of the Texas South Energy, Inc. 2018 Omnibus Incentive Plan (the “2018 Plan”), effective July 28, 2018. The 2018 Plan authorizes the issuance of 100,000,000 shares of common stock prior to its expiration on July 28, 2028. Incentives under the 2018 Plan may be granted to employees, directors, and consultants of the Company in any one or a combination of the following forms: incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards or performance stock awards which are valued in whole or in part by reference to, or otherwise based on, our common stock, including its appreciation in value. As of April 1, 2019, no awards have been granted.

In December 2004, the Financial Accounting Standards Board (“FASB”) issued ASC 718 “Compensation - Stock Compensation” and 505-50 “Equity-Based Payments to Non-Employees.” This statement requires a public entity to expense the cost of services received in exchange for an award of equity instruments. This statement also provides guidance on valuing and expensing these awards, as well as disclosure requirements of these equity arrangements. The Company adopted ASC 718 and 505-50 upon creation of the company and expenses share based costs in the period incurred.

Accounting for Oil and Gas Properties

The Company utilizes the full cost method to account for its investment in oil and gas properties. Accordingly, all costs associated with acquisition, exploration and development of oil and gas reserves, including such costs as leasehold acquisition costs, professional fees incurred for the lease acquisitions, capitalized interest costs relating to properties, geological expenditures, and tangible and intangible development costs (including direct internal costs), are capitalized into the full cost pool. When the Company commences production from established proven oil and gas reserves, capitalized costs, including estimated future costs to develop the reserves and estimated abandonment costs, will be depleted on the units-of-production method using estimates of proven reserves. Investments in unproved properties and major development projects, including capitalized interest if any, are not depleted until proven reserves associated with the projects can be determined. If the future exploration of unproven properties is determined to be uneconomical, the amount of such properties is added to the capital costs to be depleted. As of December 31, 2018, the Company’s oil and gas properties consisted of capitalized acquisition costs for unproved mineral rights and tangible and intangible drilling and completion costs.

18

RESULTS OF OPERATIONS

Results of Operations for the Year Ended December 31, 2018 compared to December 31, 2017

We had no revenues during the years ended December 31, 2018 and December 31, 2017. General and administrative expenses were $2,482,209 for the year ended December 31, 2018, compared to $3,513,294 for the year ended December 31, 2017. The decrease in general and administrative expenses of $1,031,085 was primarily attributed to a decrease in consulting fees, compensation, and dues expenses. Consulting expenses in 2017 totaling $884,635 were non cash since stock was issued in exchange for the services rendered and those consulting expenses did not occur in 2018. Interest expense for 2018 totaled $152,214 of which $116,107 was accrued as of yearend.

We had a net loss of $3,110,744 for the year ended December 31, 2018, compared to a net loss of $3,842,467 for the year ended December 31, 2017. The decrease in net loss of $731,723 was due to a decrease of $1,031,085 in general and administrative expenses, a decrease in interest expense of approximately $58,000, and offset by an increase of approximately $296,000 in impairment expenses.

The basic and diluted loss per share for the years ended December 31, 2018 and December 31, 2017 was $(0.00) each year.

As of December 31, 2018, the Company’s cash balance was $1,501,766, compared to a cash balance of $455 as of December 31, 2017. As of December 31, 2018, the Company’s assets consisted of cash of $1,501,766, prepaid expenses of $33,300, accounts receivable of $1,262,311, related party accounts receivable of $4,302, net equipment and oil and gas properties of $14,122,615, and deposits of $8,340. As of December 31, 2017, the Company’s assets consisted of cash of $455, prepaid expenses of $29,555, accounts receivable of $3,261, net equipment and oil and gas properties of $11,811,977, and deposits of $8,340.

Cash flow from Operating Activities

During the year ended December 31, 2018, we provided cash of $1,968,303 for operating activities as compared to a use of cash of $1,127,982 during the year ended December 31, 2017. The decrease in cash used for operating activities during the year was primarily due to the increase in accounts payable and accrued expenses incurred during the year instead of using cash.

Cash flow from Investing Activities

During the year ended December 31, 2018 we used $2,803,772 to pay leases and acquire oil and gas properties. During the year ended December 31, 2017, we used $758,272 to pay leases and acquire oil and gas properties. During 2018 we received $810,000 from Delek for the offshore operations and $80,000 for settlement of a dispute to reimburse expenses.

Cash flow from Financing Activities

During the year ended December 31, 2018, we received $1,166,999 related to the sale of the Company’s common stock and $21,081 from the proceeds of short term debt. The Company made payments on short term debt totaling $48,928 during 2018. During the year we received advances from working interest partners of $5,062,059 and applied $4,754,431 of those advances against the joint interest bills. During the year ended December 31, 2017, we received $665,000 related to the sale of the Company’s common stock, $837,000 from the proceeds of short term debt and $70,777 from the proceeds of long term debt. The Company made payments on short term debt totaling $11,157 during 2017.

Liquidity and Capital Resources

As of December 31, 2018, we had a cash balance of $1,501,766 and a working capital deficit of $4,087,299. Our net loss of $3,110,744 for the year ended December 31, 2018 was primarily funded by proceeds raised from equity financings, payments from working interest owners, and loans from related parties.

As of April 1, 2019, we believe that we have sufficient cash on hand to fund limited operations. We have budgeted required capital expenditures and other operating expenses during calendar 2019 of approximately $7.5 million. These estimates are projections only and will vary depending upon a number of factors, including timing of and actual drilling operations commenced and maintained, completion and transportation costs, bonding and insurance costs, seismic expenses, other customary and ordinary drilling costs that are difficult to estimate, farm-in and farm-out arrangements, and ability to attract partners that are willing to bear some or all of our portion of the costs of conducting exploration drilling activities on offshore prospects. Additionally, depending upon the execution of our business plan, we may determine to acquire additional leasehold interests and fund the acquisition of additional seismic data and seismic processing. It is expected, but not guaranteed, that these expenditures will be funded through future revenues, best-efforts equity or debt offerings, future production revenues from planned drilling activity, or a combination of all.

19

The proposed expenditures for the calendar year 2019 are subject to change based on the execution of our business plan, actual drilling expenses that exceed our budget, any potential competition for leasehold interests and our ability to obtain additional funding. This represents our current best estimate of our capital needs through December 31, 2019. Drilling activity commenced on the onshore and the offshore prospects during the third quarter 2018 and is ongoing in both areas at this time.

Future equity financings may be dilutive to our stockholders. Alternative forms of future financings may include preferences or rights superior to our common stock. Debt financings may involve a pledge of assets and will rank senior to our common stock. We have historically financed our operations through best efforts private equity and debt financings. We do not have any credit or equity facilities currently available with financial institutions, stockholders or third party investors, and will continue to rely on best efforts financings. There is no assurance that we can raise the capital necessary to fund our operations and business plan. Failure to raise the required capital to fund operations, on favorable terms or at all, will have a material adverse effect on our operations, and will likely cause us to curtail or cease operations.

Off-Balance Sheet Arrangements

As of December 31, 2018, 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.

Recent Accounting Pronouncements

We have reviewed all recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on our results of operation, financial position or cash flows. With the exception of the pronouncements listed below, these recently issued pronouncements are not expected to have a material impact on our financial position, results of operations, or cash flows.

In May 2014, the FASB issued its final standard on revenue from contracts with customers. The standard, issued as ASU No. 2014-09: Revenue from Contracts with Customers (Topic 606) by the FASB, 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 we have no active revenues, the new guidance is not expected to have a material impact on our financial statements and related disclosures.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required for smaller reporting companies.

20

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Texas South Energy, Inc.

Consolidated Financial Statements

December 31, 2018

TABLE OF CONTENTS

	Page
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2018 and 2017	F-3
Consolidated Statements of Operations for the years ended December 31, 2018 and 2017	F-4
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2018 and 2017	F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2018 and 2017	F-6
Notes to the Consolidated Financial Statements	F-7

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

Texas South Energy, Inc.

Opinion on the Financial Statements 

We have audited the accompanying consolidated balance sheets of Texas South Energy, Inc. and its wholly owned subsidiary Texas South Operating Company, Inc. (the “Company”) as of December 31, 2018 and 2017, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2018 and the related notes (collectively referred to as the financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 3 to the consolidated financial statements, the Company’s absence of significant revenues, recurring losses from operations, and its need for additional financing in order to fund its projected loss in 2019 raise substantial doubt about its ability to continue as a going concern. The 2018 consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ LBB & Associates Ltd., LLP

LBB & Associates Ltd., LLP

We have served as the Company’s auditor since October 2013.

Houston, Texas

April 1, 2019

F-2

Texas South Energy, Inc.

