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

Form 10-Q

Quarterly report pursuant Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2016

Transition report pursuant Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _______ to _______.

Commission file number 000-53246

EOS PETRO, INC.

(Exact name of registrant as specified in its charter)

Nevada (State or other jurisdiction of incorporation or organization)	98-0550353 (I.R.S. Employer Identification No.)

1999 Avenue of the Stars, Suite 2520 Los Angeles, California (Address of principal executive offices)	90067 (Zip code)

(310) 552-1555
(Registrant's telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☒

Non-accelerated filer ☐ Smaller reporting company ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

As of August 12, 2016, the registrant had 51,739,528 outstanding shares of common stock.

EOS PETRO, INC. TABLE OF CONTENTS



			Page No.

PART I. FINANCIAL INFORMATION

	Item 1.	Unaudited Financial Statements	3

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	20

	Item 3	Quantitative and Qualitative Disclosures About Market Risk	27

	Item 4T.	Controls and Procedures	27

PART II. OTHER INFORMATION

	Item 1	Legal Proceedings	28

	Item 1A	Risk Factors	28

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29

	Item 3.	Defaults Upon Senior Securities	29

	Item 4	Mine Safety Disclosures	29

	Item 5.	Other Information	29

	Item 6.	Exhibits	29

		SIGNATURES	31

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Eos Petro, Inc. and Subsidiaries Condensed Consolidated Balance Sheets



	June 30,			December 31,
	2016			2015
ASSETS	(unaudited)

Current assets
Cash	$	69,037		$	1,367
Other current assets		-			12,878
Total current assets		69,037			14,245

Oil and gas properties, using the full cost method of accounting,
net of accumulated depletion of $197,906 and $187,197, respectively		1,051,702			1,062,411
Other property plant and equipment, net of accumulated
depreciation of $29,446 and $27,232, respectively		554			2,768
Long-term deposits		102,441			102,441
Total assets	$	1,223,734		$	1,181,865

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities
Accounts payable	$	1,547,614		$	1,084,621
Accrued expenses		1,577,362			1,189,545
Accrued compensation - officer		360,000			180,000
Accrued termination fee		5,500,000			5,500,000
Accrued structuring fee		4,000,000			4,000,000
LowCal convertible and promissory notes payable		8,250,000			8,250,000
Notes payable, net of discount of $204,613 and $0		1,803,387			1,383,000
Notes payable, related party		1,256,535			1,208,160
Derivative liabilities		1,275,788			6,381,553
Total current liabilities		25,570,686			29,176,879

Asset retirement obligation		97,138			92,512
Total liabilities		25,667,824			29,269,391

Commitments and contingencies

Stockholders' deficit
Series B Preferred stock: $0.0001 par value; 44,000,000 shares authorized,
none issued and outstanding		-			-
Common stock; $0.0001 par value; 300,000,000 shares authorized
49,367,882 and 47,827,882 shares issued and outstanding		4,937			4,783
Additional paid-in capital		132,673,521			116,977,726
Stock subscription receivable		(88,200	)		(88,200	)
Accumulated deficit		(157,034,348	)		(144,981,835	)
Total stockholders' deficit		(24,444,090	)		(28,087,526	)
Total liabilities and stockholders' deficit	$	1,223,734		$	1,181,865


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

Eos Petro, Inc. and Subsidiaries Condensed Consolidated Statements of Operations


	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Revenues
Oil and gas sales	$	17,091		$	70,900		$	36,519		$	130,959

Costs and expenses
Lease operating expense		9,655			53,228			42,329			64,657
General and administrative		3,726,252			6,702,470			13,713,233			17,584,220
Structuring fee		-			-			-			4,000,000
Acquisition termination fee		-			-			-			5,500,000
Total costs and expenses		3,735,907			6,755,698			13,755,562			27,148,877

Loss from operations		(3,718,816	)		(6,684,798	)		(13,719,043	)		(27,017,918	)

Other income (expense)
Interest and finance costs		(1,515,304	)		(250,933	)		(3,439,235	)		(391,790	)
Change in fair value of derivative liabilities		4,500,103			3,351,880			5,105,765			5,936,900
Total other income (expense)		2,984,799			3,100,947			1,666,530			5,545,110

Net loss	$	(734,017	)	$	(3,583,851	)	$	(12,052,513	)	$	(21,472,808	)

Net loss per share attributed to common
stockholders - basic and diluted	$	(0.02	)	$	(0.08	)	$	(0.25	)	$	(0.45	)
Weighted average common shares outstanding
basic and diluted		48,631,069			47,747,366			48,375,025			47,744,374


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

Eos Petro, Inc. and Subsidiaries Consolidated Statement of Stockholders' Deficit For the Six Months Ended June 30, 2016



					Additional		Stock						Total
	Common Stock				Paid-in		Subscription			Accumulated			Stockholders'
	Shares		Amount		Capital		Receivable			Deficit			Deficit
Balance, December 31, 2015		47,827,882	$	4,783	$	116,977,726	$	(88,200	)	$	(144,981,835	)	$	(28,087,526	)
Issuance of common stock for debt extension		315,000		32		1,249,968		-			-			1,250,000
Issuance of common stock in connection with amendment of note agreement		75,000		7		299,993		-			-			300,000
Issuance of common stock for services		1,050,000		105		174,990		-			-			175,000
Issuance of common stock in connection with notes payable						1,169,895		-			-			1,170,000
Transfer of common shares owned by majority stockholder in connection with notes payable		-		-		290,000		-			-			290,000
Extension of warrant expiration date in connection with amendment of note agreement		-		-		188,378		-			-			188,378
Fair value of warrants issued for consulting services		-		-		1,164,738		-			-			1,164,738
Fair value of vested options		-		-		10,040,072		-			-			10,040,072
Fair value related to change in stock option terms		-		-		93,714		-			-			93,714
Value of warrants issued with note payable		-		-		92,987		-			-			92,987
Sale of common shares owned by majority stockholder to affiliates at discount		-		-		931,060		-			-			931,060
Net loss		-		-		-		-			(12,052,513	)		(12,052,513	)
Balance, June 30, 2016		49,367,882	$	4,937	$	132,673,521	$	(88,200	)	$	(157,034,348	)	$	(24,444,090	)


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

Eos Petro, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows




	Six Months Ended June 30,
	2016			2015
	(unaudited)			(unaudited)
Cash flows from operating activities
Net loss	$	(12,052,513	)	$	(21,472,808	)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depletion		10,709			22,322
Depreciation		2,214			5,027
Accretion of asset retirement obligation		4,626			4,205
Amortization of debt discounts		70,387			-
Financing costs related to stock and warrants issued with notes payable		1,277,987			-
Fair value of stock issued for services		175,000			56,479
Fair value of stock issued for debt extension		1,250,000			-
Fair value of stock issued for amendment of note agreement		300,000			-
Fair value of warrants issued for consulting services		1,164,738			8,157,284
Fair value of warrants issued for amendment of note agreement		188,378			-
Fair value of vested options		10,040,072			4,673,412
Fair value related to change in stock option terms		93,714			-
Sale of common shares owned by majority stockholder to affiliates at discount		931,060			3,675,000
Termination fee		-			5,500,000
Structuring fee		-			4,000,000
Change in fair value of derivative liabilities		(5,105,765	)		(5,936,900	)
Change in operating assets and liabilities:
Other current assets		12,878			21,012
Accounts payable		751,183			1,072,525
Accrued expenses		387,817			(215,477	)
Accrued compensation - officer		180,000			-
Net cash used in operating activities		(317,515	)		(437,919	)

Cash flows from financing activities:
Proceeds from issuance of notes payable		456,810			150,000
Repayment of notes payable		(120,000	)		-
Proceeds from issuance of notes payable, related party		125,000			250,000
Repayment of notes payable, related party		(76,625	)		(93,040	)
Net cash provided by financing activities		385,185			306,960

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		67,670			(130,959	)

CASH AND CASH EQUIVALENTS, beginning of period		1,367			133,210

CASH AND CASH EQUIVALENTS, end of period	$	69,037		$	2,251

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid for interest	$	-		$	-
Cash paid for income taxes	$	-		$	-

SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:

Notes payable issued for accounts payable	$	288,190		$	-
Discount on notes payable	$	275,000		$	-

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

Eos Petro, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

For the Three and Six Months Ended June 30, 2016 and 2015

NOTE 1 - ORGANIZATION

Organization and Business

The Company was organized under the laws of the state of Nevada in 2007. On October 12, 2012, pursuant to the Merger Agreement entered into by and between the Company, Eos Global Petro, Inc. ("Eos"), and Eos Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of the Company ("Company Merger Sub"), dated July 16, 2012, Company Merger Sub merged into Eos, with Eos being the surviving entity and the Company the legal acquirer (the "Merger"). As a result of the Merger, Eos became a wholly-owned subsidiary of the Company.

