UNITED
STATES

SECURITIES
AND EXCHANGE COMMISSION

Washington,
DC 20549



FORM
10-Q

Amendment No.
1



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



For
the quarterly period ended September 30, 2017



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



For
the transition period from ______________________ to ______________________



Commission
file number 333-171064



TEXAS
SOUTH ENERGY, INC.

(Exact
name of registrant as specified in its charter)



|Nevada                                                                |  | 99-0362471             
|--------------------------------------------------------------------- |  | -----------------------
|(State
or other jurisdiction of                                       |  | (I.R.S.
Employer       
|incorporation or organization)                                        |  | Identification
    No.)
|                                                                      |  |                        
|4450
        Post Oak Place, Suite 300
        Houston,
        Texas |  | 77027                  
|(Address of principal
    executive offices)                          |  | (Zip Code)             



(713)
820-6300

(Registrant’s
telephone number)



Indicate
by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during
the past 12 months (or for such shorter period that the registrant was require to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes ☒ No ☐



Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No
☐



Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer”, ” accelerated filer”,
“smaller reporting company” and emerging growth company” in Rule 12b-2 of the Exchange Act.



|Large
        accelerated filer ☐
        Emerging
        growth company ☐ | Accelerated
    filer ☐ | Non-accelerated
    filer ☐ | Smaller
        reporting 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 7(a)(2)(B) of the Securities Act.
☐



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



As
of November 13, 2017, the registrant’s outstanding common stock consisted of 821,790,670 shares.




















EXPLANATORY
NOTE



Texas South
Energy, Inc. (the “Company”) files this Amendment to its Quarterly Report on Form 10-Q for the third quarter of the
2017 calendar year to correct a scriveners error.  In the Company’s original filing, the Company inadvertently checked
“Yes” as to whether the Company was a shell company (as defined in Rule 12b-2 of the Exchange Act).  However,
the Company has not been a shell company (as defined in Rule 12b-2 of the Exchange Act) since 2013. This Amendment corrects that
error.  The remainder of the Quarterly Report is unchanged.













TEXAS
SOUTH ENERGY, INC.

TABLE
OF CONTENTS



|PART
    I - FINANCIAL INFORMATION |                                                                                                                                                               
|---------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                   |                                                                                                                                                               
|Item
    1.                        | Consolidated
    Financial Statements (Unaudited)                                                                                                             
|                                   | Consolidated
    Balance Sheets as of September 30, 2017 and December 31, 2016                                                                                
|                                   | Consolidated
    Statements of Operations for the Three months Ended September 30, 2017 and 2016 and for the Nine months ended September 30,
    2017 and 2016
|                                   | Consolidated
    Statements of Cash Flows for the Nine months Ended September 30, 2017 and 2016                                                               
|                                   | Notes
    to Consolidated Financial Statements                                                                                                                
|Item
    2.                        | Management
    Discussion and Analysis of Financial Condition and Results of Operations                                                                       
|Item
    3.                        | Quantitative
    and Qualitative Disclosures about Market Risk                                                                                                
|Item
    4.                        | Controls
    and Procedures                                                                                                                                   
|                                   |                                                                                                                                                               
|PART
II - OTHER INFORMATION        |                                                                                                                                                               
|                                   |                                                                                                                                                               
|Item
    1.                        | Legal
    Proceedings                                                                                                                                         
|Item
    2.                        | Unregistered
    Sales of Equity Securities and Use of Proceeds                                                                                               
|Item
    3.                        | Defaults
    Upon Senior Securities                                                                                                                           
|Item
    4.                        | Mine
    Safety Disclosures                                                                                                                                   
|Item
    5.                        | Other
    Information                                                                                                                                         
|Item
    6.                        | Exhibits                                                                                                                                                      
|Item
    7.                        | Signatures                                                                                                                                                    













PART
I - FINANCIAL INFORMATION



ITEM
1. CONSOLIDATED FINANCIAL STATEMENTS



In
January 2017, Texas South Energy, Inc. formed Texas South Operating Company, Inc. as a wholly owned subsidiary of the Company.
It was incorporated pursuant to the laws of the State of Texas on January 11, 2017.



Texas
South Energy, Inc. and Texas South Operating Company, Inc. (collectively, the “Company”) provide 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.



The
accompanying unaudited consolidated financial statements have been prepared in all material respects in accordance with United
States generally accepted accounting principles (“U.S. GAAP”) for interim financial information. Pursuant to the rules
and regulations of the Securities and Exchange Commission (the “SEC”), certain information and footnote disclosures
normally included in the annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The
accompanying unaudited consolidated financial statements have been prepared on the same basis as the audited financial statements
for the year ended October 31, 2016 and the transition report for the two months ended December 31, 2016.



Because
certain information and footnote disclosures have been condensed or omitted, these unaudited consolidated financial statements
should be read in conjunction with the audited financial statements and notes thereto as of and for the year ended October 31,
2016, which are included in the Company’s annual report for the year ended October 31, 2016 (the “2016 Annual Report”)
and for the Transition Report filed on Form 10-K for the two months ended December 31, 2016. In management’s opinion, all
normal and recurring adjustments considered necessary for a fair presentation of the financial position, results of operations
and cash flows for the periods presented have been included. Management believes that the disclosures made in these unaudited
financial statements are adequate to make the information not misleading. Interim period operating results do not necessarily
indicate the results that may be expected for any other interim period or for the full fiscal year.



There
have been no changes in the Company’s significant accounting policies from those that were disclosed in the Company’s
2016 Annual Report or the December 31, 2016 Transition Report.





F-1







TEXAS
SOUTH ENERGY, INC.