CONSOLIDATED BALANCE SHEETS

	December 31, 2018			December 31, 2017
ASSETS
CURRENT ASSETS
Cash	$	1,501,766		$	455
Prepaid expenses		33,300			29,555
Accounts receivable – joint interest billings		1,262,311			3,261
Accounts receivable – related party		4,302			-
TOTAL CURRENT ASSETS		2,801,679			33,271
PROPERTY AND EQUIPMENT
Oil and gas properties, full cost method, net		14,094,438			11,779,201
Furniture, fixtures and equipment		43,195			39,712
Less: accumulated depreciation		(15,018	)		(6,936	)
TOTAL PROPERTY AND EQUIPMENT, NET		14,122,615			11,811,977
OTHER ASSETS		8,340			8,340
TOTAL ASSETS	$	16,932,634		$	11,853,588
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	4,739,908		$	159,512
Accounts payable – related party		-			201,812
Accrued expenses		34,154			77,279
Accrued expenses – related party		805,000			385,000
Accrued interest – related party		183,515			40,693
Advances from working interest owners		307,628			-
Notes payable		9,773			9,620
Convertible notes payable – related party		809,000			837,000
Due to related party		-			9,828
TOTAL CURRENT LIABILITIES		6,888,978			1,720,744
LONG TERM LIABILITIES
Convertible notes payable		-			1,118,355
Convertible notes payable – related party		300,000			50,000
Notes payable – related party		-			250,000
Asset retirement obligations		40,380			-
Accrued expenses		1,798,543			894,272
Accrued interest		-			403,636
Accrued interest – related party		-			26,178
TOTAL LONG TERM LIABILITIES		2,138,923			2,742,441
TOTAL LIABILITIES		9,027,901			4,463,185
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY
Preferred stock
50,000,000 shares preferred stock authorized, none issued and outstanding		-			-
Common stock
1,500,000,000 shares common stock authorized, $0.001 par value, 998,449,769 and 821,790,670 shares of common stock issued and outstanding at December 31, 2018 and December 31, 2017		998,449			821,790
Additional paid-in capital		22,893,788			19,445,373
Accumulated deficit		(15,987,504	)		(12,876,760	)
Total stockholders’ equity		7,904,733			7,390,403
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	16,932,634		$	11,853,588

The accompanying notes are an integral part of these consolidated financial statements.

F-3

Texas South Energy, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

	Twelve months ended
	December 31, 2018			December 31, 2017
REVENUE	$	--		$	--
EXPENSES
Depreciation expense		8,082			6,936
Impairment expense		452,018			156,082
Accretion expense		414			--
Workover expense		27,625			--
General and administrative expense		2,482,209			3,513,294
TOTAL EXPENSES		2,970,348			3,676,312
LOSS FROM OPERATIONS		(2,970,348	)		(3,676,312	)
OTHER INCOME / (EXPENSE)
Other income		11,818			44,122
Interest expense, net		(152,214	)		(210,277	)
TOTAL OTHER INCOME / (EXPENSE)		(140,396	)		(166,155	)
NET LOSS	$	(3,110,744	)	$	(3,842,467	)
NET LOSS PER COMMON SHARE
Basic and diluted	$	(0.00	)	$	(0.00	)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Basic and diluted		927,954,828			786,768,478

The accompanying notes are an integral part of these consolidated financial statements.

F-4

Texas South Energy, Inc.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

	Common Stock				Additional Paid-in		Accumulated
	Number of Shares		Amount		Capital		Deficit			Total
Balance, December 31, 2016		553,490,670	$	553,490	$	16,869,038	$	(9,034.293	)	$	8,388,235
Stock issued for cash		33,250,000		33,250		631,750		-			665,000
Stock issued for services		112,550,000		112,550		772,085		-			884,635
Stock issued for Sydson acquisition		100,000,000		100,000		745,000		-			845,000
Stock issued to extinguish other debt		22,500,000		22,500		427,500		-			450,000
Net loss for the year ended December 31, 2017		-		-		-		(3,842,467	)		(3,842,467	)
Balance, December 31, 2017		821,790,670		821,790		19,445,373		(12,876,760	)		7,390,403
Stock issued for cash		66,683,350		66,683		1,100,316		-			1,166,999
Stock issued for services		26,177,602		26,178		464,944		-			491,122
Stock issued for settlements		20,600,000		20,600		391,400		-			412,000
Stock issued to extinguish other debt		63,198,147		63,198		1,491,755		-			1,554,953
Net loss for the year ended December 31, 2018		-		-		-		(3,110,744	)		(3,110,744	)
Balance, December 31, 2018		998,449,769	$	998,449	$	22,893,788	$	(15,987,504	)	$	7,904,733

The accompanying notes are an integral part of these consolidated financial statements.

F-5

Texas South Energy, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year ended December 31,
	2018			2017
Net loss	$	(3,110,744	)	$	(3,842,467	)
Adjustments to reconcile net loss to net cash used in operating activities
Impairment expense		452,018			156,082
Accretion		414			-
Depreciation		8,082			6,936
Gain on disposal of debt		(9,828	)		(42,324	)
Stock compensation		86,121			884,635
Changes in operating assets and liabilities:
Change in accounts receivable		(1,259,050	)		(3,261	)
Change in accounts receivable – related party		(5,502	)		-
Change in prepaid expenses		(3,745	)		45,988
Change in accounts payable and accrued expenses		4,537,271			118,474
Change in accounts payable and accrued expenses – related party		338,819			1,547,955
Change in accrued liabilities, long term		904,271			-
Change in accrued interest		30,176			-
NET CASH (USED) PROVIDED IN OPERATING ACTIVITIES		1,968,303			(1,127,982	)
Proceeds from participation agreements		810,000			-
Proceeds from reimbursement of operating costs		80,000			(4,156	)
Acquisition of equipment and oil and gas properties		(2,803,772	)		(754,116	)
NET CASH USED IN INVESTING ACTIVITIES		(1,913,772	)		(758,272	)
Proceeds from issuance of notes payable		21,081			70,777
Repayment of notes payable		(48,928	)		(11,157	)
Proceeds from issuance of notes payable – related party		-			837,000
Advances from joint interest owners		5,062,059			-
Advances applied against joint interest bills		(4,754,431	)		-
Proceeds from sale of common stock (issued)		1,166,999			665,000
NET CASH PROVIDED BY FINANCING ACTIVITIES		1,446,780			1,561,620
NET INCREASE/(DECREASE) IN CASH		1,501,311			(324,634	)
CASH, BEGINNING OF PERIOD		455			325,089
CASH, END OF PERIOD	$	1,501,766		$	455
Cash paid for:
Interest	$	-		$	-
Income taxes	$	-		$	-
Non-cash activity:
Convert note payable and accrued interest into common stock	$	1,554,953		$	450,000
Issuance of common stock and note payable for assets	$	-		$	1,095,000
Issuance of common stock for assets	$	405,000			-
Issuance of common stock for settlements	$	412,000			-
Assignment of note receivable for note payable	$	-		$	131,645

The accompanying notes are an integral part of these consolidated financial statements.

F-6

Texas South Energy, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2018

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 is engaged in the oil and gas business, generating or acquiring oil and gas projects, drilling and operating the wells and producing the oil and gas reserves.

On January 11, 2017, pursuant to the laws of the State of Texas, the Company formed Texas South Operating Company, Inc. as a wholly owned subsidiary of the Company. Texas South Energy, Inc. and Texas South Operating Company, Inc. (collectively, the “Company”) now file consolidated financial statements effective with the March 31, 2017 filing. The consolidated financial statements reflect our accounts after elimination of all significant intercompany transactions and balances. 

While the Company had previously established a fiscal year end of October 31, on March 3, 2017 the Company adopted a year end of December 31. A transition 10-K was filed for the period November 2016 through December 2016 to report the change in our year end.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation and Basis of Presentation

The accompanying audited consolidated financial statements have been prepared in all material respects in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for financial information. Intercompany accounts and transactions are eliminated. The accompanying audited consolidated financial statements have been prepared on the same basis as the audited financial statements for the transition report ended December 31, 2017.

There have been no changes in the Company’s significant accounting policies from those that were disclosed in the Company’s 2017 Annual Report. 

Cash and Cash Equivalents

The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents.

Use of Estimates and Assumptions

The preparation of consolidated 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.

Fair Value

In accordance with the requirements of ASC 825 and ASC 820, the Company has determined the estimated fair value of financial instruments using available market information and appropriate valuation methodologies. The fair value of financial instruments classified as current assets or liabilities approximate their carrying value due to the short-term maturity of the instruments.

Income Taxes

The Company has adopted ASC 740 for reporting purposes. As of December 31, 2018, the Company had net operating loss carryforwards of approximately $12,800,000 that may be available to reduce future years’ taxable income and will begin to expire in 2028. Availability of loss usage is subject to change of ownership limitations under Internal Revenue Code 382. Future tax benefits which may arise as a result of these losses have not been recognized in these financial statements, as their realization is determined not likely to occur and accordingly, the Company has recorded a valuation allowance for the future tax loss carryforwards. The Company believes that its income tax filing positions and deductions will more-likely-than-not be sustained on audit and does not anticipate any adjustments that will result in a material adverse effect on the Company’s financial condition, results of operations or cash flows. Therefore, no reserves for uncertain income tax positions have been recorded. The Company is subject to income tax examinations by the U.S federal, state, or local tax authorities for years since inception to date.

F-7

Stock-based Compensation

At the September 6, 2018 annual meeting, the stockholders approved the adoption of the Texas South Energy, Inc. 2018 Omnibus Incentive Plan (the “2018 Plan”), effective July 28, 2018. The 2018 Plan authorizes the issuance of 100,000,000 shares of common stock prior to its expiration on July 28, 2028. Incentives under the 2018 Plan may be granted to employees, directors, and consultants of the Company in any one or a combination of the following forms: incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards or performance stock awards which are valued in whole or in part by reference to, or otherwise based on, our common stock, including its appreciation in value. As of April 1, 2019, no awards were granted. Common stock has been granted to employees and third parties for services rendered (see Note 5 – Common Stock).