Effective as of May 20, 2013, the Company changed its name to Eos Petro, Inc. (it previously had been named "Cellteck, Inc.").

The Company has two wholly-owned subsidiaries, Eos and Eos Merger Sub, Inc., a Delaware corporation ("Eos Delaware"), which was formed as an acquisition vehicle for potential transactions. Eos itself also has two subsidiaries: Plethora Energy, Inc., a Delaware corporation and a wholly-owned subsidiary of Eos ("Plethora Energy"), and EOS Atlantic Oil & Gas Ltd., a Ghanaian corporation ("EAOG"), which is also 10% owned by one of the Company's Ghanaian-based third party consultants. Plethora Energy also owns 90% of Plethora Bay Oil & Gas Ltd., a Ghanaian corporation ("PBOG"), which is also 10% owned by the same Ghanaian-based consultant. Eos, Eos Delaware, PBOG, Plethora Energy and EAOG are collectively referred to as the Company's "Subsidiaries."

Business

The Company is in the business of acquiring, exploring and developing oil and gas-related assets.

Basis of Presentation

The unaudited condensed consolidated financial statements have been prepared by Eos Petro, Inc. (the "Company"), pursuant to the rules and regulations of the Securities and Exchange Commission. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the financial condition of the Company and its operating results for the respective periods. The condensed consolidated balance sheet at December 31, 2015 has been derived from the Company's audited consolidated financial statements. Certain information and footnote disclosures normally present in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2015, filed with the Securities and Exchange Commission. The results for the six months ended June 30, 2016 are not necessarily indicative of the results to be expected for the full year ending December 31, 2016.

Going Concern

The accompanying consolidated financial statements have been prepared under the assumption that the Company will continue as a going concern. Such assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As of June 30, 2016 and December 31, 2015, the Company had a stockholders' deficit of $24,444,090 and $28,087,526, respectively; for the six months ended June 30, 2016 and for the year ended December 31, 2015, reported a net loss of $12,052,513 and $35,453,024, respectively; and had negative cash flows from operating activities of $317,515 and $1,420,003, respectively. In addition, the Company may have become obligated to pay a $5.5 million termination fee under the "Dune Merger Agreement," as defined in Note 9 below (the "Parent Termination Fee," as more fully defined in the Dune Merger Agreement) (see Note 9) and $4 million that may be due under a structuring fee with GEM Global Yield Fund ("GEM"). Furthermore, $8,250,000 of LowCal Convertible and Promissory Notes became due on May 1, 2016 and are therefore now due and payable. Management estimates the Company's capital requirements for the next twelve months, including drilling and completing wells for the Company's oil and gas "Works Property" located in Illinois and possible acquisitions, will total approximately $2,500,000, excluding any amounts that may be due to Dune Energy, Inc. under the Dune Merger Agreement or a $4 million structuring fee that may be due to GEM. Errors may be made in predicting and reacting to relevant business trends and the Company will be subject to the risks, uncertainties and difficulties frequently encountered by early-stage companies. The Company may not be able to successfully address any or all of these risks and uncertainties. Failure to adequately do so could cause the Company's business, results of operations, and financial condition to suffer. As a result, management has concluded that there is substantial doubt about the Company's ability to continue as a going concern. In addition, the Company's independent registered public accounting firm, in its report on the Company's December 31, 2015 consolidated financial statements, has raised substantial doubt about the Company's ability to continue as a going concern. The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern and do not include any adjustments that may result from the outcome of this uncertainty.

The Company's ability to continue as a going concern is an issue due to its net losses and negative cash flows from operations, and its need for additional financing to fund future operations. The Company's ability to continue as a going concern is subject to its ability to obtain necessary funding from outside sources, including the sale of its securities or obtaining loans from investors or financial institutions. There can be no assurance that such funds, if available, can be obtained on terms reasonable to the Company. Any debt financing or other financing of securities senior to common stock that the Company is able to obtain will likely include financial and other covenants that will restrict the Company's flexibility. At a minimum, the Company expects these covenants to include restrictions on its ability to pay dividends on its common stock in the case of debt financing, or cause substantial dilution for stockholders in the case of convertible debt and equity financing. Any failure to comply with these covenants would have a material adverse effect on the Company's business, prospects, financial condition, results of operations and cash flows.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of our wholly owned and majority owned subsidiaries. Intercompany transactions and balances have been eliminated. Management evaluates its investments on an individual basis for purposes of determining whether or not consolidation is appropriate.

Basic and Diluted Earnings (Loss) Per Share

Earnings per share is calculated in accordance with the ASC 260-10, Earnings Per Share. Basic earnings-per-share is based upon the weighted average number of common shares outstanding. Diluted earnings-per-share is based on the assumption that all dilutive convertible notes, stock options and warrants were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. The following potentially dilutive shares were excluded from the shares used to calculate diluted earnings per share as their inclusion would be anti-dilutive.

	June 30,
	2016		2015
Options		5,825,000		1,325,000
Warrants		9,279,992		16,202,992
Convertible notes		2,000,000		2,000,000
Total		17,104,992		19,527,992

Management Estimates

The preparation of financial statements in conformity with generally accepted accounting principles 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. Significant estimates reflected in the consolidated financial statements include, but are not limited to, amortization and depletion allowances, the recoverability of the carrying amount and estimated useful lives of long-lived assets, asset retirement obligations, the valuation of equity instruments issued in connection with financing transactions and share-based compensation, and assumptions used in valuing derivative liabilities. Changes in facts and circumstances may result in revised estimates. Actual results could differ from those estimates.

Full Cost Method of Accounting for Oil and Gas Properties

The Company has elected to utilize the full cost method of accounting for its oil and gas activities. In accordance with the full cost method of accounting, the Company capitalizes all costs associated with acquisition, exploration and development of oil and natural gas reserves, including leasehold acquisition costs, geological and geophysical expenditures, lease rentals on undeveloped properties and costs of drilling of productive and non-productive wells into the full cost pool on a country by country basis. Capitalized costs of oil and gas properties, including the estimated future costs to develop proved reserves, are amortized on the unit-of-production method using estimates of proved reserves once proved reserves are determined to exist.

Capitalized oil and gas property costs within a cost center are amortized on an equivalent unit-of-production method. The equivalent unit-of-production rate is computed on a quarterly basis by dividing production by proved oil and gas reserves at the beginning of the quarter then applying such amount to capitalized oil and gas property costs, which includes estimated asset retirement costs, less accumulated amortization, plus the estimated future expenditures (based on current costs) to be incurred in developing proved reserves, net of estimated salvage values.

Full Cost Ceiling Test

Oil and gas properties without estimated proved reserves are not amortized until proved reserves associated with the properties can be determined or until impairment occurs. At the end of each reporting period, the unamortized costs of oil and gas properties are subject to a "ceiling test" which limits capitalized costs to the sum of the estimated future net revenues from proved reserves, discounted at 10% per annum to present value, based on current economic and operating conditions, adjusted for related income tax effects. If the net capitalized costs exceed the cost center ceiling, the excess is recognized as an impairment of oil and gas properties. An impairment recognized in one period may not be reversed in a subsequent period even if higher oil and gas prices increase the cost center ceiling applicable to the subsequent period.

The estimated future net revenues used in the ceiling test are calculated using average quoted market prices for sales of oil and gas on the first calendar day of each month during the preceding 12-month period prior to the end of the current reporting period. Prices are held constant indefinitely and are not changed except where different prices are fixed and determinable from applicable contracts for the remaining term of those contracts. Prices used in the ceiling test computation do not include the impact of derivative instruments because the Company elected not to meet the criteria to qualify its derivative instruments for hedge accounting treatment.

The Company assesses oil and gas properties at least quarterly to ascertain whether impairment has occurred. In assessing impairment, the Company considers factors such as historical experience and other data such as primary lease terms of the property, average holding periods of unproved property, and geographic and geologic data. Through June 30, 2016, the Company has not experienced any impairment of its capitalized oil and gas properties.

The Company recorded depletion expense of $10,709 and $22,322 for the six months ended June 30, 2016 and 2015, respectively.

Proceeds from the sale of oil and gas properties are recognized as a reduction of capitalized oil and gas property costs with no gain or loss recognized, unless the sale significantly alters the relationship between capitalized costs and proved reserves of oil and gas attributable to a cost center. Through June 30, 2016, the Company has not had any sales of oil and gas properties that significantly alter that relationship.

Asset Retirement Obligation

The Company accounts for its future asset retirement obligations ("ARO") by recording the fair value of the liability during the period in which it was incurred. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. The increase in carrying value of a property associated with the capitalization of an ARO is included in proven oil and gas properties in the balance sheets. The ARO consists of costs related to the plugging of wells, removal of facilities and equipment, and site restoration on its oil and gas properties. The asset retirement liability is accreted to operating expense over the useful life of the related asset. As of June 30, 2016 and December 31, 2015, the Company had an ARO of $97,138 and $92,512, respectively.