CONSOLIDATED
FINANCIAL STATEMENTS

September
30, 2017



|UNAUDITED
    CONSOLIDATED BALANCE SHEETS                | Page
    F-3
|-------------------------------------------------------- | ------------
|                                                         |             
|UNAUDITED
    CONSOLIDATED STATEMENTS OF OPERATIONS      | Page
    F-4
|                                                         |             
|UNAUDITED
    CONSOLIDATED STATEMENTS OF CASH FLOWS      | Page
    F-5
|                                                         |             
|UNAUDITED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | Page
    F-6





F-2







TEXAS
SOUTH ENERGY, INC.

CONSOLIDATED
BALANCE SHEETS

(Unaudited)



|                                                                                                                                                                                                   |  | September 30,  2017 |             |   | December 31,  2016 |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------- | ----------- | - | ------------------ | -
|ASSETS                                                                                                                                                                                             |  |                     |             |   |                    |  
|CURRENT ASSETS                                                                                                                                                                                     |  |                     |             |   |                    |  
|Cash                                                                                                                                                                                               |  | $                   | 5,866       |   |                    | $
|Accounts receivable                                                                                                                                                                                |  |                     | 3,260       |   |                    |  
|Note receivable                                                                                                                                                                                    |  |                     | --          |   |                    |  
|Prepaid expenses                                                                                                                                                                                   |  |                     | 45,000      |   |                    |  
|TOTAL CURRENT ASSETS                                                                                                                                                                               |  |                     | 54,126      |   |                    |  
|                                                                                                                                                                                                   |  |                     |             |   |                    |  
|PROPERTY AND EQUIPMENT                                                                                                                                                                             |  |                     |             |   |                    |  
|Oil and gas properties, undeveloped                                                                                                                                                                |  |                     | 11,632,786  |   |                    |  
|Furniture, fixtures and equipment                                                                                                                                                                  |  |                     | 35,556      |   |                    |  
|Less: Accumulated depreciation                                                                                                                                                                     |  |                     | (5,099      | ) |                    |  
|TOTAL PROPERTY AND EQUIPMENT, NET                                                                                                                                                                  |  |                     | 11,663,243  |   |                    |  
|                                                                                                                                                                                                   |  |                     |             |   |                    |  
|OTHER ASSETS                                                                                                                                                                                       |  |                     | 8,340       |   |                    |  
|                                                                                                                                                                                                   |  |                     |             |   |                    |  
|TOTAL ASSETS                                                                                                                                                                                       |  | $                   | 11,725,709  |   |                    | $
|                                                                                                                                                                                                   |  |                     |             |   |                    |  
|LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                                                               |  |                     |             |   |                    |  
|                                                                                                                                                                                                   |  |                     |             |   |                    |  
|CURRENT LIABILITIES                                                                                                                                                                                |  |                     |             |   |                    |  
|Accounts payable                                                                                                                                                                                   |  | $                   | 168,718     |   |                    | $
|Accounts payable – related party                                                                                                                                                                   |  |                     | 69,312      |   |                    |  
|Accrued expenses                                                                                                                                                                                   |  |                     | 49,691      |   |                    |  
|Accrued expenses – related party                                                                                                                                                                   |  |                     | 280,000     |   |                    |  
|Accrued interest – related party                                                                                                                                                                   |  |                     | 20,247      |   |                    |  
|Notes payable                                                                                                                                                                                      |  |                     | 15,251      |   |                    |  
|Convertible notes payable – related party                                                                                                                                                          |  |                     | 617,000     |   |                    |  
|Due to related party                                                                                                                                                                               |  |                     | 9,828       |   |                    |  
|TOTAL CURRENT LIABILITIES                                                                                                                                                                          |  |                     | 1,230,047   |   |                    |  
|                                                                                                                                                                                                   |  |                     |             |   |                    |  
|LONG TERM LIABILITIES                                                                                                                                                                              |  |                     |             |   |                    |  
|Convertible notes payable                                                                                                                                                                          |  |                     | 1,118,355   |   |                    |  
|Notes payable – related party                                                                                                                                                                      |  |                     | 250,000     |   |                    |  
|Accrued expenses – related party                                                                                                                                                                   |  |                     | 668,204     |   |                    |  
|Accrued interest                                                                                                                                                                                   |  |                     | 373,141     |   |                    |  
|Accrued interest – related party                                                                                                                                                                   |  |                     | 19,387      |   |                    |  
|TOTAL LONG TERM LIABILITIES                                                                                                                                                                        |  |                     | 2,429,087   |   |                    |  
|                                                                                                                                                                                                   |  |                     |             |   |                    |  
|TOTAL LIABILITIES                                                                                                                                                                                  |  |                     | 3,659,134   |   |                    |  
|COMMITMENTS AND CONTINGENCIES                                                                                                                                                                      |  |                     |             |   |                    |  
|                                                                                                                                                                                                   |  |                     |             |   |                    |  
|STOCKHOLDERS’ EQUITY                                                                                                                                                                               |  |                     |             |   |                    |  
|Preferred stock                                                                                                                                                                                    |  |                     |             |   |                    |  
|50,000,000 shares preferred stock authorized, none issued and outstanding                                                                                                                          |  |                     | --          |   |                    |  
|Common stock                                                                                                                                                                                       |  |                     |             |   |                    |  
|950,000,000 shares common stock authorized, $0.001 par value, 814,540,670 and 553,490,670 shares of common stock issued and outstanding at September 30, 2017 and December 31, 2016, respectively. |  |                     | 814,540     |   |                    |  
|Additional paid-in capital                                                                                                                                                                         |  |                     | 19,307,623  |   |                    |  
|Accumulated deficit                                                                                                                                                                                |  |                     | (12,055,588 | ) |                    |  
|Total stockholders’ equity                                                                                                                                                                         |  |                     | 8,066,575   |   |                    |  
|TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                                                         |  | $                   | 11,725,709  |   |                    | $



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





F-3







TEXAS
SOUTH ENERGY, INC.

