UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~September~~March ~~30.~~31, ~~2015~~2016

o☐ 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 000-54967

BRUSHY RESOURCES, INC.

(Exact name of registrant as specified in its charter)

Delaware		45-5634053
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

300 E. Sonterra Blvd, Suite 1220 San Antonio, Texas		78258
(Address of principal executive offices)		(Zip Code)

(210) 999-5400

(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. þ ☑ Yes o ☐ No

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

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

Large accelerated filer ¨☐ Accelerated filer ¨☐ Non-accelerated filer ¨☐ Smaller reporting company þ☑ (Do not check if a smaller reporting company)

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

As of ~~November~~May 1119, ~~2015~~2016, there were 12,711,986 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

BRUSHY RESOURCES, INC.

FORM 10-Q

FOR THE QUARTER ENDED ~~SEPTEMBER~~MARCH 3031, ~~2015~~2016

INDEX

		~~Page~~	Page
PART I — FINANCIAL INFORMATION		3
Cautionary Note About Forward-Looking Statements			3
Item 1. — Financial Statements		3
PART I — FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets at September 30, 2015 and December 31, 2014		3
	Item 1. — Financial Statements		5
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2015 and 2014		5
		Condensed Consolidated Balance Sheets at March 31, 2016 (unaudited) and December 31, 2015	5
Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2015 and 2014		6
		Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2016 and 2015 (unaudited)	7
Notes to the Condensed Consolidated Financial Statements		8
		Condensed Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31, 2016 and 2015 (unaudited)	8
Item 2. — Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
		Notes to the Condensed Consolidated Financial Statements	9
Item 3. — Quantitative and Qualitative Disclosures About Market Risk		26
	Item 2. — Management’s Discussion and Analysis of Financial Condition and Results of Operations		21
Item 4. — Controls and Procedures		26
	Item 3. — Quantitative and Qualitative Disclosures About Market Risk		27
PART II — OTHER INFORMATION		28
	Item 4. — Controls and Procedures		27
Item 1. — Legal Proceedings		28
PART II — OTHER INFORMATION
Item 2. — Unregistered Sales of Equity Securities and Use of Proceeds		30
	Item 1. — Legal Proceedings		28
Item 3. — Defaults Upon Senior Securities		30
	Item 1A. — Risk Factors		30
Item 4. — Mine Safety Disclosures		30
	Item 2. — Unregistered Sales of Equity Securities and Use of Proceeds		31
Item 5. — Other Information		30
	Item 3. — Defaults Upon Senior Securities		31
Item 6. — Exhibits and Reports on Form 8-K		31
	Item 4. — Mine Safety Disclosures		31
SIGNATURES		33
	Item 5. — Other Information		31
	Item 6. — Exhibits		31
SIGNATURES			32
EXHIBIT INDEX			33

~~Part I – Financial Information~~Index

CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Form 10-Q”) contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact included or incorporated by reference in this Form 10-Q are forward-looking statements, including, without limitation, but are not limited to, any statements regarding business strategy, estimated current and future net reserves and present values of such reserves, drilling and completion of wells including our identified locations, financial strategy, budget projections, operating results, marketing and realized prices for oil, natural gas and natural gas liquids, timing and amount of future production of oil and natural gas, availability and cost of drilling and production equipment, availability and cost of oilfield labor, the amount, nature and timing of capital expenditures, including future development costs, our ability to fund our 2016 capital expenditure budget, availability and terms of capital, development results from our identified drilling locations, property acquisitions, property development and operating costs, general economic conditions, the commodity price environment, the effectiveness and extent of our risk management activities, our insurance coverage, estimates of future potential impairments, environmental liabilities, technology, counterparty credit risk, government regulation of and tax treatment for the oil and gas industry, non-historical plans, objectives, expectations and intentions contained in this Form 10-Q, future revenues, future costs and expenses, earnings, earnings per share, margins, cash flows, liquidity and dividends. Important factors which may affect the actual results include, but are not limited to, the resolution of the litigation involving Giddings Oil & Gas LP, Hunton Oil Partners LP and Asym Energy Fund III LP (the “Partnerships”), the proposed merger with Lilis Energy, Inc. (“Lilis”), political developments, market and economic conditions, changes in raw material, transportation and energy costs, inflation, industry competition, lack of availability of drilling and production equipment and services, environmental risks, drilling and other operating risks, regulatory changes, the uncertainty inherent in estimating oil and natural gas reserves and in projecting future rates of production, cash flow and access to capital, the timing of development expenditures, cost of services, service and equipment providers and the ability to execute and realize the expected benefits from strategic initiatives, including revenue and reserve growth plans, mergers and acquisitions and their integration, changes in financial markets and changing legislation and regulations, including changes in tax law or tax regulations and other risks described in our “Risk Factors” section commencing on page 30 of this Form 10-Q. In some cases, you can identify a forward-looking statement by terminology such as “may,” “will,” “could,” “should,” “expect,” “plan,” “project,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “pursue,” “target” or “continue,” the negative of such terms or variations thereon, or other comparable terminology.

These forward-looking statements involve certain risks and uncertainties. Actual results may differ materially from those contemplated in the forward-looking statements due to, among others, the factors discussed under “Risk Factors” beginning on page 30 of this Form 10-Q, as well as the following factors:

●

the possibility that we or Lilis may be unable to obtain stockholder approvals required for the merger;

●

the possibility that problems may arise in successfully integrating the businesses of the two companies;

●

the possibility that the merger may involve unexpected costs; and

●

the possibility that the businesses may suffer as a result of uncertainty surrounding the merger.

Should one or more of the risks or uncertainties described in this Form 10-Q occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements. All forward-looking statements, expressed or implied, included in this Form 10-Q are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. All forward-looking statements in this Form 10-Q are expressly qualified by the statements in this section to reflect events or circumstances after the date of this Form 10-Q. Forward-looking statements are not guarantees of future performance and actual results may differ significantly from the results discussed in the forward-looking statements. We assume no obligation to revise or update any forward-looking statements for any reason, except as required by law.

Index

Unless expressly indicated or the context requires otherwise, the terms “Brushy,” “we,” “our” or “the Company” refer to Brushy Resources, Inc. and its subsidiaries.

NON-GAAP FINANCIAL MEASURES

We refer to the term PV-10 in this Form 10-Q. This is a supplemental financial measure that is not prepared in accordance with U.S. generally accepted accounting principles, or GAAP. Any analysis of non-GAAP financial measures should be used only in conjunction with results presented in accordance with GAAP. PV-10 is the present value of the estimated future cash flows from estimated total proved reserves after deducting estimated production and ad valorem taxes, future capital costs, abandonment costs, net of salvage value, and operating expenses, but before deducting any estimates of future income taxes. The estimated future cash flows are discounted at an annual rate of 10% to determine their “present value.” We believe PV-10 to be an important measure for evaluating the relative significance of our oil and gas properties and that the presentation of the non-GAAP financial measure of PV-10 provides useful information to investors because it is widely used by professional analysts and investors in evaluating oil and gas companies. Because there are many unique factors that can impact an individual company when estimating the amount of future income taxes to be paid, we believe the use of a pre-tax measure is valuable for evaluating our Company. We believe that PV-10 is a financial measure routinely used and calculated similarly by other companies in the oil and gas industry. However, PV-10 is considered a non-GAAP financial measure under SEC regulations because it does not include the effects of future income taxes, as is required in computing the standardized measure of discounted future net cash flows.

The U.S. Securities and Exchange Commission (“SEC”) has adopted rules to regulate the use in filings with the SEC and in public disclosures of “non-GAAP financial measures,” such as PV-10. These measures are derived on the basis of methodologies other than in accordance with GAAP. These rules govern the manner in which non-GAAP financial measures are publicly presented and require, among other things:

●

a presentation with equal or greater prominence of the most comparable financial measure or measures calculated and presented in accordance with GAAP; and

●

a statement disclosing the purposes for which the company’s management uses the non-GAAP financial measure.

Index

PART I — FINANCIAL INFORMATION

Item 1.

Financial Statements

BRUSHY RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except par value and share data)

	September 30,		December 31,
	March 31, 2016		December 31, 2015
	2015		2014
ASSETS	(Unaudited)
	(Unaudited)		(Audited)
ASSETS
Current assets
Cash	$	~~5,779~~864	$	32,~~574~~839
Trade receivables		879		1,860
Trade receivable		785		1,101
Joint interest receivables		229		508
Joint interest receivable		162		172
Current derivative assets		918		1,699
Current derivative asset		-		733
Prepaid expenses		~~300~~124		~~284~~59
Total current assets		81,~~105~~935		74,~~925~~904
Oil and natural gas properties and other equipment
Oil and natural gas properties, successful efforts method, net of accumulated depletion		86,974		91,766
Oil and natural gas properties, successful efforts method, net of accumulated depletion and impairment		16,366		16,884
Other property and equipment, net of depreciation		7563		~~104~~67
Total oil and natural gas properties and other equipment, net		8716,~~049~~429		9116,~~870~~951
Other assets
Goodwill		960		960
Derivative assets		59		67
Other		359		359
Other		884		981
Total other assets		1,319		1,319
Total other assets		1,903		2,008
Total assets	$	19,683	$	23,174
Total assets	$	97,057	$	101,803

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

Index

BRUSHY RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except par value and share data)

	September 30,			December 31,
	March 31, 2016			December 31, 2015
	2015			2014
	(Unaudited)
	(Unaudited)			(Audited)
LIABILITIES AND STOCKHOLDERS’ DEFICIT
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued liabilities	$	64,~~092~~728		$	5,~~835~~564
Joint interest revenues payable		791			829
Going public delay fee		738			738
Current maturities of related party notes payable		20,071			-
Joint interest revenues payable		1,025			1,018
Current maturities of notes payable		16,421			2,353
Current maturities of related party notes payable		21,718			20,892
Current asset retirement obligations		452			428
Current maturities of notes payable		13,743			14,172
Total current liabilities		43,827			9,445
Current asset retirement obligations		400			392
Total current liabilities		42,352			42,776
Long-term liabilities
Derivative liabilities		-			-
Asset retirement obligations		3,260			3,204
Notes payable		41			23,162
Other long-term liabilities		30			35
Related party note payable		-			10,180
Total long-term liabilities		3,290			3,239
Deferred tax liabilities		10,740			14,040
Asset retirement obligations		3,197			3,177
Total long-term liabilities		13,978			50,559
Commitments and contingencies
Stockholders’ equity
Stockholders’ deficit
Preferred stock, $.001 par value, authorized 10,000,000 shares;
Preferred stock, $.001 par value, authorized 10,000,000 shares; none issued and outstanding		-			-
none issued and outstanding		-			-
Common stock, $.001 par value, authorized 150,000,000 shares; 12,711,986 shares issued at March 31, 2016 and December 31, 2015		13			13
Common stock, $.001 par value, authorized 150,000,000 shares;
Additional Paid-in capital		57,251			57,044
12,711,986 shares issued at September 30, 2015 and 12,362,336 shares issued at December 31, 2014		13			12
Accumulated deficit		(83,223	)		(79,898	)
Paid-in capital		56,838			55,920
Total stockholders’ deficit		(25,959	)		(22,841	)
Accumulated deficit		(17,599	)		(14,133	)
Total liabilities and stockholders’ deficit	$	19,683		$	23,174
Total stockholders’ equity		39,252			41,799
Total liabilities and stockholders’ equity	$	97,057		$	101,803

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

Index

BRUSHY RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended March 31,
	2015			2014			2015			2014
	2016			2015
Oil, natural gas, and related product sales	$	1,~~745~~232		$	52,~~783~~757		$	~~7,029~~		$	~~15,485~~
Expenses
Depreciation, depletion and amortization		1,934			2,858			6,576			7,287
Depreciation and depletion		718			2,507
Lease operating		~~884~~908			1,~~633~~126			~~2,963~~			~~3,946~~
General and administrative		~~797~~684			~~956~~1,342			~~2,885~~			~~2,737~~
Professional fees		96674			~~220~~211			~~525~~			~~737~~
Production taxes		8359			~~176~~103			~~289~~			~~514~~
Accretion of discount on asset retirement obligation		5863			6663			~~187~~			~~255~~
Exploration		8-			2721			48			60
Impairment of oil and gas properties		863			-			863			-
Total expenses		3,106			5,373
Total expenses		4,723			5,936			14,336			15,536
Operating loss		(1,874	)		(2,616	)
Operating income (loss)		(2,978	)		(153	)		(7,307	)		(51	)
Other expenses
Other income (expense)
Interest		(1,100	)		(773	)
Interest expense		(1,068	)		(803	)		(2,814	)		(1,820	)
Realized gain from derivative contracts		732			616
Gain (loss) from derivative contracts		1,100			(51	)		867			61
Change in fair value of derivative contracts		(733	)		(202	)
Gain on sale of assets, net		2,373			827			2,375			1,546
Loss on sales of assets		-			(2	)
Other Income		141			-			141			-
Settlement expense		(350	)		-
Total other income (expense)		2,546			(27	)		569			(213	)
Total other expenses		(1,451	)		(361	)
Income (loss) before income taxes		(432	)		(180	)		(6,738	)		(264	)
Loss before income taxes		(3,325	)		(2,977	)
Income tax benefit / (expense):
Deferred income taxes		-			288
Current income tax benefit / (expense)		(23	)		(7	)		(23	)		(7	)
Net loss	$	(3,325	)	$	(2,689	)
Deferred income tax benefit / (expense)		683			87			3,296			171
Net loss per basic and diluted common shares	$	(0.26	)	$	(0.22	)
Net income (loss)	$	228		$	(100	)	$	(3,465	)	$	(100	)
Weighted average basic and diluted common share outstanding		12,711,986			12,482,711
Net income (loss) per basic and diluted
common share	$	0.02		$	(0.01	)	$	(0.27	)	$	(0.01	)
Weighted average basic
common shares outstanding		12,711,986			12,362,336			12,636,421			12,362,336
Weighted average diluted
common shares outstanding		12,711,986			12,362,336			12,636,421			12,362,336

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

Index

BRUSHY RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands, except per share amounts)

	Nine Months Ended September 30,
	Three Months Ended March 31,
	2015			2014
	2016			2015
Cash flows from operating activities
Net loss	$	(3,~~465~~325	)	$	(~~100~~2,689	)
Adjustments to reconcile net loss to net cash
Adjustments to reconcile net loss to net cash used in operating activities:
provided by operating activities:
Depreciation and depletion		718			2,507
Depreciation and depletion		6,576			7,287
Deferred income taxes		-			(288	)
Impairment of oil and gas properties		863			-
Stock-based compensation		206			506
Deferred income taxes		(3,296	)		(171	)
Accretion of asset retirement obligation		63			63
Stock-based compensation		918			968
Change in fair value of derivative contracts		733			202
Accretion of asset retirement obligation		187			255
Loss on asset sales		-			2
Cash received (paid) for settlement of derivative instruments		-			(89	)
Amortization of debt issuance costs		7			54
Unrealized loss (gain) from derivative contracts		789			(61	)
Increase (decrease) in cash attributable to changes in operating assets and liabilities:
(Gain)on asset sales		(2,375	)		(1,546	)
Trade receivables		316			631
Amortization of debt issuance costs		249			141
Joint interest receivables		10			135
Increase (decrease) in cash attributable to
Prepaid expenses and other assets		(65	)		15
changes in operating assets and liabilities:
Accounts payable and accrued liabilities		(117	)		(2,151	)
Trade receivables		981			729
Joint interest revenues payable		7			(118	)
Joint interest receivables		279			(1,902	)
Net cash (used) in operating activities		(1,447	)		(1,131	)
Prepaid expenses and other assets		1			117
Accounts payable and accrued liabilities		(1,408	)		(1,133	)
Joint interest revenues payable		(38	)		518
Net cash provided by operating activities		261			5,013
Cash flows from investing activities
Acquisition and development of oil and natural gas properties		(~~3,913~~90	)		(~~14,107~~316	)
Acquisition of White Oak Resources VI, LLC and Permian Atlantis LLC oil and natural gas properties		-			(16,803	)
Acquisition of other property and equipment		(4	)		-
Proceeds from sales of oil and natural gas properties		~~7,084~~-			~~1,000~~3
Oil and natural gas abandonment costs		-			-
Net cash (used) in investing activities		(94	)		(313	)
Net cash provided (used) in investing activities		3,171			(29,910	)
Cash flows from financing activities
Proceeds from notes payable		~~8,000~~608			~~24,060~~-
Debt issuance costs		(167	)		(209	)
Repayments of notes payable		(1,042	)		(765	)
Repayments of notes payable		(9,053	)		(539	)
Deferred offering costs		-			(7	)
Deferred offering costs		(7	)		(77	)
Net cash (used) in financing activities		(434	)		(772	)
Net cash (used) provided by financing activities		(1,227	)		23,235
Net decrease in cash		(1,975	)		(2,216	)
Net increase (decrease) in cash		2,205			(1,662	)
Cash, beginning of period		2,839			3,574
Cash, beginning of period		3,574			5,794
Cash, end of period	$	864		$	1,138
Cash, end of period	$	5,779		$	4,132
Supplemental disclosure of cash flow information
Cash paid during the period for interest	$	451		$	270
Supplemental disclosure of non-cash investing transactions
Payables related to oil and natural gas capitalized expenditures	$	102		$	298

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

Index

BRUSHY RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Nine Months Ended September 30,
	2015		2014
Supplemental disclosure of cash flow information
Cash paid during the period for interest	$	626	$	1,505
Supplemental disclosure of non-cash investing transactions
Payables related to oil and natural gas capitalized expenditures	$	3,551	$	923
Capitalized asset retirement cost	$	-	$	(855	)
Settlement of accounts payable through sale of oil and natural gas properties	$	-	$	3,873

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

BRUSHY RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 - NATURE OF OPERATIONS

WeBrushy ~~were~~was originally formed as Starboard Resources LLC in Delaware on June 2, 2011 as a limited liability company to acquire, own, operate, produce, and develop oil and natural gas properties primarily in Texas and Oklahoma. On June 28, 2012, Starboard converted from a Delaware limited liability company to a Delaware C-Corporation and was named Starboard Resources, Inc. The membership units of Starboard Resources LLC were exchanged on a 1:1 basis for common shares of the Company. On July 31, 2015, weBrushy sold substantially all of ~~our~~its Oklahoma producing properties and ~~are~~is primarily now focused on ~~our~~its Texas and New Mexico properties. On August 25, 2015, weStarboard changed ~~our~~its name to Brushy Resources, Inc. (“Brushy,” the “Company,” or “its”).

NOTE 2 - ~~SUMMARY~~GOING ~~OF SIGNIFICANT ACCOUNTING POLICIES~~CONCERN

~~Revision~~The Company’s independent registered public accounting firm for the year ended December 31, 2015 issued their report dated April 20, 2016, that included an explanatory paragraph describing the existence of ~~prior~~conditions ~~period~~that ~~financial~~raise ~~statements~~substantial doubt about the Company’s ability to continue as a going concern due to its significant accumulated deficit, working capital deficit, significant net losses and need to raise additional funds to meet its obligations and sustain its operations.

