Eos Petro, Inc. - FORM 10-Q - November 19, 2013

Attached files

file	filename
EX-31.1 - EXHIBIT 31.1 - Eos Petro, Inc.	ex311.htm
EX-32.2 - EXHIBIT 32.2 - Eos Petro, Inc.	ex322.htm
EX-32.1 - EXHIBIT 32.1 - Eos Petro, Inc.	ex321.htm
EX-31.2 - EXHIBIT 31.2 - Eos Petro, Inc.	ex312.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended September 30, 2013

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

For the transition period from _______ to _______.

Commission file number 000-30995

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 x No o

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 x No o

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 o Accelerated filer o

Non-accelerated filer o Smaller reporting company x

(Do not check if a 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 o No x

As of November 8, 2013, the registrant had 45,969,171 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	24

	Item 3	Quantitative and Qualitative Disclosures About Market Risk	30

	Item 4T.	Controls and Procedures	30

PART II. OTHER INFORMATION

	Item 1	Legal Proceedings	30

	Item 1A	Risk Factors	31

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31

	Item 3.	Defaults Upon Senior Securities	33

	Item 4	Mine Safety Disclosures	33

	Item 5.	Other Information	33

	Item 6.	Exhibits	33

		SIGNATURES	34

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1. Financial Statements

Eos Petro, Inc. and Subsidiaries
(Formerly Cellteck, Inc.)
Condensed Consolidated Balance Sheets



	September 30,			December 31,
	2013			2012
	(Unaudited)
ASSETS

Current assets
Cash	$	48,025		$	47,511
Accounts receivable		52,979			-
Deposits and other current assets		2,123			17,288
Total current assets		103,127			64,799

Oil and gas properties, net		911,545			182,985
Other property plant and equipment, net		18,707			9,503
Long-term deposits		102,441			102,441
Total assets	$	1,135,820		$	359,728

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities
Accounts payable	$	148,888		$	210,568
Accrued expenses		1,119,160			615,081
Advances from shareholder		150,710			137,000
Short-term advances - related party		-			39,000
Convertible notes payable, net of discount of $749,185 and $4,688		2,000,815			245,312
Notes payable		1,225,000			1,450,000
Total current liabilities		4,644,573			2,696,961

Asset retirement obligation		50,300			46,791
Total liabilities		4,694,873			2,743,752

Commitments and contingencies		-			-

Stockholders' deficit
Series B Preferred stock: $0.0001 par value; 44,000,000 shares authorized,
0 and 44,150,044 shares issued and outstanding		-			4,415
Common stock; $0.0001 par value; 300,000,000 shares authorized
45,967,171 and 94,897 shares issued and outstanding		4,597			9
Additional paid-in capital		12,293,084			1,278,014
Stock subscription receivable		(88,200	)		(88,200	)
Accumulated deficit		(15,768,534	)		(3,578,262	)
Total stockholders' deficit		(3,559,053	)		(2,384,024	)
Total liabilities and stockholders' deficit	$	1,135,820		$	359,728


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

Table of Contents

Eos Petro, Inc. and Subsidiaries
(Formerly Cellteck, Inc.)
Condensed Consolidated Statements of Operations




	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)

Revenues
Oil and gas sales	$	248,820		$	65,605		$	469,574		$	82,079

Costs and expenses
Lease operating expense		173,968			70,593			380,368			244,473
General and administrative		7,948,122			535,439			9,461,625			924,956
Total costs and expenses		8,122,090			606,032			9,841,993			1,169,429

Loss from operations		(7,873,270	)		(540,427	)		(9,372,419	)		(1,087,350	)

Interest expense and finance costs		(890,900	)		(58,151	)		(2,817,853	)		(457,227	)

Net loss		(8,764,170	)		(598,578	)		(12,190,272	)		(1,544,577	)

Preferred stock dividends		-			(4,077	)		-			(15,978	)

Net loss attributed to common stockholders	$	(8,764,170	)	$	(602,655	)	$	(12,190,272	)	$	(1,560,555	)

Net loss per share attributed to common
stockholders - basic and diluted	$	(0.19	)		(0.01	)	$	(0.27	)		(0.04	)
Weighted average comon shares oustanding
basic and diluted		45,788,790			45,208,577			44,913,662			36,471,701


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

Table of Contents

Eos Petro, Inc. and Subsidiaries
(Formerly Cellteck, Inc.)
Condensed Consolidated Statement of Stockholders' Deficit




												Additional			Stock						Total
	Series B Preferred Stock						Common Stock					Paid-in			Subscription			Accumulated			Stockholders'
	Shares			Amount			Shares			Amount		Capital			Receivable			Deficit			Deficit
Balance, December 31, 2012		44,150,044			4,415			94,897			9		1,278,014			(88,200	)		(3,578,262	)		(2,384,024	)

Issuance of Series B preferred stock for consulting services		25,000			3			-			-		497			-			-			500
Issuance of Series B preferred stock in connection with promissory note		950,000			95			-			-		3,239,405			-			-			3,239,500
Issuance of Series B preferred stock for extension of notes payable		150,000			15			-			-		2,985			-			-			3,000
Warrants issued for consulting services		-			-			-			-		6,992,284			-			-			6,992,284
Purchase of shares associated with reverse stock split		-			-			(206	)		-		(4,118	)		-			-			(4,118	)
Automatic conversion of Series B preferred stock for common stock		(45,275,044	)		(4,528	)		45,275,044			4,528		-			-			-			-
Issuance of common stock for cash		-			-			540,436			54		90,396			-			-			90,450
Issuance of common stock for consulting services		-			-			57,000			6		209,644			-			-			209,650
Share based compensation		-			-			-			-		483,977			-			-			483,977
Net loss		-			-			-			-		-			-			(12,190,272	)		(12,190,272	)
Balance, September 30, 2013 (Unaudited)		-		$	-			45,967,171		$	4,597	$	12,293,084		$	(88,200	)	$	(15,768,534	)	$	(3,559,053	)


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

Table of Contents

Eos Petro, Inc. and Subsidiaries
(Formerly Cellteck, Inc.)
Condensed Consolidated Statements of Cash Flows




	Nine Months Ended September 30,
	2013			2012
	(Unaudited)			(Unaudited)

Cash flows from operating activities
Net loss	$	(12,190,272	)	$	(1,544,577	)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depletion		103,940			594
Depreciation		4,796			-
Accretion of asset retirement obligation		3,509			-
Amortization of debt issuance costs		1,755,503			190,270
Non-cash finance costs		739,500			-
Fair value of stock issued for services		210,150			30,800
Fair value of stock issued for extension of debt transaction		3,000			26,495
Fair value of stock issued for loan guaranty by related party		-			56,000
Fair value of options and warrants issued for consulting services		6,992,284			2,542
Share-based compensation		483,977			3,964
Change in operating assets and liabilities:
Accounts receivable		(52,979	)		(20,585	)
Deposits and other current assets		15,165			11,751
Accounts payable		(61,680	)		60,362
Accrued expenses		504,079			408,304
Net cash used in operating activities		(1,489,028	)		(774,080	)

Cash flows used in investing activities:
Purchase of other fixed assets		(14,000	)		(11,000	)
Capital expenditures on oil and gas properties		(832,500	)		(10,000	)
Net cash used in investing activities		(846,500	)		(21,000	)

Cash flows from financing activities:
Proceeds from issuance of common stock for cash		90,450			-
Repayment of short-term advances- related party		(39,000	)		(18,320	)
Net proceeds from (to) shareholder		13,710			-
Proceeds from issuance of short term notes payable		-			1,050,000
Repayment of short term notes payable		(225,000	)		(41,600	)
Debt issuance costs		-			(195,000	)
Purchase of stock pursuant to reverse stock split		(4,118	)		-
Proceeds form issuance of convertible notes		2,500,000			-
Net cash provided by financing activities		2,336,042			795,080

NET INCREASE IN CASH AND CASH EQUIVALENTS		514			-

CASH AND CASH EQUIVALENTS, beginning of period		47,511			-

CASH AND CASH EQUIVALENTS, end of period	$	48,025		$	-

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid for interest	$	-		$	59,442
Cash paid for income taxes	$	-		$	-

SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:

Accrued dividends on preferred stock	$	-		$	15,978
Issued 950,000 shares of Series B Preferred stock
pursuant to debt agreement; recorded as debt discount	$	3,239,500		$	-

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

Table of Contents

Eos Petro, Inc. (formerly Cellteck, Inc.) and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Month Periods Ended September 30, 2013 and 2012

(Unaudited)

NOTE 1 - ORGANIZATION

The unaudited 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 balance sheet at December 31, 2012 has been derived from the Company's audited 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 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 filed with the Securities and Exchange Commission. The results for the period ended September 30, 2013 are not necessarily indicative of the results to be expected for the full year ending December 31, 2013.