In December 2004, the Financial Accounting Standards Board (“FASB”) issued ASC 718 “Compensation - Stock Compensation” and 505-50 “Equity-Based Payments to Non-Employees.” This statement requires a public entity to expense the cost of services received in exchange for an award of equity instruments. This statement also provides guidance on valuing and expensing these awards, as well as disclosure requirements of these equity arrangements. The Company adopted ASC 718 and 505-50 upon creation of the Company and expenses share based costs in the period incurred.

Accounting for Oil and Gas Properties

The Company utilizes the full cost method to account for its investment in oil and gas properties. Accordingly, all costs associated with acquisition, exploration and development of oil and gas reserves, including such costs as leasehold acquisition costs, professional fees incurred for the lease acquisitions, capitalized interest costs relating to properties, geological expenditures, and tangible and intangible development costs (including direct internal costs), are capitalized into the full cost pool. When the Company commences production from established proven oil and gas reserves, capitalized costs, including estimated future costs to develop the reserves and estimated abandonment costs, will be depleted on the units-of-production method using estimates of proven reserves. Investments in unproved properties and major development projects, including capitalized interest if any, are not depleted until proven reserves associated with the projects can be determined. If the future exploration of unproven properties is determined to be uneconomical, the amount of such properties is added to the capital costs to be depleted. As of December 31, 2018, the Company’s oil and gas properties consisted of capitalized acquisition costs for unproved mineral rights and tangible and intangible drilling and completion costs.

Investment Securities

Not applicable.

Asset Retirement Obligations

We record liabilities (asset retirement obligations “ARO”) for the future costs of plugging, dismantlement and abandonment of our wells. There is also an associated increase in the carrying amount of the tangible assets for which the liabilities were recorded.  The fair values of new asset retirement obligations are estimated using expected future costs discounted to present value.  The cost of the tangible asset, including the asset retirement cost, is depleted over the useful life of the asset.  Accretion expense is recorded as the discounted liability is accreted to its expected settlement value.  Asset retirement obligations are revised primarily for changes to the estimated date of the retirement and the estimated cost of the retirement.

Recent Accounting Pronouncements

In May 2014, the FASB issued its final standard on revenue from contracts with customers. The standard, issued as ASU No. 2014-09: Revenue from Contracts with Customers (Topic 606) by the FASB, 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. 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 September 2015, FASB issued an accounting standards update for “Business Combinations”, which requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. We adopted this new guidance prospectively in the first quarter of 2016.

Other new pronouncements issued but not effective until after December 31, 2018 are not expected to have a material impact on the Company’s financial position, results of operations, or cash flows.

F-8

NOTE 3 – GOING CONCERN

The Company’s consolidated 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 operation costs and allow it to continue as a going concern. The Company has accumulated losses as of December 31, 2018, of $15,987,504. 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 consolidated 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 – PROPERTY & EQUIPMENT

Oil and Gas Properties  

The Company’s capitalized oil and gas properties comprised the following:

	December 31, 2018		December 31, 2017
Unproved leasehold costs	$	12,659,884	$	11,779,201
Uncompleted wells, equipment and facilities		1,434,554		-
Total costs	$	14,094,438	$	11,779,201

The majority of the assets are undeveloped offshore leases in the Gulf of Mexico. Included are onshore properties which were acquired during the Sydson acquisition. Both are currently being developed. At December 31, 2018, the properties were evaluated for impairment and the Company recorded $452,018 to impairment expense for the Canoe Prospect.

Participation Agreement

On January 8, 2018, the Company entered into a participation agreement dated effective January 1, 2018 (the “Agreement”) with Delek GOM Investments, LLC, a subsidiary of Delek Group Ltd. (“Delek”), and GulfSlope (collectively, the “Parties”) for the partial farm-out of the Company’s interests in its Gulf of Mexico oil and gas leases (the “Farm-out”). The Agreement sets out the terms and conditions of the Parties participation in the drilling of up to a nine well multi-phase exploration program targeting the Company’s prospects (the “Prospects”) located on the Company’s existing leases (the “Leases”).

Under the terms of the Agreement, the Parties have committed to initially drill two of the Company’s prospects in Phase I (the “Initial Phase”) with Delek having the option to participate in two additional two-well drilling phases and a final, three-well drilling phase (collectively, the “Phases”). In each Phase, Delek will earn a 75% working interest upon paying 90% of the exploratory costs associated with drilling each exploratory well. The Company will thus retain a 5% working interest while paying 2% of the exploratory costs associated with drilling each well. Also, each Party will be responsible for its pro rata share (based on working interest) of delay rentals associated with the Prospects. GulfSlope will be the Operator during exploratory drilling of a Prospect, however, subsequent to a commercial discovery, Delek will have the right to become the Operator. Delek will have the right to terminate this Agreement at the conclusion of any drilling Phase. Delek will also have the option to purchase up to 5% of the Company’s common stock upon fulfilling its obligation for each Phase (maximum of 20% in the aggregate) at a price per share equal to a 10% discount to the 30-day weighted average closing price for the Company’s common stock preceding the acquisition. This option will expire on January 8, 2020. The Company has not recorded any cost associated with the option due to the future performance obligation of Delek. If Delek meets the obligation and exercises its option the Company will record the option value at that time as an increase to Oil and Gas Properties. The likelihood of Delek exercising its options to purchase shares of the Company’s common stock will be dependent on the drilling results from Phase 1 and the Company’s operating results which will affect the price of the Company’s common stock. We currently do not anticipate Delek fully exercising this option before the expiration date. At December 31, 2018, the potential value of issuing 20% of our outstanding stock is approximately $5,800,000. The foregoing description of the Agreement does not purport to be a complete description of the terms, provisions and conditions of such document, and represents only a summary of certain of the principal terms, provisions and conditions thereof.

The Company will assign a two-tenths of one percent of 8/8ths net profits interest in certain of the Company’s oil and gas leases in the two Phase I prospects to Hi-View Investment Partners, LLC (“Hi-View”) in consideration for consulting services provided pursuant to a non-exclusive consulting engagement dated October 25, 2017, by and between Hi-View, the Company, and GulfSlope (the “Advisory Agreement”). Hi-View will be entitled to additional assignments on the same terms and conditions as described above related to any of Leases in which Delek elects to participate in the drilling of an exploratory well. In addition, the Company issued an aggregate of twenty million shares of its common stock to Hi-View in consideration for those consulting services provided pursuant to the Advisory Agreement.

F-9

Acquisition

In January 2017, the Company entered into an asset purchase agreement with Sydson, where Sydson assigned to us certain onshore oil and gas assets and interests and certain tangible assets and additionally, certain employees and a consultant of Sydson have agreed to become employees and a consultant of the Company. Sydson is a private oil and gas company with land operations in Texas and Louisiana that has been in business since 1982. 

In connection with the asset acquisition, the Company acquired a variety of proprietary seismic data, computer equipment, furniture and fixtures and other office equipment.

The consideration payable by the Company to Sydson and affiliates was (i) 100 million shares of Company common stock to Michael J. Mayell valued at $845,000 and (ii) $250,000 through a promissory note originally due March 5, 2017, was extended to January 1, 2019, and recently extended to January 1, 2020.

In conjunction with the acquisition, the Company agreed to pay $1,250,000 of Sydson’s future development costs attributable to its retained working interests in the oil and gas prospects conveyed to the Company and carried interests to casing point for Sydson’s working interests on the first well in each of the West Tuleta prospect, Ray Field prospect and the Wilinda prospect.

The purchase price of this asset acquisition is summarized below:

Furniture & Fixtures, Software, Equipment	$	35,556
Deposit – office rent		8,340
Prepaid expenses		27,616
Note Payable – insurance		(6,822	)
Leasehold rights		1,030,310
Total purchase price	$	1,095,000

Other Property

The Company has $43,195 of furniture and fixtures, software and equipment. The majority of the assets were acquired during the Sydson acquisition in January 2017. The accumulated depreciation as of December 31, 2018 is $15,018. Depreciation is being recorded using the straight line method of depreciation.

NOTE 5 – COMMON STOCK

The Company has 1,500,000,000 shares of common stock authorized with a par value of $0.001. As of December 31, 2018 the Company has 998,449,769 shares of common stock issued and outstanding. During the year ended December 31, 2018, the Company sold 66,683,350 shares of stock at a price of $.02 per share for a total of $1,166,999. During the year ended December 31, 2018 the Company also issued 20,000,000 shares in exchange for lease brokerage fees valued at $400,000, issued 250,000 shares in exchange for consulting fees totaling $5,000, issued 63,198,147 shares in exchange for the conversion of $1,554,953 of debt and accrued interest, issued 20,600,000 shares in exchange for settlements valued at $412,000 and issued 5,927,602 shares to three employees and a consultant for services rendered for $86,121.

As of December 31, 2018, the Company has not granted any stock options.

F-10

NOTE 6 – RELATED PARTY TRANSACTIONS

As of December 31, 2018, Sydson owes the Company $4,302 which is reported on the balance sheet as “Accounts receivable - related party”.