InGiven ~~November~~the precipitous decline in oil and natural gas prices during 2015 and into 2016, the ~~during~~Company expects to continue to face liquidity constraints. The Company’s cash flows are negatively impacted by lower realized oil and natural gas sales prices and the ~~preparation~~significant decline in oil and natural gas prices also increases the uncertainty as to the impact of ~~our~~commodity ~~condensed~~prices ~~financial~~on ~~statements~~its estimated proved reserves. As a result, the Company ~~discovered~~has anbeen ~~error~~ in default under the ~~computation~~2013 ofCredit ~~impairment~~Agreement ofbetween ~~Oklahoma~~it ~~properties~~and Independent Bank, acting for ~~the~~itself ~~quarterly~~and ~~period~~as ~~ended~~administrative ~~June~~agent 30for the other lenders (as amended, the “IB Credit Agreement”) since November 2015. ~~Specifically~~ As a result of these defaults, the ~~impairment~~Company ~~calculation~~is ~~included~~no inlonger permitted to make further draws on the ~~Company’s~~IB ~~financial~~Credit ~~statements~~Agreement and has been subject to a forbearance agreement with the lenders (the “IB Forbearance Agreement”) pursuant to which the lenders agreed to forbear exercising any of their remedies for the existing covenant defaults for a period ~~ended~~of ~~June~~time ~~30,~~(the ~~2015~~“Forbearance ~~did~~Period”) ~~not~~to ~~take~~permit ~~into~~the ~~account~~Company ~~previously~~to ~~recorded~~seek ~~impairment~~refinancing onof the ~~Oklahoma~~indebtedness ~~properties~~owed ~~resulting~~under the IB Credit Agreement in ~~improper~~the ~~recording~~approximate amount of $111,~~350~~000,000, inwhich ~~impairment~~is –referred ~~which~~to ~~was~~as the ~~entirety~~IB Indebtedness or a sale of sufficient assets to repay the ~~impairment~~IB ~~recorded~~Indebtedness. inDuring the ~~quarterly~~Forbearance ~~period~~Period ~~ended~~the ~~June~~Company ~~30,~~is ~~2015~~not permitted to drill new oil or gas wells or make distributions to equity holders. ~~The~~ ~~changes~~Furthermore, inthis also cross defaulted the ~~impairment~~SOSventures ~~resulted~~Credit inAgreement. The aForbearance ~~non-cash~~Period ~~reduction~~began with the execution of the ~~loss~~IB Forbearance Agreement on November 24, 2015 and ended on January 31, 2016, was subsequently extended to ~~the~~March ~~financial~~31, ~~statements~~2016. The Company ~~has~~is ~~determined~~currently ~~that~~in discussions with the ~~impact~~lender ofunder the ~~non-cash~~IB ~~item~~Credit onAgreement ~~its~~regarding ~~quarterly~~a ~~financial~~further ~~statements~~extension ~~for~~of the ~~quarter~~Forbearance ~~ended~~Period. ~~June~~If 30the Company does not obtain a further extension of the Forbearance Period, ~~2015~~the tolenders beunder ~~sufficiently~~the ~~material~~IB Credit Agreement will be able to ~~warrant~~accelerate ~~restatement~~the repayment of debt under the ~~Company’s~~IB ~~Quarterly~~Credit ~~Report~~Agreement. onFor ~~Form~~more 10information see Note 9 -Q Notes Payable.

~~The~~Proposed ~~line~~Merger ~~items~~with ~~that have been amended and restated are set forth below:~~Lilis

~~Balance~~On ~~Sheets~~December 29, 2015, the Company agreed to combine its business with Lilis pursuant to the Agreement and Plan of Merger (the “merger agreement”). Pursuant to the merger agreement, Lilis Merger Sub, Inc. (“Merger Sub”) will merge with and into Brushy, with Brushy surviving the merger as a wholly-owned subsidiary of Lilis (the “merger”). Upon completion of the merger, each share of the Company’s common stock issued and outstanding immediately prior to the effective time will be converted into the right to receive an amount of shares of Lilis’s common stock such that the Company’s former stockholders will represent approximately 50% of the then-outstanding shares of Lilis’s common stock after the closing of the merger (without taking into account outstanding restricted stock units or options or warrants to purchase shares of Lilis’s common stock). In connection with the merger, the Company is obligated to convey Giddings Field and the Bigfoot Area, to SOSventures, LLC (“SOSventures”), in exchange for a release of its obligations under the subordinated credit agreement with SOSventures, dated March 29, 2013, as amended. The Company expects the closing of the merger to occur in the first half of 2016. However, the merger is subject to the satisfaction or waiver of other conditions, and it is possible that factors outside the Company’s control could result in the merger being completed at an earlier time, a later time or not at all. If the merger has not been completed on or before May 31, 2016, either Lilis or Brushy may terminate the merger agreement unless the failure to complete the merger by that date is due to the failure of the party seeking to terminate the merger agreement to fulfill any material obligations under the merger agreement or a material breach of the merger agreement by such party.

	June 30, 2015
	As Previously
	Reported			Adjustment		As Restated
ASSETS
Oil and natural gas properties, successful efforts method, net of accumulated depletion	$	88,955			1,350	$	90,305
Total oil and natural gas properties and other equipment, net
Total assets	$	96,809			1,350	$	98,159
LIABILITIES AND STOCKHOLDERS' EQUITY
Accumulated deficit	$	(19,176	)		1,350	$	(17,826	)
Total stockholders' equity		37,469			1,350		38,819
Total liabilities and stockholders' equity	$	96,809			1,350	$	98,159

8Index

~~Statements~~Collectively, these matters raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s Board of ~~Operations~~Directors and management team continue to take steps to try to strengthen the Company’s balance sheet. The Company intends to execute the merger (which is subject to usual and customary closing conditions beyond the Company’s control) and, in the event the merger is not consummated, the Company intends to refinance its existing debt, sell non-core properties and seek private financings to fund its cash needs. Any decision regarding the merger or financing transaction, and the Company’s ability to complete such a transaction, will depend on prevailing market conditions and other factors. No assurances can be given that such transactions can be consummated on terms that are acceptable to the Company, or at all. If the Company is unable to restructure its current obligations under its existing outstanding debt and preferred stock instruments, and address near-term liquidity needs, the Company may need to seek relief under the U.S. Bankruptcy Code. This relief may include: (i) seeking bankruptcy court approval for the sale or sales of some, most or substantially all of the Company’s assets pursuant to section 363(b) of the U.S. Bankruptcy Code and a subsequent liquidation of the remaining assets in the bankruptcy case; (ii) pursuing a plan of reorganization (where votes for the plan may be solicited from certain classes of creditors prior to a bankruptcy filing) that the Company would seek to confirm (or “cram down”) despite any classes of creditors who reject or are deemed to have rejected such plan; or (iii) seeking another form of bankruptcy relief, all of which involve uncertainties, potential delays and litigation risks.

	Three Months Ended June 30, 2015									Six Months Ended June 30, 2015
	As Previously									As Previously
	Reported			Adjustment			As Restated			Reported			Adjustment			As Restated
Impairment of oil and gas properties	$	1,350			(1,350	)	$	-		$	1,350			(1,350	)	$	-
Net income (loss)	$	(2,354	)		1,350		$	(1,004	)	$	(5,043	)		1,350		$	(3,693	)
Net income (loss) per basic and diluted common share	$	(0.19	)				$	(0.08	)	$	(0.40	)				$	(0.29

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Statements of Cash Flows

	Six Months Ended June 30, 2015
	As Previously
	Reported				Adjustment			As Restated
Net loss		$	(5,043	)		1,350			$	(3,693	)
Impairment of oil and gas properties			1,350			(1,350	)		$	-

Basis of Presentation

The condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Additionally, the accompanying unaudited condensed consolidated financial statements as of ~~September~~March 3031, ~~2015~~2016 and for the ~~nine~~three months ended ~~September~~March 3031, ~~2015~~2016 and ~~2014~~2015 have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and with the instructions to Form 10-Q, and reflect, in the opinion of management, all adjustments, which are of a normal and recurring nature, necessary for a fair presentation of the results for such periods. Operating results for the ~~nine~~three months ended ~~September~~March 3031, ~~2015~~2016 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2015~~2016. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with ~~U.S.~~ GAAP have been condensed or omitted in this Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the ~~our~~Company’s annual report on Form 10-K for the year ended December 31, ~~2014~~2015 and filed with the SEC on April 20, 2016.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company ~~and~~together with its wholly owned subsidiaries, ImPetro Resources, LLC (“ImPetro”) and ImPetro Operating (“Operating”) ~~(Collectively~~which collectively are referred to as the “Company”). All intercompany transactions and balances have been eliminated in consolidation.

Index

Reclassification

In April 2015, the FASB issued ASU No. 2015-03 (“ASU 2015-03”), “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.” ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability, consistent with debt discounts, instead of being presented as an asset. ASU 2015-03 is effective for the Company on January 1, 2016. Once adopted, entities are required to apply the new guidance retrospectively to all prior periods presented. The retrospective application represents a change in accounting principle. Early adoption is permitted for financial statements that have not been previously issued. The Company adopted of this guidance during the first quarter of 2016. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements.

A $7,000 reclassification from “Prepaid expenses” to a reduction of “Current maturities of related party notes payable” associated with the aforementioned adoption of ASU No. 2015-3, “Interest – Imputation of Interest,” have been made to 2015 condensed consolidated financial statements to conform to the 2016 presentation and have no effect on previously reported net (loss).

Oil and Gas Natural Gas Properties

The Company uses the successful efforts method of accounting for oil and natural gas producing activities, as further defined under ASC 932, Extractive Activities - Oil and Natural Gas. Under these provisions, costs to acquire mineral interests in oil and natural gas properties, to drill exploratory wells that find proved reserves, and to drill and equip development wells are capitalized.

Exploratory drilling costs are capitalized when incurred pending the determination of whether a well has found proved reserves. A determination of whether a well has found proved reserves is made shortly after drilling is completed. The determination is based on a process that relies on interpretations of available geologic, geophysic and engineering data. If a well is determined to be successful, the capitalized drilling costs will be reclassified as part of the cost of the well. Capitalized costs of producing oil and natural gas interests are depleted on a unit-of-production basis at the field level.

9If an exploratory well is determined to be unsuccessful, the capitalized drilling costs will be charged to expense in the period the determination is made. If a determination cannot be made as to whether the reserves that have been found can be classified as proved, the cost of drilling the exploratory well is not carried as an asset for more than one year following completion of drilling. If, after that year has passed, a determination that proved reserves exist cannot be made, the well is assumed to be impaired and its costs are charged to expense. Its cost can, however, continue to be capitalized if a sufficient quantity of reserves is discovered in the well to justify its completion as a producing well and the entity is making sufficient progress assessing the reserves and the economic and operating viability of the project.

IfThe ancarrying ~~exploratory well~~value isof ~~determined~~oil toand begas ~~unsuccessful,~~properties ~~the~~is ~~capitalized~~assessed ~~drilling~~for ~~costs~~possible ~~are~~impairment ~~charged~~on ~~to expense in the period the determination is made. If~~ a ~~determination~~field ~~cannot~~by befield ~~made~~basis asand toon ~~whether~~at ~~the~~least ~~reserves~~an ~~that~~annual ~~have been found can be classified as proved~~basis, ~~the~~or ~~cost of drilling the exploratory well is not carried~~ as ancircumstances ~~asset for more than one year following completion of drilling. If~~warrant, ~~after~~based ~~that~~on ~~year~~geological ~~has~~analysis ~~passed,~~or achanges ~~determination~~in ~~that~~ proved ~~reserves~~reserve ~~exist~~estimates. ~~cannot~~When beimpairment ~~made~~occurs, ~~the~~an ~~well~~adjustment is ~~assumed~~recorded toas ~~be impaired and its costs are charged to expense. Its cost can, however, continue to be capitalized if~~ a ~~sufficient~~reduction ~~quantity~~ of ~~reserves is discovered in~~ the ~~well~~asset tocarrying ~~justify~~value. ~~its~~For ~~completion as a producing well and~~ the ~~Company~~three ismonths ~~making~~ended ~~sufficient~~March ~~progress~~31, ~~assessing~~2016 ~~the reserves~~ and ~~the~~2015, ~~economic~~there ~~and~~were ~~operating~~no ~~viability~~impairment ~~of the project~~charge.

The carrying value of oil and gas properties is assessed for possible impairment on a field by field basis and on at least an annual basis, or as circumstances warrant, based on geological analysis or changes in proved reserve estimates. When impairment occurs, an adjustment is recorded as a reduction of the asset carrying value. For the nine months ended September 30, 2015 and the year December 31, 2014, the Company’s impairment charge was $863,028 and $4,428,378.Goodwill

~~Other~~Goodwill ~~Property~~represents the excess of the purchase price over the estimated fair value of the net assets acquired in the acquisition of a business. Goodwill is not amortized; rather, it is tested for impairment annually and ~~Equipment~~when events or changes in circumstances indicate that fair value of a reporting unit with goodwill has been reduced below carrying value. The impairment test requires allocating goodwill and other assets and liabilities to reporting units. However, the Company only has one reporting unit. To assess impairment, the Company has the option to qualitatively assess if it is more likely than not that the fair value of the reporting unit is less than the book value. Absent a qualitative assessment, or, through the qualitative assessment, if the Company determines it is more likely than not that the fair value of the reporting unit is less than the book value, a quantitative assessment is prepared to calculate the fair market value of the reporting unit. If it is determined that the fair value of the reporting unit is less than the book value, the recorded goodwill is impaired to its implied fair value with a charge to operating expenses. As of March 31, 2016 and December 31, 2015 there was no impairment of goodwill. Goodwill of $959,681 was from the acquisition of ImPetro on June 13, 2011.

Other property and equipment, which includes field equipment, vehicles, and office equipment, is stated at cost less accumulated depreciation and amortization. Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the assets. Vehicles and office equipment are generally depreciated over a useful life of five years and field equipment is generally depreciated over a useful life of twenty years.11

Index

Revenue Recognition and Natural Gas Imbalances

The Company utilizes the accrual method of accounting for natural gas and crude oil revenues, whereby revenues are recognized based on the Company’s net revenue interest in the wells upon delivery to third parties. The Company will also enter into physical contract sale agreements through its normal operations.

Gas imbalances are accounted for using the sales method. Under this method, revenues are recognized based on actual volumes of oil and gas sold to purchasers. However, the Company has no history of significant gas imbalances.

~~Income~~Stock-Based ~~Taxes~~Compensation and Equity Incentive Plans

~~Deferred~~The ~~income~~Company ~~tax~~accounts ~~assets~~for stock-based compensation in accordance with ASC 718, Compensation - Stock Compensation. The standard requires the measurement and ~~liabilities~~recognition ~~are~~of ~~computed~~compensation expense in the Company’s condensed consolidated statements of operations for ~~differences~~all ~~between~~share-based payment awards made to the ~~financial~~Company’s ~~statement~~employees, directors and ~~tax~~consultants ~~basis~~including ofemployee ~~assets~~stock options, non-vested equity stock and ~~liabilities~~equity ~~that~~stock ~~will~~units, ~~result~~and inemployee ~~future~~stock ~~taxable~~purchase orgrants. ~~deductible~~Stock-based ~~amounts~~compensation expense is measured at the grant date, based on ~~enacted~~the ~~tax~~estimated ~~laws~~fair ~~and~~value ~~rates~~of ~~applicable~~the toaward, ~~the~~reduced ~~periods~~by inan ~~which~~estimate of the ~~differences~~annualized ~~are~~rate of expected toforfeitures, ~~affect~~and ~~taxable~~is ~~income.~~recognized ~~Valuation~~as ~~allowances~~an ~~are~~expense ~~established~~over the employees’ expected requisite service period, ~~when~~generally ~~necessary~~using the straight-line method. In addition, toASC ~~reduce~~718 ~~deferred~~requires ~~income~~the benefits of tax ~~assets~~deductions toin ~~the~~excess ~~amount~~of ~~expected~~recognized compensation expense to be ~~realized~~reported as a financing cash flow, rather than as an operating cash flow as prescribed under previous accounting rules.

The Company’s isforfeiture ~~required~~rate torepresents ~~determine~~the ~~whether~~historical ~~its~~rate ~~tax~~at ~~positions~~which ~~are more likely than not to be sustained upon examination by~~ the ~~applicable~~Company’s ~~taxing authority, including resolution of any related appeals or litigation processes,~~ stock-based onawards ~~the~~were ~~technical~~surrendered ~~merits~~prior ofto ~~the position~~vesting. ~~The~~ASC ~~tax~~718 ~~benefit~~requires ~~recognized~~forfeitures isto ~~measured~~be asestimated ~~the~~at ~~largest amount of benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement with~~ the ~~relevant~~time ~~taxing authority. De-recognition~~ of agrant ~~tax~~and ~~benefit~~revised ~~previously recognized results in the Company recording a tax liability that increases expense in that period. Based~~ on its analysis, the Company has determined that it has not incurred any liability for unrecognized tax benefits as of September 30, 2015. The Company’s conclusions may be subject to review and adjustment at a ~~later~~cumulative ~~date based on factors including~~basis, ~~but~~if ~~not limited to~~necessary, ~~on-going~~in ~~analyses~~subsequent ofperiods ~~and~~if ~~changes~~actual toforfeitures ~~tax~~differ ~~laws,~~from ~~regulations~~those ~~and interpretations thereof~~estimates.

~~The~~During ~~Company~~the ~~recognizes~~three ~~interest~~months ~~and~~ended ~~penalties~~March ~~related~~31, to2016 ~~unrecognized~~and ~~tax~~2015, ~~benefits~~the inCompany ~~interest~~incurred ~~expense~~stock ~~and~~based ~~other~~compensation ~~expenses, respectively. No interest~~ expense orof ~~penalties~~approximately ~~have~~$206,000 ~~been~~and ~~recognized~~$506,000, asrespectively, ofand ~~September~~is ~~30,~~included ~~2015. The~~in ~~Company’s~~the ~~tax~~accompanying ~~returns~~condensed ~~for~~consolidated ~~the~~statements ~~last~~of ~~four~~operations ~~years~~in ~~remain~~general ~~subject~~and toadministrative ~~examination~~expenses.

Net ~~Income (~~Loss) Per Common Share

Basic net ~~income (~~loss) per common share is computed by dividing the net ~~income (~~loss) attributable to stockholders by the weighted average number of common shares outstanding during the period. Diluted net ~~income (~~loss) per common share is calculated in the same manner, but also considers the impact to common shares for the potential dilution from stock options, non-vested share appreciation rights and non-vested restricted shares. For the ~~nine~~three ~~month~~months ~~period~~ ended ~~September~~March 3031, ~~2015~~2016, there were 900,000 potentially dilutive non-vested and vested stock options and 2,542,397 stock warrants. For the ~~nine~~three ~~month~~months ~~period~~ ended ~~September~~March 3031, ~~2014~~2015, there were ~~349~~900,~~650~~000 potentially dilutive non-vested restricted shares and stock options. The potentially dilutive shares, ~~options,and~~for ~~warrants~~the ~~for~~three ~~September~~months 30ended March 31, ~~2015~~2016 and ~~2014~~2015, are considered antidilutive since the Company is in a net loss position and thus result in the basic net ~~income (~~loss) per common share equaling the diluted net ~~income (~~loss) per common share.

1012

Index

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The Company’s estimates of oil and natural gas reserves are, by necessity, projections based on geologic and engineering data, and there are uncertainties inherent in the interpretation of such data as well as the projection of future rates of production and the timing of development expenditures. Reserve engineering is a subjective process of estimating underground accumulations of natural gas and oil that are difficult to measure. The accuracy of any reserve estimate is a function of the quality of available data, engineering and geological interpretation and judgment. Estimates of economically recoverable natural gas and oil reserves and future net cash flows necessarily depend upon a number of variable factors and assumptions, such as historical production from the area compared with production from other producing areas, the assumed effect of regulations by governmental agencies, and assumptions governing future natural gas and oil prices, future operating costs, severance taxes, development costs and workover costs, all of which may in fact vary considerably from actual results. The future drilling costs associated with reserves assigned to ~~prove~~proved, undeveloped locations may ultimately increase to the extent that these reserves are later determined to be uneconomic. For these reasons, estimates of the economically recoverable quantities of expected natural gas and oil attributable to any particular group of properties, classifications of such reserves based on risk of recovery, and estimates of the future net cash flows may vary substantially. Any significant variance in the assumptions could materially affect the estimated quantity of the reserves, which could affect the carrying value of the Company’s oil and natural gas properties and/or the rate of depletion related to the oil and natural gas properties.

The most significant financial estimates are associated with the Company’s estimated volumes of proved oil and natural gas reserves, asset retirement obligations, assessments of impairment imbedded in the carrying value of undeveloped acreages undeveloped properties and developed properties, fair value of financial instruments, including derivative liabilities, depreciation and accretion, income taxes and contingencies.