Organization

Eos Petro, Inc. (the “Company”) was organized under the laws of the state of Nevada in 2007 to serve as a vehicle for the re-organization and spin-off of Safe Cell Tab, Inc.’s safe cell tab business from China Ivy School, Inc. The safe cell tab is a small, thin, oval shaped device designed specifically to help protect users of cell phones, cordless phones, laptops, microwaves and any other hand held devices from the potentially harmful and damaging effects of electromagnetic radiation or EMF’s, which are emitted from these electrical devices.

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 (“Merger Sub”), dated July 16, 2012, 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. As of the closing of the transaction, each issued and outstanding share of common stock of Eos, was automatically converted into the right to receive one share of the Company’s Series B Voting Convertible Preferred Stock (“Series B preferred stock”). At the closing, the Company issued 37,850,044 shares of Series B preferred stock to the former Eos stockholders.

Each share of Company Series B preferred stock was automatically convertible into 800 shares of the Company’s common stock upon the filing of an amendment to the Company’s articles of incorporation for the authorization of a sufficient number of shares of common stock to convert all issued and outstanding shares of Series B preferred stock into common stock.

Prior to the closing of the transactions contemplated by the Merger Agreement, the Company had 61,633,891 shares of common stock and 40,000,000 shares of Series A preferred stock issued and outstanding. Simultaneously with the closing of the Merger, the holders of 40,000,000 shares of Company Series A preferred stock converted their shares into 100,000 shares of Series B preferred stock; and the holders of $150,000 of the Company’s pre-existing outstanding indebtedness converted such debt into 5,900,000 shares of Series B preferred stock, 2,805,000 shares of which the Company sold to former Eos stockholders. In addition to the conversion of the $150,000 of outstanding indebtedness into preferred stock, Eos assumed $57,385 of net liabilities of the Company.

Upon completion of the Merger, the former stockholders of Eos owned approximately 93% of the then outstanding shares of Company common stock (including shares of Series B preferred stock convertible into shares of the Company’s common stock) and the holders of the Company’s previously outstanding debt and outstanding shares of Company common stock own the balance. As the owners and management of Eos have voting and operating control of the Company after the Reverse Merger, the transaction has been accounted for as a recapitalization of the Company with Eos deemed the acquiring company for accounting purposes, and the Company was deemed the legal acquirer. Due to the change in control, the consolidated financial statements reflect the historical results of Eos prior to the Merger and that of the combined company following the Merger. Common stock and the corresponding capital amounts of the Company pre-Merger have been retroactively restated as capital stock shares reflecting the exchange ratio in the Merger. The amount of debt assumed upon the Merger of $57,385 was reflected as a cost of the Merger in 2012.

Table of Contents

Eos Petro, Inc. (formerly Cellteck, Inc.) and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Month Periods Ended September 30, 2013 and 2012

(Unaudited)

Effective as of May 20, 2013, the Company changed its name to Eos Petro, Inc. (it previously had been named “Cellteck, Inc.”) by filing an amendment to its articles of incorporation (the “Amendment”) with the Nevada secretary of state after the name change was approved at a special meeting of the stockholders of the Company held on May 6, 2013 (the “Special Meeting”). In anticipation of the Company’s name change, on May 17, 2013, the Company also changed the name of Eos (previously named “Eos Petro, Inc.”), to Eos Global Petro, Inc.

The Amendment also effectuated a reverse stock split of the outstanding shares of common stock of the Company held by stockholders with 2,000 or more aggregate shares of common stock at an exchange ratio of 1-for-800, accompanied by a cash distribution of $0.025 per share to all of the Company’s common stockholders with less than 2,000 shares of common stock in the aggregate, in exchange for and in cancellation of their shares of common stock (the “Stock Split”). This Stock Split triggered the automatic conversion of all 45,275,044 issued and outstanding shares of Series B preferred stock of the Company, including the shares of Series B preferred stock issued in the Merger, into 45,275,044 shares of common stock of the Company. While the filing of the Amendment effectuated the name change and Stock Split with the Nevada secretary of state, FINRA announced the name change and Stock Split on May 20, 2013, and the name change and Stock Split became effective in the marketplace on May 21, 2013. All share and per share amounts have been retrospectively adjusted as if the Stock Split occurred at the earliest period presented.

On or about July 26, 2013, the Company received a letter from the Depository Trust Company (the “DTC”), indicating that the DTC over tendered for the cash distribution portion of the Stock Split and received an extra $450 in the Stock Split, when it should have instead received an additional 436 post-Stock Split shares of the Company’s common stock. The Company received a check in the amount of $450 from the DTC and issued an additional 436 shares to correct the over tender on or about September 23, 2013.

The Company has one other wholly-owned subsidiary, Eos Petro Australia Pty Ltd., an Australian company, (“Eos Australia”), which was formed to explore business opportunities in Australia. In addition, Eos has two subsidiaries which are also engaged in the oil and gas business: Plethora Energy, Inc., a Delaware corporation (“Plethora Energy”), which is wholly owned by Eos, and EOS Atlantic Oil & Gas Ltd., a Ghanaian limited liability company, which is 90% owned by Eos (“EAOG”, and collectively referred to with Eos, Eos Australia and Plethora Energy as the Company’s “Subsidiaries”). The other 10% of EAOG is owned by one of our Ghanaian-based consultants.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the accounting and disclosure rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). The consolidated financial statements include our accounts and those of our 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 and includes the automatically converted shares of Series B preferred stock on a retroactive basis. Diluted earnings-per-share is based on the assumption that all dilutive convertible preferred shares, 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. At September 30, 2013, approximately 12,758,000 potentially dilutive shares were excluded from the shares used to calculate diluted earnings per share as their inclusion would be anti-dilutive. These potentially dilutive shares were options to purchase 700,000 shares of common stock, warrants to purchase 11,458,000 shares of common stock and 600,000 common shares potentially issuable under the Company’s outstanding convertible note agreements. There were no such instruments at September 30, 2012.

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Eos Petro, Inc. (formerly Cellteck, Inc.) and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Month Periods Ended September 30, 2013 and 2012

(Unaudited)

Weighted average number of shares outstanding has been retroactively restated for (1) the equivalent number of shares received by the accounting acquirer as a result of the reverse merger, and (2) the equivalent number of shares issued upon conversion of Series B preferred shares upon effectiveness of the reverse stock split, as if these shares had been outstanding as of the beginning of the earliest period presented.

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 issues issued in connection with financing transactions, and share-based compensation costs. 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.

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 basically 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.

The Company assesses the property at least annually 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 September 30, 2013, the Company had not experienced impairment of its capitalized oil and gas properties.

The Company recorded depletion expense of $103,940 and $594 for the nine months ended September 30, 2013 and 2012, respectively.

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Eos Petro, Inc. (formerly Cellteck, Inc.) and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Month Periods Ended September 30, 2013 and 2012

(Unaudited)

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 September 30, 2013 and December 31, 2012, the Company had an ARO of $50,300 and $46,791, respectively.

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Eos Petro, Inc. (formerly Cellteck, Inc.) and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Month Periods Ended September 30, 2013 and 2012

(Unaudited)

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 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.

Concentrations

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 nine months ended September 30, 2013 and 2012. All of the Company’s wells are located in Illinois.

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Eos Petro, Inc. (formerly Cellteck, Inc.) and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Month Periods Ended September 30, 2013 and 2012

(Unaudited)

Segment Reporting

ASC Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. The two business segments are as follows:

(1)

The acquisition, development, and operation of onshore oil and gas properties which is performed by Eos.

(2)

The design and production of products to protect users against the potentially harmful and damaging effects of electromagnetic radiation emitted from electrical devices, which is performed by the Company.

Following the Merger, the Company’s principal focus has shifted to the business of Eos. The Company’s pre-Merger assets are less than 1% of total assets and its safe cell tab revenue is less than 1% of total revenue for the nine months ended September 30, 2013. Since the Company’s pre-Merger assets and safe cell tab operations are immaterial, the Company reports only one segment for financial statement reporting purposes.

