UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_____________________

FORM 10-Q

_____________________

☒ Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the quarterly period ended ~~September~~June 30, ~~2016~~2017

☐ Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the transition period from ___________________ to _______________________

Commission File Number 33-16820-D

ARÊTE INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

Colorado	84-1508638
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

7260 Osceola Street, Westminster, Colorado 80030

(Address of Principal Executive Offices) (Zip Code)

303-427-8688

(Registrant's Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☐ Yes ☒ No

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

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

Large accelerated filer ☐		Accelerated filer ☐

Non-accelerated filer ☐		Smaller reporting company ☒

Emerging growth company ☐

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

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

As of ~~May~~March 1229, ~~2017~~2018, the Registrant had 14,~~642~~674,~~080~~580 shares of common stock issued and outstanding.

ARÊTE INDUSTRIES, INC.

Table of Contents

Page Part 1 - Financial Information 32 Item 1 - Financial Statements 32 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 1316 Item 3 - Quantitative and Qualitative Disclosures about Market Risk 1820 Item 4 - Controls and Procedures 1920 Part 2 - Other Information 1921 Item 1 - Legal Proceedings 1921 Item 1A - Risk Factors 1921 Item 2 - Sales of Unregistered Equity Securities and Use of Proceeds 1921 Item 3 - Defaults upon Senior Securities 1921 Item 4 - Mine Safety Disclosures 1921 Item 5 - Other Information 1921 Item 6 – Exhibits 2021 Signatures 2122

Part 1 – Financial Information

Item 1 - Financial Statements

ARÊTE INDUSTRIES, INC.
CONDENSED BALANCE SHEETS (Unaudited)
CONDENSED BALANCE SHEETS
	As of
	September 30,			December 31,
	June 30,			December 31,
ASSETS	~~2016~~2017			~~2015~~2016
	(Unaudited)
Current Assets:
Cash	$	~~259,340~~-		$	~~521~~171,~~666~~370
Accounts receivable - oil and gas sales		1814,~~581~~105			214,~~539~~014
Subscription receivable		-			105,000
Prepaid expenses and other		19,338			3,032
Prepaid expenses and other		11,832			32,554
Total Current Assets		33,433			188,416
Total Current Assets		289,753			661,759
Property and Equipment:
Oil and gas properties, at cost, successful efforts method:
Proved properties		85,~~431~~325,~~505~~526			85,~~683~~325,~~273~~381
Unproved properties		154,~~977~~982			154,~~836~~977
Furniture and equipment		22,522			22,522
Total property and equipment		85,~~609~~503,~~004~~030			85,~~860~~502,~~631~~880
Less accumulated depreciation, depletion and amortization		(3,~~573~~770,522	)		(3,~~245~~684,522	)
Net Property and Equipment		51,~~035~~732,~~482~~508			51,~~615~~818,~~109~~358
TOTAL ASSETS	$	51,~~325~~765,~~235~~951		$	62,~~276~~006,~~868~~774

The Accompanying Notes are an Integral Part of These Financial Statements

ARÊTE INDUSTRIES, INC.
CONDENSED BALANCE SHEETS, Continued

	As of
	June 30,			December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)	2017			2016
Current Liabilities:	(Unaudited)
Accounts payable:
Trade accounts payable		198,346			133,343
Accounts payable - DNR Oil & Gas, Inc.		410,188			453,439
Accounts payable - directors and affiliates		126,586			77,616
Dividends payable:
Dividends payable		5,934			5,998
Dividends payable - directors and affiliates		79,930			41,992
Accrued interest expense:
Accrued interest expense		5,188			5,254
Accrued interest expense - directors and affiliates		23,220			18,567
Notes and advances payable - current portion:
Notes and advances payable		1,261,011			240,750
Notes and advances payable - directors and affiliates		137,970			134,839
Current portion of asset retirement obligations		439,000			425,200
Other accrued costs and expenses		61,745			61,745
Total Current Liabilities		2,749,118			1,598,743
Long-Term Liabilities:
Notes and advances payable, net of current portion:
Notes and advances payable, net of discount		26,993			1,032,928
Notes and advances payable - Directors and affiliates		9,001			16,435
Asset retirement obligations, net of current portion		696,000			659,800
Total Long-Term Liabilities		731,994			1,709,163
Total Liabilities		3,481,112			3,307,906
Commitments and Contingencies
Stockholders' Equity (Deficit):
Convertible Class A preferred stock; $10,000 face value per share, authorized 1,000,000 shares:
Series 1; 30,000 shares authorized, none issued and outstanding.		-			-
Series 2; authorized 2,500 shares, 272 shares issued and outstanding at June 30, 2017 and December 31,2016, liquidation preference $2,805,864.		2,720,000			2,720,000
Common stock, no par value; 499,000,000 shares authorized, 14,674,580 issued and outstanding at June 30, 2017 and December 31, 2016.		21,535,469			21,535,469
Accumulated deficit		(25,970,630	)		(25,556,601	)
Total Stockholders' Equity (Deficit)		(1,715,161	)		(1,301,132	)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)	$	1,765,951		$	2,006,774

The Accompanying Notes are an Integral Part of These Financial Statements.

ARÊTE INDUSTRIES, INC.
CONDENSED BALANCE SHEETS, Continued (Unaudited)
CONDENSED STATEMENTS OF OPERATIONS
	As of
(Unaudited)
	September 30,			December 31,
	For the Three Months Ended June 30,						For the Six Months Ended June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY	2016			2015
	2017			2016			2017			2016
Current Liabilities:
Revenues:
Accounts payable:
Oil sales	$	211,792		$	260,574		$	439,979		$	414,557
Trade accounts payable		143,197			64,896
Natural gas sales		14,167			17,200			34,443			45,418
Accounts payable - DNR Oil & Gas, Inc.		367,504			501,281
Royalty revenues		1,065			379			1,959			1,277
Accounts payable - directors and affiliates		53,398			-
Total revenues		227,024			278,153			476,381			461,252
Dividends payable:
Operating Expenses:
Dividends payable		5,999			-
Oil and gas producing activities:
Dividends payable - directors and affiliates		41,992			-
Lease operating expenses		233,796			204,897			445,030			487,455
Accrued interest expense:
Production taxes		14,255			21,953			29,009			36,067
Accrued interest expense		3,983			2,532
Depreciation, depletion, amortization and accretion		61,000			120,268			136,000			298,810
Accrued interest expense - directors and affiliates		16,374			9,442
Impairment		-			-			-			252,000
Notes and advances payable - current portion:
General and administrative expenses:
Notes and advances payable		81,502			989,853
Director fees		10,000			10,000			20,000			20,000
Notes and advances payable - directors and affiliates		134,595			13,152
Investor relations		1,205			5,406			3,854			7,313
Current portion of asset retirement obligations		426,600			409,621
Legal, auditing and professional fees		51,379			56,713			63,746			85,884
Other accrued costs and expenses		61,745			68,577
Consulting fees executive services-Related Parties		13,313			24,232			31,218			40,732
Total Current Liabilities		1,336,889			2,059,354
Other administrative expenses		8,133			8,006			16,296			23,172
Long-Term Liabilities:
Total operating expenses		393,081			451,475			745,153			1,251,433
Notes and advances payable, net of current portion:
Operating loss		(166,057	)		(173,322	)		(268,772	)		(790,181	)
Notes and advances payable, net of discount		1,198,439			173,519
Other income (expense)
Notes and advances payable - Directors and affiliates		20,057			151,379
Other Income		-			-			2,218			-
Asset retirement obligations, net of current portion		639,400			585,576
Interest income (expense), net		(26,954	)		(22,237	)		(52,535	)		(44,952	)
Total Long-Term Liabilities		1,857,896			910,474
Total other expense		(26,954	)		(22,237	)		(50,317	)		(44,952	)
Total Liabilities		3,194,785			2,969,828
Loss before income taxes		(193,011	)		(195,559	)		(319,089	)		(835,133	)
Commitments and Contingencies (Notes 6, 7, 8 and 9)
Income tax benefit (expense)		-			-			-			-
Stockholders' Equity:
Net loss	$	(193,011	)	$	(195,559	)	$	(319,089	)	$	(835,133	)
Convertible Class A preferred stock; $10,000 face value per share, authorized 1,000,000 shares:
Net Loss Applicable to Common Stockholders:
Series 1; 30,000 shares authorized, none issued and outstanding.		-			-
Net loss	$	(193,011	)	$	(195,559	)	$	(319,089	)	$	(835,133	)
Series 2; authorized 2,500 shares, 272 and 267 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively, liquidation preference $2,767,991 at September 30, 2016.		2,720,000			2,670,000
Preferred stock dividends declared		(47,470	)		(47,470	)		(94,940	)		(95,979	)
Common stock, no par value; 499,000,000 shares authorized, 14,674,580 and 14,295,413 issued and outstanding at September 30, 2016 and December 31, 2015, respectively.		21,535,469			21,502,635
Net loss applicable to common stockholders	$	(240,481	)	$	(243,029	)	$	(414,029	)	$	(931,112	)
Accumulated deficit		(22,125,019	)		(20,865,595	)
Loss Per Share Applicable to Common Stockholders:
Total Stockholders' Equity		2,130,450			3,307,040
Basic	$	(0.02	)	$	(0.02	)	$	(0.03	)	$	(0.06	)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	5,325,235		$	6,276,868
Diluted	$	(0.02	)	$	(0.02	)	$	(0.03	)	$	(0.06	)
Weighted Average Number of Common Shares Outstanding:
Basic		14,674,580			14,469,700			14,674,580			14,382,550
Diluted		14,674,580			14,467,700			14,674,580			14,382,550

The Accompanying Notes are an Integral Part of These Financial Statements.

ARÊTE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
	For the Three months Ended September 30,						For the Nine months Ended September 30,
	2016			2015			2016			2015
Revenues:
Oil sales	$	219,404		$	230,728		$	633,961		$	617,906
Natural gas sales		20,220			22,507			65,638			112,554
Royalty revenues		483			514			1,760			4,455
Sale of oil and natural gas properties		-			-			-			27,120
Total revenues		240,107			253,749			701,359			762,035
Operating Expenses:
Oil and gas producing activities:
Lease operating expenses		313,086			270,719			800,541			685,587
Production taxes		19,367			29,101			55,434			66,900
Depreciation, depletion, amortization and accretion		104,523			189,335			403,333			531,292
Impairment		-			-			252,000			-
Gas gathering:
Operating expenses		-			-			-			1,406
Depreciation		-			11,055			-			33,165
General and administrative expenses:
Director fees		10,000			13,333			30,000			35,333
Investor relations		1,097			30,897			8,410			41,525
Legal, auditing and professional fees		23,185			6,458			109,069			80,313
Consulting fees executive services-Related Parties		14,000			43,333			54,732			126,733
Other administrative expenses		10,103			20,699			33,275			65,138
Depreciation		-			143			-			428
Total operating expenses		495,361			615,073			1,746,794			1,667,820
Operating loss		(255,254	)		(361,324	)		(1,045,435	)		(905,785	)
Other expense
Interest expense net		(25,067	)		(28,372	)		(70,019	)		(87,052	)
Loss before income taxes		(280,321	)		(389,696	)		(1,115,454	)		(992,837	)
Income tax benefit (expense)		-			-			-			-
Net loss	$	(280,321	)	$	(389,696	)	$	(1,115,454	)	$	(992,837	)
Net Loss Applicable to Common Stockholders:
Net loss	$	(280,321	)	$	(389,696	)	$	(1,115,454	)	$	(992,837	)
Preferred stock dividends declared		(47,991	)		-			(143,970	)		-
Net loss applicable to common stockholders	$	(328,312	)	$	(389,696	)	$	(1,259,424	)	$	(992,837	)
Loss Per Share Applicable to Common Stockholders:
Basic	$	(0.02	)	$	(0.03	)	$	(0.09	)	$	(0.08	)
Diluted	$	(0.02	)	$	(0.03	)	$	(0.09	)	$	(0.08	)
Weighted Average Number of Common Shares Outstanding:
Basic		14,673,700			12,966,000			14,450,550			12,764,000
Diluted		14,673,700			12,966,000			14,450,550			12,764,000

ARÊTE INDUSTRIES, INC.

CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

(Unaudited)

	Class A Preferred Stock				Common Stock				Accumulated
	Shares		Amount		Shares		Amount		Deficit			Total
Balances, January 1, 2017		272	$	2,720,000		14,674,580	$	21,535,469	$	(25,556,601	)	$	(1,301,132	)
Preferred stock dividends		-		-		-		-		(94,940	)		(94,940	)
Net loss		-		-		-		-		(319,089	)		(319,089	)
Balances, June 30, 2017		272	$	2,720,000		14,674,580	$	21,535,469	$	(25,970,630	)	$	(1,715,161	)

The Accompanying Notes are an Integral Part of These Financial Statements.

ARÊTE INDUSTRIES, INC. CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)

UNAUDITED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY


	For the Six Months Ended June 30,
	2017			2016
Cash Flows from Operating Activities:
Net loss	$	(319,089	)	$	(835,133	)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation, depletion and amortization		86,000			251,000
Accretion of discount on asset retirement obligations		50,000			47,810
Amortization of loan servicing fees		1,875			-
Impairment expense		-			252,000
Common stock issued in exchange for services Changes in operating assets and liabilities:		-			25,334
Accounts receivable		(91	)		(18,421	)
Prepaid expenses and other		(16,306	)		7,209
Accounts payable		65,003			66,091
Accounts payable – DNR Oil & Gas		(43,251	)		(234,022	)
Accounts payable – related parties and director's fees		48,970			31,398
Other accrued expenses and accrued interest		4,587			37,230
Net cash used in operating activities		(122,302	)		(369,504	)
Cash Flows from Investing Activities:
Capital expenditures for property and equipment		(150	)		(373	)
Net cash used in investing activities		(150	)		(373	)
Cash Flows from Financing Activities:
Proceeds from notes payable		32,526			125,500
Principal payments on notes payable		(20,075	)		(114,696	)
Principal payments on notes payable – related parties		(4,303	)		(3,306	)
Proceeds received from subscription receivable		-			105,000
Proceeds received from issuance of Series A2 preferred stock		-			50,000
Preferred stock dividends paid		(57,066	)		(48,509	)
Net cash (used in) provided by financing activities		(48,918	)		113,989
Net decrease in cash and equivalents		(171,370	)		(255,888	)
Cash and equivalents, beginning of period		171,370			521,666

Cash and equivalents, end of period	$	-		$	265,778

Supplemental Disclosure of Cash Flow Information:
Cash paid for interest	$	44,439		$	39,376
Cash paid for interest – related parties	$	966		$	1,505
Cash paid for finance expenses	$	668		$	-
Amortization of debt discount	$	1,875		$	-
Accrued dividends	$	47,990		$	47,470
Common stock issued for loan closing costs	$	-		$	3,600

	Class A Preferred Stock				Common Stock				Accumulated
	Shares		Amount		Shares		Amount		Deficit			Total
Balances, January 1, 2016		267	$	2,670,000		14,295,413	$	21,502,635	$	(20,865,595	)	$	3,307,040
Issuance of common stock for services		-		-		316,667		25,334		-			25,334
Issuance of common stock related to notes payable (See Note 7)		-		-		62,500		7,500		-			7,500
Issuance of series A2 preferred stock		5		50,000		-		-		-			50,000
Preferred stock dividends		-		-		-		-		(143,970	)		(143,970	)
Net loss		-		-		-		-		(1,115,454	)		(1,115,454	)
Balances, September 30, 2016		272	$	2,720,000		14,674,580	$	21,535,469	$	(22,125,019	)	$	2,130,450

The Accompanying Notes are an Integral Part of These Financial Statements.