New Accounting Pronouncement

In ~~May~~March ~~2014~~2016, the ~~Financial~~FASB ~~Accounting Standards Board~~ issued aASU ~~new~~No. ~~accounting~~2016-09, ~~pronouncement~~Compensation ~~regarding~~– ~~revenue~~Stock ~~from~~Compensation ~~contracts~~(Topic ~~with~~718): ~~customers.~~Improvements ~~This~~to ~~new~~employee ~~standard~~share-based ~~provides~~payment ~~guidance on recognizing revenue~~accounting, ~~including~~which aincludes ~~five~~provisions ~~step~~intended ~~model~~ to ~~determine~~simplify ~~when~~various ~~revenue~~aspects ~~recognition~~related ~~is appropriate. The standard requires that an entity recognizes revenue~~ to ~~depict~~how ~~the~~share-based ~~transfer~~compensation ofpayments ~~promised~~are ~~goods~~accounted orfor ~~services~~and topresented ~~customers~~ in ~~an amount that reflects~~ the ~~consideration~~financial tostatements. ~~which~~This ~~the~~amendment ~~entity~~will ~~expects to~~ be ~~entitled~~effective inprospectively ~~exchange~~ for ~~those goods or services. Adoption of the new standard is effective for~~ reporting periods beginning on or after December 15, ~~2017~~2016, ~~with~~and early adoption ~~not~~is permitted. The Company is currently ~~evaluating~~assessing the ~~potential~~ impact ~~that~~of the ~~adoption~~ASU ~~of this standard will have~~ on ~~its financial position, results of operations, and related disclosures, and will adopt~~ the ~~provisions~~Company’s ofcondensed ~~this~~consolidated ~~new~~financial ~~standard in the first quarter of 2018~~statements.

NOTE 34 –- FAIR VALUE MEASUREMENTS

~~The~~As ~~following~~defined ~~tables~~by ~~present~~ASC ~~information~~820, ~~about~~the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale, which was further clarified as the price that would be received to sell an asset or paid to transfer a liability (“an exit price”) in an orderly transaction between market participants at the measurement date. The carrying amounts of the Company’s financial assets and liabilities, ~~measured~~such atas ~~fair~~cash, ~~value~~trade asreceivable, ofjoint ~~September~~interest 30receivable, ~~2015~~joint interest revenues payable, accounts payable and ~~December~~accrued 31liabilities and related party payable, ~~2014:~~approximate their fair values because of the short maturity of these instruments. The carrying amount of the notes payable in long-term debt also approximates fair value due to its variable-rate characteristics.

							Balance as of
							September 30,
($ in thousands)	Level 1		Level 2		Level 3		2015
Assets (at fair value):
Derivative assets (oil collar and put options)	$	-	$	977	$	-	$	977
Liabilities (at fair value):
Derivative liabilities (oil collar and put options)	$	-	$	-	$	-	$	-

							Balance as of
							December 31,
($ in thousands)	Level 1		Level 2		Level 3		2014
Assets (at fair value):
Derivative assets (oil put options)	$	-	$	1,766	$	-	$	1,766

NOTE 4 – PROPERTY ACQUISITION AND SALE

On March 26, 2014 (the “Acquisition Date”), the Company completed the purchase of oil and natural gas leases and leasehold interests (the “Oil and Natural Gas Properties”) from White Oak Resources VI, LLC and Permian Atlantis LLC (collectively the “Seller”) for the purpose of increasing the Company’s oil and natural gas operations in the Permian Basin. The assets acquired are: (a) oil and natural gas leases and leasehold interests in Winkler and Loving Counties in Texas and Lea County, New Mexico; (b) twenty-nine wellbores; and (c) any contracts or agreements related to the foregoing lands, leases and wells. The Oil and Natural Gas Properties include total acreage held by production of 5,160 gross developed acres (1,983.61 net developed acres). Additionally, producing wells and surrounding acreage have been unitized under Texas Railroad Commission regulations. Under the terms of the agreement, the Company purchased the Oil and Natural Gas Properties for $16,803,000 in cash, including before purchase price adjustments.

On July 31, 2015, the Company sold all of its Oklahoma properties, which were located in Logan and Kingfisher Counties, Oklahoma, to Remora Petroleum, LP (Austin, TX) for $7,249,390. The purchaser is not affiliated with any Company officers, directors or material stockholders.

The following table summarized the results of operation from the properties sold:

($ in thousands)	Nine Month Period Ended September 30, 2015		Nine Month Period Ended September 30, 2014
Oil, natural gas, and related product sales	$	1,368	$	5,470
Expenses		261		624
Operating income	$	1,107	$	4,846

As part of this transaction, the Company entered into the Fifth Amendment to its Credit Agreement with Independent Bank (“Amendment”). The Amendment provides that $4,000,000 of the purchase price was paid to Independent Bank to pay down its credit facility with Independent Bank. The Amendment requires that an additional $2,000,000 would be held by Independent Bank in a control account.

The Amendment further states that the Credit Agreement’s $21,000,000 borrowing base is reduced to $17,000,000 and that the Company cannot demand further funds under this Credit Agreement until the next redetermination of the borrowing base and the cure of any deficiency loan amount over the adjusted borrowing base.

The Amendment also places limits on the use of the $2,000,000 in the control account. It provides that the control account funds shall be applied, first, to any borrowing base deficiency after redetermination, and second, to any remaining amount on the loan or to the Company in the sole discretion of Independent Bank. The Amendment also requires the Company to use the funds it has received from the Oklahoma properties transaction (after payment of the $4,000,000 to Independent Bank and the $2,000,000 to the control account) to its outstanding third party accounts payables. Independent Bank took that $2,000,000 from the control account and applied it to the Independent Bank Credit Facility on October 30, 2015.

NOTE 5 – OIL AND NATURAL GAS PROPERTIES

The following table presents a summary of the Company’s oil and natural gas properties at September 30, 2015 and December 31, 2014:

($ in thousands)	Nine Month period Ended September 30, 2015			Year Ended December 31, 2014
Oil and natural gas properties
Proved-developed producing properties	$	87,256		$	96,691
Proved-developed non-producing properties		4,850			2,880
Proved-undeveloped properties		13,275			13,330
Unproved properties		2,072			1,996
Less: Accumulated depletion		(20,479	)		(23,131	)
Total oil and natural gas properties, net of accumulated depletion	$	86,974		$	91,766

NOTE 6 – ASSET RETIREMENT OBLIGATIONS

The Company has recognized the fair value of its asset retirement obligations related to the future costs of plugging, abandonment, and remediation of oil and natural gas producing properties. The present value of the estimated asset retirement obligations has been capitalized as part of the carrying amount of the related oil and natural gas properties. The liability has been accreted to its present value as of the end of each period. At September 30, 2015 and December 31, 2014, the Company has determined a range of abandonment dates through March 2061. The following table represents a reconciliation of the asset retirement obligations:

($ in thousands)	Nine month period Ended September 30, 2015			Year Ended December 31, 2014
Asset retirement obligations, beginning of period	$	3,605		$	2,436
Additions to asset retirement obligation		-			859
Liabilities settled during the period		(143	)		-
Accretion of discount		187			320
Revision of estimate		-			(10	)
Asset retirement obligations, end of period	$	3,649		$	3,605

The asset retirement liability is measured using primarily Level 3 inputs. The significant unobservable inputs to this fair value measurement include estimates of plugging costs, remediation costs, inflation rate and well life. The inputs are calculated based on historical data as well as current estimated costs.

NOTE 7 – GOING PUBLIC DELAY FEE

We entered a “Securities Purchase and Exchange Agreement” dated June 10, 2011, with Longview Marquis Master Fund, L.P., Summerview Marquis Fund, L.P., Longview Marquis Fund, L.P., LMIF Investments, LLC, SMF Investments, LLC, and Summerline Capital Partners, LLC (collectively “Summerline”). The Agreement provides that the Company, for any reason, does not go public on or before that date that is one hundred fifty days after the June 13, 2011 (the “Going Public Delay Date”), the Company shall pay to each applicable stockholder an aggregate amount equal to the product of (i) such stockholder’s allocation percentage multiplied by (ii) $60,715 (the “Going Public Delay Fee”) on the last business day of each calendar month, for each such calendar month following the Going Public Delay Date through and including the date of going public (the “Going Public Delay Period”). For any partial calendar months during the Going Public Delay Period, the Going Public Delay Fee shall be pro-rated appropriately. For the year ended December 31, 2013, the Company incurred a delay fee of approximately $425,000 which is currently included in accrued liabilities on the accompanying condensed consolidated balance sheets.

Effective August 6, 2013, the Company ceased to incur Going Public Delay Fees due to an effective Form 10 filing.

NOTE 8 – DERIVATIVES

We use derivatives to hedge our oil production. Our current hedge position consists of put options, of which some have deferred premiums paid at settlement. These contracts and any future hedging arrangements may expose us to risk of financial loss in certain circumstances, including instances where production is less than expected or oil prices increase. In addition, these arrangements may limit the benefit to us of increases in the price of oil. Accordingly, our earnings may fluctuate significantly as a result of changes in the fair value of our derivative instrument, which we utilize entirely to hedge our production and do not enter into for speculative purposes. We have not designated the derivative contracts as hedges for accounting purposes, and accordingly, we record the derivative contracts at fair value and recognize changes in fair value in earnings as they occur.

At September 30, 2015, we had the following open crude oil derivative contracts:

	Instrument	Commodity	Volume (bbl / month)		Floor Price		Ceilings Price		Purchased Put Option Price		Fair Value (in thousands)
Oct 2015	Put	Crude Oil		6,000						50.00 - 80.00		161
Nov 2015 - Dec 2015	Put	Crude Oil		2,800						80.00		173
Oct 2015 - Dec 2015	Put	Crude Oil		4,000						70.00		291
Jan 2016 - Mar 2016	Put	Crude Oil		1,500						75.00		108
Jan 2016 - Dec 2016	Put	Crude Oil		3,000						50.00		94
Jan 2016 - Dec 2016	Collar	Crude Oil		3,000		54.00		79.30				150

The following tables identify the fair value amounts of derivative instruments included in the accompanying consolidated balance sheets as derivative contracts, categorized by primary underlying risk. Balances are presented on a gross basis, prior to the application of the impact of counterparty and collateral netting. The following tables also identify the net gain (loss) amounts included in the accompanying consolidated statements of operations as gain (loss) from derivative contracts.

Index

The following tables present information about the Company’s financial assets and liabilities measured at fair value as of March 31, 2016 and December 31, 2015:

($ in thousands)	Level 1		Level 2		Level 3		Balance as of March 31, 2016
Assets (at fair value):
Derivative assets (oil collar and put options)	$	-	$	-	$	-	$	-
Liabilities (at fair value):
Asset Retirement Obligations	$	-	$	-	$	3,660	$	3,660

($ in thousands)	Level 1		Level 2		Level 3		Balance as of December 31, 2015
Assets (at fair value):
Derivative assets (oil collar and put options)	$	-	$	733	$	-	$	733
Liabilities (at fair value):
Asset Retirement Obligations	$	-	$	-	$	3,597	$	3,597

The Company’s derivative contracts consist of NYMEX-based fixed price commodity swaps and NYMEX collars. The NYMEX-based fixed price derivative contracts are indexed to NYMEX futures contracts, which are actively traded, for the underlying commodity and are commonly used in the energy industry. A number of financial institutions and large energy companies act as counter-parties to these type of derivative contracts. As the fair value of these derivative contracts is based on a number of inputs, including contractual volumes and prices stated in each derivative contract, current and future NYMEX commodity prices, and quantitative models that are based upon readily observable market parameters that are actively quoted and can be validated through external sources, the Company have characterized these derivative contracts as Level 2.

The Company estimates the expected undiscounted future cash flows of its oil and natural gas properties and compares such amounts to the carrying amount of the oil and natural 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 natural gas properties to fair value. The factors used to determine fair value are subject to management’s judgment and expertise and include, but are not limited to, recent sales prices of comparable properties, the present value of future cash flows, net of estimated operating and development costs using estimates or proved 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. These assumptions represent Level 3 inputs.

NOTE 5 - PROPERTY ACQUISITION AND DIVESTITURE

The following table summarized the results of operation from the properties sold during three months ended March 31, 2015:

Oil, natural gas, and related product sales	$	720
Expenses		138
Operating income	$	582

Index

As part of this transaction, the Company entered into the Fifth Amendment to its Credit Agreement with Independent Bank (“Fifth Amendment”). The Fifth Amendment provides that $4,000,000 of the purchase price was paid to Independent Bank to pay down its credit facility with Independent Bank.

NOTE 6 - OIL AND NATURAL GAS PROPERTIES

The following table presents a summary of the Company’s oil and natural gas properties at March 31, 2016 and December 31, 2015:

($ in thousands)	March 31, 2016			December 31, 2015
Oil and natural gas properties
Proved-developed producing properties	$	43,710		$	43,912
Proved-developed non-producing properties		6,228			5,865
Proved-undeveloped properties		-			-
Unproved properties		2,420			2,389
Gross oil and natural gas properties		52,358			52,166
Less: Accumulated depletion		(35,992	)		(35,282	)
Total oil and natural gas properties, net of accumulated depletion and impairment	$	16,366		$	16,884

During the three months ended March 31, 2016 and 2015, the Company incurred depletion expense of approximately $710,000 and $2,495,000, respectively. As of March 31, 2016 and December 31, 2015, the accumulated impairment was approximately $55,985,000.

NOTE 7 - ASSET RETIREMENT OBLIGATIONS

The Company has recognized the fair value of its asset retirement obligations related to the future costs of plugging, abandonment, and remediation of oil and natural gas producing properties. The present value of the estimated asset retirement obligations has been capitalized as part of the carrying amount of the related oil and natural gas properties. The liability has been accreted to its present value as of the end of each period. At December 31, 2015 and December 31, 2014, the Company evaluated 147 and 169 wells, respectively, and has determined a range of abandonment dates between April 2016 and October 2044. The following table represents a reconciliation of the asset retirement obligations for the three months ended March 31, 2016 and the year ended December 31, 2015:

	Three Months Ended March 31, 2016		Year Ended December 31, 2015
($ in thousands)
Asset retirement obligations, beginning of period	$	3,597	$	3.606
Additions to asset retirement obligation		-		-
Liabilities settled during the period		-		(155	)
Accretion of discount		63		187
Revision of estimate		-		(41	)
Asset retirement obligations, end of period	$	3,660	$	3,597

During the three months ended March 31, 2016 and 2015, the Company incurred accretion expense of approximately $63,000 and $63,000, respectively. As of March 31, 2016 and December 31, 2015, the current asset retirement obligation was approximately $400,000 and $392,000 respectively, and the long term asset retirement obligation was approximately $3,260,000 and $3,204,000, respectively.

Index

See Note 4 - Fair Value Measurements.

NOTE 8 – DERIVATIVES

The Company uses derivatives to hedge its oil production. The Company’s hedge position as of December 31, 2015 consisted of put options, some of which were deferred premiums paid at settlement. As of March 31, 2016, pursuant to the IB Forbearance Agreement, the Company did not have any remaining hedge positions. Specifically, the Company unwound the remaining existing hedge contract with Cargill and Cargill paid Independent Bank all hedge settlement proceeds, all hedge liquidation proceeds, and all amounts otherwise payable by Cargill to the Company. Such payments satisfied outstanding interest and default interest owing to Independent Bank as well as certain other expenses.

Fair Value of Derivative Financial Instruments

($ in thousands)	~~September~~March 3031, ~~2015~~2016		December 31, ~~2014~~2015
Derivative financial instruments - Current asset	$	~~918~~-	$	~~1,699~~733
Derivative financial instruments - Long-term assets		59-		67-
Derivative financial instruments - Current liabilities				-
Net derivative financial instruments	$	-	$	733
Derivative financial instruments - Long-term liabilities				-
Net derivative financial instruments		977		1,766

Effect of Derivative Financial Instruments

		September 30,			December 31
	Three Months Ended March 31,
($ in thousands)		~~2015~~2016			2015
Realized gain/(loss) on settlement of derivative contracts		$	~~1,656~~732		$	~~(19~~616	)
Unrealized gain/(loss) from derivative contracts			(789	)		17
Change in fair value of derivative contracts		$	(733	)	$	(202	)
Realized/Unrealized gain/(loss) from derivative contracts		$	867		$	(2	)

NOTE 9 –- NOTES PAYABLE

On June 27, 2013, the Company entered into athe ~~credit~~IB ~~agreement (“~~Credit Agreement”) ~~with Independent Bank~~ to borrow up to $100,000,000 at a current rate of 4.00% annum. The IB Credit Agreement was obtained to fund the development of the Company’s oil and natural gas properties and refinance the prior bank facility. At ~~September~~March 3031, ~~2015~~2016 and December 31, ~~2014~~2015, the Company had approximately $2111,~~000~~363,000 and $2212,~~500~~400,000 in borrowings outstanding under the IB Credit Agreement, respectively.

~~The~~In ~~Credit~~November ~~Agreement provides for a borrowing base of $16,400,000 as of September 30,~~ 2015, ~~which~~counsel isfor re-determined semi-annually and upon requested special redeterminations. Further, under the April 15, 2015 Amendment to the Credit Agreement, the borrowing base is reduced by $250,000 per month before September 1, 2015 and $350,000 per month thereafter, unless re-determined after 150 days from the date of the Amendment. The Company is obligated to provide Independent Bank notified ~~an engineering report acceptable to~~ the ~~Bank as of September 1, 2015 showing proven and producing and proven undeveloped oil and gas reserves, discounted present value of future net income for the~~ Company’s ~~oil~~that ~~and~~it ~~gas~~was properties as of September 1, 2015, projections of annual rate of production, gross income and net income relating to these reserves and take-or-pay, prepayment and gas balancing obligations. Additionally, the borrowing base may be adjusted at the financial institution’s discretion which is based in ~~part~~default ~~upon external factors over which the Company has no control. If the re-determined borrowing base were to be less than outstanding borrowings~~ under ~~the~~IB Credit Agreement~~, the Company would be required to repay the deficit~~. ~~The Company incurs a commitment fee of 0.5% on the unused portion of the credit facility or if less, the borrowing base. The Credit Agreement matures on June 1, 2016.~~

~~Loans~~On ~~under~~November 24, 2015, the ~~Credit~~Company ~~Agreement~~entered ~~bear~~into ~~interest~~the atIB Forbearance Agreement and the ~~greater~~Third ~~of:~~Amendment ~~(1)~~to the ~~prime~~IB ~~rate~~Credit Agreement with Independent Bank under which Independent Bank, acting for itself and as administrative agent for other lenders, agreed to forbear exercising any of its remedies for the ~~annual~~existing ~~rate~~covenant defaults for period of ~~interest~~time ~~announced~~to bypermit the ~~Wall~~Company ~~Street~~to ~~Journal~~seek asrefinancing ~~its~~of ~~“prime~~the ~~rate”~~indebtedness owed to Independent Bank, which is referred to as the IB Indebtedness or ~~(2)~~a sale of sufficient assets to repay the ~~floor~~IB ~~rate~~Indebtedness. The Forbearance Period began with the execution of 4the IB Forbearance Agreement on November 24, 2015 and ended on January 31, 2016.~~00%~~ The Forbearance Period was subsequently extended to March 31, 2016.

~~The~~At ~~Credit~~the ~~Agreement~~time isof ~~collateralized by~~ the ~~oil~~extension ~~and~~of ~~natural~~the ~~gas~~Forbearance ~~properties~~Period ~~and~~to ~~contains~~March ~~several~~31, ~~restrictive covenants including~~2016, ~~among~~the ~~others: (1)~~Company aagreed ~~requirement~~ to ~~maintain~~unwind athe ~~current~~remaining ~~ratio,~~existing ofhedge ~~not~~contract ~~less~~with ~~than~~Cargill ~~1.0~~and topermit ~~1.0;~~Cargill ~~(2)~~to apay ~~maximum permitted ratio of debt~~ to ~~adjusted~~Independent ~~EBITDAX~~Bank ofall ~~not~~hedge ~~more~~settlement ~~than~~proceeds, ~~3.5~~all tohedge ~~1.0;~~liquidation ~~(3)~~proceeds, aand ~~maximum~~all ~~permitted~~amounts ~~ratio~~otherwise ofpayable ~~adjusted~~by ~~EBITDAX~~Cargill to ~~interest~~the ~~expense~~Company. Such ofpayments ~~not~~satisfied ~~more~~outstanding ~~than~~interest ~~3.0 to 1.0;~~ and ~~(4)~~default ainterest ~~prohibition~~owing ~~against incurring debt, subject~~ to ~~permitted~~Independent ~~exceptions.~~Bank ~~The~~as ~~Company~~well isas ~~not~~certain inother ~~compliance~~expenses. In ~~with its debt covenants at September 30~~addition, ~~2015~~such ~~however,~~payments itreduced isthe ~~currently~~principal ~~working~~due ~~with~~ Independent ~~bank~~Bank onby ~~a waiver for these violations~~$406,720.