Recently Issued Accounting Pronouncements

The FASB has issued Accounting Standards Update (ASU) No. 2013-04, Liabilities (Topic 405), “Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date.” ASU 2013-04 provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this ASU is fixed at the reporting date, except for obligations addressed within existing guidance in U.S. GAAP. The guidance requires an entity to measure those obligations as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The Company does not expect the adoption of this guidance to have a material impact on the Company’s unaudited condensed financial statements.

In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740): Presentation of Unrecognized Tax Benefit When a Net Operating Loss Carryforward, A Similar Tax Loss, or a Tax Credit Carryforward Exists (A Consensus the FASB Emerging Issues Task Force). ASU 2013-11 provides guidance on financial statement presentation of unrecognized tax benefit when a net operating loss carrforward, a similar tax loss, or a tax credit carryforward exists. The FASB’s objective in issuing this ASU is to eliminate diversity in practice resulting from a lack of guidance on this topic in current U.S. GAAP. This ASU applies to all entities with unrecognized tax benefits that also have tax loss or tax credit carryforwards in the same tax jurisdiction as of the reporting date. This amendment is effective for public entities for fiscal years beginning after December 15, 2013 and interim periods within those years. The company does not expect the adoption of this standard to have a material impact on the Company’s unaudited condensed financial position and results of operations.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the Securities Exchange Commission (the “SEC”) did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements.

NOTE 3 – 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. The Company has a limited operating history on which to base an evaluation of its current business and future prospects. As of September 30, 2013, the Company had a stockholders’ deficit of $15,768,534, and for the nine months ended September 30, 2013, reported a net loss of $12,190,272 and had negative cash flows from operating activities of $1,489,028. Management estimates the Company’s capital requirements for the next twelve months, including drilling and completing wells for the Works Property and various other projects, will total approximately $1,000,000. 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, the Company's independent registered public accounting firm, in its report on the Company's 2012 consolidated financial statements, has raised substantial doubt about the Company's ability to continue as a going concern.

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Eos Petro, Inc. (formerly Cellteck, Inc.) and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Month Periods Ended September 30, 2013 and 2012

(Unaudited)

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 loans from financial institutions. There can be no assurance that such funds, if available, can be obtained on terms reasonable to the Company. The accompanying 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.

NOTE 4 - NOTES PAYABLE

A summary of notes payable at September 30, 2013 and December 31, 2012 are as follows:

	September 30,		December 31,
	2013		2012

Note payable at 24% (1)	$	105,000	$	200,000
Secured note payable, at 18% (2)		600,000		600,000
Secured note payable, at 6% (3)		250,000		350,000
Secured note payable, at 5%, (4)		270,000		300,000
Total	$	1,225,000	$	1,450,000

(1) On October 24, 2011, Eos received $200,000 from RT Holdings, LLC (“RT”) in exchange for an unsecured promissory note payable, originally due November 7, 2011, as extended till April 30, 2013, with interest due at 6% per annum, which was amended to 24% (the “RT Loan”). The Company paid $95,000 to RT during the nine months ended September 30, 2013.

As is further set forth in Note 11 below, on November 18, 2013 RT and Eos acknowledged that, as of November 8, 2013, there was $232,235.40, inclusive of interest, outstanding on the RT Loan. RT further acknowledged that Eos paid $75,000 to RT on November 15, 2013, and Eos agreed to make a final payment of $75,000 to RT on or before January 9, 2014.The balance of the RT Loan is convertible into 28,855 shares of the Company’s restricted common stock, but only if: (i) the final $75,000 payment is made to RT on or before January 9, 2014; and (ii) such 28,855 shares are delivered to RT on or before November 27, 2013. Notwithstanding the foregoing, however, if the final $75,000 is not timely paid or the 28,855 shares are not validly or timely issued, the Company will still owe approximately $53,382 to RT on the RT Loan, plus interest accruing from and after November 8, 2013.

(2) On February 16, 2012, Eos entered into a Secured Promissory Note with Vatsala Sharma (“Sharma”) for a secured loan for $400,000 due in 60 days at an interest rate of 18% per annum. On May 9, 2012, the Company and Sharma increased the loan amount from $400,000 to $600,000. In the event the loan is not paid in full by the maturity date, Sharma will receive an additional 275,000 shares of the Company’s common stock. The loan is secured by a mortgage and security interest in the Works property. Nikolas Konstant also personally guaranteed the loan. As further set forth in Note 11 below, on November 18, 2013, the maturity date was extended to May 31, 2014.

During the three and nine months ended September 30, 2012, the Company amortized $56,000and $78,400 of the loan discount which was recorded to interest expense. There was no amortized cost during the three and nine months ended September 30, 2013, due to the loan discount being fully amortized as of December 31, 2012.

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Eos Petro, Inc. (formerly Cellteck, Inc.) and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Month Periods Ended September 30, 2013 and 2012

(Unaudited)

(3) On June 18, 2012 the Company entered into a Loan Agreement with Vicki P. Rollins (“Rollins”) for a secured loan in the amount of $350,000 due on September 22, 2012, and orally extended to November 30, 2012. Interest is charged at a rate of 6%. In the event that the loan is not repaid on or before the maturity date, all unpaid principal and accrued unpaid interest shall accrue interest at a rate of 18% per annum. The loan is secured by a security interest in the Company’s assets. As further set forth in Note 11 below, on November 18, 2013, the maturity date was extended to February 28, 2014. The Company paid $100,000 to Rollins during the nine months ended September 30, 2013.

(4) On August 2, 2012, Eos executed a series of agreements with 1975 Babcock, LLC (“Babcock”) in order to secure a $300,000 loan (the “Babcock Loan”). As of August 3, 2012, Eos also leases 7,500 square feet of office space at 1975 Babcock Road in San Antonio, Texas (the “Babcock Lease”) from Babcock. The Company agreed to pay $7,500.00 a month in rent under the Babcock Lease. Pursuant to the Babcock Loan and Lease documents, Eos granted Babcock a mortgage and security interest in and on the Works Property and related assets, agreements and profits. On April 30, 2013, the Babcock Loan and Babcock Lease were amended. Eos agreed to pay $5,000, due and payable on April 30, 2013, to Babcock in exchange for an extension on the maturity date of the Babcock Loan to May 31, 2013. In addition, Eos agreed to pay Babcock $15,000, due and payable on April 30, 2013, as consideration for Babcock’s agreement to defer of any enforcement of its rights under the Babcock Lease caused by Eos’ failure to pay monthly rent owed on the Babcock Lease until May 31, 2013.

As of September 30, 2013, Eos has not made any payments on the Babcock Lease, but Eos has paid to Babcock an aggregate of $50,000 during the nine months ended September 30, 2013, which consists of the following payments: $30,000 was paid against the Babcock Loan; $5,000 was paid in connection with the extension of the maturity date on the Babcock Loan to May 31, 2013; and $15,000 was paid in connection with Babcock’s agreement to defer on any enforcement of its rights under the Babcock Lease until May 31, 2013. While the maturity date of the Babcock Loan, as amended, was August 16, 2013, as is further set forth in Note 11 below, on November 7, 2013, the Company, Eos, and Mr. Konstant (the Company’s Chairman and Chief Financial Officer) entered into an Abrogation Agreement with Babcock (the “Babcock Agreement”) for the payment and satisfaction of the Babcock Loan and Babcock Lease. So long as certain payments and share issuances are made, Babcock agreed that they will not take action to bring suit or litigate against Eos through December 20, 2013, subject to extension through January 9, 2014 pursuant to the terms and conditions of the Babcock Agreement.

NOTE 5 – CONVERTIBLE PROMISSORY NOTES

A summary of convertible promissory notes at September 30, 2013 and December 31, 2012 are as follows:

	September 30,			December 31,
	2013			2012
Clouding Loan	$	250,000		$	250,000
LowCal Loan		2,500,000			-
Unamortized discount		(749,185	)		(4,688	)
Total	$	2,000,815		$	245,312

Clouding IP, LLC

On December 26, 2012, Eos entered into an Oil & Gas Services Agreement with Clouding IP, LLC (“Clouding”) in order to retain the oil and gas related services of Clouding and its affiliates.