ARÊTE INDUSTRIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
	For the nine months ended September 30,
	2016			2015
Cash Flows from Operating Activities:
Net loss	$	(1,115,454	)	$	(992,837	)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation, depletion and amortization		328,000			509,698
Accretion of discount on asset retirement obligations		75,333			55,187
Gain on sale of oil and gas properties		-			(27,120	)
Common stock issued in exchange for services		25,334			55,165
Impairment expense		252,000			-
Changes in operating assets and liabilities:
Accounts receivable		(16,042	)		79,443
Prepaid expenses and other		20,722			25,715
Accounts payable		(2,078	)		118,044
Amortization of loan servicing fees		938			-
Settlement of Asset Retirement Obligation		(4,530	)		-
Other accrued expenses and accrued interest		1,551			115,133
Net cash used in operating activities		(434,226	)		(61,572	)
Cash Flows from Investing Activities:
Capital expenditures for property and equipment		(373	)		(64,416	)
Proceeds from sale of oil & gas properties		-			50,000
Net cash used in investing activities		(373	)		(14,416	)
Cash Flows from Financing Activities:
Proceeds from notes payable		250,500			67,000
Principal payments on notes payable		(137,248	)		(19,658	)
Proceeds received from subscription receivable		105,000			-
Preferred stock dividends paid		(95,979	)		-
Proceeds received from issuance of Series A2 Preferred Stock		50,000			-
Net cash provided by financing activities		172,273			47,342
Net decrease in cash and equivalents		(262,326	)		(28,646	)
Cash and equivalents, beginning of period		521,666			30,755
Cash and equivalents, end of period	$	259,340		$	2,109
Supplemental Disclosure of Cash Flow Information:
Additions to oil & gas properties financed through accounts payable	$	-		$	3,465
Cash paid for interest	$	62,052		$	55,913
Accrued dividends	$	47,991		$	-
Common stock issued as a prepayment for services	$	-		$	13,333
Common stock issued for director fees payable	$	-		$	20,900
Common stock issued for loan closing costs	$	7,500		$	-

The Accompanying Notes are an Integral Part of These Financial Statements.

Note 1 - Organization and Nature of Operations

Arête Industries, Inc. ("Arête" or the "Company"), is a Colorado corporation that was incorporated on July 21, 1987. The Company seeks to focus on acquiring interests in traditional oil and gas ventures, and seek properties that offer profit potential from overlooked and by-passed reserves of oil and natural gas, which may include shut-in wells, in-field development, stripper wells, re-completion and re-working projects. In addition, the Company's strategy includes purchase and sale of acreage prospective for oil and natural gas and seeking to obtain cash flow from the sale and farm out of such prospects.

Note 2 - Summary of Significant Accounting Policies

Basis of presentation

These statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC") and accounting principles generally accepted in the United States ("GAAP") for interim financial information. They do not include all information and notes required by GAAP for complete financial statements. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to financial statements included in Arête's Annual Report on Form 10-K for the year ended December 31, ~~2015~~2016 as filed with the SEC. In the opinion of management, the accompanying unaudited financial statements contain all adjustments, consisting of normal recurring accruals necessary for a fair presentation of the financial position as of ~~September~~June 30, ~~2016~~2017, and ~~December 31, 2015, and~~ the results of operations, changes in stockholders' equity, and cash flows for the quarters ended ~~September~~June 30, ~~2016~~2017, and ~~2015~~2016. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for a full year. The Company's ~~2015~~2016 Annual Report on Form 10-K includes certain definitions and a summary of significant accounting policies and should be read in conjunction with this Form 10-Q.

In connection with the preparation of its unaudited condensed financial statements, the Company evaluated events subsequent to the balance sheet date of ~~September~~June 30, ~~2016~~2017, through the filing date of this report.

~~Liquidity~~Certain ~~and~~prior ~~Management's~~period ~~Plans~~amounts have been reclassified to conform to the current period presentation. These reclassifications had no impact on net income (loss) for any period presented.

~~The~~Going Company incurred significant net operating losses during the nine months ended September 30, 2016, and for the fiscal year ended December 31, 2015. The Company also has negative working capital at September 30, 2016, and is currently in default with oneof its creditors for which it has a note payable. This history of operating losses, negative working capital and note defaults, along with low commodity prices, will likely adversely affect the Company's ability to access the capital it needs to continue operations on terms acceptable to the Company. However, due to the Company's limited capital raise (see Note 6 - Stock transactions and preferred stock dividends), its entry into extensions of some of its notes payable to long-term debt (see Note 7 - Notes and advances payable) and the acquisition of additional producing wells and properties at the end of 2015, the Company believes that it can raise additional capital to fund its current operations over, at least 12 months from the date of this filing. The Company's ability to continue as a going concern is dependent upon its ability to secure other sources of financing and attain profitable operations, which it has not achieved for several quarters. The Company continues to pursue additional sources of financing but there can be no assurance that such financing will be completed on terms favorable to the Company, if at all.Concern

The accompanying financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the normal course of business. The accompanying financial statements do not reflect any adjustments that might result if the Company is unable to continue as a going concern. The Company does not generate adequate revenue to satisfy its current operations, has negative cash flows from operations, and incurred significant net operating losses during the quarter ended June 30, 2017 and the six months ended June 30, 2017, and the years ended December 31, 2016 and 2015, which raise substantial doubt about the Company's ability to continue as a going concern. The ability of the Company to continue as a going concern and appropriateness of using the going concern basis is dependent upon, among other things, additional cash infusion. The Company has historically obtained funds through private placement offerings of equity and debt, as well as, asset sales. There is no assurance that the Company will be able to continue raising the required capital.

Use of estimates

Preparation of the Company's financial statements in accordance with GAAP requires management to make various assumptions, judgments and estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Changes in these assumptions, judgments and estimates will occur as a result of the passage of time and the occurrence of future events and, accordingly, actual results could differ from amounts initially established.

The most significant areas requiring the use of assumptions, judgments and estimates relate to the volumes of natural gas and oil reserves used in calculating depreciation, depletion and amortization ("DD&A"), the amount of expected future cash flows used in determining possible impairments of oil and gas properties and the amount of future capital costs used in these calculations. Assumptions, judgments and estimates also are required in determining future asset retirement obligations and impairments of undeveloped properties.

Oil and Gas producing activities

The Company's oil and gas exploration and production activities are accounted for using the successful efforts method. Under this method, all property acquisition costs and costs of exploratory and development wells are capitalized when incurred, pending determination of whether the well has proved reserves. If an exploratory well does not result in proved reserves, the costs of drilling the well are charged to expense and included within cash flows from investing activities in the Statements of Cash Flows. The costs of development wells are capitalized whether productive or nonproductive. Oil and gas lease acquisition costs are also capitalized.

Other exploration costs, including certain geological and geophysical expenses and delay rentals for oil and gas leases, are charged to expense as incurred. The sale of a partial interest in a proved property is accounted for as a cost recovery and no gain or loss is recognized as long as this treatment does not significantly affect the unit-of-production DD&A rate. A gain or loss is recognized for all other sales of proved properties and is classified in other operating revenues. Maintenance and repairs are charged to expense, and renewals and betterments are capitalized to the appropriate property and equipment accounts.

The Company estimates the expected undiscounted future cash flows of its oil and gas properties and compares such undiscounted future cash flows to the carrying amount of the oil and gas properties to determine if the carrying amount is recoverable. If the carrying amount exceeds the estimated undiscounted future cash flows, the Company will adjust the carrying amount of the oil and gas properties to fair value. The factors used to determine fair value include, but are not limited to, recent sales prices of comparable properties, the present value of estimated future cash flows, net of estimated operating and development costs using estimates of reserves, future commodity pricing, future production estimates, anticipated capital expenditures and various discount rates commensurate with the risk and current market conditions associated with realizing the expected cash flows projected. Once incurred, a write-down may not be reversed in a later period. ~~For~~During the ~~nine~~six ~~month~~months ~~periods~~period ended ~~September~~June 30, ~~2016~~2017 and ~~2015~~2016, the Company recorded impairment expense of $~~252,000~~0 and $0252,000, respectively, against its oil and gas properties. There were no impairment expense recorded for the three month periods ended June 30, 2017 and 2016.

The provision for DD&A of oil and gas properties is calculated based on proved reserves on a field-by-field basis using the unit-of-production method. Natural gas is converted to barrel equivalents, BOE, at the rate of six Mcf of natural gas to one barrel of oil. Estimated future dismantlement, restoration and abandonment costs, which are net of estimated salvage values, are taken into consideration.

Unproved oil and gas properties are periodically assessed for impairment on a project-by-project basis. These impairment assessments are affected by the results of exploration activities, commodity price outlooks, planned future sales or expirations of all or a portion of such projects. If the estimated future net cash flows attributable to such projects are not expected to be sufficient to fully recover the costs invested in each project, the Company will recognize an impairment loss at that time. There was no provision for impairment recorded against its unproved property for the ~~nine~~three and six month periods ended ~~September~~June 30, ~~2016~~2017 and ~~2015~~2016.

Revenue recognition

The Company records revenues from the sale of crude oil, natural gas and natural gas liquids ("NGL") when delivery to the purchaser has occurred and title has transferred. The Company uses the sales method to account for gas imbalances. Under this method, revenue is recorded on the basis of gas actually sold by the Company. In addition, the Company will record revenue for its share of gas sold by other owners that cannot be volumetrically balanced in the future due to insufficient remaining reserves. The Company also reduces revenue for other owners' gas sold by the Company that cannot be volumetrically balanced in the future due to insufficient remaining reserves. The Company's remaining over and under produced gas balancing positions are considered in the Company's proved oil and gas reserves. Gas imbalances at ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015~~2016 were not material.

Earnings per share

Basic net income (loss) per share of common stock is calculated by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding during each period. Diluted net income (loss) attributable to common stockholders is calculated by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding and other dilutive securities. The only potentially dilutive securities for the diluted earnings per share calculations consist of Series A2 preferred stock that is convertible into common stock at an exchange price of $2.00 per common share. As of ~~September~~ June 30, 2017, and December 31, 2016, the convertible preferred stock had an aggregate liquidation preference of $2,~~767~~805,~~991~~864 and was convertible to 1,384,000 shares of common stock. These shares were excluded from the earnings per share calculation for the three and six month periods ended June 2017 and 2016 because they would be anti-dilutive.

The following table sets forth the calculation of basic and diluted earnings per share:

	Three month periods ended September 30,						Nine month periods ended September 30,
	2016			2015			2016			2015
Net loss available to common shareholders – Basic	$	(328,312	)	$	(389,696	)	$	(1,259,424	)	$	(992,837	)
Plus: Preferred stock dividends		-			-			-			-
Net loss available to common shareholders – Diluted	$	(328,312	)	$	(389,696	)	$	(1,259,424	)	$	(992,837	)
Weighted average common shares outstanding – Basic		14,673,700			12,966,000			14,450,550			12,764,000
Add: Dilutive effect of preferred stock		-			-			-			-
Weighted average common shares outstanding – Diluted		14,673,700			12,966,000			14,450,550			12,764,000
Net loss per common share:
Basic	$	(0.02	)	$	(0.03	)	$	(0.09	)	$	(0.08	)
Diluted	$	(0.02	)	$	(0.03	)	$	(0.09	)	$	(0.08	)

New accounting pronouncements

InOther ~~January~~than ~~2016,~~as ~~the~~disclosed ~~FASB~~in ~~issued~~the ~~ASU~~ 2016 Form 10-01K, ~~"Recognition~~there ~~and~~are ~~Measurement~~no ofother ~~Financial~~ASUs ~~Assets~~applicable ~~and~~to ~~Financial~~the ~~Liabilities."~~Company ~~ASU~~that ~~2016-01~~would ~~changes~~have ~~certain~~a ~~guidance~~material ~~related~~effect toon the ~~recognition,~~Company's ~~measurement,~~financial ~~presentation~~statements and ~~disclosure~~related ofdisclosures ~~financial~~that ~~instruments.~~have ~~This~~been ~~update~~issued isbut ~~effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is~~ not ~~permitted~~yet ~~for~~adopted ~~the~~by ~~majority of~~ the ~~update,~~Company ~~but~~as ~~is permitted for two~~ of ~~its~~June ~~provisions.~~30, ~~The~~2017, ~~Company is evaluating the new guidance~~ and ~~has~~through ~~not determined~~ the ~~impact~~filing of this ~~standard may have on its financial statements~~report.

In February 2016, FASB issued ASU 2016-02, "Leases." ASU 2016-02 requires the recognition of lease assets and lease liabilities by lessees for those leases currently classified as operating leases and makes certain changes to the way lease expenses are accounted for. This update is effective for fiscal years beginning after December 15, 2018 and for interim periods beginning the following year. This update should be applied using a modified retrospective approach, and early adoption is permitted. The Company is evaluating the new guidance and has not determined the impact this standard may have on its financial statements.

In January 2017, FASB issued ASU 2017-01, "Business Combinations." These amendments clarify the definition of a business. The amendments affect all reporting organizations that must determine whether they have acquired or sold a business. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The amendments are intended to help companies and other organizations evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The Company is evaluating the new guidance and has not determined the impact this standard may have on its financial statements.