CONSOLIDATED
STATEMENTS OF OPERATIONS

(Unaudited)



|                                                     |  | Three months ended |             |   | Nine months ended  |  
|---------------------------------------------------- |  | ------------------ | ----------- | - | ------------------ | -
|                                                     |  | September 30, 2017 |             |   | September 30, 2016 |  
|                                                     |  |                    |             |   |                    |  
|REVENUE                                              |  | $                  | --          |   |                    | $
|                                                     |  |                    |             |   |                    |  
|EXPENSES                                             |  |                    |             |   |                    |  
|Depreciation expense                                 |  |                    | 1,700       |   |                    |  
|Impairment expenses                                  |  |                    | --          |   |                    |  
|General and administrative expenses                  |  |                    | 688,788     |   |                    |  
|                                                     |  |                    |             |   |                    |  
|LOSS FROM OPERATIONS                                 |  |                    | (690,488    | ) |                    |  
|                                                     |  |                    |             |   |                    |  
|Other income / (expense)                             |  |                    |             |   |                    |  
|Other income                                         |  |                    | 904         |   |                    |  
|Realized loss on sale of investment securities       |  |                    | --          |   |                    |  
|Interest expense                                     |  |                    | (58,601     | ) |                    |  
|TOTAL OTHER INCOME/(EXPENSE)                         |  |                    | (57,697     | ) |                    |  
|                                                     |  |                    |             |   |                    |  
|NET LOSS                                             |  | $                  | (748,185    | ) |                    | $
|                                                     |  |                    |             |   |                    |  
|NET LOSS PER COMMON SHARE                            |  |                    |             |   |                    |  
|Basic and diluted                                    |  | $                  | (0.00       | ) |                    | $
|                                                     |  |                    |             |   |                    |  
|WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING |  |                    |             |   |                    |  
|Basic and diluted                                    |  |                    | 789,839,583 |   |                    |  



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





F-4







TEXAS
SOUTH ENERGY, INC.

CONSOLIDATED
STATEMENTS OF CASH FLOWS

(Unaudited)



|                                                                            |  | Nine months ended
September 30, |           
|--------------------------------------------------------------------------- |  | ------------------------------- | ----------
|                                                                            |  | 2017                            |           
|CASH FLOWS FROM OPERATING ACTIVITIES                                        |  |                                 |           
|Net loss                                                                    |  | $                               | (3,021,295
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                                 |           
|Loss on securities – available for sale                                     |  |                                 | --        
|Depreciation expense                                                        |  |                                 | 5,099     
|Impairment expense                                                          |  |                                 | --        
|Gain on disposal of debt                                                    |  |                                 | (42,324   
|Common stock paid for rent expense                                          |  |                                 | --        
|Stock compensation                                                          |  |                                 | 884,635   
|Non-cash interest                                                           |  |                                 | --        
|Changes in operating assets and liabilities:                                |  |                                 |           
|Change in accounts receivable                                               |  |                                 | (3,260    
|Change in prepaid expenses                                                  |  |                                 | 30,543    
|Change in accounts payable and accrued expenses                             |  |                                 | (303,544  
|Change in current accounts payable and accrued liabilities - related party  |  |                                 | 369,559   
|Change in long term accrued liabilities - related party                     |  |                                 | 668,204   
|Change in long term accrued interest                                        |  |                                 | 373,141   
|Change in long term accrued interest - related party                        |  |                                 | 19,387    
|NET CASH USED IN OPERATING ACTIVITIES                                       |  |                                 | (1,019,855
|                                                                            |  |                                 |           
|CASH FLOWS FROM INVESTING ACTIVITIES                                        |  |                                 |           
|Proceeds from sale of securities – available for sale                       |  |                                 | --        
|Acquisition of oil and gas properties                                       |  |                                 | (451,619  
|NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES                            |  |                                 | (451,619  
|                                                                            |  |                                 |           
|CASH FLOWS FROM FINANCING ACTIVITIES                                        |  |                                 |           
|Oil and gas assets given for debt forgiveness                               |  |                                 | --        
|Proceeds from issuance of notes payable                                     |  |                                 | 637,777   
|Payments on notes payable                                                   |  |                                 | (5,526    
|Proceeds from sale of common stock (issued)                                 |  |                                 | 520,000   
|NET CASH PROVIDED BY FINANCING ACTIVITIES                                   |  |                                 | 1,152,251 
|                                                                            |  |                                 |           
|NET  INCREASE (DECREASE) IN CASH                                            |  |                                 | (319,223  
|                                                                            |  |                                 |           
|CASH, BEGINNING OF PERIOD                                                   |  | $                               | 325,089   
|                                                                            |  |                                 |           
|CASH, END OF PERIOD                                                         |  | $                               | 5,866     
|                                                                            |  |                                 |           
|Supplemental cash flow information and noncash financing activities:        |  |                                 |           
|Cash paid for:                                                              |  |                                 |           
|Interest                                                                    |  | $                               | --        
|Income taxes                                                                |  | $                               | --        
|                                                                            |  |                                 |           
|Noncash activities:                                                         |  |                                 |           
|Convert portion of note payable into common stock                           |  | $                               | 450,000   
|Issuance of common stock and note payable for assets                        |  | $                               | 1,095,000 
|Assignment of note receivable for note payable                              |  | $                               | 131,645   



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





F-5







Texas
South Energy, Inc.

NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS

September
30, 2017

(UNAUDITED)



NOTE
1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION



Texas
South Energy, Inc. (the “Company”) was incorporated pursuant to the laws of the State of Nevada on March 15, 2010.
The Company 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 unaudited consolidated financial statements have been prepared in all material respects in accordance with United
States generally accepted accounting principles (“U.S. GAAP”) for interim financial information. Intercompany accounts
and transactions are eliminated. Pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”),
certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with
U.S. GAAP have been condensed or omitted. The accompanying unaudited consolidated financial statements have been prepared on the
same basis as the audited financial statements for the year ended October 31, 2016 and the transition report for November 1, 2016
through December 31, 2016. The exception being that the 2016 financial statements were not consolidated with Texas South Operating
Company, Inc. since the Company had not yet been organized.



Because
certain information and footnote disclosures have been condensed or omitted, these unaudited consolidated financial statements
should be read in conjunction with the audited financial statements and notes thereto as of and for the year ended October 31,
2016, which are included in the Company’s annual report for the year ended October 31, 2016 (the “2016 Annual Report”)
and the transition report for the period of November 1 through December 31, 2016. In management’s opinion, all normal and
recurring adjustments considered necessary for a fair presentation of the financial position, results of operations and cash flows
for the periods presented have been included. Management believes that the disclosures made in these unaudited consolidated financial
statements are adequate to make the information not misleading. Interim period operating results do not necessarily indicate the
results that may be expected for any other interim period or for the full fiscal year.



There
have been no changes in the Company’s significant accounting policies from those that were disclosed in the Company’s
2016 Annual Report or the transition report for the two months ended December 31, 2016.



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.





F-6







Basic
and Diluted Net Loss per Share



The
Company computes loss per share in accordance with ASC 260, “Earnings per Share” which requires presentation of both
basic and diluted earnings per share on the face of the statement of operations. Basic loss per share is computed by dividing
net loss available to common shareholders by the weighted average number of outstanding common shares during the period. Diluted
loss per share gives effect to all dilutive potential common shares outstanding during the period. Dilutive loss per share excludes
all potential common shares if their effect is anti-dilutive. The Company has no potential dilutive instruments and accordingly
basic loss and diluted loss per share are the same.



Recent
Accounting Pronouncements



In
May 2014, the Financial Accounting Standards Board (“FASB”) issued its final standard on revenue from contracts with
customers. The standard, issued as Accounting Standards Update (“ASU”) No. 2014-09: Revenue from Contracts with
Customers (Topic 606), outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts
with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle
of the revenue model is that “an entity recognizes revenue to depict the transfer of promised goods or services to customers
in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.”
ASU 2014-09 becomes effective for reporting periods (including interim periods) beginning after December 15, 2017. Early application
is permitted for reporting periods (including interim periods) beginning after December 15, 2016. This new standard permits the
use of either the retrospective or cumulative effect transition method. Because the Company currently has such low 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 September 30, 2017 are not expected to have a material impact on the Company’s
financial position, results of operations, or cash flows.



NOTE
3 - GOING CONCERN



The
Company’s financial statements are prepared in accordance with generally accepted accounting principles applicable to
a going concern. This contemplates the realization of assets and the liquidation of liabilities in the normal course of
business. Currently, the Company does not have sufficient cash, nor does it have operations or a source of revenue sufficient
to cover its operational costs in order to allow it to continue as a going concern. The Company has accumulated losses as
of September 30, 2017 of $12,055,588. The Company will be dependent upon the raising of additional capital through the
sale of its existing projects and/or the best-efforts placement of its equity and/or debt securities in order to implement
its business plan. There can be no assurance that the Company will be successful in either situation in order to continue as
a going concern. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern.
These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset
amounts, or amounts and classification of liabilities that might result from this uncertainty.



NOTE
4 - OIL & GAS PROPERTIES



In
January 2014, the Company entered into a contract for sale with the owner of mineral interests in 86.69 acres in Lavaca County,
Texas (the “Acreage”) pursuant to which the Company acquired a 37.5% interest in the Acreage’s mineral rights,
including the oil and gas rights (the “Acquired Interest”). In exchange for the Acquired Interest, the Company paid
the seller $270,000 in cash and issued the seller 2,000,000 shares of the Company’s common stock, valued at $100,000. During
the six months ended June 30, 2016, the Company earned revenues of $6,664 associated with these interests. In June 2016, the Company
entered into a contract for sale with James M. Askew, an affiliate, to sell its mineral interests in 86.69 acres in Lavaca County,
Texas in which the Company owns a 37.5% interest in the Acreage’s mineral rights, in consideration of Mr. Askew, former
chief executive officer and sole director, forgiving $170,000 of indebtedness owed to him. The Company recorded impairment expense
of $200,000 associated with these interests.



In
March 2014, the Company entered into a farmout letter agreement with GulfSlope Energy, Inc. (“GulfSlope”), relating
to certain prospects located within 2.2 million acres of 3D seismic licensed and interpreted by GulfSlope. At the time the farmout
agreement was entered into, the Company’s chief executive officer and sole director, Mr. Askew, was also a director of GulfSlope.
Mr. Askew resigned as a director of GulfSlope effective March 27, 2014. Under the terms of the farmout letter agreement, as amended
in September 2015, the Company acquired contractual rights to a 20% working interest in six prospects for aggregate consideration
of $10,000,000. In accordance with the agreement, the Company has paid its proportionate share of the net rental costs related
to the prospects. GulfSlope is the operator of record. The mineral interests are unproved as of September 30, 2017.