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Eos Petro, Inc. (formerly Cellteck, Inc.) and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Month Periods Ended September 30, 2013 and 2012

(Unaudited)

Concurrently with the execution of the Oil & Gas Services Agreement with Clouding, on December 26, 2012, the Company executed a series of agreements with Clouding in order to secure a $250,000 loan with interest at a rate of 4% per annum (the “Clouding Loan”). Pursuant to the Clouding Loan documents, Eos granted Clouding a mortgage and security interest in and on the Company’s assets. The maturity date of the Clouding Loan was August 31, 2013, pursuant to a written extension. On the maturity date, Eos further agreed to pay to Clouding a loan fee of $25,000. At Clouding’s option, the principal amount of the loan, together with any accrued and unpaid interest or other charges, may be converted into common stock of the Company at a conversion price of $2.50 per share.

The Clouding Loan was not repaid in full on March 31, 2013, so, pursuant to the terms of the Clouding Loan, the Company issued to Clouding the additional 150,000 shares of its Series B preferred stock, which were subsequently converted into 150,000 shares of common stock. The shares were valued at $3,000 and were recorded to interest expense. During the three and nine months ended September 30, 2013, the Company amortized $1,245 and $4,688 of the loan discount which was recorded to interest expense. As of September 30, 2013, the Clouding Loan has not been repaid.

The amount due to Clouding at September 30, 2013 and December 31, 2012 is $250,000 with a remaining unamortized debt discount of $0 and $4,688, respectively.

LowCal Industries

On February 8, 2013, and subsequently amended on April 23, 2013, the Company and Eos entered into the following agreements with LowCal Industries, LLC (“LowCal”) and LowCal’s affiliates: (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; (v) a Leasehold Mortgage, Assignment, Security Agreement and Fixture Filing; and (vi) a Compliance/Oversight Agreement (collectively referred to as the “Loan Agreements”).

Pursuant to the Loan Agreements, LowCal agreed to purchase from Eos, for $2,480,000, a promissory note in the principal amount of $2,500,000, with interest at 10% per annum (the “LowCal Loan”). The principal and all interest on the LowCal Loan are due in one installment on or before December 31, 2013, the maturity date. At LowCal’s option, LowCal may 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 $5.00 per share. At LowCal’s option, it may elect to convert all accrued but unpaid interest into 50,000 shares of the Company’s common stock. As of September 30, 2013, LowCal purchased $2,500,000 of these notes.

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.

When the Loan Agreements were first entered into on February 8, 2013, LowCal agreed to purchase 500,000 shares of Series B preferred stock of the Company for $10,000. These shares subsequently converted into 500,000 shares of the Company’s common stock. When the Loan Agreements were amended on April 23, 2013, LowCal agreed to purchase an additional 450,000 shares of Series B preferred stock of the Company for $10,000, which have also subsequently converted into 450,000 shares of the Company’s common stock. LowCal executed a Lock-Up/Leak-Out Agreement which restricts LowCal’s ability to sell these shares and any other shares of the Company it obtains.

Lastly, Eos agreed that Sail Property Management Group LLC, an affiliate of LowCal (“Sail”), would be entitled to conduct periodic oversight and inspection of Eos’ business, operations and properties on behalf of LowCal. In exchange for Sail’s services, Sail will receive a $25,000 fee from Eos on the maturity date of the LowCal Loan, in addition to reimbursement for reasonable expenses.

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Eos Petro, Inc. (formerly Cellteck, Inc.) and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Month Periods Ended September 30, 2013 and 2012

(Unaudited)

The fair value of 950,000 shares of stock was determined to be $3,239,500 of which $2,500,000 was recorded as a debt discount, which will be amortized over the life of the Loan Agreement and recorded as interest expense and the $739,500, which is the amount the fair value of the stock exceeded the face value of the convertible notes, was recorded as a finance cost. During the three and nine months ended September 30, 2013, the Company amortized $749,186 and $1,750,814 of the loan discount which was recorded to interest expense.

The amount due to LowCal at September 30, 2013 is $2,500,000 with a remaining unamortized debt discount of $749,185.

As is further set forth in Note 11 below, on November 6, 2013, the amount of the LowCal Loan was amended to $5,000,000 and the maturity date was extended to December 31, 2014 in exchange for a security interest and the issuance of up to 1,000,000 restricted shares of the Company’s common stock on the closing date of the amendment, which is set to occur on or before January 9, 2014.

NOTE 6 – ASSET RETIREMENT OBLIGATION

Changes in the Company’s asset retirement obligations were as follows:

	Nine Months
	Ended
	September 30, 2013
Asset retirement obligation, beginning of period	$	46,791
Additions		-
Accretion expense		3,509
Asset retirement obligations, end of period	$	50,300

NOTE 7 - RELATED PARTY TRANSACTIONS

The Company has a consulting agreement with Plethora Enterprises, LLC (“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 three months and nine months ended September 30, 2013, the Company recorded compensation expense of $90,000 and $270,000, respectively. During the three and nine months ended September 30, 2012, no compensation expense was recorded. During the nine months ended September 30, 2013, Mr. Konstant received $256,290. The amount due to Mr. Konstant under Plethora consulting agreement is $110,710 and $97,000 at September 30, 2013 and December 31, 2012, respectively. The total amount due to Mr. Konstant at September 30, 2013 and December 31, 2012 is $150,710 and $137,000, respectively.

NOTE 8 - STOCKHOLDERS’ DEFICIT

Common Stock

The Company is authorized to issue an aggregate of 300,000,000 shares of common stock with $0.0001 par value.

Preferred Stock

The Company is authorized to issue an aggregate of 100,000,000 shares of preferred stock with $0.0001 par value. The Company designated 47,000,000 of the 100,000,000 authorized shares of preferred stock as Series B preferred stock.

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Eos Petro, Inc. (formerly Cellteck, Inc.) and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Month Periods Ended September 30, 2013 and 2012

(Unaudited)

Reverse Stock Split and Conversion of Series B Preferred Stock

On May 21, 2013, the Company effectuated a reverse stock split of the outstanding shares of common stock of the Company held by stockholders with 2,000 or more aggregate shares of common stock at an exchange ratio of 1-for-800, accompanied by a cash distribution of $0.025 per share to all of the Company’s common stockholders with less than 2,000 shares of common stock in the aggregate, in exchange for and in cancellation of their shares of common stock. The reverse stock split triggered the automatic conversion of all 45,275,044 issued and outstanding shares of Series B preferred stock of the Company. All share and per share amounts have been retrospectively adjusted as if the Stock Split occurred at the earliest period presented.

Accrued Dividends

As of September 30, 2013 and December 31, 2012, the Company has preferred stock dividends payable of $27,386 which are accrued dividends related to shares Series A preferred stock of Eos which were converted in the Merger.

Stock Issuances for Services

On January 15, 2013, the Company issued 25,000 shares of the Company’s Series B Preferred Stock pursuant to a consulting agreement. The value of the shares totaled $500 and was recorded as consulting expense.

On June 23, 2013, the Company entered into a one year consulting agreement with Hahn Engineering, Inc. (“Hahn”), an entity which previously has prepared reserve reports for the Company’s SEC reporting obligations. Pursuant to the agreement, in exchange for the provision of oil and gas consulting services, Hahn received 1,000 restricted shares of common stock of the Company upon full execution of the agreement. In addition, so long as the agreement has not been terminated, commencing on the one month anniversary of June 23, 2013 and continuing on each monthly anniversary of June 23, 2013 thereafter, in Hahn will be issued 2,000 restricted shares of common stock of the Company per month, to be capped at 24,000 shares total. At September 30, 2013, Hahn had received 7,000 restricted shares of common stock of the Company valued at $39,150 which was recorded as consulting expense.

On July 1, 2013, the Company issued 50,000 shares of common stock pursuant to a consulting agreement. The value of the shares totaled $170,500 and was recorded as consulting expense.

Stock Issuances Related to Notes Payable

Pursuant to a loan agreement entered into on February 8, 2013 and later amended on April 23, 2013, the Company issued 950,000 shares of the Company’s Series B Preferred Stock pursuant to a loan agreement. The value of the shares totaled $3,239,500 of which $2,500,000 was recorded as a debt discount, which will be amortized over the life of the loan agreement and recorded as interest expense and the $739,500, which is the amount the fair value of the stock exceeded the face value of the convertible notes, was recorded as a finance cost..

On March 31, 2013, the Company issued 150,000 shares of the Company’s Series B Preferred Stock pursuant to a loan agreement. The value of the shares totaled $3,000 and was recorded as interest expense.