Oil and Gas Revenue

Revenues are recognized when hydrocarbons have been delivered, the customer has taken title and collection is reasonably assured.

Share-Based Compensation

The Company periodically issues stock options and warrants to employees and non-employees in capital raising transactions, for services and for financing costs. The Company accounts for share-based payments under the guidance as set forth in the Share-Based Payment Topic of the FASB Accounting Standards Codification, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees, officers, directors, and consultants, including employee stock options, based on estimated fair values. The Company estimates the fair value of share-based payment awards to employees and directors on the date of grant using an option-pricing model, and the value of the portion of the award that is ultimately expected to vest is recognized as expense over the required service period in the Company's Statements of Operations. The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance where the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) the date at which the necessary performance to earn the equity instruments is complete. Stock-based compensation is based on awards ultimately expected to vest and is reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, as necessary, in subsequent periods if actual forfeitures differ from those estimates.

Fair Value Measurements

The Company applies the provisions of ASC 820-10, Fair Value Measurements and Disclosures. ASC 820-10 defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The three levels of valuation hierarchy are defined as follows:

Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.

Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents and current liabilities, including notes payable and convertible notes, each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest.

The Company uses Level 2 inputs for its valuation methodology for the warrant derivative liabilities as their fair values were determined by using a probability weighted average Black-Scholes-Merton pricing model based on various assumptions. The Company's derivative liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as adjustments to fair value of derivatives.

Concentrations

The Company maintains cash balances at a bank in California. The account is insured by the Federal Deposit Insurance Corporation up to $250,000 per institution. At June 30, 2016 and December 31, 2015, the Company did not have amounts on deposit that exceeded the FDIC-insured limits.

The future results of the Company's oil and natural gas operations will be affected by the market prices of oil and natural gas. The availability of a ready market for oil and natural gas products in the future will depend on numerous factors beyond the control of the Company, including weather, imports, marketing of competitive fuels, proximity and capacity of oil and natural gas pipelines and other transportation facilities, any oversupply or undersupply of oil, natural gas and liquid products, the regulatory environment, the economic environment, and other regional and political events, none of which can be predicted with certainty.

One customer accounts for 100% of oil sales for the six months ended June 30, 2016 and 2015. The Company's oil and gas properties are located in Illinois.

Derivative Financial Instruments

The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. The Company uses a probability weighted average Black-Scholes-Merton model to value the derivative instruments. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under current U.S. GAAP and replace it with a principle based approach for determining revenue recognition. ASU 2014-09 will require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract. The ASU also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted only in annual reporting periods beginning after December 15, 2016, including interim periods therein. Entities will be able to transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. The Company is in the process of evaluating the impact of ASU 2014-09 on the Company's financial statements and disclosures.

In February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02, Leases. ASU 2016-02 requires a lessee to record a right of use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. ASU 2016-02 is effective for all interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is in the process of evaluating the impact of ASU 2016-02 on the Company's financial statements and disclosures.

In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern, which provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. ASU 2014-15 requires management to perform interim and annual assessments of an entity's ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity's ability to continue as a going concern. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods thereafter. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of ASU 2014-15 on the Company's financial statements and disclosures.

Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company's present or future financial statements.

NOTE 3 - LOWCAL CONVERTIBLE AND PROMISSORY NOTES PAYABLE

LowCal convertible and promissory notes payable at June 30, 2016 and December 31, 2015 are as follows:

	June 30,		December 31,
	2016		2015
LowCal Convertible Note	$	5,000,000	$	5,000,000
LowCal Promissory Note		3,250,000		3,250,000
Total	$	8,250,000	$	8,250,000

On February 8, 2013, and as subsequently amended through August 14, 2015, the Company and Eos entered into: (i) a Loan Agreement and Secured Promissory Note; (ii) a Lock-Up/Leak-Out Agreement; (iii) a Guaranty; (iv) a Series B Convertible Preferred Stock Purchase Agreement; and (v) a Leasehold Mortgage, Assignment, Security Agreement and Fixture Filing (collectively referred to as the "Loan Agreements"), with LowCal Industries, LLC and LowCal [EOS/Petro], LLC (collectively referred to as " LowCal "). Pursuant to the Loan Agreements, LowCal agreed to purchase from Eos, for $4,980,000, promissory notes in the aggregate principal amount of $5,000,000 (of which $1,500,000 was advanced in 2014 and $3,500,000 in prior years), with interest at 10% per annum (the "LowCal Loan"). At LowCal's option, LowCal can elect to convert any part of the principal of the LowCal Loan into shares of the Company's common stock at a conversion price of $2.50 per share. On January 13, 2015, the Company and LowCal amended the Loan Agreements, including the LowCal Loan, and entered into a new unsecured promissory note in the principal amount of $3,250,000, with interest at 10% per annum (the "Second LowCal Note"), $750,000 of which was advanced to the Company in 2014 and was recognized as included in the principal amount of the Second LowCal Note. As part of the amendment, LowCal forgave approximately $667,000 of accrued interest on the LowCal Loan and eliminated all interest on the LowCal Loan going forward. As amended, there was no remaining accrued and outstanding interest on the LowCal Loan.

The LowCal Loan is secured by: (i) a mortgage, lien on, assignment of and security interest in and to oil and gas properties; (ii) a guaranty by the Company as a primary obligor for payment of Eos' obligations when due; and (iii) a first priority position or call right for an amount equal to the then outstanding principal balance of and accrued interest on the LowCal Loan on the first draw down by either Eos or the Company from a commitment letter entered into with a prospective investor, should the Company or Eos be in a position to draw on this facility.

As amended, the maturity dates of both the LowCal Loan and the Second LowCal Note are May 1, 2016. The LowCal Loan and the Second LowCal Note are currently in default. The Second LowCal Note must also be repaid upon the earlier to occur of: (i) the Company closing certain potential acquisition transactions, or (ii) the Company closing a financing for a minimum of $20,000,000. The parties have agreed that, upon repayment in full of the Second LowCal Note, LowCal will forever release, cancel and terminate all of its mortgages and any other liens against the Company.

On March 11, 2016, the Company and LowCal amended the LowCal Agreements (the "Seventh Amendment to the LowCal Agreements"). Under the Seventh Amendment to the LowCal Agreements: (i) the maturity dates of the LowCal Loan and Second LowCal Note was extended to May 1, 2016; (ii) the expiration date of LowCal's warrants was extended to May 1, 2020; (iii) the Company will issue to LowCal [EOS/PETRO], LLC ("LowCal") an additional 75,000 restricted shares of the Company's common stock; and (iv) the parties agreed that if: (1) the Company pays off the $3,250,000 principal balance of the Second LowCal Note in full, plus any accrued and unpaid interest, and (2) either: (A) the Company closes a transaction where it acquires at least $10,000,000 in additional assets, through an asset purchase, stock purchase, merger, or other similar transaction, which shall be determined by generally accepted accounting principles, or (B) the Company successfully uplists its common stock to a national exchange market (NASDAQ or the New York Stock Exchange), then the following will automatically occur: (1) the conversion price of the LowCal Loan will be reduced from $2.50 per share to $2.00 per share, and (2) any outstanding principal and interest due on the LowCal Loan will be converted at a price of $2.00 per share into restricted shares of the Company's common stock, which shall be issued to LowCal.

The value of the 75,000 shares issued with the Seventh Amendment to the LowCal Agreements was $300,000 which was the fair value of the shares on March 11, 2016. The $300,000 was charged to financing cost during the six months ended June 30, 2016. In addition, the Company took a charge to earnings of $188,378 during the six months ended June 30, 2016 related to the extension of the expiration date of 1,000,000 warrants previously issued to LowCal. The charge is the difference in fair value of the warrants using the old expiration date and the new expiration date using the Black-Scholes option- pricing model for options with the following assumptions:

	·	Expected life of 2.81 to 4.14 years;
	·	Volatility of 174%;
	·	Dividend yield of 0%; and
	·	Risk free interest rate of 1.16%.