F-7







In
May 2016, the Company entered into a letter agreement with GulfSlope and paid $400,000 for the right to enter into mutually agreeable
future definitive agreements to provide for the participation by the Company in drilling one well on Vermilion Area, South Addition
Block 378 (“Canoe Prospect”) and one well on Vermilion Area South Addition Block 375 (“Selectron Prospect”).
In June 2016, EnerGulf Resources Inc. (“EnerGulf”) paid the Company $400,000 to participate in the Canoe Prospect
and the Selectron Prospect. At this time it is not anticipated that the Company will be able to commence operations on either
of these tracts prior to the end of 2017 as negotiations with GulfSlope to extend the expiration of the farmout have been unsuccessful
to date. In August 2017, the Company joined GulfSlope to bid on Ship Shoal Block 351 in the Gulf of Mexico. The Company paid $26,400
in August 2017 and an additional $140,589 in October 2017 to acquire a 20% Working Interest in that block and in Ship Shoal Block
336, which are collectively referred to as the Tau Prospect. Subsequently the Company has agreed to acquire from GulfSlope a 20%
Working Interest in the Quark Prospect located on Eugene Island Block 397 and Green Canyon Block 4. In October 2017 the Company
paid $100,000 to GulfSlope and will remit an additional $229,062 on various dates on or before April 1, 2018 for the interest.



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 the Bayou Bouillon
    Field, St. Martin and Iberville Parishes, Louisiana, we were to acquire a 37.5% working interest in the Sugarberry South Project
    comprising 420 acres. However, Texas South was unable to obtain sufficient capital to fulfill certain requirements of the
    Purchase and Sale Agreement with Thyssen Petroleum for the Sugarberry South project related to earning additional acreage
    rights beyond the Sugarberry No. 6 well. The agreement has now been terminated except for Texas South’s rights to a
    50% working interest in the Sugarberry No. 6 well.   The Company is in discussion with Thyssen Petroleum on other
    farmout activity related to deeper zones at Bayou Bouillon.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | 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 to historic downdip production from these
    sands totaling over 500,000 BO.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | 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, also above 3,700’.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | In other areas of
    Southeast Texas, we acquired an interest in a proprietary 85 square mile 3-D seismic survey targeting Lower Wilcox Sands at
    approximately 10,000’. There are eight currently defined and mapped prospects in which we intend to acquire leases that
    are apparent on the seismic data and match the geologic setting of three existing Lower Wilcox fields within the boundaries
    of the survey.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Northwest of that
    survey, we intend to acquire leases covering approximately 1,000 acres for horizontal projects above 6,000’ in the Austin
    Chalk and Buda Lime formation. These projects are adjacent to substantial prior production and contain both conventional and
    unconventional oil targets.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------







F-8







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. John B. Connally III joined our board as chairman.



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, and was amended to January
1, 2019.



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 |  



NOTE
5 - COMMON STOCK



The
Company has 950,000,000 shares of common stock authorized with a par value of $0.001. As of September 30, 2017 the Company
has 814,540,670 shares of common stock issued and outstanding. During the nine months ended September 30, 2017, the Company
sold 26,000,000 shares of stock at a price of $.02 per share for a total of $520,000. The Company issued 112,550,000 shares
of stock for services rendered valued between $0.005 and $0.00845, including 65.1 million shares to Mr. Connally and 27
million shares to Mr. Askew. Mr. Mayell was issued 100,000,000 shares in January, 2017 in connection with the asset purchase
from Sydson. On September 18, 2017 the Company converted $450,000 of the principal amount of a long-term note payable into
22,500,000 shares of the Company’s common stock at a conversion price of $0.02 per share. (see footnote 8
“Convertible notes payable” for additional information)

NOTE
6 - RELATED PARTY TRANSACTIONS



During
the year ended October 31, 2016, the Company made cash payments and issued Mr. James Askew (former CEO) 14 million shares of
common stock in exchange for $280,000 of the accrued compensation. Additionally, in accordance with the employment agreement,
the Company paid Mr. Askew $420,000 for compensation and a $50,000 bonus for the fiscal year ended October 31, 2016. During
the two month period ending December 31, 2016, the Company paid him $105,000 in compensation, $9,000 in bonuses and $38,030
for expense reimbursements. A prepayment of the January 2017 consulting agreement of $35,000 was included in the $105,000
compensation payments as of December 31, 2016.



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 which is discussed in more detail in footnote 10 “Commitments
and Contingencies”.



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 is recorded within the ‘Due
to related party’ line on the balance sheet.





F-9







In
March 2014, the Company acquired 5,000,000 shares of restricted GulfSlope common stock from the Company’s former sole
officer and director James Askew for a purchase price of $268,000. At the time of the acquisition, Mr. Askew was also a
director of GulfSlope. Mr. Askew resigned as a director of GulfSlope effective March 27, 2014. During the fiscal year ended
October 31, 2016, the Company recorded an unrealized loss of $185,000 to adjust the investment securities to fair market
value. In February 2016, the Company sold the 5,000,000 shares of GulfSlope common stock with a cost value of $268,000 for
cash proceeds of $50,000 and recorded a realized loss of $218,000.



Mr.
Mayell, our current chief executive officer and director effective January 4, 2017, is President of Sydson Energy, Inc. and Sydson
Resources, LP (“Sydson”). During the nine months ended September 30, 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. As of September 30, 2017, the Company owes Sydson
$15,206 and Mr. Mayell $54,106 which are reported on the balance sheet as “Accounts payable - related party”. The
note payable balances as of September 30, 2017 are $70,000 to Sydson and $47,000 to Mr. Mayell and are reported on the balance
sheet as “Short term notes payable – related party”. The accrued interest on these notes is $1,635 as of September
30, 2017, $978 payable to Sydson and $657 payable to Mr. Mayell.