The Amendment also allows the assignment of an overriding royalty interest as stated in the related amendment to the Intercreditors’ Agreement between Independent Bank, the Company and SOSventures, LLC.16

The Company is obligated to commence drilling a well in the Crittenden Field within 45 days of the date of the Amendment and a second well in the Crittenden Field within 90 days of the date of the Amendment.Index

~~The~~During ~~Amendment~~the ~~includes~~Forbearance aPeriod, ~~suspension~~the ofCompany ~~Independent~~is ~~Bank’s~~not ~~rights~~permitted to ~~exercise~~drill ~~its~~new ~~remedies~~oil ~~prior~~or togas ~~150~~wells ~~days~~or ~~after~~to ~~the~~make ~~Amendment~~any ~~caused~~distributions ~~solely~~to byequity ~~the occurrence~~holders. ofFurthermore, athis ~~borrowing~~default ~~base deficiency. It~~ also ~~includes~~cross adefaulted ~~suspension~~the ofSOSVentures ~~Independent~~Credit ~~Bank’s obligation to extend loans~~Agreement, ~~letters~~however ofthe ~~credit~~maturity ~~or renewals or extensions~~ of ~~letters of credit agreement under~~ the ~~Credit~~second ~~Agreement~~lien ~~for~~note ~~150~~to ~~days~~SOSventures ~~after~~was ~~the~~extended ~~date~~to ofAugust ~~the~~1, ~~Amendment~~2016.

The ~~Amendment~~Company is currently in discussions with the lenders under the IB Credit Agreement regarding a further ~~provides~~extension ~~that~~of the Forbearance Period. The Company ~~will~~is bealso ~~required~~in ~~execute~~discussions ~~and~~with ~~maintain~~Lilis ~~crude~~and ~~oil~~other ~~hedges~~financing onparties aregarding ~~minimum~~possible ofrefinance ~~80.0%~~options offor ~~Projected~~the ~~Production on~~amount aoutstanding ~~rolling~~under 20the ~~months~~IB ~~basis.~~Credit Agreement

14On December 29, 2015, the Company entered into the merger agreement. At March 31, 2016 and December 31, 2015, the refundable deposit paid by Lilis to the Company was approximately $2,358,000 and $1,750,000, respectively.

~~The~~NOTE ~~Company~~10 ~~repaid~~- ~~its~~STOCK ~~term~~BASED ~~loan~~COMPENSATION atAND ~~closing~~CONDITIONAL ~~with~~PERFORMANCE both principal and interest, repaid the note principal to reduce the note to no more than the borrowing base, including the repayment of interest, pay certain fees, deposit $5,000,000 into a special account and SOSventures provided an additional $2,000,000 of availability under the Subordinated credit facility with SOSventures, LLC for drilling capital.AWARDS

On March 26, 2014, the Company entered into a term loan agreement with Independent Bank totaling $4,000,000 at a current rate of 6.75% annum. The agreement was obtained to fund the development of the Company’s acquisition of oil and natural gas properties. The term loan had an outstanding balance of approximately $2,941,000 outstanding at December 31, 2014. The term loan was paid in full on April 15, 2015.

NOTE 10 – STOCK BASED COMPENSATION AND CONDITIONAL PERFORMANCE AWARDS

On April 1, 2012, the Company entered into employment agreements (the “Employment Agreement”) which provided a restricted stock grant and a conditional performance award to key members of management.

The restricted stock grant of 349,650 shares had a grant date fair value of $10.00 per share as approved by the Company’s compensation committee and vests in full upon the earlier of an initial public offering (“IPO”) which includes the sale of shares to the public, a business combination whereas 50% or more of the voting power is transferred to the new owners, or March 1, 2015. Those 349,650 shares were earned by the employee recipients and issued to them during the three ~~month~~months ~~period~~ended ~~ending~~ March 31, 2015.

During the ~~nine~~three months ended ~~September~~March 3031, ~~2015~~2016 and ~~2014~~2015, the Company incurred a stock-based compensation expense of approximately $~~300,000~~0 and $~~900~~300,000, respectively, related to the restricted stock grant, which is included in the accompanying condensed consolidated statements of operations in general and administrative expenses.

Additionally, the ~~employment~~Employment ~~agreements~~Agreement ~~provide~~provides for a conditional performance award ~~where~~ if an IPO occurs, the employee will receive: (1) a cash payment of 1% of the difference between the Company market capital and the book value at the time of the IPO, (2) common stock options to purchase 1.0% of the fully-diluted capital stock as of the IPO date and IPO price which will vest over a four year period and contain a cashless exercise, (3) common stock options to purchase 1.0% of the fully-diluted capital stock as of the 2nd anniversary of the IPO date at the closing price of the common stock on the 2nd anniversary date of the IPO and will vest six years after the grant and contain a cashless exercise. As of the ~~nine~~three ~~month~~months ~~period~~ ended ~~September~~March 3031, ~~2015~~2016 and ~~2014~~2015, the conditional performance feature is not probable and as such, no compensation expense related to the conditional performance feature has been recognized.

On August 30, 2014, the Company amended and restated the Employment Agreement which provided for additional stock options.

The equity award of options to purchase 900,000 shares of common stock at the exercise price of $4.75 per share and vesting over three years from September 4, 2014 with a one-year cliff (in respect of 300,000 shares) and monthly vesting thereafter of 25,000 shares over the remaining two years. During the ~~nine~~three months ended ~~September~~March 3031, 2016 and 2015, the Company incurred a stock-based compensation expense of approximately $~~619~~206,000 in both years related to stock ~~option~~options, which is included in the accompanying condensed consolidated statements of operations in general and administrative expenses. As of ~~September~~March 3031, ~~2015~~2016, there was approximately $1,~~581~~169,000 of unrecognized stock-based compensation related to the non-vested stock options to be recognized over 1.42 years.

Index

The assumptions used in the Black-Scholes Option Pricing Model for the stock options granted were as follows:

	2014
Risk-free interest rate			1.87	%
Expected volatility of common stock			92	%
Dividend yield		$	0.00
Expected life of options	5.72 years

~~The~~For ~~following~~the ~~table~~three ~~summarizes~~months ~~information~~ended ~~about~~March 31, 2016, there were no new stock ~~option~~options ~~activity~~granted. As of March 31, 2016, there were 900,000 stock options outstanding and ~~related~~the ~~information~~intrinsic ~~for~~value of the ~~nine~~associated ~~months~~options ~~ended~~was ~~September~~zero. 30The weighted average exercise of $4.75/share, ~~2015~~weighted average grant date fair value of $2.75/share and the weighted average remaining contractual life of 8.3 years. On March 31, 2016, 500,000 stock options were exercisable.

	Number of Shares Underlying Options		Weighted Average Exercise Price per Share		Weighted Average Grant Date Fair Value per Share		Weighted Average Remaining Contractual Life (in Years)
Outstanding at December 31, 2014		900,000	$	-	$	-		-
Granted		-		4.75		2.75		9
Exercised		-		-		-		-
Forfeited		-		-		-		-
Outstanding at September 30, 2015		900,000		4.75		2.75		9
Exercisable at September 30, 2015		350,000		4.75		-		-

NOTE 11 - RELATED PARTY TRANSACTIONS

15Subordinated Credit Facility with SOSVentures

~~NOTE~~A 11director –currently ~~RELATED~~serving ~~PARTY~~on ~~TRANSACTIONS~~the Company’s Board of Directors, Bill Liao, works for SOSventures. Further, a group composed of SOSventures, Sean O’Sullivan Revocable Living Trust and Bradford R. Higgins constitute a group owning 4,863,720 or 39.34% of the Company’s common stock shares.

~~Related~~On ~~Party~~June ~~Credit~~3, ~~Agreement~~2014, the Company agreed to amend its credit agreement with SOSventures, originally entered into on July 25, 2013, providing for a term loan through February 16, 2016 in an amount up to $20,000,000 at an 18.00% interest rate. The loan under this agreement is secured by a second lien on the Company’s assets.

OnThe ~~March~~SOSventures ~~29,~~credit ~~2013,~~agreement requires the Company ~~entered~~to amaintain ~~credit~~certain ~~agreement~~financial ~~with~~ratios. ~~SOSventures~~First, ~~LLC~~the ~~providing~~Company ~~for~~must amaintain ~~term~~an ~~loan~~interest ~~through~~coverage ~~February~~ratio ~~16,~~of ~~2016~~3:1 inat anthe ~~amount~~end upof toeach ~~$10~~quarter so that its consolidated net income less the Company’s fees under the credit facility,~~000~~ lender expenses,~~000~~ atnon-cash acharges ~~17.00%~~relating to the hedge agreements, interest, ~~rate~~income ~~through~~taxes, ~~March~~depreciation, 29depletion, ~~2014~~amortization, exploration expenditures and ~~22.00%~~costs and other non-cash charges (netted for noncash income) (“EBITDAX”) is greater than 3 times the Company’s interest ~~rate~~expense ~~thereafter~~under the credit facility. ~~The~~ Second, the Company ~~may~~must ~~not~~maintain ~~incur~~a ~~further~~debt ~~indebtedness~~to ~~beyond~~EBITDAX ~~this~~ratio ~~loan~~of ~~and~~less than 3.5:1 at the ~~Credit~~end ~~Agreement~~of ~~without~~each quarter. Third, the ~~consent~~Company must maintain a current ratio of ~~SOS~~at ~~Ventures~~greater than 1:1 at the end of each quarter, ~~until~~meaning ~~such~~that ~~time~~the asCompany’s consolidated current assets (including the ~~SOS~~unused ~~Ventures~~amount ~~loan~~of isthe ~~fully~~credit ~~repaid~~facility by excluding non-cash assets under ASC 410 and 815) must be greater than the Company’s consolidated current liabilities (excluding non-cash obligations under ASC 410 and 815 and current maturities under the credit facility.)

OnThe ~~May~~credit ~~30,~~agreement ~~2014,~~prevents the Company ~~amended~~from ~~its~~incurring ~~credit~~indebtedness ~~agreement~~to ~~with~~banks ~~SOSventures~~or lenders, ~~LLC~~other ~~providing~~than ~~for~~Independent aBank, ~~term~~without ~~loan~~the ~~through~~consent ~~February~~of 1,SOSventures. ~~2016~~It inalso anprevents ~~amount~~the upCompany tofrom ~~$20,000,000~~incurring atmost ancontingent ~~18.00%~~obligations ~~interest~~or ~~rate~~liens (other than to Independent Bank). As ofIt ~~September~~also ~~30,~~restricts ~~2015~~the Company’s ability to pay dividends, issue options and warrants and repurchase the Company’s ~~has~~common ~~borrowed~~stock ~~$15,500,000~~shares. ~~under~~The ~~this~~limitation ~~agreement~~on options and warrants does not apply to equity compensation plans.

~~The~~This ~~term~~credit ~~loan~~facility is ~~collateralized~~currently ~~under~~in adefault ~~second~~due ~~lien by~~to the ~~oil~~default ~~and~~under ~~natural~~the ~~gas~~IB ~~properties~~Credit ~~and contains several restrictive covenants including, among others: (1) a requirement to maintain a current ratio, of not less than 1~~Agreement.0 to 1.0; (2) a maximum permitted ratio of debt to adjusted EBITDAX of not more than 4.0 to 1.0; (3) a maximum permitted ratio of adjusted EBITDAX to interest expense of not more than 3.0 to 1.0; and (4) a prohibition against incurring debt, subject to permitted exceptions.

OnAs ~~April~~of 15March 31, ~~2015~~2016, ~~the~~with ~~Company~~accrued ~~entered~~and ~~the~~unpaid ~~Second~~interest ~~Amendment to~~ the ~~First~~Company ~~Amendment~~has ~~and~~$21,718,000 ~~Restated~~drawn ~~Credit~~against ~~Agreement~~the ~~and several other agreements which provided that~~ SOSventures, ~~LLC will provide an additional $3 million on its~~ credit facility. toIn belight ~~used to pay the outstanding balance~~ of the ~~Independent~~December ~~Bank term loan~~19, ~~pay~~2014 onnotice ~~the~~from Independent Bank ~~credit~~relating ~~facility and for operations. Additionally, SOSventures deposit $5 million into a controlled account at Independent Bank~~ to ~~be used to drill two wells in~~ the ~~Crittenden~~payment ~~Field~~of ~~referenced in the Independent Bank Amendment. Further, SOSventures, LLC will receive~~ interest onto its credit facility and a 1% overriding royalty interest on the Company’s Crittenden Field properties effective upon the drilling of these two oil and gas wells until such time as the credit facility is repaid. Finally, SOSventures, ~~LLC~~pursuant ~~shall receive warrants~~ to ~~purchase 2,542,397 of~~ the ~~Company's~~Intercreditors ~~common shares for $1.00 per share with a two-year term. The Company utilized a standard option pricing model~~Agreement, ~~(Black Scholes), to measure~~ the ~~fair~~Company ~~value~~is ofaccruing ~~the~~interest ~~warrants~~payments to SOSventures. Ifsince ~~fully~~the ~~purchased~~date ~~2,542,397 would equal 20%~~ of ~~our~~that ~~currently outstanding common stock~~notice.

~~NOTE 12 – LEGAL PROCEEDINGS~~18

Index

NOTE 12 - LEGAL PROCEEDINGS

From time-to-time, the Company may become subject to proceedings, lawsuits and other claims in the ordinary course of business including proceedings related to environmental and other matters. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance.

The Company is subject to various possible contingencies that arise primarily from interpretation of federal and state laws and regulations affecting the oil and natural gas industry. Such contingencies include differing interpretations as to the prices at which oil and natural gas sales may be made, the prices at which royalty owners may be paid for production from their leases, environmental issues and other matters. Although management believes that it has complied with the various laws and regulations, administrative rulings and interpretations thereof, adjustments could be required as new interpretations and regulations are issued. In addition, environmental matters are subject to regulation by various federal and state agencies.

~~Stockholder~~ Lawsuit Relating to 17.23% of the Company’s Common Stock Shares

OnApproximately ~~April~~ 17,.23% ~~2015,~~of wethe ~~were~~Company ~~served~~common ~~with~~stock awas ~~lawsuit~~interpleaded ~~filed~~into inConnecticut ~~Bexar~~Superior ~~County,~~Court ~~Texas~~for bythe ~~William~~Judicial F.District ~~Pettinati~~of Stamford/Norwalk at Stamford, JrCause No., ~~Nicholas~~FST-CV12-6015112-S ~~Garofolo,~~(“Interpleader ~~Sigma~~Action”). ~~Gas~~These ~~Barbastella~~are ~~Fund~~the ~~and~~residual ~~Sigma~~shares ~~Gas~~of ~~Antrozous~~common ~~Fund~~stock ~~against~~that ~~Starboard~~belonged ~~Resources~~to the Partnerships, ~~Inc.~~after ~~(now~~the ~~Brushy~~distribution ~~Resources,~~of ~~Inc.),~~the ~~its~~partnerships ~~directors,~~shares. ~~its~~Claims ~~Chief~~related ~~Operating~~to ~~Officer,~~the ~~Edward~~Interpleader ~~Shaw,~~Action ~~its~~were ~~former~~heard ~~Chief~~in ~~Financial~~an ~~Officer,~~American ~~Eric~~Arbitration ~~Alfuth,~~Association ~~our~~arbitration ~~stockholder,~~in ~~Bradford~~2015. ~~Higgins~~The claims, counterclaims and ~~Sean~~cross ~~O’Sullivan,~~claims relate to the ~~managing~~governance, ~~director~~control and termination of ~~our~~the ~~stockholder~~Partnerships, ~~SOSventures,~~including ~~LLC. Mr.~~the ~~Pettinati,~~distribution ~~Mr.~~by ~~Garofalo~~the ~~and~~Partnerships of the ~~Sigma~~Company’s ~~Gas~~shares ~~Antrozous~~of ~~Fund~~common ~~are~~stock ~~stockholders. Mr.~~to ~~Pettinati~~the ~~owns~~limited ~~145,112~~partners ~~shares,~~in ~~Mr.~~the ~~Garofalo~~Partnerships ~~owns~~in ~~226,680~~a ~~common~~liquidating ~~stock~~distribution ~~shares~~in ~~and~~February ~~Sigma~~2014 ~~Gas~~as ~~Antrozous~~part ~~Fund~~of ~~owns~~a 44“monetization” event,~~610~~ ~~common~~and ~~stock~~other ~~shares~~matters. ~~Combined~~On ~~these~~September ~~stockholders~~10, ~~account~~2015, ~~for~~the ~~approximately~~American ~~3.3%~~Arbitration ofAssociation ~~our~~issued ~~outstanding~~an ~~common~~arbitration ~~stock. These~~award ~~stockholders became our stockholders~~ in ~~February~~the ~~2014~~Interpleader Action.

~~The~~Bexar ~~Plaintiffs~~County allege several derivative and direct causes of action, many of which relate to alleged actions that pre-date their becoming stockholders in February 2014. These derivative claims include, breach of fiduciary duty, waste of corporate assets, concerted action and conspiracy, joint enterprise, agency, alter ego, exemplary damages, and unjust enrichment. The direct claims include, breach of fiduciary duty, conversion, shareholder oppression, concerted action and conspiracy, declaratory judgment that the distribution of stock to the plaintiffs was invalid, joint enterprise, agency, alter ego, exemplary damages, concerted action and conspiracy and failure to allow for inspection of books and records.Proceedings

~~Many~~On ofApril 17, 2015,the ~~allegations~~Company ~~relate~~was toserved ~~events~~with ~~that~~a ~~allegedly~~lawsuit ~~happened~~filed ~~before~~in ~~the~~Bexar ~~plaintiffs became stockholders~~County, ~~including~~Texas (the ~~distributions~~“Bexar ~~from~~County ~~certain~~Proceedings”) by ~~partnerships~~William ~~that~~F. ~~led~~Pettinati, toJr., ~~the~~Nicholas ~~Plaintiffs~~Garofolo, ~~becoming~~Sigma ~~stockholders~~Gas inBarbastella ~~February~~Fund ~~2014.~~and ~~For~~Sigma ~~actions~~Gas ~~after~~Antrozous ~~February~~Fund ~~2014,~~against ~~Plaintiffs~~Starboard ~~complain~~(now ~~that~~Brushy), ~~our~~its ~~common~~directors, ~~stock~~its ~~still~~Chief ~~lacks~~Operating aOfficer, ~~trading~~Edward ~~venue~~Shaw, ~~that~~its aformer ~~books~~Chief ~~and~~Financial ~~records~~Officer, ~~request~~Eric ~~was~~Alfuth, the ~~not~~Company’s ~~honored~~stockholder, ~~that~~Bradford weHiggins, ~~“delayed”~~and ~~our~~Sean ~~public offering~~O’Sullivan, ~~that~~the ~~SOSventures~~managing ~~LLC~~director ~~had~~of the ~~allegedly~~Company’s ~~taken~~stockholder, ~~steps~~SOSventures to(the “~~foreclose~~Plaintiffs”). onMr. ~~our~~Pettinati, ~~assets~~Mr. ~~under~~Garofolo ~~our~~and ~~subordinated~~the ~~credit~~Sigma ~~agreement~~Gas ~~with~~Antrozous ~~SOSventures,~~Fund ~~LLC~~are ~~and~~stockholders. ~~that~~Mr. wePettinati ~~filed~~owns ~~for~~145,112 anshares, ~~extension~~Mr. toGarofolo ~~the~~owns ~~filing~~226,680 ~~date~~shares ~~for~~of ~~our~~common ~~Form~~stock ~~10-K~~and ~~for~~Sigma ~~the~~Gas ~~year~~Antrozous ~~ending~~Fund ~~December~~owns 3144,610 ~~2014~~shares of common stock. OnCombined ~~October~~these 6,stockholders ~~2015~~account ~~Plaintiffs~~for ~~withdrew~~approximately 3.3% of the ~~claim~~Company’s ~~about~~outstanding ~~not~~common ~~honoring~~stock. aThese ~~books~~parties ~~and~~became ~~records~~stockholders ~~request~~in February 2014.