Mr. Askew, our former chief executive officer and director for over three years, is currently a consultant to the Company. He resigned effective January 3, 2017 and signed a consulting agreement and was issued 27 million shares which is discussed in more detail in footnote 12 “Commitments and Contingencies”. As of December 31, 2018, the Company has accrued twenty-three months of Mr. Askew’s consulting agreement totaling $805,000. This accrual is reported on the balance sheet as “Accrued expenses – related party”.

The Company had received unsecured advances prior to 2014 from a former director in the amount of $52,152. The amount of $42,324 due to the related party was written off during the quarter ended March 31, 2017 and recorded as “Other Income” as a result of the expiration of the applicable statute of limitations. The remaining balance of $9,828 was written off during the quarter ended March 31, 2018.

Mr. Mayell, our current chief executive officer and director effective January 4, 2017, is President of Sydson Energy, Inc. and Managing Partner of the General Partner of Sydson Resources, LP (“Sydson”). During the year ended December 31, 2017, Sydson and Mr. Mayell paid invoices on behalf of the Company and advanced loans to the Company. On August 11, 2017 the Company signed a note payable agreement with Sydson for $70,000 which represents a portion of the balance owed to Sydson, with the remainder reported as “Accounts Payable – related party” on the balance sheet. Also on August 11, 2017 the Company signed a note payable agreement with Mr. Mayell for $47,000 which represents some of the advances Mr. Mayell made to the Company. The note payable balances as of December 31, 2018 are $70,000 to Sydson and $47,000 to Mr. Mayell and are reported on the balance sheet under current liabilities as “Convertible notes payable – related party”. The accrued interest on these notes is $16,260 as of December 31, 2018, $9,728 payable to Sydson and $6,532 payable to Mr. Mayell. During March 2019 the Company paid Sydson $46,333 on the $70,000 note payable balance and $1,167 of accrued interest.

As discussed in Note 8, the Company owes Sydson $250,000 plus accrued interest totaling $55,098 on a note related to the acquisition of Sydson assets. During January 2019 the interest accrued as of December 31, 2018 was paid and the terms were extended to January 1, 2020.

Also discussed in Note 8, Mr. Mayell and JTB Energy LLC, a company managed by Mr. Mayell, have each loaned the Company $250,000. During 2018 $28,000 was paid to Mr. Mayell on his notes payable leaving a balance of $222,000. Interest expense has been accrued as of December 31, 2018 for $39,044 to Mr. Mayell and $40,556 to JTB Energy LLC. JTB Energy LLC is a related party of Mr. Mayell.

Also discussed in Note 8, Mr. Mayell loaned the Company a total of $220,000 during October 2017. The accrued interest on these notes payable total $27,021 as of December 31, 2018.

Listed below is a table summarizing the amounts owed to Mr. Mayell and his related parties.

Name of Related Party	Original Amount		Amount repaid			Balance owed 12/31/18		Accrued Interest		Total owed		Interest rate			Convertible into Shares of Stock
Mr. Michael Mayell		686,630		(197,630	)		489,000		72,597		561,597		10	%		Yes
Sydson Energy, Inc.		360,115		(295,617	)		64,498		9,728		74,226		10	%		Partial
Sydson Resources, LP		382,500		(131,300	)		251,200		55,098		306,298		10	%		Yes
JTB Energy, LLC		250,000		0			250,000		40,556		290,556		10	%		Yes
Total	$	1,679,245	($	624,547	)	$	1,054,698	$	177,979	$	1,232,677

During December 2017, the Company received a loan of $50,000 from a shareholder. The note and interest was due January 1, 2019 with an interest rate of 10% per annum, however the note was extended to January 1, 2020. During the outstanding period, the note is convertible at the option of the investor up to the outstanding principal and unpaid interest into common shares at $0.02 per share. The note is reported as “Convertible Notes Payable – related party” under long term liabilities on the balance sheet.

F-11

NOTE 7 – NOTES PAYABLE

The Company had received unsecured advances prior to 2014 from a former director in the amount of $52,152. The amount of $42,324 due to the related party was written off during the quarter ended March 31, 2017 and recorded as “Other Income” as a result of the expiration of the applicable statute of limitations. The remaining balance of $9,828 was written off during the quarter ended March 31, 2018.

In connection with the Sydson asset acquisition, part of the consideration was an unsecured $250,000 note payable to Sydson due March 1, 2017. This note payable is now a convertible note and is disclosed in Note 8 – Convertible Notes Payable. 

The company financed the current year insurance premiums and that note has a balance of $9,773 as of December 31, 2018. This note is reported as “Notes payable” under current liabilities on the balance sheet.

NOTE 8 – CONVERTIBLE NOTES PAYABLE

Effective March 23, 2017 the Company extended an unsecured promissory note with an accredited investor in the amount of $1,700,000 to a payment date of January 1, 2019. The note was reduced by the assignment of a $131,645 note receivable from EnerGulf Resources to the investor. On September 18, 2017 the Company converted $450,000 of the principal amount of the note into 22,500,000 shares of the Company’s common stock at a conversion price of $0.02 per share. As of December 31, 2017 the outstanding principal balance was $1,118,355 and was reported as “Convertible Notes Payable” under long term liabilities on the balance sheet. During the quarter ending March 31, 2018, the Company converted an additional $400,000 of the principal balance into 15,000,000 shares of the Company’s common stock. The transaction was broken down as follows, the principal balance of $200,000 was converted at a conversion price of $0.02 and the principal balance of $200,000 was converted at a conversion price of $0.04. During the second quarter of 2018 another $200,000 of the principal balance was converted into 10,000,000 share of common stock at a conversion price of $0.02. The amended note agreement now states that the note is convertible into common shares at an average calculated price not to be below $0.02 or to exceed $0.04 per share. The conversion is at the option of the investor up to the balance of the outstanding principal and accrued interest.  Effective July 20, 2018, the remaining principal balance of $518,355 plus the accrued interest of $436,599 was converted into 38,198,147 shares of the Company’s common stock at a conversion rate of $0.025 per share.

In connection with the Sydson asset acquisition, part of the consideration was an unsecured $250,000 note payable to Sydson due March 1, 2017. The note was amended effective March 23, 2017 to extend the due date to January 1, 2019 and to charge a fixed rate of 10% interest on the note. During January 2019, the due date was extended to January 1, 2020 and the note was amended to allow for the conversion of the note into shares of common stock. During the outstanding period, the note is convertible at the option of the Sydson up to the outstanding principal and unpaid interest into common shares at $0.02 per share. The balance of $250,000 is included in “Convertible Notes payable-related party” in the long term section of the balance sheet.

During April 2017, the Company received a loan of $125,000 from Mr. Mayell and a loan of $125,000 from JTB Energy, LLC. Both loans are secured by a 5% interest in the $10,000,000 offshore leases, payable upon demand with interest rates of 10% per annum. During the outstanding period, the notes are convertible at the option of the investor up to the outstanding principal and accrued interest into common shares at $0.02 per share. These loans are both considered related party transactions. The notes are reported as “Convertible notes payable – related party” under current liabilities. During June 2018 the Company paid $18,000 and during July 2018 the Company paid an additional $10,000 on this note payable leaving a balance of $97,000 as of December 31, 2018.

During June 2017, the Company received an additional loan of $125,000 from Mr. Mayell and an additional loan of $125,000 from JTB Energy, LLC. Both loans are secured by a 5% interest in the $10,000,000 offshore leases, all payable upon demand with interest rates of 10% per annum. During the outstanding period, the notes are convertible at the option of the investor up to the outstanding principal and accrued interest into common shares at $0.02 per share. These loans are both considered related party transactions. The notes are reported as “Convertible notes payable – related party” under current liabilities.

During August 2017, the Company converted a portion of the accounts payable balances owed to Sydson and Mr. Mayell to note payable agreements, charging interest at 10% per annum. Both Sydson and Mr. Mayell had advanced money to the Company and paid invoices on behalf of the Company, which had previously been reported as “Accounts payable – related party”. The Company converted $70,000 into a note payable to Sydson and $47,000 into a note payable to Mr. Mayell. The notes are reported as “Convertible notes payable – related party” under current liabilities. The notes are convertible up to the outstanding principal and accrued interest into common shares at $0.02 per share. During March 2019 the Company paid Sydson $46,333 on the $70,000 note payable balance and $1,167 of accrued interest.

During October 2017, the Company received loans of $170,000 and $50,000 from Mr. Mayell. Both loans are secured by a 5% interest in the $10,000,000 offshore leases, payable upon demand with interest rates of 10% per annum. During the outstanding period, the notes are convertible at the option of the investor up to the outstanding principal and accrued interest into common shares at $0.02 per share. These loans are both considered related party transactions and are reported as “Convertible notes payable – related party under current liabilities.

During December 2017, the Company received a loan of $50,000 from a shareholder. The note and interest was due January 1, 2019 with an interest rate of 10% per annum, however during January 2019, the terms were extended to January 1, 2020. During the outstanding period, the note is convertible at the option of the investor up to the outstanding principal and unpaid interest into common shares at $0.02 per share. The note is reported as “Convertible Notes Payable – related party” under long term liabilities on the balance sheet.

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NOTE 9 – NOTES RECEIVABLE

In October 2016, the Company loaned the principal amount of $47,138 to a third party under an interest free, demand promissory note agreement for the purpose of travel expenses and rentals. Subsequent to October 2016, the note was further increased to $68,498 as of December 31, 2016. During March 2017, the note was further increased to $131,645 and then assigned to an investor as a reduction in the note payable balance leaving a notes receivable balance of zero as of December 31, 2018. See note 8 for further information.