Note 3 - Oil and Gas Properties

The following table sets forth information concerning the Company's oil and gas properties:

	September 30, 2016			December 31, 2015
	June 30, 2017			December 31, 2016
Proved oil and gas properties at cost, net of impairment	$	85,~~431~~325,~~505~~381		$	85,~~683~~325,~~273~~381
Unproved oil and gas properties at cost, net of impairment		154,~~977~~982			154,~~836~~977
Accumulated depreciation, depletion and amortization		(3,~~551~~748,000	)		(3,~~223~~662,000	)
Oil and gas properties, net	$	51,~~035~~732,~~482~~508		$	51,~~615~~818,~~109~~358

During the ~~nine~~three month periods ended ~~September~~June 30, ~~2016~~2017 and ~~2015~~2016, the Company recorded depletion expense of $~~328~~61,000 and $~~476~~120,~~105~~268, respectively. ~~The~~and ~~Company~~for ~~recorded~~the ~~impairment~~six ~~expense~~months ofended ~~$252~~June 30,~~000~~ 2017 and $02016, ~~for~~ the ~~nine~~company ~~month~~recorded ~~periods~~depletion ~~ended~~expense ~~September~~of 30$136,000 ~~2016~~ and ~~2015~~$298,810, respectively.

Acquisitions

In 2011, the Company entered into a purchase and sale agreement ("DNR and Tindall PSA") and other related agreements and documents with Tucker Family Investments, LLLP, which is referred to as "Tucker"; DNR Oil & Gas, Inc. which is referred to as "DNR"; and Tindall Operating Company, which is referred to as "Tindall", and collectively are referred to as the "Sellers", for the purchase of certain oil and gas operating properties in Colorado, Kansas, Wyoming, and Montana. DNR is owned primarily by an officer and director of the Company, Charles B. Davis, and he is an affiliate of Tucker and Tindall. The consideration for the purchase was determined by bargaining between management of the Company and Mr. Davis, and the Company used reports of independent engineering firms to analyze the purchase price. The base purchase price was paid in full on September 29, 2011.

On January 19, 2016, but effective December 31, 2015, (the "Effective Date") the Company entered into a Settlement Agreement with Tucker, DNR and Tindall regarding the DNR and Tindall PSA and other related matters. In consideration of the amounts indicated below, the parties (i) terminated Exhibits C and C-2 to the DNR and Tindall PSA for all purposes; (ii) extinguished all liabilities of the Company under Exhibit C of the DNR and Tindall PSA including $250,000 related to the increase in oil prices after the acquisition; (iii) agreed that the promissory note of $792,151 due to DNR (See Note 7 – Notes and Advances Payable) and accrued interest thereon was paid in full; and (iv) released each other against any and all claims which have been raised or could have been raised among them. Specifically, Exhibits C and C-2 to the DNR and Tindall PSA related to potential payments that would have needed to have been made by the Company in the event oil prices increased to certain levels and related to certain payments to have been made by the Company in the event it sold certain properties purchased under the DNR and Tindall PSA. Exhibits C and C-2 were terminated and extinguished (including any amounts owed thereunder including an alleged amount of $250,000 under Exhibit C to the DNR and Tindall PSA) in exchange for 25 fully paid nonassessable restricted shares of our 7% Series A2 Convertible Preferred Stock. Consideration to pay the above promissory note in full consisted of the issuance to DNR of 65 fully paid, nonassessable restricted shares of its 7% Series A2 Convertible Preferred Stock, and paying DNR $303,329 in cash, which was paid January 19, 2016. A description of the terms of the 7% Series A2 Convertible Preferred Stock, including its terms of conversion into shares of the Company's common stock is set forth below in Note 6 - Stock transactions and preferred stock dividends. The Company recorded an expense of $141,099 included in other operating expense in the statement of operations at December 31, 2015, as a result of this transaction. At September 30, 2016, the Company's only remaining liabilities to DNR related to oil and gas operations are recorded in Accounts payable – DNR Oil & Gas, Inc. on the balance sheet.

On December 30, 2015, the Company completed an asset acquisition pursuant to a purchase and sale agreement executed on November 25, 2015, but effective December 1, 2015 (the "Wellstar Purchase and Sale Agreement ") with Wellstar Corporation (the "Seller"), an unaffiliated corporation. The assets acquired were producing oil and gas leases in Sumner County, Kansas and Kimball County, Nebraska (collectively, the "Properties" and individually, the "Padgett Properties" and the "Nebraska Properties"). The Company acquired 51% of Seller's interest (ranging from 47% to 100% of the working interests) in the Padgett Properties and acquired 100% of the Seller's interest (100% of the working interests) in the Nebraska Properties for aggregate consideration of $1,100,000 and the issuance of 1,000,000 shares of the Company's restricted common stock valued at $0.10 per share at the date of closing, or $100,000.

Note 4 – Fair Value Measurements

FASB ASC 820, "Fair Value Measurements and Disclosures", establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under FASB ASC 820 are described as follows:

Level 1 – Observable inputs, such as unadjusted quoted prices in active markets, for substantially identical assets and liabilities.

Level 2 – Observable inputs other than quoted prices within Level 1 for similar assets and liabilities. These include quoted prices for similar assets and liabilities in active markets, quoted prices for identical assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. If the asset or liability has a specified or contractual term, the input must be observable for substantially the full term of the asset or liability.

Level 3 – Unobservable inputs that are supported by little or no market activity, generally requiring a significant amount of judgment by management. The assets or liabilities fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Further, although the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

Upon completion of wells, the Company records an asset retirement obligation at fair value using Level 3 assumptions and this is a non-recurring estimate.

Impairment of long-lived assets are determined on a non-recurring basis using Level 3 assumptions.

Nonfinancial assets and liabilities are measured at fair value on a nonrecurring basis upon impairment. The carrying amounts of other financial instruments including cash and cash equivalents, accounts receivable, account payables, accrued liabilities and long term debt in our balance sheet approximates fair value as of September 30, 2016 and December 31, 2015.9

The Company does not have any assets or liabilities that are measured at fair value on a recurring or nonrecurring basis as of June 30, 2017. The Company does not have any liabilities that are measured at fair value on a recurring basis or nonrecurring basis as of December 31, 2016. The following table represents the Company's assets that are measured at fair value on a nonrecurring basis in the accompanying balance sheets, and where they are classified within the fair value hierarchy as of December 31, 2016:

		Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Proved oil and gas properties at cost, net of impairment			-				-			$	1,377,260

The fair values of the properties were determined using discounted cash flow models. The discounted cash flows were based on management's expectations for the future. The inputs included estimates of future crude oil and natural gas production, commodity prices based on sales contracted terms or commodity price curves as of the date of the estimate, estimated operating and development costs, at a risk-adjusted discount rate of 10%.

The carrying amounts of other financial instruments including cash and cash equivalents, accounts receivable, account payables, accrued liabilities and long-term debt in our balance sheet approximates fair value as of June 30, 2017 and December 31, 2016.

Note 5 - Income taxes

The book to tax temporary differences resulting in deferred tax assets and liabilities are primarily net operating loss carry forwards of approximately $810.34 million which expire in 2018 through ~~2035~~2036. A 100% valuation allowance has been established against the deferred tax assets, as utilization of the loss carry forwards and realization of other deferred tax assets cannot be reasonably assured. For the period ended ~~September~~June 30, ~~2016~~2017, the Company did not recognize any income tax benefit due to the valuation allowance.

The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based upon the technical merits of the position. As of ~~September~~June 30, ~~2016~~2017, the Company had no unrecognized tax benefits.

Note 6 - Stock transactions and preferred stock dividends

Common stock

OnThere ~~May~~were ~~11,~~no ~~2016,~~issuances ~~the Company issued 316,667 shares~~ of ~~restricted~~ common stock toduring ~~its~~the ~~Chief~~six ~~Financial~~month ~~Officer~~period asended ~~compensation~~June ~~for services performed from January 1 through May 31~~30, ~~2016~~2017.

On June 29, 2016, the Company issued 30,000 shares of restricted common stock as a loan closing cost related to one of its notes payable valued at $3,600 (see Note 7 – Notes and advances payable).

On July 1, 2016, the Company issued 20,000 shares of restricted common stock as a loan closing cost related to one of its notes payable valued at $2,400 (see Note 7 – Notes and advances payable).

On July 5, 2016, the Company issued 12,500 shares of restricted common stock as a loan closing cost related to one of its notes payable valued at $1,500 (see Note 7 – Notes and advances payable).

Preferred stock

~~On December 11, 2015, the Company began a private placement of its Series A2 7% Preferred Convertible Stock with a maximum amount of 600 shares at $10,000 per share or $6,000,000.~~ At ~~September~~June 30, ~~2016~~2017, the Company had $2,720,000 (272 shares) outstanding. A ~~177~~maximum ~~shares~~amount ~~($1,770,000)~~of ~~were~~600 ~~sold for cash during the fiscal year ended December 31, 2015, 90~~ shares (at $~~900~~10,000) ~~were~~per ~~issued~~share toor ~~DNR as part of the consideration for a settlement entered into with DNR during fiscal year ended December 31, 2015 and 5 shares (~~$506,000),000 ~~were~~are ~~sold~~available onfor ~~January 7, 2016~~issuance.

The following are the terms of the Preferred Stock Series A2:

Authorized Shares, Stated Value and Liquidation Preference. Six hundred shares are designated as the Series A2 7% Convertible Preferred Stock, which has a stated value and liquidation preference of $10,000 per share plus accrued and unpaid dividends.

Ranking. The Series A2 Preferred Stock will rank senior to future classes or series of preferred stock established after the issue date of the Series A2 Preferred Stock, unless the Company's Board of Directors expressly provides otherwise when establishing a future class or series. The Series A2 Preferred Stock ranks senior to our common stock but it is junior to our outstanding debt and accounts payable.

Dividends. Holders of Series A2 Preferred Stock are entitled to receive dividends at an annual rate of 7.0% of the $10,000 per share liquidation preference, payable quarterly on each of March 31, June 30, September 30 and December 31. Dividends are payable in cash or in shares of common stock (at its then fair market value), at the Company's election.

Voting Rights. Holders of the Series A2 Preferred Stock will vote together with the holders of our common stock as a single class on all matters upon which the holders of common stock are entitled to vote. Each share of Series A Preferred Stock will be entitled to such number of votes as the number of shares of common stock into which such share of Preferred Stock is convertible; however, solely for the purpose of determining such number of votes, the conversion price per share will be deemed to be $2.00, subject to customary anti-dilution adjustment. In addition, the holders of the Series A2 Preferred Stock will vote as a separate class with respect to certain matters, including amendments to the Company's Articles of Incorporation that alter the voting powers, preferences and special rights of the Series A2 Preferred Stock.

Liquidation. In the event we voluntarily or involuntarily liquidate, dissolve or wind up, the holders of the Series A2 Preferred Stock will be entitled, before any distribution or payment out of our assets may be made to or set aside for the holders of any of our junior capital stock and subject to the rights of our creditors, to receive a liquidation distribution in an amount equal to $10,000 per share, plus any unpaid dividends. A merger, consolidation or sale of all or substantially all of our property or business is not deemed to be a liquidation for purposes of the preceding sentence.

Redemption. The Series A2 Preferred Stock is redeemable in whole or in part at our option at any time for cash. The redemption price is equal to $10,000 per share, plus any unpaid dividends.

Optional Redemption by Holder. Unless prohibited by Colorado law governing distributions to shareholders, the Company, upon 90 days' prior written request from any holders of outstanding shares of Series A2 Preferred Stock, in its sole discretion, may redeem at a redemption price equal to the sum of (i) $10,000 per share and (ii) the accrued and unpaid dividends thereon, to the redemption date, up to one-third of each holder's outstanding shares of Series A2 Preferred Stock on: (i) the first anniversary of the Original Issue Date (the "First Redemption Date"), (ii) the second anniversary of the Original Issue Date (the "Second Redemption Date") and (iii) the third anniversary of the Original Issue Date (the "Third Redemption Date", along with the First Redemption Date and the Second Redemption Date, collectively, each a "Redemption Date"). If on any Redemption Date, Colorado law governing distributions to shareholders prevents the Company from redeeming all shares of Series A2 Preferred Stock to be redeemed, the Company may ratably redeem the maximum number of shares that it may redeem consistent with such law, and may also redeem the remaining shares as soon as it may lawfully do so under such law.

Preemptive Rights. Holders of the Series A2 Preferred Stock do not have preemptive rights.

Mandatory Conversion. Each share of Series A2 Preferred Stock remaining outstanding will automatically be converted into shares of our common stock upon the earlier of (i) any closing of underwritten public offering by us of shares of common stock pursuant to an effective registration statement under the Securities Act of 1933, in which the aggregate cash proceeds to be received by us and selling stockholders (if any) from such offering (without deducting underwriting discounts, expenses and commissions) are at least $7,000,000, and per share sales price is at least $3.00 (such price to be adjusted for any stock dividends, combinations or splits or (ii) the date agreed to by written consent of the holders of a majority of the outstanding Series A2 Preferred Stock.

Optional Conversion by Investors. At any time, each holder of Series A2 Preferred Stock has the right, at the holder's option, to convert all or any portion of such holder's Series A2 Preferred Stock into shares of our common stock prior to the mandatory conversion of the Series A2 Preferred Stock.