NOTE 4 – NOTES PAYABLE

Notes payable at June 30, 2016 and December 31, 2015 are as follows:

	June 30,			December 31,
	2016			2015

Secured note payable, at 18% (1)	$	600,000		$	600,000
Note payable at 4%, (2)		653,000			453,000
Note payable, at 2%, (3)		100,000			100,000
Note payable at 10%, (4)		150,000			150,000
Notes payable at 4% to 5%, (5)		130,000			30,000
Note payable at 10%, (6)		-			50,000
Note payable at 10%, (7)		100,000			-
Notes payable at 1%, (8)		75,000			-
Note payable at 10%, (9)		200,000			-
Total notes payable		2,008,000			1,383,000
Debt discount		(204,613	)		-
	$	1,803,387		$	1,383,000

(1) On February 16, 2012, and as amended through January 1, 2016, Eos entered into a Secured Promissory Note with Vatsala Sharma ("Sharma") for a secured loan for $600,000 at an interest rate of 18% per annum (as amended, the "Sharma Loan"). The Sharma Loan is secured by a blanket security interest in all of Eos' assets, and newly acquired assets, a mortgage on the Works Property, a 50% security interest in Nikolas Konstant's personal residence, and his personally held shares in a non-affiliated public corporation. As amended, the maturity date of the Sharma Loan is July 1, 2016. As additional consideration for entering into the Sharma Loan, the Company issued 400,000 shares of common stock. Under the terms of the Sharma Loan, Sharma will receive an additional 275,000 shares of the Company's common stock as of January 1, 2016. The value of the 275,000 shares issued to Sharma was $1,100,000, which was the fair value of the shares on January 1, 2016. Such amount was charged to financing cost during the six months ended June 30, 2016. This note is currently in default.

(2) On September 30, 2014, the Company issued an unsecured promissory note to Bacchus Investors, LLC ("Bacchus") for $323,000, with interest at 4%. During 2015, the Company issued $130,000 of additional unsecured promissory notes to Bacchus with interest at 10%. In addition, in 2016, the Company issued additional unsecured promissory notes of $200,000 to Bacchus with interest at 10% for a total outstanding of $653,000 at June 30, 2016. The unsecured promissory notes are due upon demand.

(3) On October 9, 2014, the Company issued an unsecured promissory note to Ridelinks, Inc. for $200,000, with interest at 2% and a maturity date of March 15, 2015 that was extended to June 15, 2015 and includes an exit fee of $30,000. The maturity date has subsequently been extended to April 30, 2016. In consideration for extending the due date of this note per an agreement dated March 25, 2016, the Company issued to Ridelinks 40,000 shares of the Company's common stock. The value of the 40,000 shares issued to Ridelinks was $150,000 which was the fair value of the shares on March 26, 2016. The $150,000 was charged to financing cost during the six months ended June 30, 2016. This note is currently in default.

(4) On April 15, 2015, the Company issued an unsecured promissory note to Clearview Partners II, LLC ("Clearview") for $150,000, with interest at 10%. The Company and Clearview executed letter agreements extending the maturity date of the unsecured promissory note to July 1, 2016. This note is currently in default.

(5) Unsecured promissory notes, with interest ranging from 4% to 5% per annum, maturing through January 1, 2017.

(6) On December 14, 2015, the Company issued an unsecured promissory note to an individual for $50,000, with interest at 10% and a maturity date of July 1, 2016. On January 20, 2016, the Company issued an additional unsecured promissory note to this individual for $50,000, with interest at 10% and a maturity date of July 1, 2016. As of June 30, 2016, the total of $100,000 has fully been repaid.

(7) On February 18, 2016, the Company issued an unsecured promissory note in settlement of accounts payable of $120,000, with interest at 10%. $20,000 had been repaid on the note with the remaining principal due on July 1, 2016. This note is currently in default.

(8) On May 19, 2016, the Company issued two secured promissory notes for $37,500 each, with interest at 1% and a maturity date of July 6, 2016. In connection with these promissory notes, the Company also issued to the noteholders 750,000 shares of the Company's common stock valued at $870,000. In addition, for one note, Plethora Enterprises, LLC ("Plethora"), the Company's majority stockholder, issued the noteholder 250,000 shares of the Company's common stock valued at $290,000. The value of the common stock was based on the closing stock price on the date of the agreements and was recorded as a discount of $75,000 and the reminder of $1,085,000 was charged to financing costs. The discount of $75,000 will be amortized over the term of the notes. In July 2016, $20,000 of these notes were repaid. These notes are currently in default.

(9) On June 27, 2016, the Company issued a secured promissory note to an investor for $200,000, with interest at 10% and a maturity date of October 31, 2016. In connection with this promissory note, the Company also issued to the investor 200,000 warrants to purchase shares of the Company's common stock with an exercise price of $1.00 per share with a fair value of $173,787 and 300,000 shares of the Company's common stock valued at $300,000.

The fair values of the warrants were determined using the Black-Scholes option pricing model with the following assumptions:

Expected life of 3.0 years

Volatility of 174%;

Dividend yield of 0%;

Risk free interest rate of 0.71%

The aggregate relative fair value of the warrants were valued at $92,987 and was recorded as a discount on the promissory note and as additional paid in capital. The value of the common stock of $300,000 first recorded as a discount of $107,012, with the balance of $192,987 was charged to financing costs. The combined total discount is $200,000, and will be amortized over the term of the note.

During six months ended June 30, 2016, the Company recorded valuation discount of $275,000 and recognized amortization of debt discounts of $70,387 which is included in interest expense in the accompanying consolidated statement of operations. As of June 30, 2016, the unamortized valuation discount was 204,613.

The weighted average interest rate at June 30, 2016 for the outstanding notes payable is 11.4%

NOTE 5 – NOTES PAYABLE, RELATED PARTY

The Company has been receiving advances from Plethora Inc, a company wholly owned by Nickolas Konstant, the Company's majority shareholder and CEO. All of the loans extended by Plethora to the Company accrue interest at an annual rate of 10%, and are due on July 1, 2016. At December 31, 2015, the aggregate principal balance due under these notes was $1,208,160. Subsequent to June 30, 2016, the entire balance due on this note payable was converted into shares of common stock.

During the six months ended June 30, 2016 and 2015, Plethora sold an aggregate of 351,515 and 750,000 of its shares of the Company's restricted common stock in private sales. Following the private sales transactions, Plethora loaned all of the aggregate proceeds from the private sale of stock of to the Company, and concurrently, the Company issued Plethora separate unsecured promissory notes for the aggregate principal amount received. The proceeds from these sales of $125,000 were loaned to the Company.

During the six months ended June 30, 2016 and 2015, of the shares of common stock sold by Plethora as discussed above, 251,515 and 750,000 shares were sold to either affiliates of the Company, vendors, or individuals with whom the Company had a past business relationship. The Company considered the provisions of Staff Accounting Bulletin ("SAB") Topic 5T, Accounting for Expenses or Liabilities Paid by Principal Stockholders, and determined that the difference between the quoted market price of the shares and the sales price to the buyers as additional compensation cost and a contribution to capital by a major related party stockholder (Plethora). As such, the Company recorded charges of $931,060 and 3,675,000 during the six months ended June 30, 2016 and 2015 relating to the difference between the sales price and the fair market price of the shares on the date of the transaction

NOTE 6 – DERIVATIVE LIABILITIES

Under authoritative guidance used by the FASB on determining whether an instrument (or embedded feature) is indexed to an entity's own stock, instruments which do not have fixed settlement provisions are deemed to be derivative instruments. In August 2014, the Company issued warrants to purchase an aggregate of 1,775,000 shares of the Company's common stock, to a former note holder and certain other related parties. The warrant agreements included an anti-dilution provision that would reduce the exercise price if the Company were to issue additional equities at a price below the exercise price which is in effect at the time of the issuance of the additional equities. The Company determined that these warrants met the definition of a derivative and are to be re-measured at the end of each reporting period with the change in fair value reported in the statement of operations.

As of June 30, 2016 and December 31, 2015, the derivative liabilities were valued using a probability weighted average Black-Scholes-Merton pricing model with the following assumptions:

	June 30,			December 31,
	2016			2015
Exercise Price	$	2.00		$	2.00
Stock Price	$	1.00		$	4.00
Risk-free interest rate		0.73	%		1.06	%
Expected life of the options (years)		2.14			2.64
Expected volatility		174	%		180	%
Expected dividend yield		0	%		0	%
Expected forfeitures		0	%		0	%

Fair Value	$	1,275,788		$	6,381,553

The risk-free interest rate was based on rates established by the Federal Reserve Bank. The Company uses the historical volatility of its common stock to estimate the future volatility for its common stock. The expected life of the warrants was determined by the expiration dates of the warrants. The expected dividend yield was based on the fact that the Company has not paid dividends to its common stockholders in the past and does not expect to pay dividends to its common stockholders in the future.

The Company recorded an adjustment to the fair value of derivative liabilities of $5,105,765 and $5,936,900 for six months ended June 30, 2016 and 2015, respectively.