NOTE 10 – INCOME TAXES

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

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

	December 31, 2018			December 31, 2017
Federal income tax benefit at the statutory rate:
Federal income tax at statutory rate of 21%	$	(540,000	)	$	(693,000	)
Effect of rate change		—			715,000
Change in valuation allowance		540,000			(22,000	)
Net benefit	$	—		$	—

The significant items comprising our net deferred tax amount is as follows:

	December 31, 2018			December 31, 2017
Deferred tax attributed:
Net operating loss carryover	$	2,700,000		$	3,300,000
Effect of rate change		—			(2,607,000	)
Less: valuation allowance		(2,700,000	)		(693,000	)
Net deferred tax asset	$	—		$	—

At December 31, 2018, the Company had an unused net operating loss carryforward approximating $12,800,000 that is available to offset future taxable income; the loss carryforward will start to expire in 2028. The Company’s tax returns are open to audit under the statute of limitations for the years ending 2016 through 2018 for federal tax purposes.

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NOTE 11 – FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company adopted the FASB standard related to fair value measurement at inception. The standard defines fair value, establishes a framework for measuring fair value and expands disclosure of fair value measurements. The standard applies under other accounting pronouncements that require or permit fair value measurements and, accordingly, does not require any new fair value measurements. The standard clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The recorded values of long-term debt approximate their fair values, as interest approximates market rates. As a basis for considering such assumptions, the standard established a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows.

Level 1. Observable inputs such as quoted prices in active markets;

Level 2. Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

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

NOTE 12 – COMMITMENTS AND CONTINGENCIES

See Note 6 for a discussion of Mr. Askew’s employment agreement and the Company’s financial obligations with respect thereto. Mr. Askew resigned as an executive officer and director of Texas South in January 2017 and entered into a consulting agreement with the Company that began on January 5, 2017 and terminates on December 31, 2020, and such term shall be extended for an additional one-year period upon December 31 of each calendar year, provided that neither the Company nor consultant notify the other on or prior to 90 days before the applicable December 31^st that either party does not intend to extend this agreement. The Company shall pay to Mr. Askew $35,000 net per month and issued Mr. Askew 27 million shares of Company common stock. Upon termination of Mr. Askew by the Company other than for cause, Mr. Askew is entitled to receive three years of his then consulting compensation as severance. 

The Company entered into an employment agreement with John B. Connally III to serve as chairman of the board that began on January 5, 2017 and terminates on December 31, 2020. The Company issued 65.1 million common shares to Mr. Connally. Upon December 31 of each calendar year, the term shall be extended for one additional year, provided that neither the Company nor Mr. Connally notify the other on or prior to 90 days before the applicable December 31^st date that either party does not intend to extend this agreement. The Company shall pay to Mr. Connally a base salary of $420,000 per annum, issued him 65.1 million shares, and Mr. Connally shall be entitled to standard and customary benefits. Mr. Connally has agreed to standard non-disclosure provisions. Upon termination of Mr. Connally by the Company other than for cause, Mr. Connally is entitled to receive three years of his then compensation as severance. 

The Company entered into an employment agreement with Mr. Mayell on January 4, 2017 that terminates on December 31, 2020. The Company issued Mr. Mayell 100 million common shares. Upon December 31 of each calendar year, the term shall be extended for one additional year, provided that neither the Company nor Mr. Mayell notify the other on or prior to 90 days before the applicable December 31^st date that either party does not intend to extend this agreement. The Company shall pay to Mr. Mayell a base salary of $420,000 per annum and Mr. Mayell shall be entitled to standard and customary benefits. Mr. Mayell has agreed to standard non-disclosure and non-competition provisions. Upon termination of Mr. Mayell by the Company other than for cause, Mr. Mayell is entitled to receive three years of his then compensation as severance. 

Effective March 1, 2017 the above mentioned employment agreements with Mr. Connally and Mr. Mayell were amended to extend the due dates. The payments are now due at the end of the terms of the agreements, which is December 31, 2020. These liabilities are accrued in the financial statements for the year ended December 31, 2018 however they are now reported as long term on the balance sheet. 

In April 2018, the employment agreements for Mr. Mayell and Mr. Connally were amended, whereby all or a portion of the compensation owed to Mr. Mayell and Mr. Connally for the period from January 2017 through April 30, 2018 can be paid by the Company, at the option of the employee, in restricted shares of the Company’s common stock valued at $0.02 per share. In October 2018, the employment agreements for Mr. Mayell and Mr. Connally were amended, whereby all or a portion of the compensation owed to Mr. Mayell and Mr. Connally for the period from May 2018 through September 30, 2018 can be paid by the Company, at the option of the employee, in restricted shares of the Company’s common stock valued at $0.02 per share. In January 2019, the employment agreements for Mr. Mayell and Mr. Connally were amended, whereby all or a portion of the compensation owed to Mr. Mayell and Mr. Connally for the period from October 2018 through December 31, 2018 can be paid by the Company, at the option of the employee, in restricted shares of the Company’s common stock valued at $0.02 per share. As of the filing date of this report, neither has elected to convert the compensation owed into common stock. If all of the compensation owed was converted into shares of stock, Mr. Mayell would receive 42,000,000 shares and Mr. Connally would receive 41,500,000 shares.

In July 2018, the consulting agreement for Mr. Askew was amended, whereby all or a portion of the compensation owed to Mr. Askew for the period from February 2017 through April 30, 2018 can be paid by the Company, at the option of the consultant, in restricted shares of the Company’s common stock valued at $0.02 per share. The total owed to Mr. Askew for that period was $525,000. If all of the compensation owed was converted into shares of stock, Mr. Askew would receive 26,250,000 shares of common stock. Mr. Askew has not elected to convert the currently owed compensation.

Under the terms of the Agreement, the Parties have committed to initially drill two of the Company’s prospects in Phase I (the “Initial Phase”) with Delek having the option to participate in two additional two-well drilling phases and a final, three-well drilling phase (collectively, the “Phases”). In each Phase, Delek will earn a 75% working interest upon paying 90% of the exploratory costs associated with drilling each exploratory well. The Company will thus retain a 5% working interest while paying 2% of the exploratory costs associated with drilling each well. In addition, Delek will pay the Company $405,000 upon the filing of each exploration plan with BOEM and/or BSEE on a Prospect in each Phase. During March 2018 Delek made its first payment of $405,000 to the Company as the initial plan was filed. Delek made a second payment of $405,000 to the Company during May 2018. Also, each Party will be responsible for its pro rata share (based on working interest) of delay rentals associated with the Prospects. GulfSlope will be the Operator during exploratory drilling of a Prospect, however, subsequent to a commercial discovery, Delek will have the right to become the Operator. Delek will have the right to terminate this Agreement at the conclusion of any drilling Phase. Delek will also have the option to purchase up to 5% of the Company’s common stock upon fulfilling its obligation for each Phase (maximum of 20% in the aggregate) at a price per share equal to a 10% discount to the 30-day weighted average closing price for the Company’s common stock preceding the acquisition. This option will expire on January 8, 2020. The Company has not recorded any cost associated with the option due to the future performance obligation of Delek. If Delek meets the obligation and exercises its option the Company will record the option value at that time as an increase to Oil and Gas Properties. The likelihood of Delek exercising its options to purchase shares of the Company’s common stock will be dependent on the drilling results from Phase 1 and the Company’s operating results which will affect the price of the Company’s common stock. We currently do not anticipate Delek fully exercising this option before the expiration date. At December 31, 2018, the potential value of issuing 20% of our outstanding stock is approximately $5,800,000. The foregoing description of the Agreement does not purport to be a complete description of the terms, provisions and conditions of such document, and represents only a summary of certain of the principal terms, provisions and conditions thereof.

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NOTE 13 – ASSET RETIREMENT OBLIGATIONS

During the fourth quarter of 2018 the Company began recording liabilities for the estimated cost to plug, dismantle and abandon our wells. These liabilities will be adjusted annually based on changes to the estimated date to retire the assets or changes to the estimated costs to retire the assets. Accretion expense is recorded quarterly as the discounted liability is accreted to its expected settlement value.  A summary of the changes in our asset retirement obligation is included in the table below:

Asset Retirement Obligations	Year Ended December 31, 2018		Year Ended December 31, 2017
Balance, beginning of year	$	--	$	--
Liabilities recorded		39,966		--
Accretion expense		414		--
Balance, end of year		40,380		--
Less: Current portion		--		--
Long-term portion	$	40,380	$	--

NOTE 14 – SUBSEQUENT EVENTS

On January 31, 2019, the Company issued 750,000 shares to an employee for services rendered.

Effective January 1, 2019 the Company agreed to pay accrued interest totaling $5,536 on the $50,000 shareholder note payable balance. The due date was also extended to January 1, 2020.

Effective January 1, 2019 the Company extended the due date to January 1, 2020 on the note payable balance of $250,000 to Sydson Resources, LP. The terms were also amended to allow that during the outstanding period, the note is convertible at the option of Sydson Resources, LP up to the outstanding principal and unpaid interest into common shares at $0.02 per share. During January 2019 interest totaling $55,098 was paid for accrued interest through December 31, 2018.