The ~~matter~~Plaintiffs isallege ~~styled~~several ~~Sigma~~derivative ~~Barbastella~~and ~~Fund~~direct etcauses alof vaction. ~~Charles~~These S.derivative ~~Henry~~claims include, ~~III~~breach etof alfiduciary duty, waste of corporate assets, concerted action and conspiracy, joint enterprise, agency, alter ego, exemplary damages, and unjust enrichment. The direct claims include, breach of fiduciary duty, conversion, stockholder oppression, concerted action and itconspiracy, isdeclaratory ~~Cause~~judgment Nothat the distribution of stock to the plaintiffs was invalid, joint enterprise, agency, alter ego, exemplary damages, concerted action and conspiracy and failure to allow for inspection of books and records. ~~20105-CI-05672~~Many of the allegations relate to events that allegedly happened before the Plaintiffs became stockholders, including the distributions from the Partnerships that led to the Plaintiffs becoming stockholders in February 2014. Some similar claims involving these Plaintiffs (including the ~~224th~~legality ~~District~~of ~~Court~~the Partnerships’ liquidating distribution) were previously heard in ~~Bexar~~the ~~County~~arbitration relating to the Partnerships referenced above. Plaintiffs were parties to that arbitration. For actions after February 2014, ~~Texas~~Plaintiffs complain that the Company’s common stock still lacks a trading venue, that a books and records request was not honored, that the Company “delayed” a public offering, that SOSventures had allegedly taken steps to “foreclose” on the Company’s assets under the SOSventures Credit Agreement and that the Company filed for an extension to the filing date for the Company’s annual report on Form 10-K for the year ended December 31, 2014. On October 6, 2015, Plaintiffs withdrew the claim about not honoring a books and records request.

1619

~~Item 2— Management’s Discussion and Analysis of Financial Condition and Results of Operations~~Index

The ~~following~~Company’s ~~discussion~~directors and ~~analysis~~officers ~~should~~are besubject ~~read~~to inindemnification conjunction with the condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements included in our 10-K filed under the ~~Securities~~Company’s ~~Act of 1934, as amended, with the Securities and Exchange Commission on April 16, 2015~~bylaws. Our discussion and analysis includes forward-looking information that involves risks and uncertainties, and should be read in conjunction with the below section entitled “Forward-Looking Statements.” For a discussion about the risks and uncertainties that could cause our actual results to be materially different than our forward-looking statements, see Part II. Item 1A. “Risk Factors.”

InSettlement ~~this~~of ~~Quarterly~~Interpleader ~~Report~~Action ~~on Form 10-Q, references to “we,” “our” or “the Company” refer to Brushy Resources Inc.~~ and ~~its~~Bexar ~~subsidiaries.~~County Proceedings

~~Forward-Looking~~On ~~Statements~~February 17, 2016, the various parties to the Interpleader Action and the Bexar County Proceedings entered into a global settlement agreement (the “Settlement Agreement”) under which the parties to the proceedings issued mutual releases and the plaintiffs in all proceedings agreed to withdraw their claims. In return, the plaintiffs received a cash settlement, the majority of which was covered by the Company’s insurance. $350,000 of the settlement payment will be due and payable by the Company on the first to occur of (a) consummation of the merger with Lilis and (b) July 31, 2016.

~~This~~NOTE ~~Quarterly~~13 ~~Report~~– ~~includes~~STOCKHOLDERS’ “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are statements other than historical fact and give our current expectations or forecasts of future events. They may include estimates of natural gas and oil reserves, expected natural gas and oil production and future expenses, assumptions regarding future natural gas and oil prices, planned capital expenditures, and anticipated asset acquisitions and sales, as well as statements concerning anticipated cash flow and liquidity, business strategy and other plans and objectives for future operations.EQUITY

Although we believe the expectations and forecasts reflected in these and other forward-looking statements are reasonable, we can give no assurance they will prove to have been correct. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Factors that could cause actual results to differ materially from expected results include, but are not limited to: any statements regarding personnel, business strategy, estimated current and future net reserves and present values of such reserves, drilling and completion of wells including our identified locations, financial strategy, budget projections, operating results, marketing and realized prices for oil, natural gas and natural gas liquids, timing and amount of future production of oil and natural gas, availability and cost of drilling and production equipment, availability and cost of oilfield labor, the amount, nature and timing of capital expenditures, including future development costs, our ability to fund our 2014 and 2015 capital expenditure budget, liquidity, capital resources, the cost and availability of transportation of our hydrocarbon products, available refinery capacity, amount of stockpiles of hydrocarbon products, the cost and availability of competing sources of energy such as wind, solar, nuclear and hydro energy, technology developments affecting users of hydrocarbon products, such as electric cars, government transportation policies, availability and terms of capital, development results from our identified drilling locations, property acquisitions, property development and operating costs, general economic conditions, the commodity price environment, the effectiveness and extent of our risk management activities, our insurance coverage, estimates of future potential impairments, environmental liabilities, technology, counterparty credit risk, government regulation of and tax treatment for the oil and gas industry, non-historical plans, objectives, expectations and intentions contained in this report, future revenues, future costs and expenses, earnings, earnings per share, margins, cash flows, liquidity and dividends. Important factors which may affect the actual results include, but are not limited to, the final resolution of the litigation involving Giddings Oil & Gas LP, Hunton Oil Partners LP and Asym Energy Fund III LP, political developments, market and economic conditions, changes in raw material, transportation and energy costs, inflation, industry competition, lack of availability of drilling and production equipment and services, environmental risks, drilling and other operating risks, regulatory changes, the uncertainty inherent in estimating oil and natural gas reserves and in projecting future rates of production, cash flow and access to capital, the timing of development expenditures, cost of services, service and equipment providers and the ability to execute and realize the expected benefits from strategic initiatives, including revenue and reserve growth plans, mergers and acquisitions and their integration, changes in financial markets and changing legislation and regulations, including changes in tax law or tax regulations.Warrants

17Upon entering into the Second Amendment to the First Amended and Restated Credit Agreement on April 15, 2015 with SOSVentures, SOSVentures received warrants to purchase 2,542,397 shares of the Company’s common stock for $1.00 per share with a two-year term. The intrinsic value associated with the outstanding warrants was zero at March 31, 2016, as the strike price of all warrants exceeded the implied market price for common stock. The remaining contract life was 1 year. The implied value of the warrants were based on the Company’s peer group, which included Company’s owning assets in the same areas and of similar size. This valuation determined that the value of the warrants was approximately zero. As such, the Company has placed no value on the warrants issued.

~~Reserve~~NOTE ~~engineering~~14 is– aSUBSEQUENT process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact way. The accuracy of any reserve estimate depends on the quality of available data, the interpretation of such data and price and cost assumptions made by reservoir engineers. In addition, the results of drilling, testing and production activities may justify revisions of estimates that were made previously. If significant, such revisions would change the schedule of any further production and development drilling. Accordingly, reserve estimates may differ significantly from the quantities of oil and natural gas that are ultimately recovered.EVENTS

WeSpecial ~~caution~~Meeting ~~you not to place undue reliance on these forward-looking statements, which speak only as~~ of ~~the~~Stockholders ~~date~~Regarding ofMerger this Quarterly Report, and we undertake no obligation to update this information. Should one or more of the risks or uncertainties described in this report occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements. All forward-looking statements, expressed or implied, included in this report are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. All forward-looking statements in this report are expressly qualified by the statements in this section to reflect events or circumstances after the date of this report. Forward-looking statements are not guarantees of future performance and actual results may differ significantly from the results discussed in the forward-looking statements. We assume no obligation to revise or update any forward-looking statements for any reason, except as required by law.Agreement

WeOn ~~urge~~May ~~you~~20, 2016, the Company held a special meeting of stockholders to ~~carefully~~consider ~~review~~and vote on (1) a proposal to approve and ~~consider~~adopt the ~~disclosures~~merger ~~made~~agreement; inand ~~this~~(2) ~~Quarterly~~a ~~Report~~proposal ~~and~~to ~~our~~authorize ~~other~~the ~~filings~~Company’s ~~with~~board of directors, in its discretion, to adjourn the ~~Securities~~special ~~and~~meeting ~~Exchange~~to ~~Commission~~a ~~that~~later ~~attempt~~date or dates, if necessary or appropriate, to ~~advise~~solicit ~~interested~~additional ~~parties~~proxies in favor of the ~~risks~~proposal to approve and ~~factors~~adopt ~~that~~the ~~may~~Merger ~~affect~~Agreement. ~~our~~The ~~business~~proposals were approved by the Company’s stockholders.

Third Amendment to Forbearance Agreement with Independent Bank

On May 20, 2016, the Company, ImPetro and Operating entered into the Third Amendment to the Forbearance agreement (the “Third Amendment”) with Independent Bank, pursuant to which Independent Bank agreed to extend the Forbearance Period to May 31, 2016 (and in certain circumstances June 15, 2016) upon payment by the Company of (i) $79,772.64, such payment representing non-default and default interest accrued and to be accrued through May 31, 2016, and (ii) $30,000, such payment representing legal fees and expenses incurred by Independent Bank in connection with the Third Amendment. In the event the Company pays Independent Bank, on or before May 31, 2016, an additional $18,938.11, the Forbearance Period will be extended to June 15, 2016. On May 20, 2016, the above referenced payments were made to Independent Bank by the Company.

Index

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This section should be read in conjunction with “Note 2 — Going Concern” and “Note 9 — Notes Payable” in the Notes to the condensed consolidated financial statements included in this Form 10-Q and Item 1A “Risk Factors,” Our independent registered public accounting firm for the year ended December 31, 2015 issued their report dated April 20, 2016, that included an explanatory paragraph describing the existence of conditions that raise substantial doubt about our ability to continue as a going concern due to our accumulated deficit, working capital deficit, significant net losses and need to raise additional funds to meet our obligations and sustain our operations. The discussion includes certain forward-looking statements. For a discussion of important factors which could cause actual results to differ materially from the results referred to in the forward-looking statements, see “Risk Factors” and “Cautionary Note About Forward-Looking Statements.”

Overview

~~Brushy~~We isare an independent energy company engaged primarily in the exploration for, and development of, natural gas and crude oil reserves. We generate ~~our~~ revenues and cash flows from two primary sources: investing activities and the proceeds from the sale of oil and gas production on properties we hold or participate in.

As of ~~November~~March 531, ~~2015~~2016, we ~~owned~~own interests in ~~121~~118 producing oil and natural gas wells, with 18 wells in the Crittendon Field. We operate ~~117~~114 or 97% of those wells. Our oil and natural gas production for ~~2014~~three month ended March 31, 2016 consisted of ~~180~~37,~~898~~318 bbls of oil and ~~779~~100,~~012~~487 Mcf of gas.

We began ~~2014~~2016 with estimated proved reserves of 5 1,~~091~~130 MBOE, ~~and~~with ~~ended~~770 ~~the~~MBOE ~~year~~allocated ~~with~~to ~~6,264~~the ~~MBOE~~Crittendon Field.

Strategy

We produce from operated oil and natural gas wells in the liquids rich, oil-bearing window of the Eagle Ford trend of South Texas and the nearby, oil-prone Giddings ~~field~~Field where in combination we control 1615,~~189~~260 gross acres (1513,~~880~~970 net acres). We also ~~completed~~operate ~~a transaction to acquire~~ acreage in ~~West~~the ~~Texas,~~Delaware ~~which~~Basin welocated ~~call~~in the ~~Crittenden~~Crittendon Field and ~~where~~controls ~~we control 5~~7,~~160~~217 gross acres (23,~~759~~458 net acres). In addition, we have material non-operated working interests in producing properties and conventional prospects located throughout Logan and McClain counties in Oklahoma, which account for 5,055 gross acres (1,229 net acres). The combined reserve base and net production are each over 70% oil-weighted and are currently approximately 82% held by production.

Our total proved reserves, based on our January 1, ~~2015~~2016 independent reserve estimate report, were 51,~~788~~130 MBOE, (with 770 MBOE allocated to the Crittendon Field), consisting of 102,~~771~~769 MMcf of natural gas, ~~3,993~~669 Mbbl of oil. The PV-10 of our proved reserves at January 1, ~~2015~~2016 was $~~128~~14.47 million based on the average of the beginning of each month prices through December ~~2014~~2015 of $9550.2816 per Bbl for oil and condensate and $42.3663 per MMBtu for natural gas. At January 1, ~~2015~~2016, 23100% of our estimated proved reserves were proved developed reserves and 6959% of ~~our~~ estimated proved reserves were oil and condensate. Our average daily production for the ~~nine~~last month ~~period~~ ending ~~September~~December 3031, ~~2014~~2015 was ~~914~~543 BOE per day. ~~We grew our average daily production 76% from 563 BOE per day at year-end 2013 to 990 BOE per day at year-end 2014.~~

~~PV-10~~As ~~estimated~~part ~~proved reserves is a non-GAAP financial measure as defined in Item 10(e)~~ of ~~Regulation~~this ~~S-K~~strategy, ~~and~~we isfocused ~~defined~~ on ~~page 32 of~~ the ~~annual~~following report on Form 10-K. Reconciliation to the most directly comparable GAAP financial measure (standardized measure of discounted future net cash flows) is found in the table on page 33 of the annual report on Form 10-K. We believe that PV-10 value provides useful information to investors because it is widely used by professional analysts and sophisticated investors in evaluating oil and natural gas companies.areas:

18Giddings – Bastrop and Bigfoot – Texas

AsWe ~~part~~control ofabout ~~this~~12,300 ~~strategy~~gross acres (11,000 wenet ~~focus~~acres) onlocated within the ~~following~~Eagle ~~areas:~~Ford trend. Giddings Field is spread across Bastrop, Burleson, Brazos, Fayette, Lee, and Gonzales counties. We also control the Bigfoot Area which is about 3,000 gross acres across Frio and Atascosa counties in southern Texas.

~~Bigfoot~~Delaware -Basin – Winkler Counties – Texas and Lea County, New Mexico

WeIn Winkler and Loving Counties, Texas, we control about 35,~~000~~160 gross acres ~~across~~(3,264 ~~Frio~~net ~~and~~acres). ~~Atascosa~~In ~~counties~~Lea inCounty, ~~southern~~New ~~Texas~~Mexico, ~~comprising~~we ~~less~~started ~~than~~producing the Mexico P #1% ofFederal ~~our~~well ~~total~~on ~~proved~~September ~~reserves~~12, 2015 and now hold 520 gross acres (504.7 net acres) by production.

~~Giddings – Bastrop - Texas~~21

Giddings is our largest acreage position with just over 13,000 gross acres located within the Eagle Ford trend. Our acreage is spread across Bastrop, Burleson, Brazos, Fayette, Lee, and Gonzales counties. From a reserve perspective, Giddings comprises the largest portion of our total proved reserves at 81%. Index

Delaware Basin - Winkler Counties – Texas and Lea County, New Mexico

In Winkler and Loving Counties, Texas we control about 5,160 gross acres (3,264 net acres). Our position comprises 19% of our total proved reserves.

In Lea County, New Mexico we started producing the Mexico P #1 Federal well on September 12, 2015 and now hold 520 gross acres (504.7 net acres) by production.

Recent Oil and Gas Activities

We recently drilled or re-entered and completed its first three wells on our Delaware Basin properties in Winkler County, Texas and Lea County, New Mexico.

We vertically re-entered and horizontally drilled, frac’ed and completed the Kudu #1H well in the Wolfcamp formation in Winkler County, Texas. We started producing the well on August 12, 2015 with a peak 24-hour production rate 653 barrels of oil equivalent per day, comprised of 392 barrels of oil and 1.6 million cubic feet of natural gas flowing on a 18/64’’ choke at 2,500 psi up 4.5” casing.

We performed a behind-pipe completion of the vertical wellbore and completed the well with a frac in the Wolfcamp Formation for the Mexico P #1 Federal well in Lea County, New Mexico. We started producing the well on September 12, 2015 with a peak 24-hour production rate of 244 barrels of oil equivalent per day, comprised of 219 barrels of oil and 0.2 million cubic feet of natural gas flowing on a 10/64” choke at 500 psi up 10.75” casing. Further the economic production of the Mexico P #1 Federal well increases the Company’s held-by-production acreage by 520 gross acres (504.7 net acres) in the Delaware Basin. We now own approximately 3,264 net acres in Winkler and Loving Counties, Texas and Lea County, New Mexico.

We vertically re-entered and horizontally, drilled, frac’ed and completed the Wolfe #3H well in the Brushy Canyon formation in Winkler County Texas and are awaiting initial production tests.

Any reference to “peak production” or “initial production” should not be viewed as an indication of what any of the wells are expected to produce in the long run. These production numbers stem from production under test conditions and investors should expect the peak production or initial production to decline over the long-term.

Results of Operations

~~Our~~Total ~~revenue~~Revenues. isTotal ~~principally~~revenues ~~derived~~decreased ~~from~~$1,343,000 to $1,232,000 for the ~~sale~~three ofmonths ~~oil~~ended ~~and~~March ~~natural~~31, ~~gas~~2016 ~~and~~from ~~generally~~$2,757,000 ~~attributable~~for tothe ~~working~~three ~~interests~~months ~~owned~~ended ~~and~~March ~~held~~31, ~~directly~~2015, driven primarily by usdecrease in ~~wells~~oil onand ~~producing~~natural ~~oil~~gas prices and ~~gas~~the sales of Oklahoma properties (which ~~generate~~were ~~monthly~~located ~~revenue~~in toLogan ~~the~~and ~~extent~~Kingfisher ~~such~~Counties. ~~wells~~The ~~produce~~Company’s average sales price received for natural gas ~~and~~decreased ~~oil)~~to ~~and~~$2.09 ~~carried~~per ~~working~~Mcf ~~interests~~for inthe ~~such~~three ~~wells~~months ~~(which~~ended ~~also~~March ~~generate~~31, ~~monthly~~2016 ~~revenue~~from to$3.02 per Mcf for the ~~extent~~same ~~such~~period ~~wells~~in ~~produce~~2015. ~~natural~~The ~~gas~~Company’s ~~and~~average ~~oil),~~sales asprice ~~well~~received asfor ~~overriding~~oil ~~royalty~~decreased ~~interests~~to ~~and~~$28.85 ~~reversionary~~per ~~interests~~bbl ~~(which~~for ~~may~~the ~~generate~~three ~~additional~~months ~~monthly~~ended ~~revenue~~March to31, ~~the~~2016 ~~extent~~from ~~such~~$45.70 ~~wells~~per ~~produce~~bbl ~~natural~~for ~~gas~~the ~~and~~same ~~oil)~~period in 2015.

~~Total~~Oil ~~Revenues. Total~~and ~~revenues~~Gas ~~decreased~~Production. ~~$8,456~~Total ~~thousand~~natural togas ~~$7,029~~and ~~thousand~~oil production for the ~~nine~~three months ended ~~September~~March 3031, ~~2015~~2016 ~~from~~consisted ~~$15~~of 100,~~485~~487 ~~thousand~~Mcf ~~for~~of ~~the~~natural ~~nine~~gas ~~months~~and ~~ended September 30~~37,318 ~~2014,~~bbls ~~driven~~of ~~primarily by decrease in~~ oil, ~~and~~as ~~natural~~compared ~~gas~~to ~~price.~~total ~~Our average sales price received for~~ natural gas ~~decreased~~and tooil ~~$2.51~~production ~~per Mcf~~ for the ~~nine~~three months ~~ending~~ended ~~September~~March 3031, 2015, ~~from~~which ~~$5.41~~consisted ~~per~~of ~~Mcf for the same period in 2014. Our average sales price received for oil decreased to $48.02 per bbl for the nine months ending September 30~~218,254 ~~2015~~Mcf ~~from~~of ~~$97.83 per bbl for the same period in 2014. Changes in~~ natural gas and ~~oil~~45,890 ~~prices~~bbls ~~can~~of ~~significantly impact our natural gas and~~ oil ~~sales~~due ~~and~~to ~~related~~primarily ~~cash~~sale ~~flows.~~of ~~Lower~~Oklahoma ~~prices~~properties ~~may~~which ~~materially~~were ~~adversely~~located ~~affect~~in ~~the~~Logan ~~sales prices we receive~~ and ~~our~~Kingfisher ~~revenues and cash flow~~Counties.