Stock Issuances for Cash

On November 15, 2012, pursuant to a letter agreement (the “Purchase Agreement”) the Company agreed to sell to Sterling Atlantic, LLC (“Sterling”), post Stock-Split, up to 50,000 restricted shares of its common stock and 50,000 warrants to purchase shares of its common stock at an exercise price of $2.50, with a five-year term. Under the Purchase Agreement, if the Company received less than $50,000, the number of shares and warrants to be issued would be reduced proportionately. During 2013, the Company received an aggregate of $40,000: (i) $15,000 came directly from Sterling; and (ii) $25,000 came from Billy Parrott, an individual, at the direction of Sterling. Consequently, when the Stock Split was effectuated on May 20, 2013, the Company issued 15,000 shares and 15,000 warrants to Sterling and 25,000 shares and 25,000 warrants to Billy Parrott, where the warrants had the terms set forth above from the Purchase Agreement.

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Eos Petro, Inc. (formerly Cellteck, Inc.) and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Month Periods Ended September 30, 2013 and 2012

(Unaudited)

On June 21, 2013, the Company issued 500,000 restricted shares of common stock for $50,000 cash pursuant to a consulting agreement with Brian Hannan and Jeffrey Ahlholm.

NOTE 9 - STOCK OPTIONS AND WARRANTS

GEM Commitment

The Company and GEM Global Yield Fund, a member of the Global Emerging Markets Group (“GEM”), entered into a financing commitment on August 31, 2011, whereby GEM would provide and fund the Company with up to $400 million dollars, through a common stock subscription agreement (the “Commitment”), for the Company’s African acquisition activities.

The Company and GEM formalized the Commitment by way of a definitive Common Stock Purchase Agreement and Registration Rights Agreement, both dated as of July 11, 2013 (collectively referred to as the “Commitment Agreements”). Together with formalizing the Commitment, pursuant to the Commitment Agreements and subject to certain restrictions contained therein, the Commitment may be drawn down at the Company’s option as the Company issues shares of common stock to GEM in return for funds.

Under the agreed upon structure, and subject to certain prerequisites, the Company controls the timing and amount of any drawdown, and the funds withdrawn by the Company may be used to acquire any oil and gas assets the Company identifies, publicly or privately owned, national or international, as well as for working capital purposes.

In consideration of GEM’s continued support of the Company and their lack of termination of or withdrawal from the Commitment between August 31, 2011 and November 21, 2012, the Company issued to GEM and a GEM affiliate a total of six common stock purchase warrants to purchase a total of 8,372,000 shares of common stock. Two of the warrants to purchase 2,399,000 shares vested in 2012. The vesting conditions of the four remaining warrants were amended with the Commitment Agreements. The following summarizes the amendments made to the four warrants on July 11, 2013 in connection with the Commitment Agreements:

The GEM B Warrant: The Company issued a warrant to purchase 651,500 shares of common stock of the Company, par value $0.0001 per share, to GEM at an exercise price of $3.00 per share (the “GEM B Warrant”). As amended, the GEM B Warrant’s vesting conditions were altered so that the GEM B Warrant vested on July 11, 2013. The other terms and conditions of the original GEM B Warrant remain unaltered.

The 590 Partners B Warrant: The Company issued a warrant to purchase 651,500 shares of common stock of the Company, par value $0.0001 per share, to 590 Partners at an exercise price of $3.00 per share (the “590 Partners B Warrant”). All of the terms in the 590 Partners B Warrant for vesting, exercise, expiration and anti-dilution are identical to those in the GEM B Warrant, as amended.

The GEM C Warrant: The Company issued a warrant to purchase 2,335,000 shares of common stock of the Company, par value $0.0001 per share, to GEM at an exercise price of $5.35 per share (the “GEM C Warrant”). Prior to its amendment, the GEM C Warrant would vest only upon the Company acquiring certain rights to oil and gas in Ghana. As amended, the GEM C Warrant will vest upon either of the following dates: (i) the date that the Company, or a subsidiary or affiliate of the Company, and the Ghanaian Ministry of Energy receive ratification from the Ghanaian Parliament for acquiring a block concession for oil and gas exploration; or (ii) the Company or a Subsidiary closes a deal to acquire assets having a cost greater than $40,000,000.00. Prior to its amendment, the GEM C Warrant also provided the Company with an option to elect to shorten the term of the GEM C Warrant (the “Company Shortening Option”), so long as certain terms and conditions had been satisfied. The amendment changed some of the terms and conditions that must be satisfied prior to the Company’s use of its Company Shortening Option. As amended, the Company may elect to shorten the term of the GEM C Warrant by moving the expiration date to the date six months (plus any additional days added if the underlying shares remain unregistered after 270 days) from the day that all of the following conditions have been satisfied: (i) either of the preconditions to vesting set forth above have been satisfied; (ii) the Company has publicly announced the ratification set forth in (i); (iii) the shares issuable upon exercise of the GEM C Warrant are subject to an effective registration statement; and (iv) the Company provides notice to GEM of its election to shorten the term within twenty business days of the last of the conditions in (i), (ii) and (iii) to occur. The other terms and conditions of the original GEM C Warrant remain unaltered.

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Eos Petro, Inc. (formerly Cellteck, Inc.) and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Month Periods Ended September 30, 2013 and 2012

(Unaudited)

The 590 Partners C Warrant: The Company issued a warrant to purchase 2,335,000 shares of common stock of the Company, par value $0.0001 per share, to 590 Partners at an exercise price of $5.35 per share (the “590 Partners C Warrant”). All of the terms in the 590 Partners C Warrant for vesting, exercise, expiration and anti-dilution are identical to those in the GEM C Warrant, as amended.

The Company recorded to consulting expense the fair value of the GEM B Warrant and the 590 Partners B Warrant which vested on July 11, 2013 pursuant to the amended agreements. The fair value was determined to be $4,095,407 using the Black-Scholes option pricing model with the following assumptions:

·	Expected life of 3.34 years

·	Volatility of 214%;

·	Dividend yield of 0%;

·	Risk free interest rate of 0.65%

As further consideration for GEM’s execution of the Commitment Agreements, on July 11, 2013 GEM and GEM affiliates received common stock purchase warrants to purchase an additional 1,500,000 shares of common stock of the Company (“Additional Warrants”). The Additional Warrants vest on July 11, 2014, expire after five years and have an exercise price equal to the 30 day average trading price of the Company’s common stock on July 11, 2014. If the shares underlying the Additional Warrant are not registered within 24 months of July 11, 2013, the expiration date will be extended for each additional day the shares underlying Additional Warrant remain unregistered after 24 months.

The fair value of the 1,500,000 Additional Warrants was determined to be $11,119,211 using the Black-Scholes option pricing model with the following assumptions:

·	Expected life of 4.78 years

·	Volatility of 214%;

·	Dividend yield of 0%;

·	Risk free interest rate of 1.39%

During the three months ended September 30, 2013, the Company amortized $2,467,551 and as of September 30, 2013, $8,651,661 remains to be amortized through July 2014.

Pursuant to the Commitment Agreements, the Company must 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. Eos further agreed to pay to GEM a Structuring Fee equal to $4 million, which must be paid on the 18 month anniversary of July 11, 2013 regardless of whether the Company has 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 ninety percent 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.

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Eos Petro, Inc. (formerly Cellteck, Inc.) and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Month Periods Ended September 30, 2013 and 2012

(Unaudited)

On January 21, 2013, Eos and the Company entered into a consulting agreement with SAI Geoconsulting, Inc. (“SAI”). Eos retained SAI on a non-exclusive basis to provide consulting support and advisory services for oil and gas activities. The agreement commenced on January 15, 2013 and continues for 24 months. Upon SAI’s execution of the agreement, SAI received a warrant to purchase up to 250,000 shares of the Company’s common stock at a strike price of $2.50 per share. The warrant was exercisable upon effectuation of the Stock Split, and the warrant expires on January 17, 2018. So long as the Stock Split has been effectuated, 50,000 warrants vest annually every January 21st, commencing on January 21, 2013 and ending January 21, 2017.