Note 7 - Notes and advances payable

Notes payable consist of the following as of the date indicated:

	September 30, 2016		December 31, 2015
	June 30, 2017		December 31, 2016
Officers, directors and affiliates:
Note payable, interest 7.0%, due January 2019 (1)		3326,~~924~~243		4330,~~803~~546
Collateralized note payable (2)		120,728		120,728
Total officers, directors and affiliates		~~154~~146,~~652~~971		~~164~~151,~~531~~274
Less: Current portion of officers, directors, and affiliates		~~134~~137,~~595~~970		13134,~~152~~839
Long-term portion of officers, directors, and affiliates	$	209,~~057~~001	$	~~151~~16,~~379~~435
Unrelated parties:
Notes payable, interest at 7.5%, due January 2019 (3)	$	100,000	$	100,000
Notes payable, interest at 7.5%, due March 2018 (3)	$	100,000	$	100,000
Note payable, due March 2018 (4)		150,000		150,000
Notes payable, interest at 7.0%, due January 2017 (4) *		17,575		22,737
Note payable, due December 2018 (5)		15,014		19,660
Note payable, due March 2018 (5)		150,000		150,000
Note payable, interest variable (see below) due June 2018 (6)		523,000		616,105
Note payable, due January 2019 (6)		11,468		13,566
Note payable, interest at 7.0%, due August 2016 (7)		62,000		62,000
Line of credit, interest variable (see below) due June 2018 (7)		523,000		523,000
Notes payable, interest at 7.0%, due January 2019 (8)		25,253		32,607
Note payable, interest at 7.0%, due August 2016 (8) *		62,000		62,000
Notes payable, interest at 7.0%, due June 2018 (9)		183,000		183,000
Notes payable, interest at 4.957%, due October 2017 (10)		3,236		-
Notes payable, net of discount, interest at 7.0%, due June 2018 (10)		98,200		97,300
Notes payable, net of discount, interest at 7.0%, due June 2018 (11)		9698,~~850~~800		-98,200
Notes payable, net of discount, interest at 7.0%, due June 2018 (12)		9724,~~900~~250		-23,875
Notes payable, net of discount, interest at 7.0%, due June 2018 (13)		23,688		-
Notes payable, interest at 5.0%, due October 2018 (13)		19,710		-
Total unrelated parties		1,~~279~~288,~~941~~004		1,~~163~~273,~~372~~678
Less: Current portion of unrelated parties		811,~~502~~261,011		~~989~~240,~~853~~750
Long-term portion of unrelated parties	$	126,~~198,439~~993	$	~~173~~1,~~519~~032,928

~~(1)~~* InNote ~~January~~is ~~2014,~~in we memorialized certain short-term liabilities with owed to one of our directors, Charlie Davis, into a formal promissory note. This note accrues interest at an annual rate of 7.0% with monthly payments equal to $1,316 (principal and interest) and will mature on January 1, 2019.default

~~(2)~~All Onof ~~April 29, 2013,~~ the Company's executed a promissory note under which the Company agreed to pay Apex Financial Services Corp, a Colorado corporation, ("Apex") the principal sum of $120,728, with interest accruing at an annual rate of 7.5%, with principal and interest due on March 31, 2017. The Company also agreed to assign 75% of its operating income from its oil and gas operations and any lease or well sale or any other asset sales to Apex to secure the debt. ~~Apex~~matures isin ~~100%~~fiscal ~~owned~~year ~~by the CEO~~2018, ~~director,~~except ~~and~~for ~~shareholder~~one ~~of the Company, Nicholas L. Scheidt. The Company paid a loan fee to Apex of $10,000. In the event of default on the~~ note ~~and~~payable ~~failure~~ to ~~cure~~Don ~~the~~Prosser ~~default~~(see inbullet ~~ten~~6 ~~days~~below), ~~Apex~~which ~~may~~is ~~accelerate~~due ~~payment and the annual interest rate~~ on ~~the~~January note will accrue at 18%. Default includes failure to pay the note when due or if the Company borrows any other monies or offers security in the Company or in the collateral securing the note prior to the note being paid in full. The Company obtained a default waiver from Apex related to the new notes entered into through the nine month period ended September 301, ~~2016~~2019. ~~The Company has not had operating income or had any lease or well sales in the current fiscal year; therefore, no payments have been made to Apex through September 30, 2016.~~

(31) OnIn ~~March~~January 282014, ~~2012,~~we ~~the~~memorialized ~~Company~~certain ~~executed~~short-term aliabilities ~~promissory~~owed ~~note with Pikerni, LLC ("Pikerni"). This note was extended and amended on April 1, 2015,extending the maturity date of the note~~ to ~~April~~one ~~1, 2016, with principal payments~~ of ~~$5,000~~our ~~due on June 30~~directors, ~~2015,~~Charlie ~~September 30~~Davis, ~~2015,~~into ~~December~~a ~~31,~~formal ~~2015,~~promissory ~~and March 31, 2016, and the remaining principal balance of $80,000 due on April 1, 2016~~note. ~~The~~This note accrues interest at an annual rate of 7.50% ~~and~~with ismonthly ~~payable~~payments ~~quarterly.~~equal ~~The~~to ~~Company~~$1,316 ~~did not make any of the~~ (principal ~~payments~~ and ~~was~~interest) inand ~~default~~will mature on ~~this note, however, in~~ January ~~2016 the Company entered into an extension agreement with Pikerni~~1, ~~with~~2019. anInterest ~~effective~~paid ~~date~~through of June 1530, ~~2016.~~2017 ~~The principal amount of $100,000~~ was ~~extended to March 30, 2018, with interest continuing to accrue at an annual rate of 7~~$966.~~5% and interest payments continuing to be paid in 90-day intervals.~~

(2)

On April 29, 2013, the Company executed a promissory note under which the Company agreed to pay Apex Financial Services Corp, a Colorado corporation, ("Apex") the principal sum of $120,728, with interest accruing at an annual rate of 7.5%, with principal and interest due on March 30, 2018. The Company also agreed to assign 75% of its operating income from its oil and gas operations and any lease or well sale or any other asset sales to Apex to secure the debt. Apex is 100% owned by the CEO, director, and shareholder of the Company, Nicholas L. Scheidt. The Company paid a loan fee to Apex of $10,000. In the event of default on the note and failure to cure the default in ten days, Apex may accelerate payment and the annual interest rate on the note will accrue at 18%. Default includes failure to pay the note when due or if the Company borrows any other monies or offers security in the Company or in the collateral securing the note prior to the note being paid in full. The Company obtained a default waiver from Apex related to the new notes entered into through the date of this report. The Company has not had operating income or had any lease or well sales in the current fiscal year; therefore, no payments have been made to Apex through June 30, 2017. There was no interest paid through June 30, 2017.

(3)

On March 28, 2012, the Company executed a promissory note with Pikerni, LLC ("Pikerni"). This note was extended and amended on April 1, 2015, extending the maturity date of the note to April 1, 2016, with principal payments of $5,000 due on June 30, 2015, September 30, 2015, December 31, 2015, and March 31, 2016, and the remaining principal balance of $80,000 due on April 1, 2016. The note accrues interest at an annual rate of 7.5% and is payable quarterly. The Company did not make any of the principal payments and was in default on this note, however, in January 2016 the Company entered into an extension agreement with Pikerni, with an effective date of June 15, 2016. The principal amount of $100,000 was extended to March 30, 2018, with interest continuing to accrue at an annual rate of 7.5% and interest payments continuing to be paid in 90-day intervals. Interest paid through June 30, 2017 was $3,750.

(4) On ~~March~~January 281, ~~2012~~2014, the Company executed a ~~Promissory~~promissory ~~Note~~note with ~~Fairfield~~William ~~Management Group~~Stewart, ~~LLC~~one of the Company's board members, subsequently assigned to ~~Donald~~Pikerni, ~~Prosser~~LLC, ~~(former~~for ~~CFO~~$49,500. ~~and~~This ~~Director)~~note ~~("Prosser")~~accrues ~~during~~interest ~~the~~at ~~fiscal~~a ~~year~~rate ~~ended~~of ~~December 31, 2015~~7.0% ~~The~~per ~~note~~annum ~~has~~with amonthly ~~principal~~payments ~~balance~~equal ofto $~~150,000,~~980 ~~accrues~~(principal and interest) atand 7matures on January 1, 2017.5% ~~payable~~The monthly ~~and~~payments ~~had~~are abased ~~maturity~~on ~~date~~a of60 ~~March~~month ~~31,~~amortization ~~2016~~schedule, ~~which~~with ~~was~~a ~~subsequently~~balloon ~~extended~~payment toof ~~March~~$22,737 31due on January 1, 2017. ~~and~~The ~~extended~~balloon ~~again~~payment onwas ~~May~~not 3made at January 1, 2017, toand ~~March~~this ~~30,~~note ~~2018~~is currently in default. The Company ~~did~~has ~~not~~continued ~~make~~making the ~~principal~~monthly ~~payment~~payments of $~~150,000~~980 onand ~~March~~is ~~31,~~negotiating ~~2017,~~new ~~and~~terms. ~~was~~The inprincipal ~~default~~balance onis ~~this~~classified ~~note~~in current notes payable ~~before~~on the ~~May~~balance 3sheet at June 30, 2017. ~~extension~~Interest ~~agreement~~paid through June 30, 2017 was $719.

(5) On ~~December~~March 3128, ~~2013~~2012, the Company executed a ~~promissory~~Promissory ~~note~~Note with ~~Mr.~~Fairfield Management Group, LLC, subsequently assigned to Donald Prosser ~~for~~(former ~~$28~~CFO and Director) ("Prosser") during the fiscal year ended December 31,~~500~~ 2015. ~~This~~The note has a principal balance of $150,000, accrues interest at 7.5% payable monthly and had a ~~rate~~maturity date of ~~7.0%~~March ~~with~~31, ~~monthly~~2016, ~~payments~~which ~~equal~~was tosubsequently ~~$564~~extended ~~(principal~~to ~~and~~March ~~interest)~~31, 2017 and ~~matures~~extended again on ~~January~~May 13, ~~2019~~2017 to March 30, 2018. Interest paid through June 30, 2017 was $5,625.

(6) On ~~January~~December 2831, ~~2014~~2013, wethe ~~entered~~Company ~~into~~executed a ~~line~~promissory ofnote ~~credit~~with ~~loan~~Mr. ~~agreement~~Prosser for $~~1,500,000 due January 15, 2015, subsequently extended to June~~ 28, ~~2018~~500. ~~The~~This ~~terms of the~~ note ~~are~~accrues ~~as follows: 1) the accrued~~ interest isat ~~payable monthly starting February 28, 2014, 2) the interest rate is variable based on an index calculated based on~~ a ~~prime~~ rate ~~as published by the Wall Street Journal index plus an add on index with the current and minimum rate~~ of 67.50%, ~~the~~with ~~note~~monthly ~~has~~payments ~~draw~~equal ~~provisions~~to ~~and is collateralized by the wells and leases owned by the Company, a certificate of deposit for~~ $~~500,000~~564 at(principal ~~CityWide Banks pledged by a related party,~~ and 5interest) the personal guarantee of Nicholas Scheidt, Chief Executive Officer. The amount eligible for borrowing on the Credit Facility is limited to the lesser of (i) 65% of the Company's PV10 value of its carbon reserves based upon the most current engineering reserve report or (ii) 48 month cumulative cash flow based upon the most current engineering reserve report. In addition to the borrowing base limitation, the Company is required to maintain and ~~meet~~matures ~~certain affirmative and negative covenants and conditions in order to draw advances~~ on ~~the~~January ~~Credit Facility. At September 30~~1, ~~2016, the borrowing base was $523,000~~2019. ~~The~~Interest ~~Credit~~paid ~~Facility~~through ~~contains~~June certain representations, warranties, and affirmative and negative covenants applicable to the Company, which are customarily applicable to senior secured loan facilities. Key covenants include limitations on indebtedness, restricted payments, creation of liens on oil and gas properties, hedging transactions, mergers and consolidations, sales of assets, use of loan proceeds, change in business, and change in control. At September 30, ~~2016,~~2017 ~~the Company~~ was in compliance with all of the covenants. The above-referenced promissory note contains customary default and acceleration provisions and provides for a default interest rate of 21% per annum. In addition, the Credit Facility contains customary events of default, including: (a) failure to pay any obligations when due; (b) failure to comply with certain restrictive covenants; (c) false or misleading representations or warranties; (d) defaults of other indebtedness; (e) specified events of bankruptcy, insolvency or similar proceedings; (f) one or more final, non-appealable judgments in excess of $~~50,000 that is not covered by insurance; (g) change in control (25% threshold); (h) negative events affecting the Guarantor; and (i) lender in good faith believes itself insecure~~414. In an event of default arising from the specified events, the Credit Facility provides that the commitments thereunder will terminate and the Lender may take such other actions as permitted including, declaring any principal and accrued interest owed on the line of credit to become immediately due and payable. The Credit Facility is secured by a security interest in substantially all of the assets of the Company, pursuant to a Security Agreement, Deed of Trust and Assignment of As-Extracted Collateral entered into between the Company and Citywide Banks.

(7) On ~~August~~January 28, 2014, we entered into a line of credit loan agreement ("Credit Facility") with Citywide Banks ("Citywide") for $1,500,000 due January 15, 2015, subsequently extended to June 28, 2018. The terms of the note are as follows: 1) the accrued interest is payable monthly starting February 28, 2014, 2) the ~~Company~~interest ~~redeemed~~rate is variable based on an index calculated based on a prime rate as published by the ~~remaining~~Wall 10Street ~~shares~~Journal index plus an add on index with the current and minimum rate of ~~Series~~6.5%, ~~A-1~~the ~~Convertible~~note ~~Preferred~~has ~~Stock~~draw ~~outstanding~~provisions ~~for~~and ~~consideration~~is collateralized by the wells and leases owned by the Company, a certificate of deposit for $~~77,~~500,000 at CityWide Banks pledged by a related party, and 5) the personal guarantee of ~~which~~Nicholas ~~$15~~Scheidt,~~500~~ ~~was~~Chief ~~paid~~Executive inOfficer. The amount eligible for borrowing on the Credit Facility is limited to the lesser of (i) 65% of the Company's PV10 value of its carbon reserves based upon the most current engineering reserve report or (ii) 48 month cumulative cash flow based upon the most current engineering reserve report. In addition to the borrowing base limitation, the Company is required to maintain and meet certain affirmative and negative covenants and conditions in order to draw advances on the ~~remaining~~Credit ~~amount~~Facility. asAt aJune ~~promissory~~30, ~~note~~2017, ~~for~~the borrowing base was $62523,000. The Credit Facility contains certain representations, warranties, and affirmative and negative covenants applicable to the Company, which are customarily applicable to senior secured loan facilities. Key covenants include limitations on indebtedness, restricted payments, creation of liens on oil and gas properties, hedging transactions, mergers and consolidations, sales of assets, use of loan proceeds, change in business, and change in control. The above-referenced promissory note ~~accrues~~contains customary default and acceleration provisions and provides for a default interest atrate 7of 21% per annum. In addition, ~~payable~~the Credit Facility contains customary events of default, including: (a) failure to pay any obligations when due; (b) failure to comply with certain restrictive covenants; (c) false or misleading representations or warranties; (d) defaults of other indebtedness; (e) specified events of bankruptcy, insolvency or similar proceedings; (f) one or more final, non-appealable judgments in ~~two~~excess ~~installments~~of as$50,000 ~~follows~~that is not covered by insurance; (g) change in control (25% threshold); (h) negative events affecting the Guarantor; and (i) lender in good faith believes itself insecure. In an event of default arising from the specified events, the Credit Facility provides that the commitments thereunder will terminate and the Lender may take such other actions as permitted including, declaring any principal and accrued interest owed on the line of credit to become immediately due and payable. The Credit Facility is secured by a security interest in substantially all of the assets of the Company, pursuant to a Security Agreement, Deed of Trust and Assignment of As-Extracted Collateral entered into between the Company and Citywide Banks. Interest paid through June 30, 2017 was $17,186.