19Costs and Expenses. Total costs and expenses (excluding depreciation, depletion, impairment and gain on sales) increased $199,000 to $3,838,000 for the three months ended March 31, 2016 from $3,639,000 for the same period in 2016, due generally to increase in other expenses. For the three months ended March 31, 2016, the Company incurred other expense from the Bexar County Proceeding settlement of $350,000. Lease operating expenses decrease $218,000 to $908,000 for the three months ended March 31, 2016 from $1,126,000 for the same period in 2015, due primarily to the sale of Oklahoma properties located in Logan and Kingfisher counties. Depletion, depreciation and amortization expense decreased to $718,000 for the three months ended March 31, 2016 from $2,507,000 for the same period in 2015, due primarily to decrease in production and lower oil and natural gas properties basis.

~~Total~~Net ~~natural~~Loss. ~~gas~~Net ~~and~~loss ~~oil~~was ~~production~~($3,325,000) ~~for~~or ~~the~~($0.26) ~~nine~~per ~~months~~diluted common ~~ending September 30~~share, ~~2015~~for ~~consisted~~the ofthree ~~584,626~~months ~~Mcf~~ended ofMarch ~~natural gas and 115~~31,~~847~~ ~~bbls~~2016 ~~of oil,~~ as compared to ~~total~~($2,689,000) ~~natural~~or ~~gas~~($0.22) ~~and~~per ~~oil~~diluted ~~production~~share ~~for~~of ~~nine~~common ~~months~~stock, ~~ending~~for ~~September~~the ~~30,~~same ~~2014,~~period ~~which~~in ~~consisted~~2015. ofThe ~~527,033~~increase ~~Mcf~~in ofnet ~~natural~~loss ~~gas~~was ~~and~~attributable ~~129,162~~to ~~bbls~~decrease ofin ~~oil~~revenues.

Costs and Expenses. Total costs and expenses (excluding depreciation, depletion, and impairment) decreased $354 thousand to $9,711 thousand for the nine months ending September 30, 2015 from $10,065 thousand for the same period in 2014. Lease operating expenses decreased $983 thousand to $2,963 thousand for the nine months ending September 30, 2015 from $3,946 thousand for the same period in 2014. General and administrative expenses and professional fees decreased $64 thousand to $3,410 thousand for the nine month period ending September 30, 2014 from $3,474 thousand for the same period in 2014. Interest expense increased $994 thousand to $2,814 thousand for the nine months ending September 30, 2015 from $1,820 thousand from the same period in 2014 due primarily from the reduction of bank credit facility resulting increase borrowing from the SOS credit facility. Depletion and depreciation expense decreased to $6,576 thousand for the nine month period ending September 30, 2014 from $7,287 thousand for the same period in 2014, due primarily to decreased depletion expenses associated with sales of Oklahoma properties. Impairment of oil and gas properties for the nine months ending September 30, 2015 was $863 thousands and $0 for the same period in 2014.

Net Income. Net loss was ($3,465) thousand, or ($0.27) per basic and diluted common share, for the nine month period ending September 30, 2015 as compared to ($100) thousand, or ($.01) per basic and diluted common share, for the same period in 2014. The increase in net loss was attributable primarily to lower oil and natural gas price.

Liquidity and Capital Resources

During the ~~nine~~three months ended ~~September~~March 3031, ~~2015~~2016 net cash flow ~~provided~~used by operating activities ~~decreased~~increased by $4316,~~752~~000 ~~thousand~~ from $51,~~013~~131,000 ~~thousand~~ for the ~~nine~~three months ended ~~September~~March 3031, ~~2014~~2015 to $~~261~~1,447,000 ~~thousand~~ for the ~~nine~~three months ~~ending~~ended ~~September~~March 3031, ~~2015~~2016. ~~Changes~~ inThis ~~cash~~increase ~~flows~~was ~~from~~primarily ~~operations~~attributable ~~are~~to ~~largely~~lower revenue due to ~~the~~volatility ~~same factors that affect our net income, excluding various non-cash items such as impairments~~ of ~~assets,~~commodity ~~depreciation,~~prices ~~depletion~~ and ~~amortization~~sales ~~and~~of ~~deferred~~Oklahoma ~~income~~properties ~~taxes.~~located ~~For example, changes~~ in ~~production~~Logan ~~volumes~~ and ~~market~~Kingfisher ~~prices for natural gas and oil directly impact the level of our cash flow from operations~~counties. ~~See the discussion under "Results of Operations."~~

Cash ~~from~~used by investing activities decreased by $33219,~~081~~000 ~~thousand~~for ~~from~~ the ~~nine~~three months ~~ending~~ended ~~September~~March 3031, ~~2015~~2016 from the same period last year. The decrease was due primarily to cash outflow of $390,~~913~~000 ~~thousand~~ used to purchase oil and natural gas properties during the ~~nine~~three months ~~ending~~ended ~~September~~March 3031, ~~2015~~2016 as compared to $30313,~~903~~000 ~~thousand~~ for the same period in ~~2014~~2015.

Net cash used byin financing activities was ($1434,~~227)~~000 ~~thousand~~ for the ~~nine~~three ~~month~~months ~~period~~ended ~~ending~~March ~~September 30~~31, ~~2014,~~2016 compared to ~~net cash provided of~~ $23772,~~235~~000 ~~thousand~~used for the ~~nine~~same ~~month~~ period ~~ending~~in ~~September~~2015. The ~~30,~~decrease ~~2014.~~in ~~These~~cash used in financing activities primarily ~~reflect~~reflects ~~refinancing~~proceeds offrom the ~~term~~Lilis ~~loan~~Energy refundable deposit for the ~~nine~~three months ended ~~September~~March 3031, ~~2015 compared to proceeds from loans for the nine month period ending September 30, 2014~~2016.

As of ~~September~~March 3031, ~~2015~~2016, wethe Company had a working capital deficit of $3541,~~722 thousand~~417,000, which consisted $81,~~105~~935,000 ~~thousand~~ of current assets offset by $4342,~~827~~352,000 ~~thousand~~ of current liabilities. Current assets as of ~~September~~March 3031, ~~2015~~2016 included cash of $5864,~~779~~000 ~~thousand~~ and ~~accounts~~account receivable of $~~879~~785,000 ~~thousand~~ compared to cash of $32,~~574~~839,000 ~~thousand~~ and ~~accounts~~account receivable of $1,~~860~~101,000 ~~thousand~~ at December 31, ~~2014~~2015. Current liabilities as of ~~September~~March 3031, ~~2015~~2016 included accounts payable and accrued liabilities of $64,~~092~~729,000 ~~thousand~~ and revenue payable of $~~791~~1,025,000 ~~thousand~~ as compared to accounts payable and accrued liabilities of $5,~~835~~564,000 and revenue payable of $~~829~~1,018,000 at December 31, ~~2014~~2015. Included in the current liabilities are the Independent Bank note of $1611,~~400~~363,000, ~~thousand~~Lilis’s refundable deposit of $2,358,100 and SOS Venture note and interest of $2021,~~071~~718,000 ~~thousand~~ as of ~~September~~March 3031, ~~2015~~2016.

Working capital was a deficit of $35,722 thousand at September 30, 2015 compared to a deficit of $1,520 thousand at December 31, 2014. Our primary sources of liquidity are cash provided by operating activities, a subordinated credit facility, sales of non-core properties and access to capital markets.

The consolidated financial statements continue to reflect an ongoing drilling program which amounted to $3,913 thousand during the nine month period ending September 30, 2015. Our capital program is designed to increase production through exploration and workovers within our fields and through joint venture programs. This strategy will involve industry partners in these efforts so as to reduce our upfront cash requirements and reduce risk dollars expended.

Although we typically retain a significant degree of control over the timing of our capital expenditures, we may not always be able to defer or accelerate certain capital expenditures to address any potential liquidity issues. In addition, changes in drilling and field operating costs, drilling results that alter planned development schedules, acquisitions or other factors could cause us to revise our drilling program, which is largely discretionary.

Senior Secured Credit Facility with Independent Bank

On June 27, 2013 we entered into a senior secured credit facility from Independent Bank, providing for a $100.0 million revolving credit facility, subject to scheduled or elective collateral borrowing base redeterminations based on our oil and natural gas reserves. The credit facility matures on June 1, 2016. As of September 30, 2015, our borrowing base was $23.5 million. The outstanding borrowings bear interest at a rate that is currently based on the prime with a 4.00% floor. We also must pay an unused commitment fee of 0.5% per year on the undrawn amount of the borrowing base. As of September 30, 2015 we have borrowed approximately $22.5 million on the credit facility.

On March 26, 2014, we entered into a term loan agreement with Independent Bank totaling $4,000,000 at a current rate of 6.75% annum. The agreement was obtained to fund our development and acquisition of oil and natural gas properties. The loan requires 18 equal monthly payments of approximately $194,000 starting on October 1, 2014 and maturing on March 1, 2016 and is subject to the same covenants as the credit facility with Independent Bank. The term loan agreement is Exhibit 10.9 to this annual report.

On April 15, 2015 we entered into the Fourth Amendment to the Credit Agreement with Independent Bank (“Amendment”),. The agreement provides that the borrowing base is $21,750,000 as of the date of the Amendment that will be reduced by $250,000 per month before September 1, 2015 and $350,000 per month thereafter, unless re-determined after 150 days from the date of the Amendment. The Company is obligated to provide Independent Bank an engineering report acceptable to the Bank before September 1, 2015 showing proven and producing and proven undeveloped oil and gas reserves, discounted present value of future net income for the Company’s oil and gas properties as of September 1, 2015, projections of annual rate of production, gross income and net income relating to these reserves and take-or-pay, prepayment and gas balancing obligations. Forrest Garb & Associates is deemed to be acceptable to the Bank for an engineering report.

On March 26, 2014, we entered into a term loan agreement with Independent Bank totaling $4,000,000 at a current rate of 6.75% per annum. The Company has repaid its term loan at closing on April 15, 2015 with both principal and interest. It also repaid the note principal to reduce the note to no more than the borrowing base, including the repayment of interest, payment of certain fees, deposited $5,000,000 into a special account and deliver a commitment letter from SOSventures to provide an additional $2,000,000 of availability under the Subordinated credit facility with SOSventures, LLC for drilling capital.

The April 15, 2015 Amendment also requires us to obtain the following hedges.

Period

Commodity

Hedge Product

Bbl Vol (Per Month)

Price

% Hedge

Average Floor Price

2015

March '15 - Oct '15

Crude

Swap

2,200 bbl

$77.00

84.5% (includes

$72.60 (includes

March '15 - Dec '15

Crude

Put

4,000 bbl

$70.00

executed and

March '15 - Dec '15

Crude

Put

2,800 bbl

$80.00

required hedges)

Additional Required

March '15 - Oct '15

Crude

Put, Collar, Swap

1,000 bbl

$50.00 Floor

2016

Jan. '16 - Mar '16

Crude

Swap

1.500 bbl

$75.00

83.7% (includes

$53.35 (includes

Calendar 2016

Crude

Collar

3,000 bbl

$54.00

executed and

Additional Required

Calendar 2016

Crude

Put, Collar, Swap

3,000 bbl

$50.00 Floor

required hedges)

On July 31, 2015, we sold all of our Oklahoma properties, which were located in Logan and Kingfisher Counties, Oklahoma, to Remora Petroleum, LP for $7,249,390. As part of this transaction, the Company entered into the Fifth Amendment to its Credit Agreement with Independent Bank (“Amendment”). (Exhibit 10.6.16). The Amendment provides that $4,000,000 of the purchase price was paid to Independent Bank to pay down its credit facility with Independent Bank. The Amendment requires that an additional $2,000,000 would be held by Independent Bank in a control account. Independent Bank took that $2,000,000 from the control account and applied it to the Independent Bank Credit Facility on October 30, 2015.

In a letter dated October 20, 2015, counsel for Independent Bank notified the Company of the following defaults under our Credit Agreement with Independent Bank, as amended: i) the interest coverage ratio covenant set forth in Section 7.15.1 of the Credit Agreement for the fiscal quarter ended June 30, 2015, (ii) the current ratio covenant set forth in Section 7.15.2 of the Credit Agreement for the fiscal quarter ended June 30, 2015, (iii) the leverage ratio covenant set forth in Section 7.15.3 of the Credit Agreement for the fiscal quarter ended June 30, 2015, and (iv) the Borrower is not currently maintaining the minimum Commodity Hedging Transactions required by Section 7.21 of the Credit Agreement.

The letter from Independent Bank’s counsel further stated:

The Lender is considering what actions to take in respect of the Listed Defaults. The Lender expressly retains and reserves all rights and remedies now or hereafter available to it under the Credit Agreement and the other Loan Documents. The Lender does not, and does not intend to, waive the Listed Defaults or any other Default or Event of Default or agree to forbear from any rights or remedies with respect thereto; any such waiver or forbearance, if done, would only be effective to the extent, and subject to terms and conditions, set forth in a separate written instrument executed and delivered in accordance with the Credit Agreement.

Negotiations with Independent Bank are ongoing. We do not anticipate a renewal of the credit facility in 2016 and are seeking alternative financing. If negotiations with Independent Bank and obtaining alternative financing are not successful, we may be required to take actions to preserve corporate assets.

Subordinated Credit Facility with SOSventures, LLC

On June 3, 2014 we agreed to amend our credit agreement with SOSventures, LLC, originally entered into on July 25, 2013, providing for a term loan through February 16, 2016 in an amount up to $20,000,000 at an 18.00% interest rate for drilling activities. The loan under this agreement is secured by a second lien on our assets.

The SOSventures, LLC credit agreement requires us to maintain certain financial ratios. First, we must maintain an interest coverage ratio of 3:1 at the end of each quarter so that our consolidated net income less our fees under the credit facility, lender expenses, non-cash charges relating to the hedge agreements, interest, income taxes, depreciation, depletion, amortization, exploration expenditures and costs and other non-cash charges (netted for noncash income) (“EBITDAX”) is greater than 3 times our interest expense under the credit facility. Second, we must maintain a debt to EBITDAX ratio of less than 3.5:1 at the end of each quarter. Third, we must maintain a current ratio of greater than 1:1 at the end of each quarter, meaning that our consolidated current assets (including the unused amount of the credit facility by excluding non-cash assets under ASC 410 and 815) must be greater than our consolidated current liabilities (excluding non-cash obligations under ASC 410 and 815 and current maturities under the credit facility.)

The credit agreement prevents us from incurring indebtedness to banks or lenders, other than Independent Bank, without the consent of SOSventures, LLC. It also prevents us from incurring most contingent obligations or liens (other than to Independent Bank). It restricts our ability to pay dividends, issue options and warrants and repurchase our common stock shares. The options and warrants limitations do not apply to equity compensation plans.

On April 15, 2015 we entered the Second Amendment to the First Amendment and Restated Credit Agreement and several other agreements which provided that SOSventures, LLC will provide an additional $3 million on its credit facility to be used to pay the outstanding balance of the Independent Bank term loan, pay on the Independent Bank credit facility and for operations. Additionally, SOSventures deposit $5 million into a controlled account at Independent Bank to be used to drill two wells in the Crittenden Field referenced in the Independent Bank Amendment. Further, SOSventures, LLC will receive interest on its credit facility and a 1% overriding royalty interest on the Company’s Crittenden Field properties effective upon the drilling of these two oil and gas wells until such time as the credit facility is repaid. Finally, SOSventures, LLC shall receive warrants to purchase 2,542,397 of our common shares for $1.00 per share with a two-year term. If fully purchased 2,542,397 would equal 20% of our currently outstanding common stock.

As of September 30, 2015, we have $18 million drawn against the SOSventures, LLC credit facility. As of October 12, 2015 we have an approximate $20 million balance on the SOSventures, LLC credit facility. The SOSventures, LLC borrowing base is also subject to possible redetermination and corresponding liquidity issues as stated above in connection with the Independent Bank.

~~Hedging Activities~~Index

~~Our~~The ~~current~~condensed ~~hedge~~consolidated ~~position~~financial ~~consists~~statements ofcontinue ~~put~~to ~~options.~~reflect ~~These~~a ~~contracts~~curtailed ~~and~~drilling ~~any~~program ~~future~~which ~~hedging~~amounted ~~arrangements may expose us~~ to ~~risk~~$90,000 offor ~~financial~~the ~~loss~~three inmonths ~~certain~~ended ~~circumstances~~March 31, ~~including~~2016. ~~instances~~Our ~~where~~capital ~~production~~program is ~~less~~designed ~~than~~to ~~expected~~increase orproduction ~~oil~~through ~~prices~~exploration ~~increase. In~~and ~~addition,~~workovers ~~these~~within ~~arrangements~~our ~~may~~fields ~~limit~~and ~~the~~through ~~benefit~~joint toventure usprograms. ofThis ~~increases~~strategy inwill ~~the~~involve ~~price~~industry ofpartners ~~oil. Accordingly,~~in ~~our~~these ~~earnings~~efforts ~~may~~so ~~fluctuate significantly~~ as ato ~~result~~reduce ofour ~~changes~~upfront incash ~~the~~requirements ~~fair~~and ~~value~~reduce ofrisk ~~our~~dollars ~~derivative~~expended. ~~instrument,~~This ~~which~~represents wea ~~use~~decrease ~~entirely~~of to$219,000 ~~hedge~~from our ~~production~~capital ~~and~~investment dofor ~~not~~the ~~enter~~same ~~into~~period ~~for~~in ~~speculative purposes~~2015.

AtHistorically, ~~September~~our 30primary sources of liquidity have been borrowings under bank credit facilities, ~~2015~~cash flows from operations, weand ~~had~~private financings. Our primary use of capital has been for the ~~following~~exploration, ~~open~~development ~~crude~~and acquisition of oil ~~derivative~~and ~~contracts:~~gas properties. As we pursue reserves and production growth, we continually consider which capital resources, including equity and debt financings, are available to meet our future financial obligations, planned capital expenditure activities and liquidity requirements. Our future ability to grow proved reserves and production will be highly dependent on the capital resources available to us. We continually monitor market conditions and consider taking on additional debt, selling non-core assets, or farm-out arrangements. Depending on the timing and concentration of the development of our non-proved locations, we may be required to generate or raise significant amounts of capital to develop all of our potential drilling locations should we endeavor to do so. In the event our cash flows are materially less than anticipated and other sources of capital we historically have utilized are not available on acceptable terms, we may curtail our capital spending.

	Instrument	Commodity	Volume (bbl / month)		Floor Price		Ceilings Price		Purchased Put Option Price		Fair Value (in thousands)
Oct 2015	Put	Crude Oil		6,000		-		-		50.00 - 80.00		161
Nov 2015 - Dec 2015	Put	Crude Oil		2,800						80.00		173
Oct 2015 - Dec 2015	Put	Crude Oil		4,000						70.00		291
Jan 2016 - Mar 2016	Put	Crude Oil		1,500						75.00		108
Jan 2016 - Dec 2016	Put	Crude Oil		3,000						50.00		94
Jan 2016 - Dec 2016	Collar	Crude Oil		3,000		54.00		79.30				150

The exact amount of capital spending for 2016 will depend upon the ability to refinance the existing debt with Independent Bank and our ability to raise third party financing. We may also need to modify our capital budget based on well performance results and cash flow. In addition, we have offered participations in our drilling program to industry partners over this time frame, further reducing our capital requirements. If necessary, we may also access capital through proceeds from potential non-core property asset dispositions and the future issuance of debt and/or equity securities.