As
of September 30, 2017, the Company has accrued eight months of Mr. Askew’s consulting agreement totaling $280,000. This
accrual is reported on the balance sheet as “Accrued expenses – related party”.



The
Company has $315,000 of compensation accrued to Mr. Mayell and $305,000 to Mr. Connally as of September 30, 2017  totaling $620,000. Payroll
taxes totaling $48,204 related to the accrued compensation have been accrued. These accruals total $668,204 and are reported
within “Accrued expenses – related party – long term” on the balance sheet. The due dates for these
liabilities are December 31, 2019 as a result of amendments dated March 1, 2017 to the compensation agreements. The Company
has paid Mr. Connally approximately $100,000 for expense reimbursements.



In
January 2017, the Company issued shares of stock to the following related parties: Mr. Askew 27 million shares, Mr. Mayell 100
million shares and Mr. Connally 65.1 million shares. See note 10 “Commitments and contingencies” for additional information.



As
discussed in Note 7, the Company owes Sydson $250,000 plus accrued interest – long term totaling $19,387 on a note related
to the acquisition of Sydson assets.





Also discussed in Note 8, Mr. Mayell and
JTB Energy LLC have each loaned the Company $250,000, plus accrued interest – short term of $9,305 each. JTB Energy LLC is
a related party of Mr. Mayell.



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 is
recorded within the ‘Due to related party’ line on the balance sheet.



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 has been 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. The balance of $250,000 is included in “Notes payable-related party” in the long term
section of the balance sheet.



The
company financed the current year insurance premiums and that note has a balance of $15,251 as of September 30, 2017. This note
is reported as “Notes payable” under current liabilities on the balance sheet.





F-10







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
September 30, 2017 the outstanding principal balance is $1,118,355 and is included in “Notes Payable – long term”
on the balance sheet. During the outstanding period, the note is convertible into common shares at $0.04 per share at the option
of the investor up to $800,000 of the outstanding principal and accrued interest.



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 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.





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 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 balance on these loans as of September
30, 2017 is $250,000 payable to Mr. Mayell and $250,000 payable to JTB Energy, LLC.

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
been reported as “Accounts payable – related party” on previous balance sheets. The Company converted $70,000
to a note payable to Sydson and $47,000 to a note payable to Mr. Mayell. The remaining balances owed to them will continue to
be reported as “Accounts payable – related party”. The notes are reported as “Convertible notes payable
– related party” under current liabilities. These notes plus the previously mentioned notes totaling $500,000 equals
a total of $617,000 owed to Sydson ($70,000), JTB Energy ($250,000) and Mr. Mayell ($297,000) as of September 30, 2017. The notes
are convertible up to the outstanding principal and accrued interest into common shares at $0.02 per share.

NOTE
9 - FAIR VALUE OF FINANCIAL INSTRUMENTS

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
10 - 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, 2019, and such term shall be extended for an additional
one-year period upon December 31 of each calendar year, commencing on December 31, 2017, provided that neither the Company nor
consultant notify the other on or prior to 90 days before the applicable December 31st 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, 2019. Upon December 31 of each calendar year, commencing on December 31, 2017, 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 31st 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, 2019. Upon December
31 of each calendar year, commencing on December 31, 2017, 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 31st 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 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, 2019. These liabilities are accrued in the financial
statements for the nine months ended September 30, 2017 however they are now reported as long term on the balance sheet.

NOTE
11 - SUBSEQUENT EVENTS

During
October and November 2017 Mr. Mayell loaned the Company an additional $270,600.

During
October 2017, the Company issued 7,250,000 shares for $145,000 cash, valued at $0.02 per share.





F-11







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



The
following discussion and analysis summarizes the significant factors affecting our operating results, financial condition, liquidity
and cash flows as of and for the periods presented below. The following discussion and analysis should be read in conjunction
with (i) the accompanying unaudited financial statements and notes thereto for the nine months ended September 30, 2017 and 2016,
and with our audited financial statements and notes thereto for the year ended October 31, 2016 included in the Company’s
Annual Report on Form 10-K (the “2016 Annual Report”) and included in the Company’s Transition Report on Form
10-K for the two months ended December 31, 2016 and (ii) the discussion under the caption “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” of the 2016 Annual Report and the December 31, 2016 Transition
Report.



Forward
Looking Statements



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



Business
Overview



Beginning
in September 2013, we changed our business plan to an oil and gas company focused primarily on properties in the Gulf Coast Region.
We plan to acquire and manage working and non-working interests in oil and gas projects and properties.



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 them following discoveries that may occur. Each of these factors may affect the rate
at which oil and gas are produced, if ever, on properties in which we or may have an interest.



Our
Current Mineral Interests



In
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. The Company recorded approximately
$1,000,000 of leasehold interests in connection with this acquisition. See note 4 (“Oil and Gas Properties”) for additional
information regarding the acquisition and other mineral interests.



In
March 2014, we entered into a farmout letter agreement with GulfSlope, relating to certain prospects GulfSlope bid on at the Central
Gulf of Mexico Lease Sale 231, located within 2.2 million acres of 3-D seismic licensed and interpreted by GulfSlope. Under the
terms of the farmout letter agreement as amended in September 2015, we acquired contractual rights to a 20% Working Interest in
six deep sub-salt or side-salt prospects for $10,000,000. We have paid our proportionate share of the net rental costs related
to the prospects. GulfSlope is the operator of record on the prospects.