(8)

On August 15, 2014, the Company redeemed the remaining 10 shares of Series A-1 Convertible Preferred Stock outstanding for consideration of $77,500, of which $15,500 was paid in cash and the remaining amount as a promissory note for $62,000. The note accrues interest at 7% per annum, payable in two installments as follows;

A payment of $31,000, plus accrued and unpaid interest was payable on August 15, 2015

A payment of $31,000, plus accrued and unpaid interest was payable on August 15, 2016

The Company did not make the August 15, 2015, or August 15, 2016, principal payment and is currently in default on this note. The Company is negotiating new terms with the note holder. Interest paid through June 30, 2017 was $2,194.

(89) OnIn ~~December~~June 312013, ~~2013~~in connection with the conversions of Series A-1 Preferred Stock by Burlingame Equity Investors II, LP and Burlingame Equity Investors Master Fund, LP, the Company ~~executed~~issued aunsecured promissory ~~note~~notes ~~with~~in ~~Pikerni~~the ~~for~~original principal amounts of $4948,~~500.~~000 ~~This~~and ~~note~~$552,000, ~~accrues~~respectively, with interest at ~~a rate of~~ 7.0% per annum payable quarterly and all unpaid interest and principal due on July 23, 2014. We have agreed in writing with ~~monthly~~the ~~payments~~holders ~~equal~~of these two existing notes to ~~$980~~extend ~~(principal~~the ~~and~~maturity ~~interest)~~date ~~and~~of ~~matures~~the onnotes ~~January~~to 1June 18, ~~2019~~2018. Interest paid through June 30, 2017 was $621.

(910) InOn June ~~2013~~29, in2016, ~~connection~~the ~~with~~Company ~~the~~entered ~~conversions~~into ofa ~~Series~~promissory ~~A-1~~note ~~Preferred~~with ~~Stock~~an byunrelated ~~Burlingame~~party ~~Equity~~and ~~Investors~~received II$100,000 LP and ~~Burlingame~~issued ~~Equity Investors Master Fund~~30,000 ~~LP,~~shares of the Company's ~~issued~~restricted ~~unsecured~~common ~~promissory~~stock, ~~notes~~valued inat ~~the~~$3,600, ~~original~~as ~~principal~~a ~~amounts~~loan ofservicing ~~$48,000~~fee. ~~and~~This ~~$552,000,~~note ~~respectively,~~accrues ~~with~~ interest at the rate of 7.0% per annum ~~payable~~with interest paid quarterly in arrears and all ~~unpaid~~principal ~~interest~~ and ~~principal~~interest due on ~~July~~June 2329, ~~2014~~2018. WeIn ~~have~~the ~~agreed~~event inof ~~writing~~a ~~with~~default, the ~~holders~~loan will become due immediately and a default interest rate of ~~these~~18.0% ~~two~~per ~~existing~~year ~~notes~~will tobe ~~extend~~assessed on all amounts outstanding until paid in full. An event of default only occurs if any payment required by this note is not paid. All payments have been made on this note through the ~~maturity~~filing ~~date~~of this report. The loan servicing fee will be amortized over the life of the ~~notes~~loan. toInterest paid through June 1830, ~~2018~~2017 was $2,892. Interest paid through June 30, 2017 was $3,471.

(1011) On ~~March~~June 130, 2016, the Company entered into a ~~Commercial~~promissory ~~Premium~~note ~~Finance~~with ~~Agreement~~an –unrelated ~~Promissory~~party ~~Note~~for in$100,000 and the ~~amount~~issuance of ~~$25~~20,~~976~~000 toshares ~~finance~~of ~~one~~the ofCompany's ~~its~~restricted ~~insurance~~common ~~policies~~stock, valued at $2,400, as a loan servicing fee. This note accrues interest at athe rate of 47.~~957~~0% per annum with interest paid quarterly in arrears and ~~matured~~all principal and interest due on ~~October~~June 1730, ~~2016~~2018. ~~This~~In ~~note~~the ~~was~~event of a default, the loan will become due immediately and a default interest rate of 18.0% per year will be assessed on all amounts outstanding until paid in full. An event of default only occurs if any payment required by this note is not paid. The proceeds for this note were received on ~~October~~July 171, 2016, upon formal closing of the transaction. The loan servicing fee will be amortized over the life of the loan. Interest paid through June 30, 2017 was $3,471.

(1112) On June 2930, 2016, the Company entered into a promissory note with an unrelated party ~~and~~for ~~received~~ $~~100~~25,000 and ~~issued~~the 30issuance of 12,~~000~~500 shares of the Company's restricted common stock, valued at $31,~~600~~500, as a loan servicing fee. This note accrues interest at the rate of 7.0% per annum with interest paid quarterly in arrears and all principal and interest due on June 29, 2018. In the event of a default, the loan will become due immediately and a default interest rate of 18.0% per year will be assessed on all amounts outstanding until paid in full. An event of default only occurs if any payment required by this note is not paid. ~~All~~The ~~payments~~proceeds ~~have~~from ~~been~~this ~~made~~note were received on ~~this~~July ~~note~~5, ~~through~~2016, ~~the~~upon ~~filing~~formal closing of ~~this~~the ~~report~~transaction. The loan servicing fee will be amortized over the life of the loan. Interest paid through June 30, 2017 was $868.

(1213) On ~~June~~March 3016, ~~2016~~2017, the Company entered into a ~~promissory~~Commercial ~~note~~Premium ~~with~~Finance anAgreement ~~unrelated~~– ~~party~~Promissory ~~for~~Note ~~$100,000~~in ~~and~~ the ~~issuance~~amount of ~~20,000 shares of the Company's restricted common stock, valued at~~ $232,~~400,~~529 asto afinance ~~loan~~its ~~servicing~~D&O ~~fee~~insurance policy. This note accrues interest at ~~the~~a rate of 75.0% ~~per annum with interest paid quarterly in arrears~~ and ~~all~~matures ~~principal and interest due~~ on ~~June~~October 3017, ~~2018~~2017. InThis ~~the~~note ~~event~~was ~~of a default, the loan will become due immediately and a default interest rate of 18.0% per year will be assessed on all amounts outstanding until~~ paid in full. ~~An event of default only occurs if any payment required by this note is not paid. The proceeds for this note were received~~ on ~~July~~October 117, ~~2016, upon formal closing of the transaction~~2017. ~~The~~Interest ~~loan~~paid ~~servicing~~through ~~fee~~June ~~will~~30, be2017 ~~amortized~~was ~~over the life of the loan~~$335.

~~(13)~~Note On8 ~~June~~- ~~30,~~Asset ~~2016,~~Retirement the Company entered into a promissory note with an unrelated party for $25,000 and the issuance of 12,500 shares of the Company's restricted common stock, valued at $1,500, as a loan servicing fee. This note accrues interest at the rate of 7.0% per annum with interest paid quarterly in arrears and all principal and interest due on June 29, 2018. In the event of a default, the loan will become due immediately and a default interest rate of 18.0% per year will be assessed on all amounts outstanding until paid in full. An event of default only occurs if any payment required by this note is not paid. The proceeds from this note were received on July 5, 2016, upon formal closing of the transaction. The loan servicing fee will be amortized over the life of the loan.Obligation

~~Note~~The 8Company -follows ~~Asset~~accounting for asset retirement obligations ("ARO") in accordance with ASC 410, Asset Retirement and Environmental Obligations, which requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it was incurred if a reasonable estimate of fair value can be made. The Company's ARO primarily represents the estimated present value of the amounts expected to be incurred to plug, abandon and remediate producing and shut-in wells at the end of their productive lives in accordance with applicable state and federal laws. The Company determines the estimated fair value of its ARO by calculating the present value of estimated cash flows related to plugging and abandonment liabilities. The significant inputs used to calculate such liabilities include estimates of costs to be incurred; the Company's credit adjusted discount rates, inflation rates and estimated dates of abandonment. The ARO is accreted to its present value each period and the capitalized asset retirement costs are amortized using the unit of production method.

A reconciliation of the Company's ~~asset~~ARO ~~retirement~~as ~~obligations~~of ~~("ARO")~~June at30, ~~September~~2017 30and December 31, 2016, is as follows:

Balance, December 31, 2015	$	995,197
	June 30, 2017			December 31, 2016
Liabilities settled		(4,530	)
Balance, beginning of year	$	1,085,000		$	995,197
Accretion expense		75,333
Liabilities settled		-			(4,530	)
Balance, September 30, 2016		1,066,000
Accretion expense		50,000			94,333
Less current asset retirement obligations		(426,600	)
Balance, end of year		1,135,000			1,085,000
Long-term asset retirement obligations	$	639,400
Less: current asset retirement obligations		(439,000	)		(425,200	)
Long-term asset retirement obligations	$	696,000		$	659,800

Note 9 -– ~~Litigation~~Commitments and Contingencies

OnLegal ~~September~~Proceedings. ~~29,~~The ~~2016, a complaint was filed against the~~ Company ~~and~~is ~~two~~subject ~~others~~to in the ~~Superior~~risk ~~Court~~ of ~~Arizona~~litigation, ~~Maricopa~~claims ~~County,~~and ~~entitled~~assessments ~~Eric~~that ~~Langan,~~may ~~Paul~~arise ~~McNulty,~~in ~~Patricia~~the ~~Quick,~~ordinary ~~Stony~~course ~~Point~~of ~~Fund,~~its ~~L.P.~~business activities, ~~and~~including ~~Jeffrey~~contractual H.matters ~~Wallen,~~and ~~D.D.S.,~~regulatory Pproceedings.C. ~~vs.~~On ~~Arête~~September ~~Industries~~30, ~~Inc.,~~2016 ~~Don~~plaintiff Eric ~~Prosser,~~Langan ~~and~~et ~~Charles Davis~~al. ~~The~~filed a complaint ~~alleges~~in ~~that~~Maricopa ~~defendants~~County ~~Prosser~~Superior ~~and~~Court ~~Davis~~for ~~made~~common ~~certain~~law ~~material~~fraud ~~representations~~under toArizona ~~the~~law ~~plaintiffs~~against inArête ~~connection with the alleged purchase by the plaintiffs of $555~~Industries,~~000~~ ~~in common stock of the Company~~Inc., ~~The~~Don ~~complaint~~and ~~alleges~~Jane ~~that~~Doe ~~the~~Prosser, ~~alleged~~and ~~misrepresentations~~Charles ~~were deliberate~~ and ~~requests~~Jane ~~damages~~Doe ~~against all of the defendants to compensate the plaintiffs for their alleged injuries resulting from the alleged misrepresentations, including punitive damages~~Davis. The ~~Company~~action ~~moved~~was ~~the~~removed ~~case~~ to ~~the~~federal ~~United~~court ~~States~~on ~~District~~November ~~Court~~17, ~~for the District of Arizona~~2016, ~~and~~civil ~~has~~action ~~moved~~number to16 ~~dismiss~~– ~~the~~03994 ~~case,~~– ~~which~~PHX ~~motion~~– ~~has~~SPL. ~~been~~On ~~fully~~September ~~briefed~~1, ~~and~~2017 ~~pending~~a ~~since~~judgment ~~December~~was ~~23,~~entered ~~2016.~~in ~~The~~favor ~~Company~~of ~~and~~ the ~~other~~ defendants ~~believe~~and ~~the~~against ~~action~~plaintiffs ~~is entirely without merit~~ and ~~intend~~the tocase ~~vigorously~~was ~~defend the proceeding~~dismissed.

As of June 30, 2017, the Company was not subject to any pending litigation and management is not currently aware of any asserted or unasserted claims and assessments that may impact the Company's future results of operations.

Note 10 - Subsequent Events

On September 11, 2017, the Company entered into an Offer to Purchase Letter with an unrelated party for a 25% working interest in two of the Company's oil and gas assets located in Clark County, Kansas for total consideration of $150,000 and an effective date of October 1, 2017. On November 15, 2017, the Company completed the sale, with an effective date of October 1, 2017.

On December 22, 2017, the Company entered into an Offer to Purchase Letter with an unrelated party for a 6.0% and 3.33% working interest in two of the Company's oil and gas assets located in Clark County, Kansas for total consideration of $50,000 and an effective date of January 1, 2018.

On January 16, 2018, the Company entered into a 90-day promissory note with an unrelated party for proceeds of $40,000. This note accrues interest at a rate of 7.0% and matures on April 17, 2018.

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

Management's Discussion and Analysis of Financial Condition and Results of Operations for the quarters ended ~~September~~June 30, ~~2016~~2017 and ~~2015~~2016 should be read together with our audited financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, ~~2015~~2016, and the financial statements and footnotes included in this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q, including the following discussion, contains trend analysis and other forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements in this Quarterly Report on Form 10-Q that are not statements of historical facts are forward-looking statements. These forward-looking statements made herein are based on our current expectations, involve a number of risks and uncertainties and should not be considered as guarantees of future performance.

General Overview

We are an independent energy company whose business plan is to acquire, explore and ~~develope~~develop oil, natural gas and natural gas liquids ("NGL's") in the United States. Due to ~~the~~our limited capital and low commodity prices, we have not been able to execute on our business plan since 2015. Our long-term strategy is to seek to deliver net asset value per share growth to our investors via attractive investments within the oil and gas industry. In the event we are able to obtain sufficient additional capital we expect to seek properties that offer profit potential from overlooked and by-passed reserves of oil and natural gas, which may include shut-in wells, in-field development, stripper wells, re-completion and re-working projects. In addition, we seek acreage, prospective for oil and natural gas, to purchase in order to obtain cash flow from the re-sale and farm out of such prospects.

We do not operate any of the properties in which we have an interest. As a result, we have limited ability to exercise influence over, and control the risks associated with operations of these properties. The failure of an operator of our wells to adequately perform operations, an operator's breach of the applicable agreements or an operator's failure to act in ways that are in our best interests could reduce our ability to be successful in finding reserves and could create a liability for us for the operator's failure to properly operate the project and adhere to applicable safety and environmental standards.

It is our desire to provide an understanding of the Company's past performance, its financial condition and its prospects for the future. Accordingly, we discuss and provide our analysis of the following:

•

Results of operations;

•

Liquidity and capital resources;

•

Contractual obligations;

•

Off balance sheet arrangements;

•

Critical accounting policies; and

•

New accounting pronouncements.

Oil, Gas, and NGL Prices

Our financial condition and the results of our operations are significantly affected by the prices we receive for our oil, gas, and NGL production, which can fluctuate dramatically. Our oil and gas is sold under our operators' contracts paying us various industry posted prices, adjusted for basis differentials. We are paid the average of the daily settlement price for the respective posted prices for the period in which the product is sold, adjusted for quality, transportation and location differentials.