During January and February 2019, the Company paid Mr. Mayell interest totaling $72,598 on his note payable balances and paid Sydson Energy, Inc. interest totaling $9,728 on its $70,000 note payable balance. These totals represent the total accrued interest through December 31, 2018.

Effective March 4, 2019 an employee / shareholder of the Company loaned the Company $80,000, payable on demand with an interest rate of 10%. The terms allow the principal and unpaid interest to be convertible at the option of the employee / shareholder into common shares at $0.02 per share.

During March 2019 the Company paid Sydson $46,333 on the $70,000 note payable balance and $1,167 of accrued interest.

As of March 15, 2019, the Company has been declared to be in default under the terms of its joint operating agreement with GulfSlope Energy, Inc. regarding the payment of $1,299,229 due as of February 12, 2019 with respect to drilling the Tau Prospect in the Gulf of Mexico Outer Continental Shelf. GulfSlope, the Operator of the Tau Prospect, asserts that additional billings by GulfSlope to the Company during the past 30 days have increased the total amount due to $1,915,304 as of March 15, 2019. Drilling of the Tau Prospect continues which will result in further amounts owed by the Company to GulfSlope. The operating agreement grants a lien and security interest on the Company’s interest in the leases comprising the Tau Prospect, and grants to the operator the right to pursue foreclosure of the lien and security interest. The Company is using its best efforts to raise capital to fund its obligations under the operating agreement with GulfSlope regarding the drilling of the Tau Prospect. If the Company fails to raise needed capital and foreclosure is pursued and is successful, this could result in a loss of all of the Company’s rights in the Tau Prospect.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. 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 Annual Report. 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.

Management’s Report on Internal Control over Financial Reporting 

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 consolidated 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.

Changes in Internal Control over Financial Reporting

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

ITEM 9B. OTHER INFORMATION

None.

21

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

Identification of Directors and Executive Officers

Our executive officer and directors as of April 1, 2019, and their respective ages, position and biographical information are set forth below.

Name	Age		Title
Michael J. Mayell		71	Chief Executive Officer, Chief Financial Officer and Director
John B. Connally, III		72	Chairman of the Board

Mr. Mayell has served as our chief executive officer and director since January 2017 and he has over 46 years of experience in the oil and gas business. Mr. Mayell founded Sydson in 1982 and has served as an officer and director of Sydson since 1987. In 1985, Mr. Mayell co-founded The Meridian Resource Corporation (NYSE) and served as the president and chief operating officer of Meridian for over 20 years. Mr. Mayell began his career with Shell Oil Company in New Orleans, La. in the drilling and production engineering groups responsible for drilling and producing fields both onshore and offshore South Louisiana. Mr. Mayell received his Bachelor of Science degree in mechanical engineering from Clarkson University.

Mr. Connally presently serves as chairman of the Texas Lt. Governor’s Energy Advisory Board. Mr. Connally was a founding shareholder of Texas South and GulfSlope Energy, Inc., and a founding director of Nuevo Energy, Inc, Endeavor International Corp, Pure Energy Group (where he also served as chief executive officer), and Pure Gas Partners. Mr. Connally was a law partner with Baker Botts, and received both his Bachelor of Arts and JD from the University of Texas. Mr. Connally has been involved in private business endeavors for over the last five years.

Key Employees and Consultants

Key employees and consultants as of April 1, 2019 are:

Mr. Gunderson, Land Manager, has held land positions with public and independent producers including Chevron, Murphy, Cities, Ladd and Meridian Resources. Mr. Gunderson has been with Sydson since 2009. Mr. Gunderson received a BBA degree in petroleum land management from the University of Oklahoma

Mrs. Alexander, Controller, began her career in accounting with Arthur Andersen before moving into corporate accounting in 1985. She later opened her consulting practice focusing on the healthcare and oil and gas industries and has been Sydson’s lead accountant since 2010. Mrs. Alexander received her Bachelor in Accountancy degree from the University of Mississippi in 1980.

Mr. Goldstein, Geologist, has served as a consultant to Sydson for over 10 years and has over 40 years of experience in Gulf Coast geology interpretation. Mr. Goldstein has served as a geologist with Amerada Hess, Houston Oil and Minerals and Meridian Resources. Mr. Goldstein received his Bachelor of Arts – Geology degree from Rutgers University and received his Master’s degree in Geology from Florida State University.

Mr. Askew, our former chief executive officer and director for over three years, is currently a consultant to the Company.

Board Committees and Meetings

The Company does not maintain an audit committee, compensation committee or nominating committee, and the Board performs the functions of such committees. The Board has determined that it is not necessary to have a standing nominating committee or procedures for submitting shareholder nominations. Furthermore, we have not designated any member of the Board of Directors as an audit committee financial expert because we are not required to do so at this time.

The Company has no formal policy with regard to Board members’ attendance at annual meetings of security holders. The Company held an annual meeting on September 6, 2018. The Board of Directors did not hold any meetings during the year and acted by written consent.

Independent Directors

We currently do not have any directors who are considered “independent” as such term is defined in the NASDAQ Global Market listing standards. We believe that retaining an independent director or directors at this time would be overly costly and burdensome and is not warranted in our circumstances given the stage of our development. Moving forward, at such time the Board of Directors deems independent directors desirable, or that we are required to have independent directors, either as a result of our listing on NASDAQ, the NYSE or a similar market or exchange, or that we are otherwise required by applicable law to have independent director, we will promptly take steps to appoint such independent directors.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our directors, executive officers and beneficial owners of more than 10% of our common stock to file with the SEC reports of their holdings of, and transactions in, our common stock. Based solely upon our review of copies of such reports and written representations from reporting persons that were provided to us, we believe that our officers, directors and 10% stockholders complied with these reporting requirements with respect to the twelve months ended December 31, 2018, except for Mr. Connally who has not filed a Form 4 to reflect (i) the gift of 15,000,000 shares in June 2018, the gift of 6,850,000 shares in November 2018; and the gift of 9,200,000 shares in December 2018 and (ii) the grant by the Company, approved by the board of directors, in May 2018 of the right to convert past accrued compensation from January 4, 2017 through April 30, 2018 into 27,500,000 shares, the grant by the Company, approved by the board of directors, in October 2018 of the right to convert past accrued compensation from May 1, 2018 through September 30, 2018 into 8,750,000 shares, the grant by the Company, approved by the board of directors, in January 2019 of the right to convert past accrued compensation from October 1, 2018 through December 31, 2018 into 5,250,000 shares. Mr. Connally has not sold any shares of the Company stock during the past twelve months.

22

Code of Ethics

We have adopted a written code of ethics and whistleblower policy (the “Code of Ethics”) that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. We believe that the Code of Ethics is reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of code violations; and provide accountability for adherence to the code.

Involvement in Certain Legal Proceedings

There are currently no material pending legal proceedings to which the Company is a party or of which any of its property is the subject, in which any of the above referenced directors or officers is a party adverse to the Company or has a material interest adverse to the Company. Furthermore, during the past ten years, none of the Company’s officers or directors described above were involved in any legal proceedings that are material to an evaluation of the ability or integrity of such directors and officers.

ITEM 11. EXECUTIVE COMPENSATION

Compensation to Officers of the Company

The following table contains compensation data for our named executive officers as of the years ended December 31, 2018 and 2017:

Summary Compensation Table

Name and Principal Position	Year		Salary		Bonus	Stock Awards	Stock Option Awards	All Other Compensation	Total
Michael J. Mayell, CEO *		2018	$	420,000	$	$	$	$	$	420,000
John B. Connally III, Chairman of the Board *		2018	$	420,000	$	$	$	$	$	420,000
Michael J. Mayell, CEO*		2017	$	420,000	$	$	$	$	$	420,000
John B. Connally III, Chairman of the Board*		2017	$	420,000	$	$	$	$	$	420,000

* Mr. Mayell’s and Mr. Connally’s salaries for 2018 and 2017 have not been paid, but were accrued.

Employment and Consulting Arrangements

The Company entered into an employment agreement with Mr. Mayell that terminates on December 31, 2020. Upon December 31 of each calendar year, the term shall be extended for one additional year, provided that neither the Company nor Mr. Mayell notify the other on or prior to 90 days before the applicable December 31^st date that either party does not intend to extend this agreement. The Company shall pay to Mr. Mayell a base salary of $420,000 per annum and Mr. Mayell shall be entitled to standard and customary benefits. Mr. Mayell has agreed to standard non-disclosure and non-competition provisions. Upon termination of Mr. Mayell by the Company other than for cause, Mr. Mayell is entitled to receive three years of his then compensation as severance. In March 2017, the due dates of the compensation payments were extended to the end of the term. During 2018 the employment agreement for Mr. Mayell was amended, whereby all or a portion of the compensation owed to Mr. Mayell for the period from January 2017 through December 31, 2018 can be paid by the Company, at the option of the employee, in restricted shares of the Company’s common stock valued at $0.02 per share. As of the filing date of this report, Mr. Mayell has not elected to convert any of the compensation owed into common stock. If all of the compensation owed was converted into shares of stock, Mr. Mayell would receive 42,000,000 shares.