The fair value of the 250,000 warrants will be expensed over the vesting period. The fair value of the 50,000 warrants that vested on May 20, 2013 was determined to be $167,527 using the Black-Scholes model with the following assumptions:

· Dividend yield of 0%

· Expected volatility of 214%

· Risk-free interest rate of 0.85%

· Expected life of 4.67 years

The fair value of the remaining 200,000 warrants at September 30, 2013 was determined to be $1,488,258, of which $261,799 was recognized during the period ending September 30, 2013. The fair value was determined using the Black-Scholes model with the following assumptions:

· Dividend yield of 0%

· Expected volatility of 214%

· Risk-free interest rate of 1.39%

· Expected life of 4.30 years

On June 23, 2013, the Company entered into an Employment Agreement with Martin Oring, a member of the Company’s Board of Directors, pursuant to which Mr. Oring was appointed to act as the interim President and CEO of the Company while the Company searches for other candidates to fill the positions on a long-term basis. Pursuant to the agreement, Wealth Preservation, LLC, a company owned by Mr. Oring, received 600,000 warrants to purchase restricted shares of common stock of the Company at a per share exercise price of $2.50. The warrants expire on July 31, 2018. Commencing on July 31, 2013, 50,000 warrants will vest at the end of each month, so long as Mr. Oring’s Employment Agreement is still in effect. Any warrants which have not yet vested at the time Mr. Oring’s Employment Agreement is terminated shall cease to vest. Mr. Oring will also be reimbursed for reasonable travel and business expenses.

The fair value of the 600,000 warrants, which will be expensed over the one year vesting period beginning July 1, 2013 is $1,935,908. The fair value was determined using the Black-Scholes model with the following assumptions:

· Dividend yield of 0%

· Expected volatility of 214%

· Risk-free interest rate of 0.73%

· Expected life of 3 years

For the three and nine months ended September 30, 2013, the Company recorded compensation expense related to stock options of $455,021 and $483,977, respectively.

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Eos Petro, Inc. (formerly Cellteck, Inc.) and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Month Periods Ended September 30, 2013 and 2012

(Unaudited)

NOTE 10 - COMMITMENTS AND CONTINGENCIES

Insurance

The Company, through Eos, is a passive working and net revenue interest owner and operator in the oil and gas industry. As such, the Company to date has not acquired its own insurance coverage over its passive interests in the properties; instead the Company has relied on the third party operators for its properties to maintain insurance to cover its operations.

There can be no assurance that insurance, if any, will be adequate to cover any losses or exposure to liability. Although the Company believes the policies obtained by the third party operators provide coverage in scope and in amounts customary in the industry, they do not provide complete coverage against all operating risks. An uninsured or partially insured claim, if successful and of significant magnitude, could have a material adverse effect on the Company and its financial condition via its contractual liability to the prospect.

TEHI Illinois LLC

On June 6, 2012, Eos entered into an Oil and Gas Operating agreement with TEHI Illinois LLC. (“TEHI”) giving authority to TEHI as the Operator for oil and/or gas production (whether primary or secondary) with full control and management of all operations on the oil and gas property located in Illinois in which Eos as an 80% revenue and 100% working interest (the “Works Property”). TEHI has operated as the Operator on the leased properties without contract since Eos’ purchase of the Works lease in June, 2011. TEHI will receive expenses of $300 per month for managing the affairs of the lease and to properly keep the wells in operation and good workmanlike manner. Eos will also pay to TEHI its proportionate share of all operating expenses arising out of the operation and maintenance of any wells drilled, completed and equipped. TEHI is entitled to submit monthly operating statements of all operating expenses directly to the oil pipeline purchaser and deduct its operating costs from crude oil sales before remitting to Eos the Eos’ share of said crude oil sales. Eos granted a security interest in and a lien upon Eos’s ownership and interests in the oil and gas leases, the wells situated thereon, and the oil and gas produced therefrom, the proceeds therefrom, and all equipment, fixtures and personal property situated thereon to secure payment, together with interest thereon. TEHI was also granted a preferential right of first refusal to purchase the Works Property in the event Eos ever desires to sell or dispose of all or any part of Eos’ interest in the Works Property.

During the nine months ended September 30, 2013, the Company paid approximately $247,000 to TEHI.

BA Securities and Other Various Consulting Agreements

Pursuant to a consulting agreement effective as of August 1, 2013 (the “BAS Agreement”), between the Company, AGRA Capital, LLC (“AGRA”) and BA Securities, LLC (“BAS”), AGRA and BAS agreed to provide certain financial advisory services to the Company. In addition to agreeing to pay fees comprised of differing amounts of cash and warrants upon the closing of certain transactions in which AGRA and BAS have assisted, and instead of providing a cash retainer or pre-closing advance, the Company agreed to issue to BAS 500,000 shares of its restricted common stock on or before December 30, 2013 to compensate for the lack of any cash advisory retainer.

As further discussed in the Company’s December 31, 2012 financial statements filed with Form 10-K, the Company has entered into certain other consulting agreements with outside parties to locate and secure equity or debt financing for the Company. In exchange for these services, the Company will pay fees comprised of differing amounts of cash, shares of stock, and warrants.

Satisfaction of Loans

On or before closing date of the Babcock Agreement, presently anticipated as December 20, 2013, subject to adjustment to January 9, 2014 pursuant to the terms and conditions of the Babcock Agreement, the Company shall issue an aggregate of 70,000 restricted shares of Company’s common stock to Babcock affiliates in connection with the final payments needed to satisfy the Babcock Loan and Babcock Lease. Furthermore, on or before November 27, 2013, the Company shall issue an aggregate of 28,855 restricted shares of Company’s common stock to RT in connection with the final payments needed to satisfy the RT Loan.

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Eos Petro, Inc. (formerly Cellteck, Inc.) and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Month Periods Ended September 30, 2013 and 2012

(Unaudited)

On September 13, 2012, Eos entered into an employment agreement with Martin Cox to fill the position of Operations Manager. Pursuant to the agreement, Mr. Cox was entitled to receive $20,000 upon execution of the employment agreement and an annual salary of $120,000. However, a dispute arose regarding the amount of work Mr. Cox was performing for Eos. Eos’ position is that the employment agreement was cancelled and never went into effect. Mr. Cox disputes the cancellation of the employment agreement. On March 8, 2013, a claim was orally asserted on Mr. Cox’s behalf that Eos owes Mr. Cox $90,000 pursuant to the terms of the employment agreement. As of September 30, 2013, no lawsuits have been filed against us that relate to Mr. Cox’s employment agreement. Eos denies any breach of the employment agreement or other wrongdoing on its part and will vigorously defend itself against Mr. Cox’s claims.

NOTE 11– SUBSEQUENT EVENTS

Amended Buccaneer Participation Agreement

On August 21, 2013, the Company entered into an Amended and Restated Cook Inlet Participation Agreement (the “Original PA”) with Buccaneer Alaska, LLC (“Buccaneer”) and Buccaneer Alaska Operations, LLC (“Buccaneer Operations”) (collectively, the “Parties”), with respect to the farm-out of certain Alaskan-based oil & gas projects.

Pursuant to the Original PA, the Company has the right to earn a 50% working interest in the following oil & gas projects, which projects are either 100% owned by Buccaneer, or to which Buccaneer has the right to earn 100% of the working interest:

(i) the Southern Cross Unit;

(ii) the Northwest Cook Inlet Unit;

(iii) the West Eagle Unit; and

(iv) the North Cook Inlet Unit.

Under the Original PA, the Parties agreed to first commence operations in furtherance of drilling wells within the Southern Cross Unit. However, subsequent to August 21, 2013, the Parties determined that they would be unable to commence operations in furtherance of drilling wells within the Southern Cross Unit on the schedule set forth in the Original PA. Therefore, on October 17, 2013, the Parties amended and restated the terms of the Original PA in their entirety in a Second Amended and Restated Cook Inlet Participation Agreement (the “Amended PA”).

Under the Amended PA, the Parties have agreed to commence operations in furtherance of drilling wells within the West Eagle Unit by October 18, 2013, followed by operations within the North Cook Inlet Unit by December 31, 2014. The commencement of operations in furtherance of drilling wells within the Southern Cross and Northwest Cook Inlet Units are not tied to certain dates but are instead tied to certain elections and rights which Buccaneer may choose to make or obtain in the future, as further set forth in the Amended PA.