NOTE 7 - RELATED PARTY TRANSACTIONS

Plethora Enterprises, LLC

The Company has a consulting agreement with Plethora, which is solely owned by Nikolas Konstant, the Company's Chairman of the Board and Chief Financial Officer. Under the consulting agreement, for the six months ended June 30, 2016 and 2015, the Company recorded compensation expense of $180,000 and $180,000, respectively. At June 30, 2016 and December 31, 2015, there was $360,000 and $180,000, respectively, due to Mr. Konstant under the Plethora consulting agreement.

In addition, Plethora has made advances to the Company as described in Note 5.

NOTE 8- STOCKHOLDERS' DEFICIT

During the six months ended the Company issued 100,000 shares to a consultant. The shares were valued at $175,000 based on the market price of the Company's common stock at the date of issuance.

NOTE 9 - STOCK OPTIONS AND WARRANTS

Option Activity

A summary of the option activity is presented below:

					Weighted
			Weighted		Average
			Average		Remaining		Aggregate
	Number of		Exercise		Contractual		Intrinsic
	Options		Price ($)		Life (in years)		Value ($)
Outstanding, December 31, 2015		1,325,000		2.50		3.08		2,186,250
Granted		4,500,000		1.00
Exercised		-
Forfeited/Canceled		-
Outstanding, June 30, 2016		5,825,000		1.34		4.08		-
Exercisable, June 30, 2016		2,825,000		1.70		3.59		-

At June 30, 2016, the intrinsic value of outstanding and exercisable stock options was zero.

The following table summarizes information about options outstanding at June 30, 2016:

Options Outstanding

Weighted

Average

Exercise

Number of

Remaining

Exercise

Price ($)

Life (Years)

Price ($)

1.00

4,500,000

4.54

1.00

2.50

1,325,000

2.51

2.50

The following table summarizes information about options exercisable at June 30, 2016:

Options Exercisable

Weighted

Average

Exercise

Number of

Remaining

Exercise

Price ($)

Life (Years)

Price ($)

1.00

1,500,000

4.54

1.00

2.50

1,325,000

2.51

2.50

In connection with Mr. Alan Gaines' employment as the Company's President, the Company and Mr. Gaines entered into a Stock Option Agreement, signed on December 16, 2015 and effective January 11, 2016 ("Effective Date"), whereby the Company granted Mr. Gaines options to purchase up 4,500,000 shares of the Company's restricted common stock, all of which have an exercise price of $1.00 per share and expire in five years. The Company determined the total fair value at grant date was $17,627,047, calculated using the Black-Scholes option pricing model. The options vest as follows: 1,500,000 of the shares vested on the Effective Date; 1,500,000 of the shares shall vest on the first anniversary of the Effective Date; and 1,500,000 of the shares shall vest on the second anniversary of the Effective Date.

The assumptions used in calculating the fair value of options granted using the Black-Scholes option pricing model for options are as follows:

Expected life of 5.0 years;

Volatility of 179%;

Dividend yield of 0%; and

Risk free interest rate of 1.58%.

During the six months ended June 30, 2016 and 2015, the Company recorded $10,040,072 and $4,673,412, respectively, of share based compensation relating to the vesting of options granted in 2016 and other previously granted options. As of June 30, 2016, the unamortized balance related to future stock based compensation for options previously granted but not vested is $7,586,975.

During the six months ended June 30, 2016, the Company extended the terms of 50,000 option by five years. The change in fair value between the fair value of the options using the old expiration date and the new expiration date was $93,714. This amount was recorded as an expense during the period as the options have fully vested.

Warrant Activity

A summary of warrant activity is presented below:

					Weighted
			Weighted		Average
			Average		Remaining		Aggregate
	Number of		Exercise		Contractual		Intrinsic
	Warrants		Price ($)		Life (in years)		Value ($)
Outstanding, December 31, 2015		8,612,992		3.25		2.66		11,237,988
Granted		667,000		1.86
Exercised		-
Forfeited/Canceled		-
Outstanding, June 30, 2016		9,279,992		3.12		2.29		-
Exercisable, June 30, 2016		9,279,992		3.12		2.29		-

At June 30, 2016, the intrinsic value of outstanding and exercisable stock options was zero. The following tables summarize information about warrants outstanding and exercisable at June 30, 2016:

Warrants Outstanding and Exercisable
					Weighted		Weighted
					Average		Average
Exercise		Number of			Remaining		Exercise
Price ($)		Shares			Life (Years)		Price ($)
	1.00		250,000			3.34		1.00
	2.00		2,875,000	(1)		2.59		2.00
	2.50		3,206,992			3.11		2.50
	3.00		1,353,000			0.49		3.00
	4.00		75,000			2.09		4.00
	6.00		20,000			0.84		6.00
	7.15		1,500,000			2.03		7.15
			9,279,992

(1) Includes 1,775,000 warrants that include an anti-dilution provision that would reduce the exercise price if the Company were to issue additional equities at a price below the exercise price which is in effect at the time of the issuance of the additional equities. See Note 6. The current exercise price for these 1,775,000 warrants is $2.00 per share.

Warrants issued to consultants

During the six months ended June 30, 2016, the Company issued a total of 467,000 warrants to two consultants and the CEO with an aggregate fair value of $1,164,738 which was recorded as expense during the six months ended June 30, 2016. The fair values of the warrants were determined using the Black-Scholes option pricing model with the following assumptions:

Expected life of 5.0 years

Volatility of 171%-176%;

Dividend yield of 0%;

Risk free interest rate of 1.21% - 1.39%

NOTE 10 - COMMITMENTS AND CONTINGENCIES

Dune Merger Agreement

On September 17, 2014 the Company entered into an Agreement and Plan of Merger with Dune Energy Inc. ("Dune") and Eos Delaware, dated as of September 16, 2014, as subsequently amended (the "Dune Merger Agreement"), and on the terms and subject to the conditions described therein, Eos Delaware agreed to conduct a cash tender offer to purchase all of Dune's issued and outstanding shares of common stock at a price of $0.30 per share in cash, without interest, upon the terms and conditions set forth in the Dune Merger Agreement.

Due to the severe decline in oil prices, the Company's sources of capital for the merger and tender offer were withdrawn, and the Company was unable to complete the merger and tender described in the Dune Merger Agreement on the terms originally negotiated. After a series of amendments to the Dune Merger Agreement while the parties continued to try to negotiate financing terms, the tender offer ultimately expired on February 27, 2015.

Subsequently, on March 4, 2015, Dune provided the Company with notice of its decision to terminate the Dune Merger Agreement in accordance with the terms thereof, and demanded the Parent Termination Fee (as defined in the Dune Merger Agreement) of $5,500,000 in cash, and reimbursement for certain unidentified expenses incurred by Dune. Dune has threatened to bring litigation to collect these amounts in connection with its contention that the Company breached the Dune Merger Agreement and is entitled to the Parent Termination Fee. The Company has accordingly recorded a liability for $5,500,000 related to the Parent Termination Fee. No lawsuit has been filed to date against the Company for the Parent Termination Fee, and the Company would vigorously defend itself, should any action ever be brought. The Company believes that it has equitable and legal defenses against payment of all or a portion of the Parent Termination Fee.

GEM Global Yield Fund

Pursuant to the financing commitment, dated August 31, 2011, and the Common Stock Purchase Agreement and Registration Rights Agreement, both dated as of July 11, 2013, entered into between the Company and GEM (collectively referred to as the "Commitment Agreements"), the Company was required to use commercially reasonable efforts to uplist to the NYSE, NASDAQ or AMEX stock exchange within 270 days of July 11, 2013, and then to file a registration statement covering the shares and warrants referenced in the Commitment Agreements within 30 days of uplisting. The Company further agreed to pay to GEM a structuring fee equal to $4 million, which was to be paid on the 18 month anniversary of July 11, 2013 regardless of whether the Company had drawn down from the Commitment at that time. At the Company's election, the Company may elect to pay the structuring fee in registered shares of its common stock of the Company at a per share price equal to 90% of the average closing trading price of the Company's common stock for the thirty-day period immediately prior to the 18-month anniversary of July 11, 2013. As of January 11, 2015, the 18-month anniversary date of the agreement, the Company had not met this requirement and may now become liable for payment of this structuring fee to GEM. As of December 31, 2015, the Company has recorded an accrued structuring fee of $4 million.