In
May 2016, the Company entered into a letter agreement with GulfSlope and paid $400,000 to GulfSlope for a Farm-in of 100% of the
Working Interest down to 5000’ on Vermilion Area, South Addition Block 378 (“Canoe Prospect”) and on Vermilion
Area South Addition Block 375 (“Selectron Prospect”). In June 2016, EnerGulf Resources Inc. (“EnerGulf”)
paid the Company $400,000 to participate for a 16.8% Working Interest in the Canoe Prospect and the Selectron Prospect. At this
time it is not anticipated that the Company will be able to commence operations on either of these tracts prior to the end of
2017 as negotiations with GulfSlope to extend the expiration of the farmout have been unsuccessful to date. In August 2017, the
Company joined GulfSlope to bid on Ship Shoal Block 351 in the Gulf of Mexico. The Company paid $26,400 in August 2017 and an
additional $140,589 in October 2017 to acquire a 20% Working Interest in that block and in Ship Shoal Block 336, which are collectively
referred to as the Tau Prospect. Subsequently the Company has agreed to acquire from GulfSlope a 20% Working Interest in the Quark
Prospect located on Eugene Island Block 397 and Green Canyon Block 4. In October 2017 the Company paid $100,000 to GulfSlope and
will remit an additional $229,062 on various dates on or before April 1, 2018 for the interest.





2







Business
and Acquisition Strategy



Our
primary business strategy includes acquiring both operating and non-operating working interests in oil and gas properties throughout
the Gulf Coast Region of Louisiana and Texas, including offshore prospects. We will consider acquisitions that serve as a platform
for complementary operations. In January 2017, the Company acquired assets from Sydson Energy, Inc. and Sydson Resources.



The
cost of implementing the forgoing programs will depend on what oil and gas interests are identified and available on terms acceptable
to us. Even if we identify oil and gas interests that are available, the cost of pursuing and acquiring them could be significant.
Our ability to pursue any such opportunities will be dependent on our ability to obtain financings through private equity, debt
financings or agreements with joint venture partners. We can provide no assurance that we have the necessary cash available or
will be able to successfully obtain the necessary financing or joint venture partners to pursue such opportunities. We have incurred
losses since our inception and expect to incur losses in future periods. We have relied primarily upon the sale of our equity
securities and related party loans to fund operations to this point in time.



On
September 13, 2017 the Company announced that Texas South Energy, Inc. and GulfSlope Energy, Inc. have jointly executed an exclusive
letter of intent (LOI) with a large international oil and gas company (the “Partner”) to jointly drill and develop
the Farmors oil and gas prospects located offshore Gulf of Mexico. The purpose of the LOI is to facilitate further discussions
between the parties on an exclusive basis with respect to the negotiation of the contemplated transaction and is a statement of
the present intent of the parties to pursue the contemplated transaction in good faith. The LOI is subject to a number of conditions
including completion of additional due diligence, preparation and execution of definitive agreements, and board approvals. The
LOI is not binding and there is no certainty that the above mentioned negotiations will mature into any binding agreement between
the parties. The final commercial terms in a binding agreement, if ultimately executed, may not be as set forth in the LOI. The
principal commercial terms of the farmout are highlighted as follows:



| | ● | Commitment
                                         by Partner to drill a minimum of three exploratory wells with the option to participate
                                         in additional three-well phases on the same basis;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | The
                                         Partner will earn a 75% working interest in each prospect by (i) paying 90% of the exploratory
                                         costs and (ii) making a cash payment of $1.5 million to be split between the Farmors
                                         on a 73% / 27% basis;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | GulfSlope
                                         will be the initial Operator of Record and will retain a 20% working interest for the
                                         subsalt prospects included in the first phase;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Texas
                                         South will retain a 5% working interest for the subsalt prospects included in the first
                                         phase;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | The
                                         Partner and Farmors will agree to an Area of Mutual Interest;
| | - | ----------------------------------------------------------------------------------------------------------



| | ● | Upon
                                         achieving certain milestones, the Partner will have the right to purchase up to 20% of
                                         the common stock in each of the Farmors; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Provision for exclusive negotiations between the Partner and Farmors that now expires November 30, 2017,
or such later time as they mutually agree.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------



Liquidity
and Capital Resources



As
of September 30, 2017, we had a cash balance of $5,866 and a working capital deficit of $1,175,921. Our working capital deficit
includes $996,387 due to related parties including our management. Our accumulated deficit from inception (March 15, 2010) to
September 30, 2017 was $12,055,588. For the nine months ended September 30, 2017, our net loss of $3,021,295 was mostly funded
by proceeds raised from equity financings and loans from related parties. Consulting and legal expenses of $884,635 are included
in the net loss, however shares of stock were issued in connection with these services, not cash. During the nine months ended
September 30, 2017, our cash position decreased by $319,223 as a result of the partial acquisition of the Bayou Bouillon property,
rental payments on the offshore leases and increased general and administrative expenses.



During
the nine months ended September 30, 2017, we issued 261,050,000 shares of common stock, of which 26,000,000 shares were issued
for cash in the amount of $520,000, 112,550,000 shares were issued for services and 22,500,000 shares were issued to convert $450,000
of a note payable. A total of 100,000,000 shares were issued as part of the consideration paid for the Sydson asset acquisition.





3







We
will need additional financing to carry out our business plan. Specifically, we will need cash to fund our obligations with respect
to funding our farmout obligations under the offshore LOI and funding our contingent liabilities to Sydson once drilling begins
on the properties acquired. Obtaining additional financing will be subject to a number of factors including market conditions,
investor acceptance of our business plan, and other conditions outside of our control. These factors may make the timing, amount,
terms and conditions of additional financing unattractive or unavailable to us. If we cannot raise additional funds, we will not
be able to carry out our business plans and may cease operations.