Babcock Abrogation Agreement

On November 7, 2013, Company, Eos and Mr. Nikolas Konstant (the Company’s Chairman of the Board and Chief Financial Officer) entered into the Babcock Agreement for the payment and satisfaction of the Babcock Loan and Babcock Lease, as amended, and all other related agreements. Under the terms and conditions of the Babcock Agreement, in order to pay off and satisfy the Babcock Loan in full and void the Babcock Lease, including any rent then owed and payable, in its entirety, Eos agreed to pay $330,000 on the loan in three separate payments as follows: (i) on or before November 8, 2013, Eos agreed pay $100,000; (ii) on or before November 15, 2013, Eos agreed to pay $100,000; and (iii) on or before January 9, 2014, Eos agreed to pay the final payment of $130,000. In addition, on or before January 9, 2014, Company agreed to issue an aggregate of 70,000 restricted shares of the Company’s common stock to certain affiliates of Babcock. Babcock agreed that they will not take action to bring suit or litigate against Eos through December 20, 2013, subject to extension through January 9, 2014 pursuant to the terms and conditions of the Babcock Agreement, so long as the full amount of outstanding and unpaid principal and interest on the loan has been repaid in full and the Babcock Shares have been issued pursuant to the Babcock Agreement.

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Eos Petro, Inc. (formerly Cellteck, Inc.) and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Month Periods Ended September 30, 2013 and 2012

(Unaudited)

Amendment to LowCal Industries Loan

On November 6, 2013, the Company, Eos , LowCal and certain affiliates of LowCal entered into a second amendment to the Loan Agreements, originally dated as of February 8, 2013 and first amended on April 23, 2013 (as amended through November 6, 2013, collectively referred to herein as the “LowCal Agreements”).

Pursuant to the LowCal Agreements, the total amount of the LowCal Loan was increased from $2,500,000.00 to $5,000,000. The remaining $2,500,000 of the loan is to be funded in installments as further set forth in the LowCal Agreements from November 7, 2013 through January 9, 2014.

The principal and all interest on the LowCal Loan are due in one installment on or before December 31, 2014. At any time while the note is outstanding, LowCal may elect to convert the principal and all accrued but unpaid interest on the LowCal Loan into restricted shares of the Company’s common stock at a conversion price of $4.00 per share. The Company may offer to prepay the LowCal Loan, and must offer to prepay the LowCal Loan with any funds it receives from specified sources, but LowCal may decline to accept any such prepayments towards the LowCal Loan if LowCal complies with certain conditions set forth in the LowCal Agreements. On or before January 9, 2014, the LowCal Loan will also be secured by a security interest in Eos’ collateral and other rights in certain of Eos and the Company’s existing agreements.

On the date that the LowCal Loan has been repaid in full, LowCal shall be entitled to receive from Eos an exit fee, payable in cash and stock, in the following amounts: (i) 50,000 restricted shares of Company’s common stock; and (ii) cash in an amount equal to 10% of the total principal amount of the note

When the LowCal Agreements were first entered into on February 8, 2013, LowCal agreed to purchase 500,000 shares of Series B preferred stock of the Company for $10,000, and when the LowCal Agreements were amended on April 23, 2013, LowCal agreed to purchase an additional 450,000 shares of Series B preferred stock of the Company for $10,000. When the LowCal Agreements were amended on November 6, 2013, LowCal agreed to purchase an aggregate of up to an additional 1,000,000 restricted shares of the Company’s common stock (the “LowCal Shares”) for par value on the closing date of the LowCal Agreements, which is anticipated to occur on or before January 9, 2014. The total amount of LowCal Shares which LowCal may actually purchase on the closing date of the LowCal Agreements is dependent on LowCal timely making all remaining payments on the purchase price for the note. If a payment is missed, the total amount of LowCal Shares will be proportionately reduced. LowCal executed a Lock-Up/Leak-Out Agreement, which restricts LowCal’s ability to sell these shares and any other shares of the Company it obtains. In addition, LowCal received piggy back registration rights for the shares it may receive pursuant to the note.

Agreement for Satisfaction of RT Loan

On November 18, 2013 RT and Eos acknowledged that, as of November 8, 2013, there was $232,235.40, inclusive of interest, outstanding on the RT Loan. RT further acknowledged that Eos paid $75,000 to RT on November 15, 2013, and Eos agreed to make a final payment of $75,000 to RT on or before January 9, 2014.The balance of the RT Loan is convertible into 28,855 shares of the Company’s restricted common stock, but only if: (i) the final $75,000 payment is made to RT on or before January 9, 2014; and (ii) such 28,855 shares are delivered to RT on or before November 27, 2013. Notwithstanding the foregoing, however, if the final $75,000 is not timely paid or the 28,855 shares are not validly or timely issued, the Company will still owe approximately $53,382 to RT on the RT Loan, plus interest accruing from and after November 8, 2013.

Extension of Maturity Dates for Sharma, and Rollins Loans

On November 18, 2013, pursuant to separate agreements the Company signed with Rollins and Sharma (collectively referred to as the “Lenders”), the Lenders agreed to extend the maturity dates of their respective loans to February 28, 2014 and May 31, 2014, respectively.

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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 September 30, 2013. 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.

Overview

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.

On October 12, 2012, pursuant to the Merger Agreement, entered into by and between the Company, Eos and Merger Sub, dated July 16, 2012, 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.

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We are presently focused on the exploration, development, mining, operation and management of medium-scale oil and gas assets. Our primary activities as of September 30, 2013, have centered on organizing activities but have also included the acquisition of existing assets, evaluation of new assets to be acquired, pre-development activities for existing assets and our Merger with Eos.

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.

Comparison of the three months ended September 30, 2013 to September 30, 2012.

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. As of September 30, 2013, our primary revenue has come from one source, “the Works” property, located in Southern Illinois. Revenue for the three months ended September 30, 2013 and 2012 was $248,820 and $65,605, respectively.

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 September 30, 2013 and 2012 was $173,968 and $70,593, respectively.

General and administrative expenses

General and administrative expenses for the three months ended September 30, 2013 and 2012 was $7,948,122 and $535,439, 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 $236,000, $6,994,000, and $585,000 in professional fees, consulting agreements and compensation, respectively for the three months ended September 30, 2013. We recognized approximately $306,000, $122,000, and $9,000 in professional fees, consulting agreements and compensation, respectively for the three months ended September 30, 2012. Other expenses included are temporary professional staffing, rent, utilities, and other overhead expenses. The significant increase in consulting expense is related to the $6,563,000 expense related to the amended GEM warrants as discussed in Note 9 in the accompanying consolidated financial statements.

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Interest expenses

Interest expense for the three months ended September 30, 2013 and 2012 was $890,900 and $58,151, respectively. During the three months ended September 30, 2013, we recognized as interest expense $25,000 for debt extension, $750,000 from amortization of debt discounts, and $113,000 based on the terms of the notes. During the three months ended September 30, 2012, we recognized as interest expense $1,120 for finance costs, $23,000 from amortization of debt discounts, and $34,000 based on the terms of the notes.

Comparison of the nine months ended September 30, 2013 to September 30, 2012.

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. As of September 30, 2013, our primary revenue has come from one source, “the Works” property, located in Southern Illinois. Revenue for the nine months ended September 30, 2013 and 2012 was $469,574 and $82,079, respectively.

Lease operating expenses

Lease operating expenses for oil and gas assets were primarily made up of the Works Property. Lease operating expenses for the nine months ended September 30, 2013 and 2012 was $380,368 and $244,473, respectively.

General and administrative expenses

General and administrative expenses for the nine months ended September 30, 2013 and 2012 was $9,461,625 and $924,956, 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 $706,000, $7,472,000, and $825,000 in professional fees, consulting agreements and compensation, respectively for the nine months ended September 30, 2013. We recognized approximately $403,000, $369,000, and $35,000 in professional fees, consulting agreements and compensation, respectively for the nine months ended September 30, 2012. Other expenses included are temporary professional staffing, rent, utilities, and other overhead expenses.

Interest expenses

Interest expense for the nine months ended September 30, 2013 and 2012 was $2,817,853 and $457,227, respectively. During the nine months ended September 30, 2013, we recognized as interest expense $50,000 for related to loan extensions and guarantees, $1,757,000 from amortization of debt discounts, and $271,000 based on the terms of the notes. During the nine months ended September 30, 2012, we recognized as interest expense $57,000 for shares issued for debt extension, $118,000 for finance costs, $89,000 from amortization of debt discounts, and $193,000 based on the terms of the notes.

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. 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 September 30, 2013, we had cash in the amount of $48,025. At September 30, 2013, we had total liabilities of $4,694,873, net of discounts of $749,185. 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.

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We do not currently have sufficient financing arrangements in place for such additional financing, 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.

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 shareholders 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 financial statements filed with our December 31, 2012 10-K includes 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 $1,489,028 and $774,080 for the nine months ended September 30, 2013 and 2012, respectively. The net cash used in operating activities was primarily due to the costs incurred with the organizing activities more fully described above.