NOTE 11– SUBSEQUENT EVENTS

Subsequent to June 30, 2016, the Company converted $2,371,646 of debt into 2,371,646 shares of the Company's common stock.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

This Report contains projections, expectations, beliefs, plans, objectives, assumptions, descriptions of future events or performances and other similar statements that constitute "forward looking statements" that involve risks and uncertainties, many of which are beyond our control. These statements are often, but not always, made through the use of words or phrases such as "may," "should," "could," "predict," "potential," "believe," "will likely result," "expect," "will continue," "anticipate," "seek," "estimate," "intend," "plan," "projection," "would" and "outlook," and similar expressions. All statements, other than statements of historical facts, included in this Report regarding our expectations, objectives, assumptions, strategy, future operations, financial position, estimated revenue or losses, projected costs, prospects and plans and objectives of management are forward-looking statements. All forward-looking statements speak only as of June 30, 2016. Our actual results could differ materially and adversely from those anticipated in such forward-looking statements as a result of certain factors, including, but not limited to, those set forth in this Report. Important factors that may cause actual results to differ from projections include, but are not limited to, for example: adverse economic conditions, inability to raise sufficient additional capital to operate our business, delays, cancellations or cost overruns involving the development or construction of oil wells, the vulnerability of our oil-producing assets to adverse meteorological and atmospheric conditions, unexpected costs, lower than expected sales and revenues, and operating defects, adverse results of any legal proceedings, the volatility of our operating results and financial condition, inability to attract or retain qualified senior management personnel, expiration of certain governmental tax and economic incentives, and other specific risks that may be referred to in this Report. It is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained or implied in any forward-looking statement. We undertake no obligation to update any forward-looking statements or other information contained herein. Stockholders and potential investors should not place undue reliance on these forward-looking statements. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements in this Report are reasonable, we cannot assure stockholders and potential investors that these plans, intentions or expectations will be achieved. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.

Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.

You should read the following discussion of our financial condition and results of operations together with the unaudited financial statements and the notes to the unaudited financial statements included in this Report. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those anticipated in these forward-looking statements.

Overview

On October 12, 2012, pursuant to the Merger Agreement, entered into by and between the Company, Eos and Company Merger Sub, dated July 16, 2012, Company Merger Sub merged into Eos, with Eos being the surviving entity in the Merger. As a result of the Merger, Eos became a wholly owned subsidiary of the Company. Upon the closing of the Merger, each issued and outstanding share of common stock of Eos was automatically converted into the right to receive one share of our Series B preferred stock. At the closing, we issued 37,850,044 shares of Series B preferred stock to the former Eos stockholders, subject to the rights of the stockholders of Eos to exercise and perfect their appraisal rights under applicable provisions of Delaware law to accept cash in lieu of shares of the equity securities of the Company.

Effective as of May 20, 2013, the Company changed its name to Eos Petro, Inc. (it previously had been named "Cellteck, Inc. ").

We are presently focused on the acquisition, exploration, development, mining, operation and management of medium-scale oil and gas assets. Our primary activities as of June 30, 2016, have centered on organizing activities but have also included the acquisition of existing assets, evaluation of new assets to be acquired, and pre-development activities for existing assets.

Our continuing development of oil and gas projects will require the acquisition of land rights, mining equipment and associated consulting activities required to convert the fields into revenue generating assets. Generally, financing is available for these initial project costs where such financing is secured by the assets themselves. From time to time. However, our activities may require senior credit facilities, convertible securities and the sale of common and preferred equity at the corporate level.

In connection with our business, we will likely engage consultants with expertise in the oil and gas industries, project financing and oil and gas operations.

The financial statements included as part of this Report and the financial discussion reflect the performance of Eos and the Company, which primarily relates to Eos' Works Property oil and gas assets located in Illinois.

On September 17, 2014, we entered into the Dune Merger Agreement with Dune, and Eos Delaware agreed to conduct a cash tender offer to purchase all of Dune's issued and outstanding shares of common stock at $0.30 per share. In addition, we agreed to provide Dune with sufficient funds to pay in full and discharge all of Dune's outstanding indebtedness and agreed to assume liability for all of Dune's trade debt, as well as fees and expenses related to the Dune Merger Agreement and transactions contemplated therein. At the commencement of the merger and tender offer, we estimated that the total amount of cash required to complete the contemplated transactions was approximately $140 million dollars. The tender offer was not subject to a financing contingency. Following successful completion of the offer, Eos Delaware would have been merged into Dune, with Dune surviving as a direct wholly-owned subsidiary of the Company.

Due to the severe decline in oil prices, our sources of capital for the merger and tender offer were withdrawn, and we were unable to complete the merger and tender described in the Dune Merger Agreement on the terms originally negotiated. After a series of amendments to the Dune Merger Agreement while the parties continued to try to negotiate financing terms, the tender offer ultimately expired on February 27, 2015. After the expiration of the tender offer, Dune was notified by us that shares of Dune's common stock would be returned to the tendering stockholders.

Subsequently, on March 4, 2015, Dune provided us with notice of its decision to terminate the Dune Merger Agreement in accordance with the terms thereof, and demanded the Parent Termination Fee (as defined in the Dune Merger Agreement) of $5,500,000 in cash, and reimbursement for certain unidentified expenses incurred by Dune. Dune has threatened to bring litigation to collect these amounts in connection with its contention that the Company breached the Dune Merger Agreement and is entitled to the Parent Termination Fee. The Company has accordingly recorded a liability for $5,500,000 related to the Parent Termination Fee. No lawsuit has been filed to date against the Company for the Parent Termination Fee, and the Company would vigorously defend itself, should any action ever be brought. The Company believes that it has equitable and legal defenses against payment of all or a portion of the Parent Termination Fee.

Comparison of the three months ended June 30, 2016 to June 30, 2015.

	For the Three Months Ended June 30,
	2016							2015
					% of							% of			Dollar			Percentage
	Amount				Revenue			Amount				Revenue			change			Change
Revenue		$	17,091			100.0	%		$	70,900			100.0	%		(53,809	)		-75.9	%
Lease operating expense			9,655			56.5	%			53,228			75.1	%		(43,573	)		-81.9	%
General and administrative expenses			3,726,252			21802.4	%			6,702,470			9453.4	%		(2,976,218	)		-44.4	%
Other income (expense), net			2,984,799			17464.2	%			3,100,947			4373.7	%		(116,148	)		-3.7	%
Net loss		$	(734,017	)		-4294.8	%		$	(3,583,851	)		-5967.2	%		2,849,834			-79.5	%

Revenue

We primarily generate revenue from the operation of any oil and gas properties that we own or lease and the sale of hydrocarbons delivered to a customer when that customer has taken title. For the three months ended June 30, 2016 and 2015, our primary revenue has come from one source, the Works Property, located in Southern Illinois. Revenue for the three months ended June 30, 2016 and 2015 was $17,091 and $70,900, respectively. The decrease in revenues for the three months ended June 30, 2016 is due to a decrease in the price per barrels sold and a decrease in the number of barrels sold. For the three months ended June 30, 2016, we sold 501 barrels at an average price of $34 per barrel, compared to 1,548 barrels at an average price of $46 per barrel for the three months ended June 30, 2015. The decrease in the barrels produced in 2016 compared to 2015 is due to the wells being shut down in June 2016 due to non-payment to our operator. As disclosed below, our current financial resources are not sufficient to allow us to meet the anticipated costs of our business plan for the next 12 months and we will require additional financing in order to fund our business activities.

Lease operating expenses

Lease operating expenses for oil and gas assets were primarily made up of the Works Property. Lease operating expenses for the three months ended June 30, 2016 and 2015 was $9,655 and $53,228, respectively. The decrease in operating expenses was due to lower cost due to the wells being shut down for longer periods of time in 2016.

General and administrative expenses

General and administrative expenses for the three months ended June 30, 2016 and 2015 were $3,726,252 and $6,702,470, respectively. Our general and administrative expenses have primarily been made up of professional fees (legal and accounting services) required for our organizing activities, acquisition agreements and development agreements. We recognized approximately $515,000, $670,000, and $2,452,000 in professional fees, consulting fees and compensation, respectively, for the three months ended June 30, 2016. We recognized approximately $411,000, $3,825,000, and $2,328,000 in professional fees, consulting fees and compensation, respectively for the three months ended June 30, 2015. Other expenses included are temporary professional staffing, rent, utilities, and other overhead expenses. During the three months ended June 30, 2016, we recorded compensation expense of $2,203,000 related to options that were granted to our new CEO in January 2016 and vesting through January 2018. During the three months ended June 30, 2015, we recorded compensation expense of $2,238,000 related to options that were issued to our CEO in August 2014 and vesting though June 2015. In addition, during the three months ended June 30, 2015, we recognized financing cost of $3,675,000 due to our majority stockholder selling shares of common stock to a consultant at a significant discount to market.

Other income (expenses)

For the three months ended June 30, 2016, net other income was $2,984,799, consisting of interest and finance costs of $1,515,304 and a gain on change in fair value of derivative liability of $4,500,103. Interest and financing costs for the three months ended June 30, 2016 includes a charge to earnings of $1,277,987 related to common stock and warrants being issued with notes payable financing agreements. For the three months ended June 30, 2015, net other income was $3,100,947 consisting of interest and finance costs of $250,933 and a gain on change in fair value of derivative liability of $3,351,880.

Comparison of the six months ended June 30, 2016 to June 30, 2015.