We expect future prices for oil, gas, and NGLs to continue to be volatile. In addition to supply and demand fundamentals, as a global commodity, the price of oil is affected by real or perceived geopolitical risks in all regions of the world as well as the relative strength of the dollar compared to other currencies. Oil markets continue to be unstable.

Results of Operations for the Three and ~~Nine~~Six ~~months~~Month Periods Ended ~~September~~June 30, ~~2016~~2017 and ~~2015~~2016

Presented below is a discussion of our results of operations for the three and ~~nine~~six ~~months~~month periods ended ~~September~~June 30, ~~2016~~2017 and ~~2015~~2016.

Net Loss Applicable to Common Stockholders

~~Three~~Net ~~Months~~loss ~~Ended~~applicable ~~September~~to common stockholders for the three month periods ended June 30, 2017 and 2016 were $240,481 and ~~2015~~$243,029, respectively. Lease operating expenses were higher in 2017 by $28,899 compared to the same period in the prior year. This was offset with lower production taxes, DD&A expense and general and administrative expenses.

Net loss applicable to common stockholders for the ~~three~~six ~~months~~month periods ended ~~September~~June 30, ~~2016~~2017 and ~~2015~~2016 ~~was~~were $~~328~~414,~~312~~029 and $~~389~~931,~~696~~112, respectively,. aThe decrease ofin ~~$61,384.~~the ~~Oil~~net ~~and~~loss ~~gas~~in ~~sales~~2017 ~~decreased~~compared ~~$13,642,~~2016 ~~which~~is ~~were~~mostly due to ~~lower~~an ~~realized~~impairment ~~oil~~charge ~~prices.~~of ~~Lease operating expenses increased~~ $42252,~~367,~~000 ~~which~~during ~~was~~the ~~mostly~~first ~~related~~quarter toof ~~workover~~2016 ~~expenses incurred to replace pumps~~ and ~~repair~~a ~~wells~~decrease in ~~an effort to enhance production. These increases were offset by decreases in production taxes,~~ DD&A ~~expense~~of ~~and G&A costs, which decreased~~ $162,~~079~~810. ~~The~~In ~~Company~~addition, ~~declared~~lease ~~dividends~~operating onexpenses ~~its~~decreased ~~Series 2 Class A Preferred Stock of~~ $4742,~~991~~425 ~~during~~and ~~the~~general ~~three~~and ~~months~~administrative ~~ended~~costs ~~September~~decreased 30$41, ~~2016, compared to none in the prior year's period~~987.

~~Nine~~The ~~Months~~discussion ~~Ended~~below ~~September~~further discusses our results of operation for the three and six month periods ended June 30, ~~2016~~2017 and ~~2015~~2016.

Net loss applicable to common stockholders for the nine months ended September 30, 2016 and 2015 was $1,259,424 and $992,837, respectively. The current year net loss was greater by $266,587 or 26.9%, primarily due to a noncash impairment charge of $252,000 to the carrying value of our proved oil and gas properties incurred during the three months ended March 31, 2016. Our oil and gas sales were lower by $60,676 compared to the same period in the prior year, which included a gain on sale of an oil and gas asset of $27,120. Oil and gas producing costs decreased by $24,471, gas gathering expenses decreased $34,571 and G&A expenses decreased $113,984. The Company also declared dividends on its Series 2 Class A Preferred Stock equal to $143,970 during the nine months ended September 30, 2016.

The discussion below further discusses our results of operation for the three and nine months ended September 30, 2016 and 2015.

Oil and Gas Producing Activities

The results of our producing oil and gas properties are presented below for the three and nine months ended September 30, 2016 and 2015:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Oil Sales	$	219,404		$	230,728		$	633,961		$	617,906
Natural Gas Sales		20,220			22,507			65,638			112,554
Royalty sales		483			514			1,760			4,455
Sale of oil and gas properties		-			-			-			27,120
Total Revenue		240,107			253,749			701,359			762,035
Lease Operating Expense		313,086			270,719			800,541			685,587
Production Taxes		19,367			29,101			55,434			66,900
Depreciation, depletion, amortization ("DD&A")		77,000			168,782			328,000			476,104
Accretion		27,523			20,553			75,333			55,188
Impairment expense		-			-			252,000			-
Total operating expenses		436,976			489,155			1,511,308			1,283,779
Net operating loss before general and administrative expense		(196,869	)		(235,406	)		(809,949	)		(521,744	)
Net barrels of oil sold		5,579			5495			17,490			14,400
Net mcf of gas sold		10,407			12,199			35,834			47,071
Boe		7,314			7,528			23,462			22,245
Average price for oil	$	39.33		$	41.99		$	36.25		$	42.91
Average price for gas	$	1.94		$	1.84		$	1.83		$	2.39
Lease operating expense per BOE	$	42.81		$	35.96		$	34.12		$	30.82
DD&A per BOE	$	10.53		$	22.42		$	13.98		$	21.40

Three Months Ended September 30, 2016 and 2015

Our oil and gas sales were primarily attributable to our properties in Kansas and Wyoming. Our oil sales for the three months ended September 30, 2016 and 2015, were $219,404 and $230,728, respectively, a decrease of $11,324 or 4.9%. While our oil sales volumes increased by 84 barrels, our realized price per barrel decreased $2.66 per barrel. The effect on our oil sales due to the increased sales volumes was an increase of $3,303, offset by the average realized per barrel oil price during the three months ended September 30, 2016, which was $39.33 compared to $41.99 in the same period in the prior year. This decrease in price negatively impacted our oil sales by $14,627. The increase in our oil sales production was due to the wells we acquired in December 2015.

Our natural gas sales for the three months ended September 30, 2016 and 2015 were $20,220 and $22,507, respectively, a decrease of $2,287 or 10.2%. The average realized natural gas prices, including proceeds from sales of NGL's, for the three months ended September 30, 2016 and 2015, were $1.94 and $1.84 per Mcf, an increase of $0.10 or 5.3%. The impact on natural gas sales in the current year due to the higher realized prices resulted in increased natural gas sales of $1,195 and the decrease in natural gas volumes resulted in lower natural gas sales by $3,482.

Lease operating expense per Barrel of Oil Equivalent ("BOE") for the three months ended September 30, 2016 and 2015 were $42.81 and $35.96, respectively, an increase of $6.85 per BOE or 19.0%. Many of the wells in our acreage have been producing for a decade or longer and the cost of workovers and normal maintenance are charged to expense in the period the costs are incurred. The increase in the cost per BOE was due primarily to a workover program the company implemented during the third quarter of 2016 related to the Wellstar acquisition we completed in December 2015. LOE for the three month period ended September 30, 2016 and 2015 was $313,086 and $270,719, which was an increase of $42,367 or 15.6%.

~~Production~~Oil ~~taxes for the three months ended September 30, 2016~~ and ~~2015~~Gas ~~were~~Producing $19,367 and $29,101, respectively, an decrease of $9,734 or 33.4%. We generally expect absolute production tax expense to trend as a percentage with oil, gas, and NGL production revenue within each state we have operations. Production taxes as a percentage of revenue for the three months ended September 30, 2016 and 2015 were 8.1% and 11.5%. Our production in Kansas and Nebraska has a blended production tax rate of approximately 4.4% and our Wyoming production is approximately 13.0%; therefore, as our sales increase in Wyoming compared to Kansas and Nebraska the tax rate as a percentage of sales increases. We had more production in Kansas and Nebraska in 2016 compared to 2015 due to the Wellstar acquisition in December 2015; therefore, the tax rate as a percentage of revenue decreased.Activities

~~Under~~ The ~~successful~~results ~~efforts~~of ~~accounting,~~our ~~DD&A expense is separately computed for each~~ producing ~~field~~oil ~~based on geologic~~ and ~~reservoir~~gas ~~delineation.~~properties ~~The~~are ~~capital~~presented ~~expenditures~~below for ~~proved properties for each field compared to~~ the ~~proved~~three ~~reserves corresponding to each producing field determine a weighted average DD&A rate for current production. Future DD&A rates will be adjusted to reflect future capital expenditures~~ and ~~proved~~six ~~reserve changes in specific areas. Our DD&A expense for the three~~ months ended ~~September~~June 30, ~~2016~~2017 and 2015 was $77,000 and $168,782, a decrease of $91,782 or 54.5%. This decrease was due primarily to a lower depletable cost basis of our oil and gas properties due to an impairment expense taken in December 2015 and March 2016.:

Nine Months Ended September 30, 2016 and 2015

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2017			2016			2017			2016
Oil Sales	$	211,792		$	260,574		$	439,979		$	414,557
Natural Gas Sales		14,167			17,200			34,443			45,418
Royalty sales		1,065			379			1,959			1,277
Total Revenue		227,024			278,153			476,381			461,252

Lease Operating Expense		233,796			204,897			445,030			487,455
Production Taxes		14,255			21,953			29,009			36,067
Depreciation, depletion, amortization ("DD&A")		36,000			96,000			86,000			251,000
Accretion		25,000			24,268			50,000			47,810
Impairment expense		-			-			-			252,000
Total operating expenses		309,051			347,118			610,039			1,074,332
Net operating loss before general and administrative expense		(82,027	)		(68,965	)		(133,658	)		(613,080	)

Net barrels of oil sold		5,051			6,379			9,930			11,911
Net mcf of gas sold		7,597			10,323			16,378			25,427
BOE		6,316			8,100			12,659			16,149
Average price for oil	$	41.93		$	40.85		$	44.31		$	34.80
Average price for gas	$	1.86		$	1.67		$	2.10		$	1.79
Lease operating expense per BOE	$	37.01		$	25.30		$	35.15		$	30.19
DD&A per BOE	$	9.66		$	11.85		$	10.74		$	15.54

~~Our~~Three ~~oil~~and ~~sales~~Six ~~for~~Months ~~the~~Ended ~~nine~~June ~~months ended September~~ 30, ~~2016~~2017 and 2015 were $633,961 and $617,906, respectively, an increase of $16,055 or 2.6%. This increase was due to increased sales volumes, which were 17,490 barrels of oil during the nine months ended September 30, 2016, compared to 14,400 barrels of oil during the same period in the prior year. The effect on our oil sales due to the increased sales volumes was an increase of $112,003, offset by lower average realized oil prices during the nine months ended September 30, 2016, which was $36.25 compared to $42.91 per barrel in 2015 for the same period. This 15.5% decrease in price negatively impacted our oil sales by $95,948.

Our ~~natural~~oil ~~gas~~ sales for the ~~nine~~three ~~months~~month periods ended ~~September~~June 30, ~~2016~~2017 and ~~2015~~2016 were $65211,~~638~~792 and $~~112~~260,~~554~~574, respectively, a decrease of $4648,~~916~~782 or 4118.7%. ~~The~~This ~~average~~decrease ~~realized~~can ~~natural~~be ~~gas~~attributed primarily to lower sales volumes somewhat mitigated by higher realized oil prices,. ~~including~~The ~~proceeds~~average ~~from~~realized ~~sales~~price per barrel of ~~natural~~oil ~~gas~~was ~~liquids,~~$41.93 for the ~~nine~~three ~~months~~month period ended ~~September~~June 30, ~~2016~~2017, ~~and~~an ~~2015,~~increase ~~were~~of $12.836% ~~and~~or $21.3908 per ~~Mcf,~~barrel acompared ~~decrease~~to of $040.5685 orfor 23the same period in the prior year.~~4%.~~ The ~~impact~~increase ondue ~~natural~~to ~~gas~~higher prices was offset with lower sales volumes, which decreased 20.8% or 1,328 barrels in the current ~~year~~period ~~due~~to 5,051 barrels, compared to ~~the~~6,379 ~~lower~~barrels ~~realized~~of ~~prices~~oil ~~resulted~~in the same period in ~~decreased~~the ~~natural~~prior ~~gas~~year. ~~sales~~The ofeffect ~~$26,333,~~on ~~which~~our ~~was~~oil ~~further~~sales ~~impacted~~due byto the decreased ~~natural~~sales ~~gas~~ volumes, 11was $55,~~237~~671 ~~Mcf~~lower orsales ~~23.9%~~and ~~lower~~the ~~volumes,~~effect ~~resulting~~of inthe higher average realized oil prices was $6,889 for a ~~reduction~~net ofdecrease ~~natural~~in ~~gas~~oil sales of $2048,~~583~~782.

~~Lease~~Our ~~operating~~oil ~~expense~~sales for the ~~nine~~six ~~months~~month periods ended ~~September~~June 30, ~~2016~~2017 and ~~2015~~2016 were $~~800~~439,~~541~~979 and $~~685~~414,~~587,~~557 ~~which~~respectively ~~was~~ an increase of $~~114~~25,~~954~~422 or 166.81%. This ~~LOE~~increase ~~per~~can ~~BOE~~be ~~for~~attributed ~~the~~to ~~nine~~higher ~~months~~realized ~~ended~~sales ~~September~~prices ~~30,~~but ~~2016~~with ~~and~~lower ~~2015~~sales ~~were~~volumes. The average realized price per barrel was $3444.1231for ~~and~~the $six months ended June 30~~.82~~, ~~respectively~~2017, an increase of $39.3051 orper 10barrel from the realized price of $34.~~7%.~~80 for the six months ended June 30, 2016. The increase in ~~the~~oil ~~cost~~sales ~~per~~was ~~BOE~~partially ~~was~~offset ~~due~~by toa ~~increased~~decrease ~~maintenance~~in ~~and~~sales ~~chemical~~volumes ~~work~~of ~~performed~~1,981 ~~during~~barrels ~~the~~to ~~three~~9,930 ~~month~~barrels ~~period~~for the six months ended ~~March~~June 3130, ~~2016~~2017, ~~and~~compared ato ~~workover~~11,911 ~~program~~barrels wefor ~~implemented~~the same period in the ~~third~~prior ~~quarter~~year. The ofeffect ~~2016~~on ~~related~~oil sales due to the ~~Wellstar~~increase ~~acquisition~~in wesales ~~completed~~prices was $113,212 while there was a decrease in ~~December~~sales ~~2015~~due to a decrease in volumes of $87,790 for a net decrease in oil sales of $25,422.

~~Production taxes for the nine months ended September 30, 2016 and 2015 were $55,434 and $66,900, respectively, a decrease of $11,466 or~~ 17.1%. We generally expect absolute production tax expense to trend as a percentage with oil, gas, and NGL production revenue within each state we have operations in. Production taxes as a percentage of revenue for the nine months ended September 30, 2016 and 2015 were 7.9% and 9.1%. Our production in Kansas and Nebraska has a blended production tax rate of approximately 4.4% and our Wyoming production is approximately 13.0%; therefore, as our sales increase in Wyoming compared to Kansas and Nebraska the tax rate as a percentage of sales increases. We had more production in Kansas and Nebraska in 2016 compared to 2015 due to the Wellstar acquisition in December 2015; therefore, the tax rate as a percentage of revenue decreased.