~~Outlook~~Since the majority of our acreage is held by production, we have the flexibility to develop our acreage in a disciplined manner in order to maximize the resource recovery of the assets. We consistently monitor and adjust our projected capital expenditures in response to success or lack of success in drilling activities, changes in prices, availability of financing, drilling and acquisition costs, industry conditions, the timing of regulatory approvals, the availability of rigs, contractual obligations, internally generated cash flow and other factors both within and outside our control.

~~Our~~On ~~ability~~December to29, ~~meet~~2015, ~~our~~we ~~debt~~agreed ~~covenants~~to ~~and~~combine our ~~capacity~~business towith ~~incur~~Lilis ~~additional~~pursuant ~~indebtedness~~to ~~will~~the ~~depend~~merger onagreement. ~~our~~Upon ~~future~~completion ~~performance,~~of ~~which~~the ~~will~~merger, beeach ~~affected~~share byof ~~financial,~~our ~~business,~~common ~~economic,~~stock ~~regulatory~~issued and ~~other~~outstanding ~~factors.~~immediately ~~Indeed,~~prior onto ~~October~~the ~~20,~~effective ~~2015~~time wewill ~~received~~be ~~notice~~converted ~~from~~into ~~Independent~~the ~~Bank~~right ofto areceive ~~breach~~an amount of ~~debt~~shares ~~covenants~~of ~~and~~Lilis’s common stock such that our ~~financial~~former ~~results~~stockholders ~~for~~will ~~the~~represent ~~quarter~~approximately ~~ending~~50% ~~September~~of ~~30,~~the ~~2015~~then-outstanding asshares ~~stated~~of inLilis’s ~~this~~common ~~Form~~stock ~~10-Q~~after dothe ~~not~~closing ~~place~~of usthe ~~back~~merger in(without ~~covenant~~taking ~~compliance~~into ~~for~~account ~~both~~outstanding ~~Independent~~restricted ~~Bank~~stock ~~and~~units ~~SOSventures~~or –options ~~which~~or ~~functionally~~warrants ~~both~~to ~~have~~purchase ~~the~~shares ~~same~~of ~~financial~~Lilis’s ~~covenants~~common stock). ~~Moreover,~~ ~~our~~In ~~borrowing~~connection ~~base~~ with ~~Independent~~the ~~Bank~~merger, iswe ~~overdue~~are aobligated ~~reassessment. We~~to ~~have~~convey ~~recently~~the ~~put~~Giddings ~~two~~Field ~~wells~~assets ~~into~~to ~~production~~SOSventures ~~and~~in ~~are~~exchange ~~completing~~for a ~~third~~release ~~well. The~~of ~~Lea~~our ~~County,~~obligations ~~New~~under ~~Mexico~~the ~~well~~SOSventures ~~also~~Credit ~~added~~Agreement. ~~more~~We ~~than~~expect ~~500~~the ~~net~~closing ~~acres~~of the merger to ~~our~~occur ~~held~~in bythe ~~production~~first ~~acreage. But~~half ~~low~~of ~~oil~~2016. ~~and~~However, ~~gas~~the ~~prices~~merger ~~may~~is ~~mitigate~~subject to the ~~value~~satisfaction or waiver of ~~these~~other ~~recent~~conditions, ~~additions~~and ~~for~~it ~~proved~~is ~~developed~~possible ~~producing~~that ~~reserve~~factors ~~acreage~~outside ~~and~~our ~~borrowing~~control ~~base~~could ~~calculations. Further,~~result in the ~~impact~~merger ofbeing ~~these~~completed ~~new~~at ~~wells~~an onearlier ~~our~~time, ~~borrowing~~a ~~bases~~later ~~are~~time ~~still~~or tonot beat ~~determined~~all. ~~Over~~ If the ~~longer~~merger ~~term,~~has wenot ~~expect~~been ~~that~~completed ~~our~~on ~~strategy~~or ~~and~~before ~~our~~May ~~investments~~31, ~~will~~2016, ~~result~~either inLilis ~~increased~~or ~~production~~Brushy ~~and~~may ~~reserves,~~terminate ~~lower~~the ~~lease~~merger ~~operating~~agreement ~~costs~~unless ~~and~~the ~~more~~failure ~~abundant~~to ~~drilling~~complete ~~opportunities.~~the Asmerger aby ~~consequence,~~that wedate ~~constantly~~is ~~monitor~~due ~~our~~to ~~liquidity~~the ~~and~~failure ~~capital~~of ~~resources,~~the ~~endeavor~~party seeking to ~~achieve~~terminate ~~covenant~~the ~~compliance~~merger ~~issues~~agreement ~~and~~to ~~work~~fulfill ~~with~~any ~~the~~material ~~lenders~~obligations under ~~our~~the ~~Bank~~merger ~~Credit~~agreement ~~Facility~~or ~~and~~a ~~SOSventures,~~material ~~LLC~~breach ~~Credit~~of ~~Agreement~~the tomerger ~~address~~agreement ~~any~~by ~~our~~such ~~financing issues~~party.

~~Further~~Collectively, ~~our~~these ~~credit~~matters ~~facilities~~raise ~~with~~substantial ~~Independent~~doubt ~~Bank~~about ~~and~~our ~~SOSventures,~~ability ~~LLC~~to ~~expire~~continue inas ~~May~~a ~~2016~~going concern. Our Board of Directors and wemanagement ~~anticipate~~team ~~that~~continue weto ~~will~~take ~~need~~steps to ~~find~~try ~~other~~to ~~financing,~~strengthen ~~particularly~~our inbalance ~~the~~sheet. We ~~case~~intend ofto ~~Independent~~execute ~~Bank.~~the ~~Such~~merger ~~new~~(which ~~financing~~is ~~could~~subject ~~result~~to inusual aand ~~significant~~customary ~~restructuring~~closing ofconditions beyond our ~~capital~~control) ~~structure. While~~and, ~~negotiations~~in ~~with~~the ~~Independent~~event ~~Bank~~the ~~and~~merger ~~others~~is ~~are~~not ~~ongoing~~consummated, we ~~have~~intend ~~not~~to ~~entered~~refinance ~~into~~our ~~any~~existing ~~agreements~~debt, ~~letters~~sell ofnon-core ~~intent~~properties orand ~~term~~seek ~~sheets~~private financings to fund our cash needs. Any decision regarding ~~Independent~~the ~~Bank~~merger or ~~such~~ financing. ~~Further~~transaction, weand ~~are~~our ~~unlikely~~ability to ~~make~~complete ~~significant~~such ~~new~~a ~~operational~~transaction, ~~capital~~will ~~expenditures~~depend ~~until~~on prevailing market conditions and other factors. No assurances can be given that such ~~time~~transactions ascan ~~negotiations~~be ~~over~~consummated ~~our~~on ~~credit~~terms ~~facilities~~that are ~~concluded~~acceptable to us, or at all.

If, in the future, we are unable to obtain compliance or comply with these covenants going forward and the lenders under our Bank Credit Facility and SOSventures, LLC Credit Agreement are unwilling to provide us with covenant flexibility, we will likely be forced to repay or refinance amounts then outstanding under the Bank Credit Facility and SOSventures, LLC Credit Agreement and seek alternative sources of capital to fund our business and anticipated capital expenditures. In the event that we are unable to access sufficient capital to fund our business and planned capital expenditures, we may be required to curtail our drilling, development, land acquisition and other activities, which could result in a decrease in our production of oil and natural gas, may be subject to forfeitures of leasehold interests to the extent we are unable or unwilling to renew them, and may be forced to sell some of our assets on an untimely or unfavorable basis, each of which could adversely affect our results of operations and financial condition. Further, the failure to comply with the restrictive covenants relating to our indebtedness could result in the declaration of a default and cross default under the instruments governing our indebtedness, potentially resulting in acceleration of our obligations and adversely impacting our financial condition. If our obligations are accelerated, we may be required to take actions designed to preserve our corporate assets.

Our future capital resources and liquidity depend, in part, on our success in developing our leasehold interests, growing reserves and production and finding additional reserves. We may sell assets to achieve liquidity in pursuit of these goals. Cash is required to fund capital expenditures necessary to offset inherent declines in our production and proven reserves, which is typical in the capital-intensive oil and natural gas industry. We therefore continuously monitor our liquidity and the capital markets and evaluate our development plans in light of a variety of factors, including, but not limited to, our cash flows, capital resources, acquisition opportunities and drilling success.

We strive to maintain financial flexibility while pursuing our drilling plans and evaluating potential acquisitions, and will therefore consider accessing capital markets (if on acceptable terms) as necessary to, among other things, maintain substantial borrowing capacity under our Bank Credit Facility and SOSventures, LLC Credit Agreement, facilitate drilling on our undeveloped acreage position and permit us to selectively expand our acreage position while sustaining sufficient operating cash levels. Our ability to complete future debt and equity offerings and maintain or increase our borrowing base is subject to a number of variables, including our level of oil and natural gas production, reserves and commodity prices, as well as various economic and market conditions that have historically affected the oil and natural gas industry. Prices for oil and natural gas have historically been subject to seasonal fluctuations characterized by peak demand and higher prices in the winter heating season; however, the impact of other risks and uncertainties have influenced prices throughout recent years. Even if we are otherwise successful in growing our reserves and production, if oil and natural gas prices decline for a sustained period of time, our ability to fund our capital expenditures, complete acquisitions, reduce debt, meet our financial obligations and become profitable may be materially impacted.Index

Credit Facilities and Forbearance Agreement

In November 2015, counsel for Independent Bank had notified us of the following defaults under IB Credit Agreement: i) the interest coverage ratio covenant set forth in Section 7.15.1 of the IB Credit Agreement for the fiscal quarter ended June 30, 2015, (ii) the current ratio covenant set forth in Section 7.15.2 of the IB Credit Agreement for the fiscal quarter ended June 30, 2015, (iii) the leverage ratio covenant set forth in Section 7.15.3 of the IB Credit Agreement for the fiscal quarter ended June 30, 2015, and (iv) the Company is not currently maintaining the minimum Commodity Hedging Transactions (as defined in the IB Credit Agreement) required by Section 7.21 of the IB Credit Agreement. The letter further stated that the bank was contemplating its course of action.

On November 24, 2015, we entered into the Forbearance Agreement and the Third Amendment to the Amended and Restated Credit Agreement with Independent Bank under which Independent Bank, acting for itself and as administrative agent for other lenders, agreed to forbear exercising any of its remedies for the existing covenant defaults for period of time to permit us to seek refinancing of the indebtedness owed to Independent Bank in the approximate amount of $11,000,000, which is referred to as the IB Indebtedness or a sale of sufficient assets to repay the IB Indebtedness. The Forbearance Period began with the execution of the IB Forbearance Agreement on November 24, 2015 and ended on January 31, 2016. The Forbearance Period was subsequently extended to March 31, 2016.

In connection with IB Forbearance Agreement, we provided certain additional collateral protections to Independent Bank. The Company granted a first lien mortgage on a newly completed well in New Mexico. We also delivered certain written directives to Independent Bank. In the event of default on the IB Forbearance Agreement or any IB Non-Forbearance Default, Independent Bank is authorized to send the written directives to Cargill, the counterparty to certain hedging contracts with the Company. These written directives instruct Cargill to pay over to Independent Bank “all hedge settlement proceeds, all hedge liquidation proceeds, and all amount otherwise payable by such hedge providers to Brushy.” We also executed and delivered to Independent Bank certain letters in lieu of transfer orders, whereby we instructed first purchasers of oil and gas production to pay directly to Independent Bank all production revenues attributable to our interest in such oil and gas assets. Independent Bank agrees not to send such letters provided that the IB Indebtedness is paid in full on or before the end of the Forbearance Period. At the time of the extension of the Forbearance Period to March 31, 2016, we agreed to unwind the remaining existing hedge contract with Cargill and permit Cargill to pay to Independent Bank all hedge settlement proceeds, all hedge liquidation proceeds, and all amounts otherwise payable by Cargill to us. Such payments satisfied outstanding interest and default interest owing to Independent Bank as well as certain other expenses. In addition, such payments reduced the principal due Independent Bank by $406,720.

During the Forbearance Period, we are not permitted to drill new oil or gas wells or to make any distributions to equity holders. Furthermore, this also cross defaulted the SOSventures Credit Agreement, however the maturity of the second lien note to SOSventures was extended to August 1, 2016.

We are currently in discussions with the lenders under the IB Credit Agreement regarding a further extension of the Forbearance Period. We are also in discussions with Lilis and other financings parties regarding possible refinance options for the amount outstanding under the IB Credit Agreement. If we do not refinance the IB Credit Agreement or obtain a further extension of the Forbearance Period, the lenders under the IB Credit Agreement will be able to accelerate the repayment of debt. Furthermore, if we are unable to restructure or refinance our current obligations under our existing debt, and address near-term liquidity needs, we may need to seek relief under the U.S. Bankruptcy Code. This relief may include: (i) seeking bankruptcy court approval for the sale or sales of some, most or substantially all of our assets pursuant to section 363(b) of the U.S. Bankruptcy Code and a subsequent liquidation of the remaining assets in the bankruptcy case; (ii) pursuing a plan of reorganization (where votes for the plan may be solicited from certain classes of creditors prior to a bankruptcy filing) that we would seek to confirm (or “cram down”) despite any classes of creditors who reject or are deemed to have rejected such plan; or (iii) seeking another form of bankruptcy relief, all of which involve uncertainties, potential delays and litigation risks.

Index

Critical Accounting Policies and Estimates

The following discussion and analysis of financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Certain accounting policies involve judgments and uncertainties to such an extent that there is reasonable likelihood that materially different amounts could have been reported under different conditions, or if different assumptions had been used. We evaluate such estimates and assumptions on a regular basis. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and assumptions used in preparation of our condensed consolidated financial statements. Below, we have provided expanded discussion of the more significant accounting policies, estimates and judgments. We believe these accounting policies reflect the more significant estimates and assumptions used in preparation of our condensed consolidated financial statements. Please read the notes to our ~~most recent~~ audited consolidated financial statements ~~filed~~included ~~with~~in ~~the~~this ~~SEC~~report for a discussion of additional accounting policies and estimates made by management.

Oil and Gas Producing Activities

Our oil and gas producing activities were accounted for using the successful efforts method of accounting as further defined under FASB ASC 932, Extractive Activities –- Oil and Natural Gas. Costs to acquire leasehold rights in oil and gas properties, to drill and equip exploratory wells that find proved reserves, and to drill and equip development wells are capitalized. Costs to drill exploratory wells that do not find proved reserves, delay rentals and geological and geophysical costs are expensed.

Depletion and Depreciation

Estimates of natural gas and oil reserves utilized in the calculation of depletion are prepared using certain assumptions. Reserve estimates are based upon existing economic and operating conditions with no provision for price and cost escalations except by contractual arrangements. Natural gas and oil reserve estimates are inherently imprecise and are subject to change as more current information becomes available. Capitalized costs are depleted and amortized using the units of production method, based upon reserve estimates.

Impairments

The carrying value of oil and gas properties is assessed for possible impairment on a field by field basis and on at least an annual basis, or as circumstances warrant, based on geological analysis, or changes in proved reserve estimates ~~or the sale of the properties. When impairment occurs, an adjustment is recorded as a reduction of the asset carrying value.~~

Asset Retirement Obligations

The Company records for the estimated liability for the plugging and abandonment of natural gas and oil wells at the end of their productive lives following the provisions of ASC 410-20, Asset Retirement Obligations. Asset retirement obligations are estimated at the present value of expected future net cash flows based on reserve estimates and federal and state regulatory requirements and are discounted using the Company’s credit adjusted risk free rate. Because the Company uses unobservable inputs in estimating asset retirement obligations, it considers such obligations a Level 3 measurement under ASC 820. At the time of abandonment, we recognize a gain or loss on abandonment to the extent that actual costs do not equal the estimated costs.

Goodwill

At ~~September~~March 3031, ~~2015~~2016 and December 31, ~~2014~~2015, the Company had goodwill of $~~960 thousand~~959,681.

Index

Goodwill represents the excess of the purchase price over the fair value of the net assets acquired. The Company follows FASB ASC Topic 350 Goodwill and Intangible Asset Impairment Testing. Our analysis consists of two steps. Step 1 tests the company for impairment by comparing the fair value of equity to the book value of equity. If the fair value is less than the book value, then Step 2 analysis must be performed. If the fair value of goodwill is less than its carrying amount, impairment is recorded based on the difference. The Company annually assesses the carrying value of goodwill for impairment.

Pricing mechanism for oil and gas reserves estimation

The SEC’s rules require reserve estimates to be calculated using a 12-month average price. Price changes can still be incorporated to the extent defined by contractual arrangements. ~~The use of a 12-month average price rather than a single-day price is expected to reduce the impact on reserve estimates.~~

The SEC rules also amend the definition of proved oil and gas reserves to include reserves located beyond development spacing areas that are immediately adjacent to developed spacing areas if economic recoverability can be established with reasonable certainty. These revisions are designed to permit the use of alternative technologies to establish proved reserves in lieu of requiring companies to use specific tests. In addition, they establish a uniform standard of reasonable certainty that applies to all proved reserves, regardless of location or distance from producing wells. Because the revised rules generally expand the definition of proved reserves, proved reserve estimates could increase in the future based upon adoption of the revised rules.

Estimated proved oil and gas reserves

The evaluation of our oil and gas reserves is critical to management of our operations and ultimately our economic success. Decisions such as whether development of a property should proceed and what technical methods are available for development are based on an evaluation of reserves. These oil and gas reserve quantities are also used as the basis of calculating the unit-of-production rates for depreciation, evaluating impairment and estimating the life of our producing oil and gas properties in our asset retirement obligations. ~~Our total reserves are classified as proved, possible and probable.~~ Proved reserves are classified as either proved developed or proved undeveloped. Proved developed reserves are those reserves which can be expected to be recovered through existing wells with existing equipment and operating methods. Estimated proved undeveloped reserves include reserves expected to be recovered from new wells from undrilled proven reservoirs or from existing wells where a significant major expenditure is required for completion and production. Probable reserves are those additional reserves that are less certain to be recovered than proved reserves and when probabilistic methods are used, there should be at least a 50% probability that the actual quantities recovered will equal or exceed the proved plus probable estimates. Possible reserves are those additional reserves that are less certain to be recovered than probable reserves and when probabilistic methods are used, there should be at least a 10% probability that the total quantities ultimately recovered will equal or exceed proved plus probable plus possible reserve estimates.

Independent reserve engineers prepare the estimates of our oil and gas reserves presented in this ~~prospectus~~report based on guidelines promulgated under GAAP and in accordance with the rules and regulations of the ~~Securities and Exchange Commission~~SEC. The evaluation of our reserves by the independent reserve engineers involves their rigorous examination of our technical evaluation and extrapolations of well information such as flow rates and reservoir pressure declines as well as other technical information and measurements. Reservoir engineers interpret ~~these~~this data to determine the nature of the reservoir and ultimately the quantity of total oil and gas reserves attributable to a specific property. Our total reserves in this ~~prospectus~~report include only quantities that we expect to recover commercially using current prices, costs, existing regulatory practices and technology. While we are reasonably certain that the total reserves will be produced, the timing and ultimate recovery can be affected by a number of factors including completion of development projects, reservoir performance, regulatory approvals and changes in projections of long-term oil and gas prices. Revisions can include upward or downward changes in the previously estimated volumes or proved reserves for existing fields due to evaluation of (1) already available geologic, reservoir or production data or (2) new geologic or reservoir data obtained from wells. Revisions can also include changes associated with significant changes in development strategy, oil and gas prices or production equipment/facility capacity.