	For the Six Months Ended June 30,
	2016						2015
				% of						% of			Dollar			Percentage
	Amount			Revenue			Amount			Revenue			change			Change
Revenue	$	36,519			100.0	%	$	130,959			100.0	%		(94,440	)		-72.1	%
Lease operating expense		42,329			115.9	%		64,657			49.4	%		(22,328	)		-34.5	%
General and administrative expenses		13,713,233			37551.0	%		17,584,220			13427.3	%		(3,870,987	)		-22.0	%
Structuring fee		0			0.0	%		4,000,000			3054.4	%		(4,000,000	)		N/A
Termination fee		0			0.0	%		5,500,000			4199.8	%		(5,500,000	)		N/A
Other income (expense), net		1,666,530			4563.5	%		5,545,110			4234.2	%		(3,878,580	)		-69.9	%
Net loss	$	(12,052,513	)		-33003.4	%	$	(21,472,808	)		-16396.6	%		9,420,295			-43.9	%

Revenue

We primarily generate revenue from the operation of any oil and gas properties that we own or lease and the sale of hydrocarbons delivered to a customer when that customer has taken title. For the six months ended June 30, 2016 and 2015, our primary revenue has come from one source, the Works Property, located in Southern Illinois. Revenue for the six months ended June 30, 2016 and 2015 was $36,519 and $130,959, respectively. The decrease in revenues for the six months ended June 30, 2016 is due to a decrease in the price per barrels sold and a decrease in the number of barrels sold. For the six months ended June 30, 2016, we sold 1,211 barrels at an average price of $30 per barrel, compared to 2,818 barrels at an average price of $46 per barrel for the six months ended June 30, 2015. The decrease in the barrels produced in 2016 compared to 2015 is due to shutting down the production of the wells for a longer period of time in early 2016 due to cold weather related issues and the wells being shut down in June 2016 due to non-payment to our operator. As disclosed below, our current financial resources are not sufficient to allow us to meet the anticipated costs of our business plan for the next 12 months and we will require additional financing in order to fund our business activities.

Lease operating expenses

Lease operating expenses for oil and gas assets were primarily made up of the Works Property. Lease operating expenses for the six months ended June 30, 2016 and 2015 was $42,329 and $64,657, respectively. The decrease in operating expenses was due to lower cost due to the wells being shut down for longer periods of time in 2016.

General and administrative expenses

General and administrative expenses for the six months ended June 30, 2016 and 2015 were $13,713,233 and $17,584,220, respectively. Our general and administrative expenses have primarily been made up of professional fees (legal and accounting services) required for our organizing activities, acquisition agreements and development agreements. We recognized approximately $1,182,000, $1,727,000, and $10,617,000 in professional fees, consulting fees and compensation, respectively, for the six months ended June 30, 2016. We recognized approximately $526,000, $11,800,000, and $4,910,000 in professional fees, consulting fees and compensation, respectively for the six months ended June 30, 2015. The increase in professional fees was due primarily to costs associated with due diligence for potential acquisitions and financings. The decrease in consulting fees was due primarily to the fact that during the six months ended June 30, 2015, we recorded consulting fees of approximately $8,036,000 associated with warrants to be issued. The increase in compensation was due primarily to the fact that during the six months ended June 30, 2016, we recorded compensation expense of $10,040,000 related to options that were granted to our new CEO in January 2016 and vesting through January 2018. Also, during the six months ended June 30, 2016, we recognized costs of $931,060 due to our majority stockholder selling shares of common stock to entities with which we have current business relationships at a significant discount to market. During the six months ended June 30, 2015, we recorded compensation expense of $4,476,000 related to options that were issued to our CEO in August 2014 and vesting though June 2015. Other expenses included are temporary professional staffing, rent, utilities, and other overhead expenses.

Structuring fee

During the six months ended June 30, 2015, we recorded a charge to earnings related to a structuring fee of $4 million due to GEM. There was no such charge during the six months ended June 30, 2016.

Acquisition termination fee

During the six months ended June 30, 2015, we recorded a charge to earnings of $5.5 million related to the Parent Termination Fee associated with our proposed acquisition of Dune. There was no such charge during the six months ended June 30, 2016.

Other income (expenses)

For the six months ended June 30, 2016, net other income was $1,666,530, consisting of interest and finance costs of $3,439,235 and a gain on change in fair value of derivative liability of $5,105,765. Interest and financing costs for the six months ended June 30, 2016 includes i) a charge of $488,378 related to the Seventh Amendment to the LowCal Agreements for the issuance of 75,000 shares of common stock, and the extension of the warrant expiration date; ii) a charge of $1,250,000 for the value of an aggregate of 315,000 shares of common stock issued for debt extensions; and iii) a charge to earnings of $1,277,987 related to common stock and warrants being issued with notes payable financing agreements. For the six months ended June 30, 2015, net other income was $5,545,110 consisting of interest and finance costs of $391,790 and a gain on change in fair value of derivative liability of $5,936,900.

Liquidity and Capital Resources

Since our inception, we have financed operations through consulting and service agreements with limited cash requirements, made up of stock compensation and various debt instruments as more fully described in Stock Based Compensation, Commitments and Contingencies, Material Agreements and Related Party Transactions. Our business calls for significant expenses in connection with the operation and acquisition of oil and gas related projects. In order to maintain our corporate operations and to significantly expand our operations and corresponding revenue from our Works Property, we must raise a significant amount of working capital and capital to fund improvements to the Works Property. As of June 30, 2016, we had cash in the amount of $69,037. At June 30, 2016, we had total liabilities of $25,667,824. Our current financial resources are not sufficient to allow us to meet the anticipated costs of our business plan for the next 12 months and we will require additional financing in order to fund these activities. In addition, our Auditors in their audit report for the year ending December 31, 2015 included a statement in their report to express a going concern uncertainty.

Management estimates the Company's capital requirements for the next twelve months, including drilling and completing wells for the Works Property, will total approximately $2,500,000, excluding any amounts that may be due to Dune under the Parent Termination Fee or a $4 million structuring fee that may be due to GEM. No assurance can be given that any future financing will be available, or if available, that it will be on terms satisfactory to the Company. Any debt financing or other financing of securities senior to common stock that the Company is able to obtain will likely include financial and other covenants that will restrict the Company's flexibility. At a minimum, the Company expects these covenants to include restrictions on its ability to pay dividends on its common stock in the case of debt financing, or cause substantial dilution for stockholders in the case of convertible debt and equity financing. Any failure to comply with these covenants would have a material adverse effect on the Company's business, prospects, financial condition, results of operations and cash flows.

To finance our operations, we have issued notes payable. At June 30, 2016, we had the following outstanding debt:

$8,250,000 in convertible and promissory notes payable to LowCal. These loans were due on May 1, 2016 and are currently past due and in default;

$2,008,000 in notes payable due to 10 note holders. These notes bear interest ranging from 2% to 18% and have maturity dates ranging from April 30, 2016 to January 1, 2017. A majority of these notes are currently past due and in default; and

$1,256,535 of notes payable to Plethora Enterprises, a related party. These notes bear interest at 10% and are due on July 1, 2016. These notes are currently paid due.

During the six months ended June 30, 2016, we received additional proceeds of $625,000 ($168,190 of which the proceeds were paid directly to our vendors) from issuing notes payable as described below.

On January 27, 2016, February 9, 2016 and February 26, 2016, we issued three unsecured promissory notes to Bacchus Investors, LLC, for $50,000, $50,000 and $100,000, respectively, each with an interest rate of 10% per annum and due on demand.

We issued a series of unsecured promissory notes to Plethora Enterprises for an aggregate amount of $125,000, with an interest rate of 10% per annum and due on July 1, 2016. Nikolas Konstant, our CFO and Chairman of the Board, is the sole member and manager of Plethora Enterprises.

On April 6, 2016, we issued an unsecured promissory notes to an investor for $100,000 with an interest rate of 10% per annum and due on January 1, 2017.

On May 19, 2016, we issued two secured promissory notes to two investors for $37,500 each with an interest rate of 1% per annum and due on July 6, 2016. In addition, to we also issued 750,000 shares of common stock and Plethora issued 250,000 shares of common stock to the two investors in connection with these two notes.

On June 27, 2016, we issued a secured promissory notes to an investor for $200,000 with an interest rate of 10% per annum and due on October 31, 2016. In addition, to we also issued 300,000 shares of common stock and a warrant to purchase 200,000 shares of common stock with an exercise price of $1.00 per share to the investors in connection with this note.

We do not currently have sufficient financing arrangements in place to fund our operations, and there are no assurances that we will be able to obtain additional financing in an amount sufficient to meet our needs or on terms that are acceptable to us.