The Company entered into an employment agreement with John B. Connally III to serve as chairman of the board that terminates on December 31, 2020. Upon December 31 of each calendar year, the term shall be extended for one additional year, provided that neither the Company nor Mr. Connally notify the other on or prior to 90 days before the applicable December 31^st date that either party does not intend to extend this agreement. The Company shall pay to Mr. Connally a base salary of $420,000 per annum, issued him 65.1 million shares, and Mr. Connally shall be entitled to standard and customary benefits. Mr. Connally has agreed to standard non-disclosure provisions. Upon termination of Mr. Connally by the Company other than for cause, Mr. Connally is entitled to receive three years of his then compensation as severance. In March 2017, the due dates of the compensation payments were extended to the end of the term. During 2018 the employment agreement for Mr. Connally was amended, whereby all or a portion of the compensation owed to Mr. Connally for the period from January 2017 through December 31, 2018 can be paid by the Company, at the option of the employee, in restricted shares of the Company’s common stock valued at $0.02 per share. As of the filing date of this report, Mr. Connally has not elected to convert any of the compensation owed into common stock. If all of the compensation owed was converted into shares of stock, Mr. Connally would receive 41,500,000 shares.

Mr. Askew resigned as an executive officer and director of Texas South in January 2017 and entered into a consulting agreement with the Company that terminates on December 31, 2020, and such term shall be extended for an additional one-year period upon December 31 of each calendar year, provided that neither the Company nor consultant notify the other on or prior to 90 days before the applicable December 31^st that either party does not intend to extend this agreement. The Company shall pay to Mr. Askew $35,000 net per month and issued Mr. Askew 27 million shares of Company common stock. Upon termination of Mr. Askew by the Company other than for cause, Mr. Askew is entitled to receive three years of his then consulting compensation as severance. During 2018 the employment agreement for Mr. Askew was amended, whereby all or a portion of the compensation owed to Mr. Askew for the period from February 2018 through April 30, 2018 can be paid by the Company, at the option of the employee, in restricted shares of the Company’s common stock valued at $0.02 per share. As of the filing date of this report, Mr. Askew has not elected to convert any of the compensation owed into common stock. If all of the compensation owed was converted into shares of stock, Mr. Askew would receive 26,250,000 shares.

23

In January 2017, the Company entered into a two-year agreement with Ernest Miller to provide financial consulting services to the Company for up to 20 hours per month pursuant to which the Company paid Mr. Miller 5 million shares of Company common stock. This agreement expired effective January 2019.

Grants of Plan-Based Awards

No plan-based awards were granted to any of our named executive officers during the twelve months ended December 31, 2018.

Outstanding Equity Awards at Year End

No unexercised options or warrants were held by any of our named executive officers at December 31, 2018.

Compensation Policies and Practices as they Relate to the Company’s Risk Management

We conducted a review of our compensation policies and procedures as they relate to an overall risk management policy. We have concluded that our compensation policies and practices are not reasonably likely to have a material adverse effect on the Company.

Director Compensation

During the years ended 2018 and 2017, the director of the Company was not compensated for his services as director.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Principal Stockholders

The following table sets forth the number and percentage of outstanding shares of common stock owned by: (a) each person who is known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock; (b) each of our directors; (c) the named executive officers as defined in Item 402 of Regulation S-K; and (d) all current directors and executive officers, as a group as of the date of this Annual Report. As of April 1, 2019, there were 999,199,769 shares of common stock deemed issued and outstanding. 

Unless otherwise stated, beneficial ownership has been determined in accordance with Rule 13d-3 under the Exchange Act. Under this rule, certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire shares (for example, upon exercise of an option or warrant) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person or group of persons, the number of shares beneficially owned by such person or group of persons is deemed to include the number of shares beneficially owned by such person or the members of such group by reason of such acquisition rights, and the total number of shares outstanding is also deemed to include such shares (but not shares subject to similar acquisition rights held by any other person or group) for purposes of that calculation. As a result, the percentage of outstanding shares of any person as shown in the following table does not necessarily reflect the person’s actual voting power at any particular date. To our knowledge, except as indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them. The address for each of the beneficial owners is the Company’s address, except footnoted below. 

Name of Beneficial Owner	Number of Shares of Common Stock Beneficially Owned			Percentage of Class Beneficially Owned
Named Executive Officers and Directors:
Michael J. Mayell		190,050,025	(1)		17.39	%
John B. Connally III		71,450,000	(2)		6.87	%
All directors & executive officers as a group (2 persons)		261,500,025			23.05	%
5% or Greater Shareholders
Desertaire Enterprises, LP(3)		71,016,675	(3)		7.09	%
James M. Askew		108,386,000	(4)		10.57	%

(1)	Comprised of (i) 96,416,675 shares of common stock issued and outstanding, and (ii) 93,633,350 shares of common stock issuable upon conversion of outstanding indebtedness and compensation agreements.
(2)	Comprised of (i) 29,950,000 shares of common stock issued and outstanding, and (ii) 41,500,000 shares of common stock issuable upon conversion of compensation agreements.
(3)	Address is 3 Strawberry Canyon, The Woodlands, TX 77382. Comprised of (i) 68,516,675 shares of common stock issued and outstanding, and (ii) 2,500,000 shares of common stock issuable upon conversion of outstanding indebtedness.
(4)	Comprised of (i) 82,136,000 shares of common stock issued and outstanding, and (ii) 26,250,000 shares of common stock issuable upon conversion of outstanding indebtedness.

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Description of Capital Stock

We are authorized to issue 1,500,000,000 shares of common stock, par value $0.001, of which 999,199,769 shares are issued and outstanding as of April 1, 2019. We are also authorized to issue 50,000,000 shares of blank check preferred stock, none of which have been issued as of the date of this Annual Report. 

Common Stock

The holders of common stock are entitled to one vote per share with respect to all matters required by law to be submitted to stockholders. The holders of common stock have the sole right to vote, except as otherwise provided by law or by our articles of incorporation, including provisions governing any preferred stock. The common stock does not have any cumulative voting, preemptive, subscription or conversion rights. Election of directors requires the affirmative vote of a plurality of shares represented at a meeting, and other general stockholder action requires the affirmative vote of a majority of shares represented at a meeting in which a quorum is represented. The outstanding shares of common stock are validly issued, fully paid and non-assessable.

Subject to the rights of any outstanding shares of preferred stock, the holders of common stock are entitled to receive dividends, if declared by our board of directors, out of funds legally available. In the event of liquidation, dissolution or winding up of the affairs of the Company, the holders of common stock are entitled to share ratably in all assets remaining available for distribution to them after payment or provision for all liabilities and any preferential liquidation rights of any preferred stock then outstanding.

The authorized but unissued shares of our common stock are available for future issuance without stockholder approval. These additional shares may be used for a variety of corporate purposes, including future public offering to raise additional capital, corporate acquisitions and employee benefit plans. The existence of authorized but unissued shares of common stock may enable our Board to issue shares of stock to persons friendly to existing management, which may deter or frustrate a takeover of the Company.

Preferred Stock

We are authorized to issue 50 million shares of “blank check” preferred stock, none of which are issued and outstanding. We have no present plans for the issuance thereof. Our board of directors has the authority, without action by our stockholders, to designate and issue preferred stock in one or more series. Our board of directors may also designate the rights, preferences, and privileges of each series of preferred stock, any or all of which may be greater than the rights of the common stock. It is not possible to state the actual effect of the issuance of any shares of preferred stock on the rights of holders of the common stock until the board of directors determines the specific rights of the holders of the preferred stock. However, these effects might include:

● restricting dividends on the common stock;

● diluting the voting power of the common stock;

● impairing the liquidation rights of the common stock; and

● delaying or preventing a change in control without further action by the stockholders.

Indemnification of Directors and Officers

Section 718.7502 of the Nevada Revised Statutes (“NRS”) provides, in general, that a corporation incorporated under the laws of the State of Nevada, as we are, may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding whether civil, criminal, administrative or investigative (other than a derivative action by or in the right of the corporation) by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person (a) is not liable pursuant to Section 73.138 of the NRS, and (b) acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person’s conduct was unlawful. In the case of a derivative action, a Nevada corporation may indemnify any such person against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person (a) is not liable pursuant to Section 73.138 of the NRS, and (b) acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation.

Our Articles of Incorporation and Bylaws provide that we will indemnify our directors, officers, employees and agents to the extent and in the manner permitted by the provisions of the NRS, as amended from time to time, subject to any permissible expansion or limitation of such indemnification, as may be set forth in any stockholders’ or directors’ resolution or by contract. In addition, our director and officer indemnification agreements with each of our directors and officers provide, among other things, for the indemnification to the fullest extent permitted or required by Nevada law. Any repeal or modification of these provisions approved by our stockholders will be prospective only and will not adversely affect any limitation on the liability of any of our directors or officers existing as of the time of such repeal or modification. We are also permitted to maintain insurance on behalf of any director, officer, employee or other agent for liability arising out of his actions, whether or not the NRS would permit indemnification.

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Anti-Takeover Effect of Nevada Law

Business Combinations

The “business combination” provisions of Sections 78.411 to 78.444, inclusive, of the Nevada Revised Statutes, or NRS, prohibit a Nevada corporation with at least 200 stockholders from engaging in various “combination” transactions with any interested stockholder: for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the transaction is approved by the board of directors prior to the date the interested stockholder obtained such status; or after the expiration of the three-year period, unless:

● the transaction is approved by the board of directors or a majority of the voting power held by disinterested stockholders, or

● the consideration to be paid by the interested stockholder is at least equal to the highest of: (a) the highest price per share paid by the interested stockholder within the three years immediately preceding the date of the announcement of the combination or in the transaction in which it became an interested stockholder, whichever is higher, (b) the market value per share of common stock on the date of announcement of the combination and the date the interested stockholder acquired the shares, whichever is higher, or (c) for holders of preferred stock, the highest liquidation value of the preferred stock, if it is higher.