Our ~~DD&A~~natural ~~expense~~gas sales for the ~~nine~~three ~~months~~month periods ended ~~September~~June 30, ~~2016~~2017 and ~~2015~~2016, ~~was~~were $~~328~~14,~~000~~167 and $~~476~~17,~~104~~200, respectively, a decrease of $~~148~~3,~~104~~033 or 3117.16%. ~~This~~The ~~decrease~~average ~~was~~realized ~~due~~natural togas aprices, ~~lower~~including ~~depletable~~proceeds ~~base~~from ~~because~~sales of anatural ~~write~~gas ~~down~~liquids, ofin ~~oil~~2017 and ~~gas~~2016, ~~properties~~were at$1.86 ~~December~~and 31$1.67 per Mcf, ~~2015~~respectively, ~~and~~an ~~March~~increase 31of $0.19 or 11.9%. Natural gas sales volumes for the three month periods ended June 30, 2017 and 2016, ~~against~~were ~~impairment~~7,597 ~~expense~~Mcf and 10,323 asMcf, ~~well~~respectively, aswhich was 26.4% lower or 2,726 anMcf ~~increase~~than the prior period. The impact on natural gas sales in the ~~reserve~~current ~~base~~year ~~related~~due to the ~~acquisition~~higher ofrealized ~~additional~~prices ~~producing~~resulted ~~wells~~in atgreater ~~December~~natural ~~31,~~gas ~~2015~~sales of $2,051. ~~which~~The ~~reduced~~effect of the ~~DD&A~~lower ~~rate~~volumes decreased sales by $5,084 for a net decrease in natural gas sales of $3,033.

Our natural gas sales for the six month periods ended June 30, 2017 and 2016 were $34,443 and $45,418 respectively, a decrease of $10,975 or 24.2%. The average realized natural gas prices, including proceeds from sales of natural gas liquids, in 2017 and 2016 were $2.10 and $1.79 per Mcf respectively, an increase of $.31 or 17.3%. Natural gas sales volumes for the six months ended June 30, 2017 and 2016 were 16,378 Mcf and 25,427 Mcf respectively, which was 35.6% lower or 9,049 Mcf lower than the prior period. The impact on natural gas sales in the current year due to the higher realized prices resulted in greater natural gas sales of $8,055 and the effect of the lower volumes decreased sales by $19,030 for a net decrease in sales of $10,975.

Lease operating expense ("LOE") for the three month periods ended June 30, 2017 and 2016, were $233,796 and $204,897, respectively. This increase of $28,899 or 14.1% was due to higher workover expenses incurred in the current period. During the prior year we only had workover costs of approximately $23,000, compared to approximately $66,000 in 2017 mostly related to pump changes and chemical work to enhance the facilities and well equipment in our Kansas and Nebraska properties. LOE per BOE in 2017 and 2016 were $37.01 and $25.30, respectively, an increase of $11.71 or 46.3%.

Lease operating expense ("LOE") for the six month periods ended June 30, 2017 and 2016, were $445,030 and $487,455, respectively. This decrease of $42,425 or 8.7% was due to lower recurring lease operating expenses. Workover expenses in the current year compared to the prior year remained flat with costs of $122,460 and $122,211, respectively. During the prior year we had incurred higher workover costs during the first quarter and lower workover costs in the second quarter, compared to the current year that had higher workover costs in the second quarter and low workover costs in the first quarter. LOE per BOE in 2017 and 2016 were $35.15 and $30.19, respectively, an increase of $4.96 or 16.4%. This increase is due to lower sales volumes in the current year compared to the prior year.

Production taxes were $14,255 and $21,953, for the three month periods ended June 30, 2017 and 2016, respectively, a decrease of $7,698 or 35.1%. Production taxes for the six month periods ended June 30, 2017 and 2016, were $29,009 and $36,067, respectively. We generally expect absolute production tax expense to trend as a percentage with oil, gas, and NGL production revenue within each state we have operations in. Production taxes as a percentage of revenue for the three and six month periods ended June 30, 2017, were 6.3% and 6.1%, respectively, compared to 7.9% and 7.8% for the three and six month periods ended June 30, 2016, respectively. Our production in Kansas and Nebraska has a blended production tax rate of approximately 4.4% and our Wyoming production is approximately 11.0%; therefore, as our sales increase in Kansas and Nebraska the tax rate as a percentage of sales decreases. We had more production in Kansas and Nebraska in 2017 compared to 2016; therefore, the tax rate as a percentage of revenue decreased.

Our DD&A expenses were $36,000 and $96,000, for the three month periods ended June 30, 2017 and 2016, respectively, a decrease of $60,000 or 62.5%. Our DD&A expense for the six month periods ended June 30, 2017 and 2016, were $86,000 and $251,000, respectively, a decrease of $165,000 or 65.7%. These decreases for the three and six month periods ended June 30, 2017 compared to the same periods in the prior year was due to a lower depletable base because of impairments of our oil and gas properties as of December 31, 2016.

We perform assessments of our long-lived assets to be held and used, including oil and gas properties, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. To the extent such assessments indicate a reduction of the estimated useful life or estimated future cash flows of our oil and gas properties, the carrying value may not be recoverable and therefore an impairment charge would be required to reduce the carrying value of the proved properties to their fair value.

The cash flow model we use to assess proved properties for impairment includes numerous assumptions. The primary factors that may affect estimates of future cash flows are (i) future reserve adjustments, both positive and negative, to proved reserves and appropriate risk-adjusted probable and possible reserves, (ii) results of future drilling activities, (iii) management's price outlook and (iv) increases or decreases in production costs and capital costs associated with those reserves. All inputs to the cash flow model are evaluated at each measurement date.

As a result of our ~~proved property~~ impairment assessments, weof ~~recognized~~our aoil ~~$252~~and gas properties,~~000~~ a noncash ~~impairment~~ charge to reduce the carrying values, we recorded impairment expense of $252,000 against our proved ~~properties~~property as of June 30, 2016 and an aggregate $3,358,000 of impairment expense at ~~March~~December 31, 2016. There have been no impairment charges recorded in 2017.

1718

General and Administrative

Presented below is a summary of general and administrative expenses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015~~2016:

Three Months ended

~~Nine~~Six Months ended

September 30,

June 30,

General and administrative expenses:

~~2016~~2017

~~2015~~2016

~~2016~~2017

~~2015~~2016

Director fees

10,000

1310,~~333~~000

3020,000

3520,~~333~~000

Investor relations

1,~~097~~205

305,~~897~~406

83,~~410~~854

417,~~525~~313

Legal, auditing and professional fees

2351,~~185~~379

656,~~458~~713

~~109~~63,~~069~~746

8085,~~313~~884

Consulting fees - Related Parties

1413,~~000~~313

4324,~~333~~232

5431,~~732~~218

~~126~~40,~~733~~732

Other administrative expenses

108,~~103~~133

208,~~699~~006

3316,~~275~~296

6523,~~138~~172

Depreciation

143

428

Total G&A Expense

84,030

104,357

135,114

177,101

Total G&A Expense

58,385

114,863

235,486

349,470

Three ~~Months~~and Six Month Periods Ended ~~September~~June 30, ~~2016~~2017 and ~~2015~~2016

General and administrative expenses decreased $5620,~~478~~327 or 4929.28% for the three month period ended ~~September~~June 30, ~~2016~~2017, compared to the same period in ~~2015~~2016. This reduction was primarily due to a decrease in ~~related party consulting fees and other administrative expenses, offset by an increase in~~ legal, auditing and professional fees~~. During 2015 there was a monthly charge of $10~~,~~000~~ ~~charged to related party consulting fees under an agreement with DNR, whereby executive level expertise was provided for our existing~~ and ~~prospective~~other oil and gas properties. The total monthly charge under the operating agreement was $18,000, of which $8,000 was allocated to lease operating expense and $10,000 was allocated to related party consulting fees. DNR is an affiliate of Charles B. Davis, an executive officer and director of the Company. We re-negotiated this agreement in 2016 and are no longer paying the $10,000 consulting fee in 2016 and are only paying the operating fee which increased to $13,000 compared to $8,000 in the prior year. Increased accounting and consulting services for our Chief Financial Officer and legal expenses offset this approximate $30,000 reduction of related party consulting expense. Other administrative expenses ~~include D&O insurance, travel & entertainment expense and miscellaneous office expenses~~. These costs decreased primarily due to a new D&O policy that resulted in a significant cost savings compared to the same period in the prior year. Management continues to focus on reducing general and administrative expenses as a cost per BOE, which decreased $7.28 or 47.7% to $7.98 per BOE compared to $15.26 per BOE in the prior year.

~~Nine~~General ~~Months~~and ~~Ended~~administrative ~~September~~expenses decreased $41,987 or 23.7% for the six month period ended June 30, 2017, compared to the same period in 2016. This reduction was primarily due to a decrease in all of the categories within general and ~~2015~~administrative costs, with legal, auditing and professional expenses representing $22,138 of the decrease and related party consulting, investor relations and other administrative expenses making up the rest of the decrease.

General and administrative expenses decreased $113,984 or 32.6% for the nine month period ended September 30, 2016, compared to the same period in 2015. This reduction was due to a decrease in related party consulting fees and other administrative expenses. The new consulting agreement with DNR was the main driver of this cost savings, as was the new D&O insurance policy. These reductions were offset by higher legal costs in the current year, which were related to litigation, general corporate and securities filings. The costs per BOE, which decreased $5.67 or 36.1% to $10.04 per BOE compared to $15.71 per BOE in the prior year.

Interest Expense, net

Interest expense, net of interest income, for the ~~nine~~three ~~months~~month period ended ~~September~~June 30, ~~2016~~2017 and ~~2015~~2016 was $7026,~~019~~954 and $8722,~~052~~237, arespectively, ~~decrease~~an increase of $174,~~033 or 19.6%~~717, due to aadditional ~~decrease~~borrowings infrom ~~the~~three ~~amount~~unrelated ofparties ~~debt~~in ~~outstanding~~June ~~compared to the same period the prior year~~2016. We recorded $85,~~904~~473 of interest expense to related parties during the ~~nine~~three ~~months~~month period ended ~~September~~June 30, ~~2016~~2017, and ~~paid~~made ~~$1,972~~principal toand ~~one of the related parties. The remaining~~ interest ~~expense was to unrelated parties, of which we made~~ payments of $604,~~080~~303 ~~during~~to ~~the~~one ~~nine~~of ~~months~~the ~~ended~~related ~~September 30, 2016~~parties.

Interest expense, net of interest income, for the six month periods ended June 30, 2017 and 2016, were $52,535 and $44,952, respectively, an increase of $7,583, due to additional borrowings from three unrelated parties in June 2016. We recorded interest expense to non-related parties of $21,481 and we made principal and interest payments of $65,514 to unrelated parties during the six month period ended June 30, 2017.

Liquidity and Capital Resources

We ~~have~~do ~~incurred~~not ~~significant~~generate ~~net~~adequate ~~operating~~revenue ~~losses~~to ~~during~~satisfy ~~the~~our ~~nine~~current ~~months ended September 30~~operations, ~~2016,~~we ~~and~~have ~~for the fiscal year ended December 31, 2015. We also had significant~~ negative ~~working~~cash ~~capital~~flows atfrom ~~September 30~~operations, ~~2016,~~ and we ~~are currently in default with one of our creditors for which we~~ have aincurred ~~note payable of $62,000. We need to obtain~~ significant ~~additional~~net ~~financing. This recent history of~~ operating losses, ~~negative~~during ~~working capital and defaults, along with low commodity prices, will likely adversely affect our ability to access~~ the ~~capital~~six wemonth ~~need~~period toended ~~continue~~June ~~operations on terms acceptable to us when such capital is needed. Historically~~30, we2017 ~~have used a line of credit, preferred stock offerings~~ and sales of oil and gas properties in order to fund our operations. In late 2015, we raised approximately $1.7 million through a private placement of our Series A2 Preferred Stock. We have successfully negotiated extensions with some of our key notes payable holders resulting in extending the ~~due~~year ~~dates~~ended ofDecember ~~the notes. Since 2011~~31, ~~we have sold various interests in some of our oil and gas properties~~2016, which ~~have~~raise ~~resulted~~substantial indoubt ~~aggregate~~about ~~net~~the ~~proceeds~~Company's ~~from these sales of $6,377,000. Still, our~~ ability to continue as a going concern. isThe ~~dependent upon the~~ ability to ~~successfully~~continue ~~accomplish~~as ~~our~~a ~~business~~going ~~plan~~concern and ~~continue~~appropriateness ~~to secure other sources~~ of ~~financing~~using ~~and~~the ~~attain~~going ~~profitable~~concern ~~operations.~~basis ~~The~~is ~~Company~~dependent ~~continues~~upon, toamong ~~pursue~~other things, additional ~~sources~~cash ofinfusion. ~~financing~~We ~~but~~have ~~there~~historically ~~can~~obtained befunds nothrough ~~assurance~~private ~~that~~placement ~~such~~offerings ~~financing~~of ~~will~~equity beand ~~completed~~debt, onas ~~terms~~well ~~favorable to the Company~~as, ifasset ~~at all~~sales.

18In late 2015, we raised approximately $1.7 million through a private placement of our Series A2 Preferred Stock. We have successfully negotiated extensions with some of our key notes payable holders resulting in extending the due dates of the notes. Since 2011, we have sold various interests in some of our oil and gas properties, which have resulted in aggregate net proceeds from these sales of $6,377,000. Still, our ability to continue as a going concern is dependent upon the ability to successfully accomplish our business plan and continue to secure other sources of financing and attain profitable operations. The Company continues to pursue additional sources of financing but there can be no assurance that such financing will be completed on terms favorable to the Company, if at all.