Results
of Operations for the Three months ended September 30, 2017 compared to the Three months ended September 30, 2016



We
earned revenue of $0 and $486 during the three months ended September 30, 2017 and 2016. Included in “Other income”
are royalty payments received during the quarter ended September 30, 2017. General and administrative expenses were $688,788 for
the three months ended September 30, 2017 compared to $201,033 for the three months ended September 30, 2016. Interest expense
was $245,553 during the three months ended September 30, 2016 and $58,601 during the three months ended September 30, 2017.



We
had a net loss of $748,185 for the three months ended September 30, 2017, compared to a net loss of $446,100 for the three months
ended September 30, 2016. The increase in the net loss was primarily due to the general and administrative expenses related to
the new employees and office expenses incurred beginning January 4, 2017.



The
basic and diluted loss per share for the three months ended September 30, 2017 and 2016 was $(0.00).



Results
of Operations for the Nine months ended September 30, 2017 compared to the Nine months ended September 30, 2016



We
earned revenue of $0 and $7,150 during the nine months ended September 30, 2017 and 2016. Included in
“Other income” is the write off of the shareholder note payable for $42,324 during the quarter ended March 31,
2017. General and administrative expenses were $2,905,456 for the nine months ended September 30, 2017, of which $884,635
were non-cash expenses, compared to the total general and administrative expenses of $776,370 for the nine months ended
September 30, 2016. The loss on the sale of securities was $0 for the nine months ended September 30, 2017, compared to
$218,000 for the nine months ended September 30, 2016. Interest expense was $154,809 for the nine months ended September 30,
2017, compared to $336,894 for the nine months ended September 30, 2016. During 2016 the Company recorded interest expense of
$200,000 for shares of stock issued related to a note agreement. That interest expense transaction did not occur in 2017,
thus the decrease in interest expense for the nine months ended September 30, 2017 as compared to the nine months ended
September 30, 2016.



We
had a net loss of $3,021,295 for the nine months ended September 30, 2017, compared to a net loss of $1,524,114 for the nine months
ended September 30, 2016. The increase in the net loss of $1,497,181 was primarily due to issuance of stock for consulting and
legal services totaling $884,635, the payroll and other office expenses the Company incurred beginning January 4, 2017, related
to the new employees and office space, and the legal and accounting fees related to the asset acquisition.



The
basic and diluted loss per share for the nine months ended September 30, 2017 and 2016 was $(0.00).



In
February 2016, the Company sold 5,000,000 shares of GulfSlope common stock with a cost value of $268,000 for cash proceeds of
$50,000 and recorded a realized loss of $218,000.



Off-Balance
Sheet Arrangements



As
of September 30, 2017, we had no off balance sheet transactions that have or are reasonably likely to have a current or future
effect on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources.



ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



As
of September 30, 2017, our exposure to market risk is limited. We do not expect unfavorable changes in concentration of credit
risk and interest rates impacting our current balances as of September 30, 2017.





4







ITEM
4. CONTROLS AND PROCEDURES



Evaluation
of Disclosure Controls and Procedures



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



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



Changes
in Internal Control over Financial Reporting



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





5







PART
II - OTHER INFORMATION



ITEM
1. LEGAL PROCEEDINGS



Management
is not aware of any legal proceedings contemplated by any governmental authority or any other party against us. None of our directors,
officers or affiliates are (i) a party adverse to us in any legal proceedings, or (ii) have an adverse interest to us in any legal
proceedings. Management is not aware of any other legal proceedings that have been threatened against us.



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



During
the three months ended September 30, 2017, the Company issued a total of 10,750,000 shares of stock for cash that were not reported
on a Current Report on Form 8-K.



On
August 10, 2017, the Company issued to a third party investor 10,000,000 shares of common stock for a purchase price of $0.02
per share.



In
September 2017, the Company issued an aggregate of 750,000 shares of common stock to an employee and a third party investor at
a purchase price of $0.02 per share.



The
issuances of these securities did not involve the payment of any sales commissions and were exempt pursuant to Section 4(a)(2)
of the Securities Act of 1933.



ITEM
3. DEFAULTS UPON SENIOR SECURITIES



None.



ITEM
4. MINE SAFETY DISCLOSURES



None.



ITEM
5. OTHER INFORMATION



None.



ITEM
6. EXHIBITS



|Exhibit Number |  | Exhibit Description                                                                                                                                                                     
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|               |  |                                                                                                                                                                                         
|31.1 (1)       |  | Certification of the Chief Executive Officer and Chief Financial Officer Pursuant to Rule 13a-14 or 15d-14 of the Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|32.1 (1)       |  | Certification of the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002        
|101.INS        |  | XBRL Instance Document                                                                                                                                                                  
|101.SCH        |  | XBRL Taxonomy Extension Schema Document                                                                                                                                                 
|101.CAL        |  | XBRL Taxonomy Extension
Calculation Linkbase                                                                                                                                            
|101.DEF        |  | XBRL Taxonomy Extension Definition Linkbase                                                                                                                                             
|101.LAB        |  | XBRL Taxonomy Extension Labels Linkbase                                                                                                                                                 
|101.PRE        |  | XBRL Taxonomy Extension Presentation Linkbase                                                                                                                                           





|(1) | Filed herewith.
|--- | ---------------





6







SIGNATURES



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



|                                                                | TEXAS
                                         SOUTH ENERGY, INC.
|--------------------------------------------------------------- | -----------------------------------------------------------------
|                                                                |                                                                  
|Date:
                                         January 11, 2018 | By:                                                              
|                                                                |                                                                  
|                                                                |                                                                  





7