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

The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto which appear elsewhere in this Report. The results shown herein are not necessarily indicative of the results to be expected in any future periods. This discussion contains forward-looking statements based on current expectations, which involve uncertainties. Actual results and the timing of events could differ materially from the forward-looking statements as a result of a number of factors.

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, 2017. 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 audited financial statements and the notes to the audited 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

We are focused on the acquisition, exploration, development, mining, operation and management of medium-scale oil and gas assets. Our primary activities as of September 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.

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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.

Comparison of the three months ended June 30, 2017 to June 30, 2016

Revenue

We primarily generate revenue from the operation of 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, 2017 and 2016, our primary revenue came from one source, the Works Property, located in Southern Illinois. Revenue for the three months ended June 30, 2017 and 2016 was $20,970 and $17,091, respectively.  The increase in revenues for the three months ended June 30, 2017 is due to an increase in the number of barrels sold and an increase in the price per barrels sold.  For the three months ended June 30, 2017, we sold 522 barrels at an average price of $40 per barrel and for the three months ended June 30, 2016, we sold 501 barrels at an average price of $34 per barrel. 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, 2017 and 2016 was $5,905 and $9,655, respectively.  The decrease in operating expenses was due to the wells being shut down during the second quarter of 2017 during which time we did not incur any operating costs. 

General and administrative expenses

General and administrative expenses for the three months ended June 30, 2017 and 2016 were $3,262,871 and $3,726,252, 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 $57,000, $750,000, and $2,375,000 in professional fees, consulting fees and compensation, respectively, for the three months ended June 30, 2017.  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. The decrease in professional fees was primarily due to lower legal and accounting fees for services rendered in 2017 as compared to 2016. The decrease in compensation was due to stock option expense of $2,203,381 for the three months ended June 30, 2016 compared to $734,460 for the three months ended June 30, 2017 related to options that were granted to an officer in January 2016 and vesting through January 2018 offset by common stock valued at $1,500,000 issued to an officer for services rendered during the three months ended June 30, 2017.  There was no such issuance during the three months ended June 30, 2016.  The decrease in consulting

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fees is a result of us recognizing 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 three months ended June 30, 2016 offset by common stock valued at $750,000 issued to a consultant rendered during the three months ended June 30, 2017.

Other income (expenses)

For the three months ended June 30, 2017, net other expense was $404,365, consisting of interest and finance costs of $404,365.   Interest and financing costs for the three months ended June 30, 2017 includes a charge of $235,000 for the issuance of 235,000 shares of common stock for debt extensions and a $25,000 loan modification fee related to the same debt extensions. 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.  

Comparison of the six months ended June 30, 2017 to June 30, 2016

Revenue

We primarily generate revenue from the operation of 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, 2017 and 2016, our primary revenue came from one source, the Works Property, located in Southern Illinois. Revenue for the six months ended June 30, 2017 and 2016 was $20,970 and $36,519, respectively.  The decrease in revenues for the six months ended June 30, 2017 is due to a decrease in the number of barrels sold offset by an increase in the price per barrels sold.  For the six months ended June 30, 2017, we sold 522 barrels at an average price of $40 per barrel and for the six months ended June 30, 2016, we sold 1,211 barrels at an average price of $30 per barrel.  The decrease in barrels produced was due to the Works Property being shut down during the first quarter and part of the second quarter of 2017.  The Works Property restarted production in the second quarter of 2017. 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, 2017 and 2016 was $5,905 and $42,329, respectively.  The decrease in operating expenses was due to the wells being shut down during the first quarter and part of the second quarter of 2017 during which time we did not incur any operating costs. 

General and administrative expenses

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General and administrative expenses for the six months ended June 30, 2017 and 2016 were $4,593,856 and $13,713,233, 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 $270,000, $763,000, and $3,412,000 in professional fees, consulting fees and compensation, respectively, for the six months ended June 30, 2017.  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. The decrease in professional fees was primarily due to lower legal and accounting fees for services rendered in 2017 as compared to 2016. The decrease in compensation was due to stock option expense of $10,040,072 for the six months ended June 30, 2016 compared to $1,630,502 for the six months ended June 30, 2017 related to options that were granted to an officer in January 2016 and vesting through January 2018 offset by common stock valued at $1,500,000 issued to an officer for services rendered during the six months ended June 30, 2017.  There was no such issuance during the six months ended June 30, 2016.  The decrease in consulting fees is a result of us recognizing 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, 2016.  There was no such charge during the six months ended June 30, 2017.

Other income (expenses)

For the six months ended June 30, 2017, net other expense was $843,814, consisting of interest and finance costs of $844,392 and a gain on change in fair value of derivative liability of $578.   Interest and financing costs for the six months ended June 30, 2017 includes a charge of $458,500 for the issuance of 385,000 shares of common stock for debt extensions and a $75,000 loan modification fee related to the same debt extensions. 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.

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, 2017, we had cash in the amount of $2. At June 30, 2017, we had total liabilities of $23,894,206. 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 independent registered public accounting firm, in its report on our December 31, 2016 financial statements, has raised substantial doubt about our ability to continue as a going concern.  

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, 2017, we had the following outstanding debt:

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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. The Company believes that it has equitable and legal defenses against payment of this structuring fee.

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 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, 2016 included a statement that these factors raise substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued. Our ability to continue as a going concern will be dependent on our raising of additional capital and the success of our business plan.

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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 $281,260 and $317,515 for the six months ended June 30, 2017 and 2016, respectively. The net cash used in operating activities was primarily due to the costs incurred with the organizing activities more fully described above.  

Financing Activities

Net cash provided by financing activities was $256,500 and $385,185 for the six months ended June 30, 2017 and 2016, respectively. Cash generated from financing activities for the six months ended June 30, 2017 was from selling shares of our common stock for $100,000 and proceeds from the issuance of promissory notes of $156,500.   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.

We believe the following accounting policies to be critical to the estimates used in the preparation of our financial statements.

Use of Estimates

These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and, accordingly, require management to make estimates and assumptions that affect the reported amounts of 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 condensed 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 and net operating loss carryforwards.  Actual results could differ from those estimates 

Share-Based Compensation  

We periodically issue stock options and warrants to employees and non-employees and in connection with capital raising transactions, for services and for financing costs. We account 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. We estimate the fair value of share-based payment awards to employees and directors on the date of grant using an option-pricing

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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 our Statements of Operations. We account for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance whereas 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 .

Recently Issued Accounting Pronouncements

See Note 1 to the consolidated financial statements included elsewhere in this Form 10Q.

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.