Cash Used in Investing Activities

Net cash used by investing activities was $846,500 and $21,000 for the nine months ended September 30, 2013 and 2012, respectively, and was primarily due to the capital costs incurred at the Works property.

Cash Flows from Financing Activities

Net cash flow from financing activities was $2,336,042 and $795,080 for the nine months ended September 30, 2013 and 2012, respectively. This cash generated from financing activities for the nine months ended September 30, 2012 was primarily from issuing our convertible notes of $2,500,000 offset by repayment of short term notes payable of $225,000.

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.

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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 include the following:

Final well closure and associated ground reclamation costs to determine the asset retirement obligation as discussed under “Asset Retirement Obligations;”

Estimated variables used in the Black-Scholes option pricing model used to value options and warrants as discussed below under “Fair Value Measurements;”

Proved oil reserves;

Future costs to develop the reserves; and

Future cash inflows and production development costs.

Actual results could differ from those estimates.

Revenue Recognition

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

Full Cost Method of Accounting for Oil and Gas Properties

We have elected to utilize the full cost method of accounting for its oil and gas activities. In accordance with the full cost method of accounting, we capitalize 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.

Full Cost Ceiling Test

At the end of each quarterly reporting period, the unamortized costs of oil and gas properties are subject to a “ceiling test” which basically 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.

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Asset Retirement Obligation

Share-Based Compensation

We periodically issue stock options and warrants to employees and non-employees in 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 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

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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

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in the reports we file pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to our chief executive officer who also serves as the Company’s principal financial officer, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide a reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Management designed the disclosure controls and procedures to provide reasonable assurance of achieving the desired control objectives.

We carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2013. Based upon that evaluation, the chief executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are ineffective.

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 September 30, 2013 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 From time to time, we are a party to claims and legal proceedings arising in the ordinary course of business. Our management evaluates our exposure to these claims and proceedings individually and in the aggregate and provides for potential losses on such litigation if the amount of the loss is determinable and the loss is probable.

On July 11, 2011, Eos entered into an employment agreement with Michael Finch to fill the position of Eos’ CEO. Pursuant to the agreement, Mr. Finch was entitled to an annual salary of $300,000, 2,000,000 shares of common stock vesting over two years, and certain other insurance and employment benefits. However, a dispute arose regarding the amount of work Mr. Finch was performing for Eos and the employment was terminated. On August 9, 2012, Mr. Finch sent a Demand for Arbitration before JAMS alleging breach of the Employment Agreement. Mr. Finch requests the following remedies: (1) $127,500 in unpaid salary; (2) $11,000 in unpaid health coverage; (3) $6,000 in unpaid vehicle allowance; (4) $15,833 for reimbursement of expenses; and (5) 2,000,000 shares of Eos’ common stock. As of September 30, 2013, Eos had not yet prepared or sent a response to the demand. Eos denies any breach of the employment agreement or other wrongdoing on its part and will vigorously defend those claims.

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On November 21, 2011, Eos entered into an Employment Agreement with Anthony Fidaleo to fill the position of Eos’ CFO. Pursuant to the agreement, Mr. Fidaleo was entitled to an annual salary of $240,000.00, 250,000 stock options vesting over two years, and certain other insurance and employment benefits. However, a dispute arose regarding the amount of work Mr. Fidaleo was performing for Eos and the employment was terminated. As of September 30, 2013, no disputes have arisen and no lawsuits or other claims have been filed against us that relate to Mr. Fidaleo’s employment agreement.

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, 2012, 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

Consulting Agreement with Hahn Engineering

On June 23, 2013, the Company entered into a one year consulting agreement with Hahn Engineering Inc. (“Hahn”), an entity which previously has prepared reserve reports for the Company’s SEC reporting obligations. Eos retained Hahn to provide oil and gas consulting services. Pursuant to the agreement, in exchange for the provision of oil and gas consulting services, Hahn received 1,000 restricted shares of common stock of the Company upon full execution of the agreement. In addition, so long as the agreement has not been terminated, commencing on the one month anniversary of June 23, 2013 and continuing on each monthly anniversary of June 23, 2013 thereafter, in Hahn will be issued 2,000 restricted shares of common stock of the Company per month, to be capped at 24,000 shares total.

On July 23, 2013, August 23, 2013, and September 23, 2013, and October 23, 2013, Hahn received 2,000 restricted shares of the Company’s common stock for each month, respectively, for an aggregate of 9,000 shares with the 1,000 Hahn received upon execution of the agreement.

The GEM Commitment and Warrants

As previously reported by the Company on the Current Report on Form 8-K filed on January 17, 2013, the Company and GEM Global Yield Fund, a member of the Global Emerging Markets Group (“GEM”), entered into a financing commitment on August 31, 2011, whereby GEM would provide and fund the Company with up to $400 million dollars, through a common stock subscription agreement (the “Commitment”), for the Company’s African acquisition activities.

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As previously reported by Company on the Current Report on Form 8-K filed on July 23, 2013, as further consideration of GEM’s continued support of the Eos and GEM’s lack of termination of or withdrawal from the financing commitment agreements, on July 11, 2013 GEM and GEM affiliates received common stock purchase warrants to purchase an additional 1,500,000 shares of common stock of the Company (“Additional Warrants”). The Additional Warrants vest on July 11, 2014, expire after five years and have an exercise price equal to the 30 day average trading price of the Company’s common stock on July 11, 2014. If the shares underlying the Additional Warrant are not registered within 24 months of July 11, 2013, the expiration date will be extended for each additional day the shares underlying Additional Warrant remain unregistered after 24 months.

Services Agreement with Quantum Advisors

On July 1, 2012, Quantum Advisors, LLC ("Quantum"), of which John Mitola is the managing member, entered into a Services Agreement (the "Quantum Agreement") with Eos, in order to provide consulting services to Company, Eos and its subsidiaries. Pursuant to the Quantum Agreement, Quantum was granted an option to acquire 200,000 shares of the Company’s common stock (the "Option").

None of the shares in the Option have an exercise price or expiration date. Instead, 50,000 shares in the Option vest and automatically convert into shares of the Company’s common stock, so long as the Quantum Agreement is still in effect on certain dates set forth in the Quantum Agreement. If the Agreement is terminated, any part of the Option that has not yet vested by the date of termination will expire. Pursuant to the Quantum Agreement, Quantum received 50,000 shares of the Company’s common stock on July 1, 2013. In the aggregate, as of September 30, 2013, Quantum has acquired 150,000 shares of common stock that have vested and automatically converted from the Option through September 30, 2013, leaving 50,000 which shall vest and automatically convert if the Quantum Agreement is still in effect on December 31, 2013.

BAS Consulting Agreement

Pursuant the BAS Agreement effective as of August 1, 2013 between the Company, AGRA and BAS, AGRA and BAS agreed to provide certain financial advisory services to the Company. In addition to agreeing to pay fees comprised of differing amounts of cash and warrants upon the closing of certain transactions in which AGRA and BAS have assisted, and instead of providing a cash retainer or pre-closing advance, the Company agreed to issue to BAS 500,000 shares of its restricted common stock on or before December 30, 2013.

LowCal Shares and LowCal Exit Stock

At the closing date of the LowCal Agreements, anticipated to occur on or before January 9, 2014, Company is authorized to issue an aggregate of up to 1,000,000 restricted shares of the Company’s common stock, subject to the Company’s receipt of the full amount of the LowCal Loan and the terms and conditions of the LowCal Agreements.

On the date that the loan under the LowCal Agreements has been repaid in full, anticipated to occur on or before December 31, 2014, LowCal shall be entitled to receive from Eos an exit fee, part of which is payable in cash in an amount equal to 10% of the total principal amount of the LowCal Loan and 50,000 restricted shares of Company’s common stock, subject to the terms and conditions of the LowCal Agreements.

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Loan Satisfaction Shares

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

Item 3. Defaults Upon Senior Securities

As of September 30, 2013, the Company has preferred stock dividends payable of $27,386 which are accrued dividends related to shares Series A preferred stock of Eos which were converted in the Merger.

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.*

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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: November 19, 2013	By:	/s/ MARTIN B. ORING
		Martin B. Oring
		President and Chief Executive Officer

Date: November 19, 2013	By:	/s/ NIKOLAS KONSTANT
		Nikolas Konstant
		Chairman of the Board and Chief Financial Officer

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