A “combination” is defined to include mergers or consolidations or any sale, lease exchange, mortgage, pledge, transfer or other disposition, in one transaction or a series of transactions, with an “interested stockholder” having: (a) an aggregate market value equal to 5% or more of the aggregate market value of the assets of the corporation, (b) an aggregate market value equal to 5% or more of the aggregate market value of all outstanding shares of the corporation, or (c) 10% or more of the earning power or net income of the corporation.

In general, an “interested stockholder” is a person who, together with affiliates and associates, owns (or within three years, did own) 10% or more of a corporation’s voting stock. The statute could prohibit or delay mergers or other takeover or change in control attempts and, accordingly, may discourage attempts to acquire our company even though such a transaction may offer our stockholders the opportunity to sell their stock at a price above the prevailing market price.

Our Articles of Incorporation state that we have elected not to be governed by the “business combination” provisions, therefore, they currently do not apply to us.

Control Share Acquisitions

The “control share” provisions of Sections 78.378 to 78.3793, inclusive, of the NRS, which apply only to Nevada corporations with at least 200 stockholders, including at least 100 stockholders of record who are Nevada residents, and which conduct business directly or indirectly in Nevada, prohibit an acquirer, under certain circumstances, from voting its shares of a target corporation’s stock after crossing certain ownership threshold percentages, unless the acquirer obtains approval of the target corporation’s disinterested stockholders. The statute specifies three thresholds: one-fifth or more but less than one-third, one-third but less than a majority, and a majority or more, of the outstanding voting power. Once an acquirer crosses one of the above thresholds, those shares in an offer or acquisition and acquired within 90 days thereof become “control shares” and such control shares are deprived of the right to vote until disinterested stockholders restore the right. These provisions also provide that if control shares are accorded full voting rights and the acquiring person has acquired a majority or more of all voting power, all other stockholders who do not vote in favor of authorizing voting rights to the control shares are entitled to demand payment for the fair value of their shares in accordance with statutory procedures established for dissenters’ rights.

Our Articles of Incorporation state that we have elected not to be governed by the “control share” provisions, therefore, they currently do not apply to us.

Derivative Securities

An aggregate of 165,200,000 shares of common stock underlie derivative securities outstanding as of December 31, 2018, comprised of 109,750,000 shares of common stock underlie employment/consulting agreements and 55,450,000 shares of common stock underlie convertible notes.

Transfer Agent

The transfer agent and registrar for our common stock is Transhare Corporation, whose address is 15500 Roosevelt Boulevard, Suite 302, Clearwater, Florida 33760.

ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

In connection with the Sydson transaction, as disclosed in detail in Item 1, “Business – The Company,” the Company entered into employment agreements with Messrs. Mayell and Connally, and a consulting agreement with Mr. Askew, as disclosed in Item 11, “Executive Compensation-Employment and Consulting Agreements.” The shares of common stock originally issued to Messrs. Mayell, Connally and Askew were issued for nominal consideration.

In connection with the Wilinda Prospect, Mr. Askew acquired a 1% working interest and purchased 500,000 shares of the Company’s common stock. Desertaire Enterprises, L.P. acquired a 5.83% working interest and purchased 2,916,675 shares of the Company’s common stock. Sydson Resources, L.P., an affiliate of Mr. Mayell, acquired a 1% working interest and purchased 500,000 shares of the Company’s common stock. All these acquisitions were made on the same terms and agreements as the remaining working interest owners.

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During 2018 the Company reimbursed Mr. Connally approximately $55,000 for expenses incurred on behalf of the Company. Desertaire Enterprises, L.P. loaned the Company $50,000 during 2017 and Mr. Mayell and his related affiliates loaned the Company a total of $1,679,245 during 2017 and 2018. See Footnote 6 “Related Party Transactions” and Footnote 8 “Convertible Notes Payable” for a complete discussion of these notes.

During the fiscal year ended 2013, Roxana Gloria Candela Calixto, a prior director, advanced the Company a total of $52,152. The amount of $42,324 was written off during the quarter ended March 31, 2017 and recorded as “Other Income” as a result of the expiration of the applicable statute of limitations. The remaining balance of $9,828 was written off during the quarter ended March 31, 2018.

Members of the Company’s legal counsel, Thomas C. Pritchard, P.C., own an aggregate of 4.5 million shares of common stock, issued for nominal consideration.

ITEM 14: PRINCIPAL ACCOUNTING FEES AND SERVICES

The following is a summary of the fees billed to us by our principal accountants, LBB & Associates Ltd., LLP, during the years ended December 31, 2018 and 2017.

	2018		2017
Total audit fees	$	77,550	$	65,250

Audit Fees - Consists of fees for professional services rendered by our principal accountants for the audit of our annual financial statements and review of the financial statements included in our Forms 10-Q or services that are normally provided by our principal accountants in connection with statutory and regulatory filings or engagements.

Audit-related Fees - Consists of fees for assurance and related services by our principal accountants that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit fees.”

Tax Fees - Consists of fees for professional services rendered by our principal accountants for tax compliance, tax advice and tax planning.

All Other Fees - Consists of fees for products and services provided by our principal accountants, other than the services reported under “Audit fees,” “Audit-related fees,” and “Tax fees” above.

Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors

We have not adopted an Audit Committee; therefore, there is no Audit Committee policy in this regard. All services rendered by our principal accountant are performed pursuant to a written engagement letter between us and the principal accountant.

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PART IV

ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES

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

Exhibit No.	Description
3.1	Amended and Restated Articles of Incorporation of Texas South Energy, Inc. incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed November 27, 2013.
3.2	Amended and Restated Bylaws of Texas South Energy, Inc. incorporated by reference to Exhibit 3.2 of the Company’s Form 8-K filed November 12, 2013.
3.3	Amended and Restated Articles of Incorporation of Texas South Energy, Inc. incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed September 11, 2018.
4.1	Common Stock Specimen incorporated by reference to Exhibit 10.1 of the Company’s Form 10-K filed February 13, 2014.
10.1*	Employment Agreement, by and between the Company and James M. Askew incorporated by reference to Exhibit 10.1 of the Company’s Form 10-K filed February 13, 2014.
10.2	Consulting Agreement by and between the Company and John Connally incorporated by reference to Exhibit 10.1 of the Company’s Form 10-K filed February 13, 2014.
10.3	Contract For Sale, dated effective January 22, 2014, incorporated by reference to Exhibit 10.1 of Form 8-K filed January 27, 2014.
10.4	Form of Subscription Agreement, incorporated by reference to Exhibit 10.4 of the Company’s Form 10-K filed February 13, 2014.
10.5	Farm-Out Letter Agreement, incorporated by reference to Exhibit 10.1 of the Company’s Form 10-Q filed March 24, 2014.
10.6	Note Agreement, as amended, incorporated by reference to Exhibit 10.2 of the Company’s Form 10-Q filed March 24, 2014.
10.7	Amendment No. 1 to Employment Agreement, incorporated by reference to Exhibit 10.3 of the Company’s Form 10-Q filed March 24, 2014.
10.8	Indemnification Agreement, incorporated by reference to Exhibit 10.4 of the Company’s Form 10-Q filed March 24, 2014.
10.10	Amendment to Consulting Agreement by and between the Company and John Connally, incorporated by reference to Exhibit 10.1 of the Company’s Form 10-K filed February 13, 2014.
10.13	Asset Purchase Agreement by and among Texas South Energy, Inc., Sydson Resources, L.P., and Sydson Energy, Inc., dated January 4, 2017, incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed January 10, 2017
10.14*	Employment Agreement by and between the Company and Michael J. Mayell dated January 4, 2017, incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed January 10, 2017.
10.15*	Consulting Agreement by and between the Company and James M. Askew dated January 5, 2017, incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K filed January 10, 2017.
10.16*	Employment Agreement by and between the Company and John B. Connally, III dated January 5, 2017, incorporated by reference to Exhibit 10.4 of the Company’s Form 8-K filed January 10, 2017.
10.17	Participation Agreement by and between the Company and Delek GOM Investments, LLC, incorporated by reference to Exhibit 99.2 of the Company’s Form 8-K filed January 12, 2018.
14.1	Code of Ethics, incorporated by reference to Exhibit 14.1 of the Company’s Form 10-K filed February 13, 2014.
31.1 (1)	Certification of Principal Executive Officer and Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)
32.1 (1)	Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 18 U.S.C. Section 1350, adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	The following financial information from our Annual Report on Form 10-K for the year ended September 30, 2013 formatted in Extensible Business Reporting language (XBRL); (i) Condensed Balance Sheets, (ii) Condensed Statements of Operations, (iii) Condensed Statements of Cash Flows and (iv) Notes to the Condensed Financial Statements

* Management contract or compensatory plan or arrangement.

(1) Filed herewith.

Item 16: Form 10-K Summary

None 

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SIGNATURES

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

	Texas South Energy, Inc.
Date: April 1, 2019	By:	/s/ Michael J. Mayell
		Michael J. Mayell
		Chief Executive Officer, President, and Director

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