In addition to funding our operations, we may become liable to pay certain other contractual obligations, such as a structuring fee to GEM of $4,000,000 under the financing commitment, dated August 31, 2011, and the Common Stock Purchase Agreement and Registration Rights Agreement, both dated as of July 11, 2013, entered into between the Company and GEM (collectively referred to as the "Commitment Agreements"), whereby GEM would provide and fund the Company with up to $400 million dollars for the Company's African acquisition activities.

Pursuant to the GEM Commitment Agreements, the Company was required to use commercially reasonable efforts to uplist to the NYSE, NASDAQ or AMEX stock exchange within 270 days of July 11, 2013, and then file a registration statement covering the shares and warrants referenced in the Commitment Agreements within 30 days of uplisting. The Company further agreed to pay to GEM a structuring fee of $4,000,000, which was to be paid on the 18-month anniversary of July 11, 2013, regardless of whether the Company had drawn down from the Commitment at that time. At the Company's election, the Company may elect to pay the structuring fee in common stock of the Company at a per share price equal to 90% of the average closing trading price of the Company's common stock for the thirty-day period immediately prior to the 18-month anniversary of July 11, 2013. As of January 11, 2015, the 18-month anniversary date of the agreement, the Company had not met this requirement and may now become liable for payment of this structuring fee to GEM.

In connection with the asserted claim by Dune of the alleged breach of contract by the Company of the Dune Merger Agreement, upon a termination of such agreement, a demand letter was received from Dune on March 4, 2015 demanding payment of $5.5 million in the form of the Parent Termination Fee, plus additional costs and expenses which were undefined. The Company has recorded this liability of $5.5 million as of December 31, 2015. No lawsuit has been filed to date against the Company for the Parent Termination Fee, and the Company would vigorously defend itself, should any action ever be brought. The Company believes that it has equitable and legal defenses against payment of all or a portion of the Parent Termination Fee.

Obtaining additional financing is subject to a number of other factors, including the market prices for the oil and gas. These factors may make the timing, amount, terms or conditions of additional financing unavailable to us. If adequate funds are not available or if they are not available on acceptable terms, our ability to fund our business plan could be significantly limited and we may be required to suspend our business operations. We cannot assure you that additional financing will be available on terms favorable to us, or at all. The failure to obtain such a financing would have a material, adverse effect on our business, results of operations and financial condition.

As a result, one of our key activities is focused on raising significant working capital in the form of the sale of stock, convertible debt instrument(s) or a senior debt instrument to retire outstanding obligations and to fund ongoing operations. It is expected that stockholders may face significant dilution due to any such raise in any of the forms listed herein. New securities may have rights and preferences superior to that of current stockholders. If we raise capital through debt financing, we may be forced to accept restrictions affecting our liquidity, including restrictions on our ability to incur additional indebtedness or pay dividends.

For these reasons, the report of our auditor accompanying our audited financial statements for the year ended December 31, 2015 included a statement that these factors raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern will be dependent on our raising of additional capital and the success of our business plan.

We have retained consultants to assist us in our efforts to raise capital. The consulting agreements provide for compensation in the form of cash and stock and result in additional dilution to shareholders.

Cash Flows

Operating Activities

Net cash used in operating activities was $317,515 and $437,919 for the six months ended June 30, 2016 and 2015, respectively. The net cash used in operating activities was primarily due to the costs incurred with the organizing activities more fully described above.

Investing Activities

Net cash used in investing activities was $0 and $0 for the six months ended June 30, 2016 and 2015, respectively.

Financing Activities

Net cash provided by financing activities was $385,185 and $306,960 for the six months ended June 30, 2016 and 2015, respectively. Cash generated from financing activities for the six months ended June 30, 2016 was primarily from issuing promissory notes to related and unrelated parties totaling of $581,810 offset by repayment of related party promissory notes and notes payable of $196,625.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations is based upon consolidated financial statements and condensed consolidated financial statements that we have prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. The preparation of these financial statements requires us to make a number of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses in the consolidated financial statements and accompanying notes included in this report. We base our estimates on historical information, when available, and assumptions believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

On an ongoing basis, we evaluate the continued appropriateness of our accounting policies and resulting estimates to make adjustments we consider appropriate under the facts and circumstances. There have been no significant changes to our critical accounting policies as disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

Recent Accounting Pronouncements

See Note 2 to the financial statements included elsewhere in this Form 10-Q for a discussion of recent accounting pronouncements.

Off-Balance Sheet Arrangements

We do not maintain any off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities that would be expected to have a material current or future effect upon our financial condition or results of operations.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not Applicable

Item 4. Controls and Procedures

Disclosure Controls and Procedures

The Company's Chief Executive Officer and Chief Financial Officer has evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2016. Based upon such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2016, the Company's disclosure controls and procedures were ineffective.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of June 30, 2016, based on the framework stated by the Committee of Sponsoring Organizations of the Treadway Commission. Furthermore, due to our financial situation, we will be implementing further internal controls as we become operative so as to fully comply with the standards set by the Committee of Sponsoring Organizations of the Treadway Commission.

Our Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with generally accepted accounting principles. Because of inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to change in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Based on its evaluation as of June 30, 2016, our management concluded that our internal controls over financial reporting were ineffective as of June 30, 2016. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.

The material weaknesses relate to the following:

Lack of an independent audit committee;

Lack of formal approval policies by the Board of Directors;

Lack of adequate oversight over individuals responsible for certain key control activities;

Insufficient number of personnel appropriately qualified to perform control monitoring activities, including the recognition of risks and complexities of its business operations;

An insufficient number of personnel with an appropriate level of GAAP knowledge and experience or training in the application of GAAP commensurate with the Company's financial reporting requirements.

The Company intends to remedy these material weaknesses by hiring additional employees, officers, and perhaps directors, and reallocating duties, including responsibilities for financial reporting, among our officers, directors and employees as soon as there are sufficient resources available. However, until such time, these material weaknesses will continue to exist.

Further, in order to mitigate these material weaknesses to the fullest extent possible, all financial reports are reviewed by an outside accounting firm that is not our audit firm. All unexpected results are investigated. At any time, if it appears that any control can be implemented to continue to mitigate such weaknesses, it will be immediately implemented.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal controls over financial reporting (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Dune Termination Fee

On March 4, 2015, Dune provided us with notice of its decision to terminate the Dune Merger Agreement in accordance with Section 8.1(c)(i) of the Dune Merger Agreement. Dune's letter terminating the Dune Merger Agreement demanded the Parent Termination Fee (as defined in the Dune Merger Agreement) of $5,500,000 in cash, and reimbursement for certain unidentified expenses incurred by Dune. Dune has threatened to bring litigation to collect these amounts in connection with its contention that the Company breached the Dune Merger Agreement and is entitled to the Parent Termination Fee. The Company has accordingly recorded a liability for $5,500,000 related to the Parent termination Fee. No lawsuit has been filed to date against the Company for the Parent Termination Fee, and the Company would vigorously defend itself, should any action ever be brought. The Company believes that it has equitable and legal defenses against payment of all or a portion of the Parent Termination Fee.

Item 1A. Risk Factors

In addition to the other information set forth in this Report, you should carefully consider the factors discussed in the section entitled "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2015, which to our knowledge have not materially changed. Those risks, which could materially affect our business, financial condition or future results, are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On May 9, 2016, the Company issued 100,000 shares of common stock to a consultant for services provided.

On May 19, 2016, the Company issued a total of 750,000 shares of common stock to two investors in connection with the issuance of notes payable.

On June 27, 2016, the Company issued 300,000 shares of common stock to an investor in connection with the issuance of notes payable.

The above shares were issued in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, for transactions not involving a public offering.

Item 3. Defaults Upon Senior Securities

The Company is currently in default of the LowCal notes totaling $8,250,000 and several notes payable.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

None.

Item 6. Exhibits

EXHIBIT TABLE The following is a complete list of exhibits filed as part of the Quarterly Report on Form 10-Q, some of which are incorporated herein by reference from the reports, registration statements and other filings of the issuer with the Securities and Exchange Commission, as referenced below:

Reference Number	Item

31.1	Section 302 Certification of Principal Executive Officer.*
31.2	Section 302 Certification of Principal Financial Officer.*
32.1	Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350.*
32.2	Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350.*
101.INS	SBRL Instance Document.*
101.SCH	XBRL Taxonomy Extension Schema Document*
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB	XBRL Taxonomy Extension Label Linkbase Document*
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document*

* Furnished herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	EOS PETRO, INC. a Nevada corporation

Date: August 15, 2016	By:	/s/ MARTIN B. ORING
		Martin B. Oring
		Chief Executive Officer

Date: August 15, 2016	By:	/s/ NIKOLAS KONSTANT
		Nikolas Konstant
		Chairman of the Board and Chief Financial Officer

Eos Petro, Inc. 10-Q