We had a working capital deficit as of September 30, 2016, of approximately $1.2 million, compared to a working capital deficit of approximately $1.4 million at December 31, 2015. The decrease in our deficit was primarily due to a payment made to DNR related to a settlement agreement of approximately $300,000 that was included in accounts payable to DNR, and a decrease in our current notes payable due to executing some amendments on various notes payable that extended the due date making those related notes long term debt.19

We ~~incurred~~had ~~negative~~a ~~cash~~working ~~flow~~capital deficit as of June 30, 2017, and December 31, 2016, of $~~434~~2.7 million and $1.4 million,~~226~~ ~~from~~respectively. ~~our~~The ~~operations~~components ~~during~~of ~~the~~our ~~nine~~working ~~months~~capital ~~ended~~deficit ~~September~~at June 30, ~~2016~~2017, compared to ~~negative~~December ~~operating~~31, ~~cash~~2016 ~~flow~~were ofa decrease in our current assets by $61154,~~572~~973, ~~during~~primarily ~~the~~due ~~same~~to ~~period~~a decrease in ~~the~~our ~~prior~~cash ~~year.~~account, ~~This~~which was ~~primarily~~lower ~~related~~by to$171,370. ~~lower~~Our ~~oil~~current ~~and~~liabilities ~~natural~~increased ~~gas~~by ~~prices~~$1,150,375 ~~which~~compared ~~resulted~~to inthe ~~lower~~prior ~~revenues~~year. ofThis ~~approximately~~increase ~~$60,000~~can ~~and~~be ~~due~~mostly attributed to ~~the~~our ~~payment~~current portion of ~~approximately~~notes ~~$300,000~~payable increasing due to ~~DNR~~maturities ~~related~~coming todue awithin ~~settlement~~12 ~~agreement~~months and an increase in ~~December~~trade ~~2015~~accounts payable and accounts payable's to directors and affiliates.

~~Investing~~We ~~activities~~incurred ~~used~~negative ~~net~~ cash flow of $~~373~~122,302 ~~which~~from ~~was~~our ~~related~~operations toduring the ~~payment~~six ofmonth ~~some~~period ~~leasehold~~ended ~~costs~~June ~~and~~30, ~~capital~~2017, ~~additions~~compared to ~~some~~negative ~~existing~~operating ~~wells~~cash inflow ~~which~~of we$369,504 ~~own~~during athe ~~very~~same ~~small~~period ~~working interest~~ in. Wethe ~~used~~prior ~~$14~~year,~~416~~ a change of ~~cash~~$247,202 ~~during~~or ~~the~~66.9%. ~~nine~~This ~~months~~decrease ~~ended~~in ~~September~~cash ~~30,~~used ~~2015,~~in ~~related~~operating toactivities ~~oil~~can ~~and~~be ~~gas~~attributed ~~capital~~to ~~expenditures~~lower oflease ~~$93~~operating expenses,~~116~~ ~~offset~~higher byrevenue ~~the~~and ~~sale~~timing of aour ~~well,~~cash ~~which~~payments ~~generated~~and ~~proceeds of $50,000~~receipts.

WeInvesting ~~had $172,273 of net cash provided by financing~~ activities ~~for~~during the ~~nine~~six ~~months~~month periods ended ~~September~~June 30, ~~2016,~~2017 and ~~$47~~2016,~~342~~ ~~provided~~used ~~by financing activities for the same period in the prior year. During the current year we entered into a short-term note payable with an unrelated party for~~ net ~~proceeds~~cash of $~~25,500~~150 toand ~~finance our D&O Insurance liability policy, we entered into a two year note payable with three unrelated party's for net proceeds of~~ $~~250~~373,~~000,~~ ~~we made principal payments on our notes payable in the amount of $137~~respectively,~~248,~~ wewhich ~~received~~was ~~$105,000~~ related to ~~the~~payments ~~A2 Preferred Stock issued during the prior year, as well as, receiving proceeds~~ of ~~$50,000~~leasehold ~~for~~costs anand ~~additional~~some ~~sale~~capital ofadditions 5to ~~shares~~oil ofand ~~our~~gas A2properties ~~Preferred~~in ~~Stock~~which ~~and~~ we ~~paid~~own ~~$95,979~~a invery ~~dividends~~small toworking ~~our~~interest ~~A2 Preferred Stock holders~~in.

Financing activities used net cash of $48,918 during the six month period ended June 30, 2017, which was related to the payment of $57,066 of dividends for our series A2 preferred stock, proceeds received on a note payable of $32,526, offset with principal payments of $24,378. We had $113,989 of net cash provided by financing activities for the six month period ended June 30, 2016. we entered into a short-term note payable with an unrelated party for net proceeds of $25,500 to finance our D&O Insurance liability policy, we entered into a two year note payable with an unrelated party for $100,000, we made principal payments on our notes payable in the amount of $121,308, we received $105,000 related to the A2 Preferred Stock issued during the prior year, as well as, receiving proceeds of $50,000 for an additional sale of 5 shares of our A2 Preferred Stock and we paid $48,509 in dividends to our A2 Preferred Stock holders. In the prior year we drew down $60,000 on our line of credit and made principal payments of $12,270.

Off-Balance Sheet Arrangements

In connection with the related party acquisition of oil and gas properties in the third quarter of 2011, we acquired interests in certain geologic zones of the properties. This agreement contained several arrangements that would require us to pay certain amounts depending on certain thresholds met. However, on January 19, 2016, but effective December 31, 2015, we entered into a settlement agreement with the Sellers of these properties, whereby in consideration of the amounts indicated below, the parties (i) terminated Exhibits C and C-2 to the DNR and Tindall PSA for all purposes; (ii) extinguished all liabilities of the Company under Exhibit C of the DNR and Tindall PSA including $250,000, related to the increase in oil prices after the acquisition; (iii) agreed that the promissory note owed by us to DNR in the amount of $792,151 and accrued interest thereon was paid in full; and (iv) released each other against any and all claims which have been raised or could have been raised among them. Specifically, Exhibits C and C-2 to the DNR and Tindall PSA related to potential payments that would have been needed to be made by us in the event oil prices increased to certain levels and related to certain payments that would have been needed to be made by us in the event we sold certain properties purchased under the Purchase and Sale Agreement. Exhibits C and C-2 were terminated and extinguished (including any amounts owed thereunder including $250,000 under Exhibit C to the Purchase and Sale Agreement) in exchange for 25 fully paid, nonassessable restricted shares of our 7% Series A2 Convertible Preferred Stock. Consideration to pay the above promissory note in full consisted of us issuing to DNR 65 fully paid, nonassessable restricted shares of our 7% Series A2 Convertible Preferred Stock, and paying DNR $303,329 in cash, which was paid on January 19, 2016.None

Item 3 - Quantitative and Qualitative Disclosures about Market Risk

The Company is a "Smaller Reporting Company" and is not required to provide or disclose the information required by this item.

Item 4 - Controls and Procedures

As of ~~September~~June 30, ~~2016~~2017, our Chief Executive Officer and Chief Financial Officer (the "Certifying Officers") conducted evaluations of our disclosure controls and procedures. As defined under Sections 13a-15(e) and 15d-15(e) of the Exchange Act, the term "disclosure controls and procedures" means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including the Certifying Officers, to allow timely decisions regarding required disclosure. Based on this evaluation, the Certifying Officers have concluded that our disclosure controls and procedures were not effective to ensure that material information is recorded, processed, summarized and reported by our management on a timely basis in order to comply with our disclosure obligations under the Exchange Act and the rules and regulations promulgated thereunder. As discussed in our Annual Report on Form 10-K for the year ended December 31, 2015, the ineffectiveness of our disclosure controls and procedures is due primarily to (i) our Board of Directors does not currently have any independent members that qualify as an audit committee financial expert, (ii) we have not developed and effectively communicated our accounting policies and procedures, (iii) our documentation of transaction in certain circumstances is not timely due to our limited staff and resources, and (iv) our controls over financial statement disclosures were determined to be ineffective.

~~Further~~Based on this evaluation, ~~there~~the ~~were~~Certifying noOfficers ~~changes~~have inconcluded that our ~~internal~~disclosure ~~control~~controls ~~over~~and ~~financial~~procedures ~~reporting~~were ~~subsequent~~not effective to ~~September~~ensure 30that material information is recorded, ~~2016~~processed, summarized and ~~through~~reported by our management on a timely basis in order to comply with our disclosure obligations under the ~~filing~~Exchange ~~date~~Act ~~that~~and ~~has~~the ~~materially~~rules ~~affected,~~and orregulations ~~are~~promulgated ~~reasonably~~thereunder. ~~likely~~As todiscussed ~~materially~~in ~~affect~~our Annual Report on Form 10-K for the year ended December 31, 2016, the ineffectiveness of our ~~internal~~disclosure ~~control~~controls ~~over~~and ~~financial~~procedures ~~reporting.~~is due primarily to;

19· our Board of Directors does not currently have any independent members that qualify as an audit committee financial expert,

we have not developed and effectively communicated our accounting policies and procedures,

our documentation of transaction in certain circumstances is not timely due to our limited staff and resources,

our controls over financial statement disclosures were determined to be ineffective, including deficiencies in the preparation of the disclosure checklist and

we do not maintain adequate and effective internal controls over our reserve estimation process as well as the underlying data upon which reserve estimates are based. The primary inputs to the reserve estimation process are technical information, financial data, ownership interest, and production data. The relevant field and reservoir technical information, which is updated annually, is assessed for validity when our independent petroleum engineering firm has technical meetings with our officers

We have not maintained a tax basis property roll-forward and we have not filed tax returns since 2011 and therefore the tax assets disclosed are managements best estimate and this estimate could change as the company completes it tax returns. There were no changes in internal control since December 1, 2016.

PART II - OTHER INFORMATION

Item 1 - Legal Proceedings.

From time to time, the Company is a party to routine litigation and proceedings that are considered part of the ordinary course of its business. On September 2930, 2016, aplaintiff ~~complaint~~Eric ~~was~~Langan ~~filed~~et ~~against~~al. ~~the~~filed ~~Company~~a ~~and~~complaint ~~two others~~ in ~~the Superior Court of Arizona,~~ Maricopa County, ~~entitled~~Superior ~~Eric~~Court ~~Langan,~~for ~~Paul~~common ~~McNulty,~~law ~~Patricia~~fraud ~~Quick,~~under ~~Stony~~Arizona ~~Point~~law ~~Fund,~~against ~~L.P., and Jeffrey H. Wallen, D.D.S., P.C. vs.~~ Arête Industries, Inc., Don and Jane Doe Prosser, and Charles ~~Davis.~~and ~~The~~Jane ~~complaint~~Doe ~~alleges that defendants Prosser and~~ Davis. ~~made~~The ~~certain~~action ~~material~~was ~~representations~~removed to ~~the~~federal ~~plaintiffs~~court inon ~~connection~~November ~~with~~17, ~~the~~2016, ~~alleged~~civil ~~purchase~~action bynumber ~~the~~16 ~~plaintiffs~~– of03994 ~~$555,000~~– inPHX ~~common~~– ~~stock of the Company~~SPL. ~~The~~On ~~complaint~~September ~~alleges~~1, ~~that~~2017 ~~the~~a ~~alleged~~judgment ~~misrepresentations~~was ~~were~~entered ~~deliberate~~in ~~and~~favor ~~requests damages against all~~ of the defendants toand ~~compensate~~against ~~the~~ plaintiffs ~~for~~and ~~their alleged injuries resulting from~~ the ~~alleged misrepresentations, including punitive damages. The Company has removed the~~ case towas ~~the~~dismissed ~~United~~in ~~States~~its ~~District~~entirety ~~Court~~ for ~~the~~lack ~~District~~ of ~~Arizona~~personal ~~and moved to dismiss the case, which motion has been fully briefed and pending since December 23, 2016~~jurisdiction. ~~The Company and the other defendants believe the action is entirely without merit and intend to vigorously defend the proceeding.~~

We are unaware of any other dispute which might lead to future litigation.

Item 1A - Risk Factors.

There have been no material changes to the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, ~~2015~~2016, as filed with the SEC on ~~May~~December 101, ~~2016~~2017. The risk factors in our Annual Report on Form 10-K for the year ended December 31, ~~2015~~2016, in addition to the other information set forth in this quarterly report, could materially affect our business, financial condition or results of operations. Additional risks and uncertainties not currently known to us or that we deem to be immaterial could also materially adversely affect our business, financial condition or results of operations.

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

Beginning in December 2015, the Company began privately offering up to 600 shares of its newly created 7% Series A2 Convertible Preferred Stock at a purchase price per share equal to $10,000 for aggregate consideration of up to $6,000,000. As of September 30, 2016, the Company had sold 182 shares ($1,820,000) for cash and issued 90 shares ($900,000) to DNR as part of the consideration for a settlement entered into with DNR during fiscal year ended December 31, 2015. The shares of 7% Series A2 Convertible Preferred Stock issued as described above were sold in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act and Rule 506(b) promulgated thereunder. We issued 30,000 shares of restricted common stock related to a note agreement we entered into with an unrelated party on June 29, 2016, as loan closing costs valued at $3,600. We issued an additional 32,500 shares of our restricted common stock valued at $3,900 in July 2016 as loan closing costs, upon the formal closing of two other notes payable we entered into on June 30, 2016. These securities qualified for exemption under Rule 506 promulgated under Section 4(2) of the Securities Act because the issuance of securities by the Company did not involve a "public offering" based upon the following factors: (i) a limited number of securities were issued to a limited number of offerees with whom the Company had preexisting business relationships; (ii) there was no public solicitation in connection with any offers or sales of the securities; (iii) each offeree was an "accredited investor" as such term is defined by Rule 501 under the Securities Act; and (iv) the investment intent of the offerees. None

Item 3 - Defaults upon Senior Securities.

None

Item 4 - Mine Safety Disclosures.

Not Applicable

Item 5 - Other Information.

None

Item 6 - Exhibits

The following documents are filed as exhibits to this report on Form 10-Q or incorporated by reference herein.

31.1	Certification of the Principal Executive Officer pursuant to §302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of the Principal Financial Officer pursuant to §302 of the Sarbanes-Oxley Act of 2002.

32.1	Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350.

32.2	Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350.

101

The following materials are filed herewith: (i) XBRL Instance, (ii) XBRL Taxonomy Extension Schema, (iii) XBRL Taxonomy Extension Calculation, (iv) XBRL Taxonomy Extension Labels, (v) XBRL Taxonomy Extension Presentation, and (vi) XBRL Taxonomy Extension Definition. In accordance with Rule 406T of Regulation S-T, the information in these exhibits is furnished and deemed not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Exchange Act of 1934, and otherwise is not subject to liability under these sections and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by the specific reference in such filing.

ARÊTE INDUSTRIES, INC.

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.

By: /s/ Nicholas Scheidt, CEO

Nicholas L Scheidt, Principal Executive Officer

Dated: March ~~May 12~~29, ~~2017~~2018

By: /s/ Tristan R. Farel

Tristan R Farel, Chief Financial Officer

Dated: March ~~May 12~~29, ~~2017~~2018

Filing Compare · ARETE INDUSTRIES INC