Standardized measure of discounted future net cash flows

The standardized measure of discounted future net cash flows relies on these estimates of oil and gas reserves using commodity prices and costs at year-end. The benchmark oil and gas prices used are the preceding 12-month averages of the first-day-of-the month spot prices posted for the WTI oil and Henry Hub natural gas. Oil prices are based on a benchmark price of $9647.9003 per barrel and have been adjusted by lease for gravity, transportation fees, and regional price differentials. Gas prices per thousand cubic feet are based on a benchmark price of $32.6722 per million British thermal units and have been adjusted by lease for Btu content, transportation fees, and regional price differentials. The adjustments are based on the differential between historic oil and gas sales and the corresponding benchmark price. While we believe that future operating costs can be reasonably estimated, future prices are difficult to estimate since the market prices are influenced by events beyond our control. Future global economic and political events will most likely result in significant fluctuations in future oil prices.

2526

~~Consent requirements for material Company actions before we obtain an exchange listing~~Index

WeUnproved have yet to apply for a listing on a national securities exchange. Under Section 6 of the put option waiver agreement referenced at Exhibit 4.3, until such time as we obtain a listing on a national securities exchange, we are required to obtain the consent of the Longview Marquis Master Fund, L.P., LMIF Investments, LLC and SMF Investments, LLC to take any of the following actions:reserves

a.The ~~consummate~~SEC’s arules ~~sale~~permit ofdisclosure ~~the equity securities~~ of ~~the~~probable ~~Company~~and topossible ~~the~~reserves ~~extent~~and ~~that~~provide ~~the~~definitions ~~valuation~~ of ~~all~~probable ~~equity~~reserves ~~securities~~and ofpossible ~~the~~reserves. ~~Company~~Disclosure atof ~~the~~probable ~~time~~and ofpossible ~~such~~reserves ~~sale~~ is ~~more~~optional. ~~than~~We ~~thirty~~have ~~percent~~chosen ~~(30%)~~not ~~below~~to ~~the~~disclose ~~then~~probable ~~present value of the Company’s estimated proved future oil~~ and ~~gas~~possible ~~net revenues calculated at an annual discount rate of ten percent (10%);~~reserves.

b.Executive ~~issue, or authorize the issuance of, any class of equity security that is not identical to the class of equity securities held by the Summerline Parties;~~Compensation

c.The ~~issue~~Company ~~any~~entered ~~equity~~into ~~securities~~employment ~~without~~contracts ~~providing~~with ~~preemptive~~Michael ~~rights~~Pawelek toand ~~Longview~~Edward ~~Marquis~~Shaw ~~Master~~which ~~Fund,~~provide ~~L.P.,~~for ~~LMIF~~stock ~~Investments~~grants, ~~LLC,~~stock ~~SMF~~options ~~Investments, LLC~~ and ~~Summerline~~change ~~Capital~~of ~~Partners,~~control ~~LLC~~payments. asThe ~~will~~Company ~~enable~~accounts ~~them~~for tothese ~~maintain~~grants, ~~post-issuance,~~options ~~their~~and ~~percentage~~payments ~~equity~~under ~~ownership~~FASB ~~of the Company owned pre-issuance;~~718.

d.No ~~amend,~~Delayed ~~modify~~Adoption of New or ~~waive~~Revised ~~any~~Accounting ~~provision~~Standards ofunder the ~~Company’s~~Jumpstart ~~certificate~~our ofBusiness ~~incorporation~~Startups orAct ~~bylaws;~~(JOBS orACT)

e.We ~~sell~~made ~~all~~the irrevocable decision under the JOBS Act to implement new or ~~substantially~~revised ~~all~~accounting ofstandards ~~the~~applicable ~~assets~~to reporting issuers when required of ~~the~~reporting ~~Company~~issuers orthat ~~its~~are ~~subsidiaries~~not Emerging Growth Companies under the JOBS Act.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

The Company is a Smaller Reporting Company as defined by SEC Rules 405 and 12b-2 and is not required to disclose the information required by Regulation S-K, Item 305 pursuant to the Smaller Reporting Company exemption in Regulation S-K, Item 305(e).

Item 4.

Controls and Procedures

~~Management’s~~ Evaluation of ~~Internal~~Disclosure ~~Control~~Controls ~~over~~and ~~Financial Reporting~~Procedures

Our management, iswith ~~responsible~~the ~~for~~participation ~~establishing~~of ~~and~~our ~~maintaining~~chief ~~adequate~~executive ~~internal~~officer ~~control~~(“CEO”) ~~over~~and ~~financial~~our ~~reporting~~controller, ashave ~~such~~evaluated ~~term~~the iseffectiveness of our disclosure controls and procedures (as defined in ~~Rule~~Rules 13a-15(fe) ofand 15d-15(e) under the Exchange Act. ~~This~~as ~~system is designed to provide reasonable assurance regarding the reliability~~ of ~~financial reporting and~~ the ~~preparation~~end of the ~~consolidated~~period ~~financial~~covered ~~statements~~by ~~for~~this ~~external~~Form ~~purposes in accordance with generally accepted accounting principles~~10-Q. ~~Our~~Based ~~internal~~on ~~control~~this ~~over~~evaluation, ~~financial~~our ~~reporting~~CEO ~~includes those policies~~ and ~~procedures that: (1)~~controller ~~pertain~~concluded ~~to the maintenance of records~~ that, inbecause ~~reasonable~~of ~~detail,~~certain ~~accurately~~material ~~and~~weaknesses ~~fairly~~in ~~reflect~~ our ~~transactions~~internal ~~and~~control ~~disposition~~over offinancial ~~our~~reporting ~~assets;~~as ~~(2) provide~~described ~~reasonable~~in ~~assurance~~Item ~~that~~9A ~~transactions~~of ~~are~~our ~~recorded~~Annual asReport ~~necessary~~on toForm ~~permit~~10-K ~~preparation~~for ofthe ~~consolidated~~year ~~financial~~ended ~~statements~~December in31, ~~accordance~~2015 filed with ~~generally~~the ~~accepted accounting principles~~SEC, ~~and that~~ our ~~receipts~~disclosure controls and ~~expenditures~~procedures ~~are~~as ~~being~~defined ~~made only~~ in ~~accordance~~Rule ~~with~~13a-15(e) ~~authorizations of our management~~ and ~~directors; and~~ 15d-15(3e) ~~provide~~ ~~reasonable~~under ~~assurance~~the ~~regarding~~Exchange ~~prevention~~Act orwere ~~timely~~not ~~detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements~~effective.

~~Because~~We ofare ~~its~~committed ~~inherent~~to ~~limitations,~~improving ~~internal~~our ~~control over~~ financial ~~reporting may not prevent or detect misstatements~~organization. ~~Projections~~Our ofcontrol ~~any~~weaknesses ~~evaluation of effectiveness to future periods~~ are ~~subject~~largely toa ~~the~~function ~~risk that controls may become inadequate because~~ of ~~changes~~not inhaving ~~conditions,~~sufficient orstaff. ~~that~~In the ~~degree~~event ofthe ~~compliance~~merger with ~~the~~Lilis ~~policies~~is ~~or procedures may deteriorate. All internal control systems~~consummated, nowe ~~matter~~will ~~how well designed,~~ have ~~inherent~~additional ~~limitations.~~resources ~~Therefore,~~available ~~even~~to ~~those~~us ~~systems determined~~ to beincrease ~~effective~~the ~~can~~effectiveness ~~provide~~of ~~only~~our ~~reasonable~~internal ~~assurance~~control, ~~with~~including ~~respect~~a tochief financial ~~statement~~officer, ~~preparation~~ and ~~presentation.~~extended ~~The scope of~~ management’s ~~assessment~~team. Additionally, ofas ~~the~~financial ~~effectiveness~~resources ofbecome ~~internal~~available, ~~control~~we ~~over~~have ~~financial~~been ~~reporting~~engaging ~~includes~~third-party ~~all~~consultants ofto ~~our~~assist ~~Company’s~~with ~~subsidiaries~~control activities.

~~The~~We ~~Company’s~~will ~~Chief~~continue ~~Executive~~to ~~Officer~~monitor and ~~Chief~~evaluate ~~Accounting Officer evaluated~~ the ~~Company’s~~effectiveness ~~disclosure controls and procedures as~~ of ~~September~~our ~~30,~~internal ~~2015.~~control Inover ~~making~~financial ~~their~~reporting ~~assessment,~~on ~~the~~an ~~Company's~~ongoing ~~Chief~~basis ~~Executive Officer~~ and ~~Chief~~are ~~Financial~~committed ~~Officer~~to ~~were~~taking ~~guided~~further byaction ~~the releases issued~~ by ~~the~~implementing ~~SEC~~additional ~~and~~enhancements toor ~~the~~improvements, ~~extent~~or ~~applicable~~deploying ~~was~~additional ~~based~~human ~~upon~~resources ~~the~~as ~~framework~~may inbe ~~Internal~~deemed ~~Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission~~necessary.

~~Our~~Changes ~~Annual~~in ~~Report~~Internal onControl ~~Form~~Over ~~10-K~~Financial filed April 16, 2015 does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to an exemption for smaller reporting companies under Section 989G of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the exemption for an Emerging Growth Company under Section 404(b) of the Sarbanes-Oxley Act of 2002 (as amended by Section 103 of the JOBS Act.).Reporting

26For the quarter ended March 31, 2016, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Disclosure controls and procedures. As of September 30, 2015, the Company was obligated to be a reporting company and file periodic or current reports with the Securities and Exchange Commission pursuant to the provisions of the Securities Exchange Act of 1934. Thus, the Company must assess its disclosure controls and procedures in connection with its presentation of its information for the period ending September 30, 2015, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, which is presented in this Form 10-Q. The Company maintains controls and procedures designed to ensure that it is able to collect the information it is required to disclose in the reports it files with the SEC, and to process, summarize and disclose this information within the time periods specified in the rules of the SEC. The Company’s Chief Executive Officer and Chief Accounting Officer are responsible for establishing and maintaining these procedures and, as required by the rules of the SEC, evaluating their effectiveness.

Based on their evaluation the Company’s disclosure controls and procedures which took place as of the end of the period covered by this report, the Chief Executive Officer and Chief Accounting Officer have concluded that, as of such date, our disclosure controls and procedures were ineffective, due to the material weaknesses in our internal control over financial reporting described below.

Material weakness in internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of Brushy's annual or interim financial statements will not be prevented or detected on a timely basis. During the preparation of our condensed consolidated financial statements for the quarter ended September 30, 2014, we identified that our processes and procedures for the computation of deferred income taxes and stock option expenses were not effective. This control deficiency would have resulted in a material error in our condensed consolidated financial statements for the three months ended September 30, 2014. Accordingly, management has concluded this deficiency in internal control over financial reporting constituted a material weakness.

Further, while preparing our Form 10-K annual report, filed April 16, 2015, we identified an additional material weakness in the preparation of the reserve report for December 31, 2014. Specifically, an impairment of our reserves relates to the adoption of our development plan for our undeveloped oil and gas reserves which, for the purpose of booking such undeveloped reserves, must show that such reserves are scheduled to be drilled within five years under SEC Regulation S-X Rule 4-10(a)(31)(ii). We identified the impairment amount at $4,428,378 which has a material impact on our financial statements. This impairment is connected with the impact of lower oil and gas prices in the amount of capital available for the development plan.

During the preparation of our condensed financial statements for the period ending September 30, 2015 we identified that our process and procedures for the computation of impairment were not effective. The control deficiency resulted in a material error in our condensed consolidated financial statements for the six months ended June 30, 2015. The control failure allowed for the improper recording of $1,350,000 in impairment of our Oklahoma properties.

Moreover, on September 15, 2014, the Company's Chief Financial Officer informed the Company he was resigning, effective immediately. The open Chief Financial Officer position led to an insufficient number of experienced personnel to provide reasonable assurance that transactions are being recorded as necessary to ensure timely preparation of financial statements in accordance with GAAP, including the preparation of these interim financial statements. Management is in the process of evaluating various remedial actions relating to this material weakness, including hiring a new Chief Financial Officer. In the interim, management has hired a national accounting firm to serve as a technical resource during the financial statement close process and as needed until a qualified Chief Financial Officer is hired.

Management's remediation initiatives. The Company's accounting staff will be trained on the limits of capital available for five year development plans under SEC Regulation S-X Rule 4-10(a) (31)(ii) and we will add this issue as an item to review with petroleum engineers used for reserve estimates. The Company’s accounting staff will also be trained to track what properties were previously designated for impairment so that impairment will not be double-counted on the sale of the property. But, the conditions that led to the material weakness, including the lack of a Chief Financial Officer, remain.

Changes in control over financial reporting. In the nine months ending September 30, 2015 there have no changes in control over financial reporting that will have a material impact in control over financial reporting except as reported above.

~~Part II—Other Information~~Index

PART II — OTHER INFORMATION

Item 1.

Legal Proceedings

InLawsuit ~~addition~~Relating to ~~the~~17.23% ~~below, see Part I, Item 1 – “Financial Statements,” “Note 11 – “Legal Proceedings”~~ of ~~this~~our ~~Quarterly~~Common ~~Report~~Stock ~~on Form 10-Q which is incorporated by reference into this Part II, Item 1 – “Legal Proceedings.”~~Shares

~~Stockholder~~Approximately ~~Lawsuit~~17.23% of our common stock was interpleaded into Connecticut Superior Court for the Judicial District of Stamford/Norwalk at Stamford, Cause No. FST-CV12-6015112-S (“Interpleader Action”). These are the residual shares of common stock that belonged to the Partnerships after the distribution of the partnerships shares. Claims related to the Interpleader Action were heard in an American Arbitration Association arbitration in 2015. The claimants were Gregory Imbruce; Giddings Investments LLC; Giddings Genpar LLC, Hunton Oil Genpar LLC, ASYM Capital Ill LLC, Glenrose Holdings LLC; ASYM Energy Investments LLC. “Certain” respondents and counterclaimants were Charles Henry, Ahmed Ammar; John P. Vaile, as Trustee of John P. Vaile Living Trust, John Paul Otieno, SOSventures, Bradford Higgins, William Mahoney, Edward M. Conrads, Robert J. Conrads, and the Partnerships. “PKG Respondents” and cross claimants were William F. Pettinati, Jr., Sigma Gas Barbastella Fund, Sigma Gas Antrozous Fund, Nicholas P. Garofolo (the plaintiffs in the above-referenced stockholder litigation) who made claims against Charles S. Henry, III, Bradford Higgins and SOSventures. The relief respondents were Rubicon Resources LLC, Sean O’Sullivan, King Lee, Michael Rihner, Scott Decker, Andrew Gillick, Briana Gillick, Steve Heinemann, Stanley Goldstein, Sidney Orbach, James P. Ashman, and Patricia R. Ashman. The claims, counterclaims and cross claims relate to the governance, control and termination of the Partnerships, including the distribution by the Partnerships of our shares of common stock to the limited partners in the Partnerships in a liquidating distribution in February 2014 as part of a “monetization” event, and other matters.

On ~~April 17~~September 10, 2015, wethe ~~were~~American ~~served~~Arbitration ~~with~~Association aissued ~~lawsuit~~an ~~filed~~arbitration award in Bexar County, Texas by William F. Pettinati, Jr., Nicholas Garofolo, Sigma Gas Barbastella Fund and Sigma Gas Antrozous Fund against Starboard Resources, Inc. (now Brushy Resources, Inc.), its directors, its Chief Operating Officer, Edward Shaw, its former Chief Financial Officer, Eric Alfuth, our stockholder, Bradford Higgins, and Sean O’Sullivan, the ~~managing~~Interpleader ~~director of our stockholder~~Action, ~~SOSventures,~~which ~~LLC. Mr.~~is ~~Pettinati,~~referred ~~Mr.~~to ~~Garofalo~~as ~~and~~ the ~~Sigma Gas Antrozous Fund are stockholders~~Award. ~~Mr.~~ The ~~Pettinati~~Award ~~owns~~states ~~145,112~~as shares, Mr. Garofalo owns 226,680 common stock shares and Sigma Gas Antrozous Fund owns 44,610 common stock shares. Combined these stockholders account for approximately 3.3% of our outstanding common stock. These stockholders became our stockholders in February 2014.follows:

~~The~~1) ~~Plaintiffs~~All ~~allege~~claims ~~several~~asserted ~~derivative~~by ~~and~~Claimants, ~~direct~~including ~~causes~~Gregory ofImbruce ~~action,~~and ~~many~~various ofbusiness ~~which~~entities ~~relate~~controlled toby ~~alleged~~Mr. ~~actions~~Imbruce ~~that~~against ~~pre-date~~all ~~their~~Respondents ~~becoming~~were ~~stockholders~~denied inand ~~February~~award ~~2014. These~~was ~~derivative~~made ~~claims~~in ~~include,~~favor ~~breach~~ of ~~fiduciary~~the ~~duty~~“Certain” respondents, ~~waste~~including ofour ~~corporate assets~~director, ~~concerted~~Charles ~~action~~S. ~~and conspiracy~~Henry, ~~joint enterprise~~III, ~~agency,~~as ~~alter~~well ~~ego~~as SOSventures, ~~exemplary~~Bradford ~~damages~~Higgins, ~~and~~John ~~unjust~~Paul ~~enrichment. The direct claims include~~Otieno, ~~breach~~Estate of ~~fiduciary~~William ~~duty~~Mahoney, ~~conversion,~~Ahmed ~~shareholder oppression~~Ammar, ~~concerted~~John ~~action~~P. ~~and conspiracy~~Vaile, ~~declaratory~~as ~~judgment~~Trustee ~~that the distribution~~ of ~~stock~~John toP. ~~the~~Vaile ~~plaintiffs~~Living ~~was invalid~~Trust, ~~joint~~Edward ~~enterprise,~~M. ~~agency~~Conrads, ~~alter~~Robert ~~ego,~~J. ~~exemplary damages~~Conrads, ~~concerted~~Giddings ~~action~~Oil ~~and~~& ~~conspiracy~~Gas ~~and~~LP, ~~failure~~Asym toEnergy ~~allow~~Fund ~~for~~III ~~inspection~~LP ofand ~~books~~Hunton ~~and~~Oil ~~records~~Partners LP.

Most of the allegations relate to events that allegedly happened before the plaintiffs became stockholders, including the distributions from certain partnerships that led to the Plaintiffs becoming stockholders in February 2014. For actions after February 2014, Plaintiffs complain that our common stock still lacks a trading venue, that a books and records request was not honored, that we “delayed” our public offering, that SOSventures LLC had allegedly taken steps to “foreclose” on the our assets under our subordinated credit agreement with SOSventures, LLC and that we filed for an extension to the filing date for our Form 10-K for the year ending December 31, 2014. On October 6, 2015 Plaintiffs withdrew the claim about not honoring a books and records request. Further some of the claims relate to our following directions from the General Partner Giddings Oil & Gas LP, Asym Energy Fund III LP and Hunton Energy Partners LP to cancel our common stock shares to Giddings Oil & Gas LP, Asym Energy Fund III LP and Hunton Energy Partners LP and reissue the shares to designated limited partners with the remaining undistributed common stock shares being interpleaded into the registry of the Connecticut Superior Court as stated below.

The matter is styled Sigma Barbastella Fund et al v. Charles S. Henry, III et al. and it is Cause No. 20105-CI-05672 in the 224th District Court in Bexar County, Texas.

Lawsuit and Arbitration Relating to 17.23% of Our Common Stock Shares

We have interpleaded 2,190,891 common stock shares or approximately 17.2348% of our common stock shares into Connecticut Superior Court for the Judicial District of Stamford/Norwalk at Stamford, Cause No. FST-CV12-6015112-S. These are the residual common stock shares that belonged to Giddings Oil & Gas LP, Asym Energy Fund III LP and Hunton Energy Partners LP (the “Partnerships” after the distribution of the Partnerships’ shares.

Claims related to the Interpleader action were heard in an American Arbitration Association arbitration in 2015. The claimants were Gregory Imbruce; Giddings Investments LLC; Giddings Genpar LLC, Hunton Oil Genpar LLC, ASYM Capital Ill LLC, Glenrose Holdings LLC; ASYM Energy Investments LLC. “Certain” respondents and counterclaimants were Charles Henry, Ahmed Ammar; John P. Vaile, as Trustee of John P. Vaile Living Trust, John Paul Otieno, SOS Ventures LLC, Bradford Higgins, William Mahoney, Edward M. Conrads, Robert J. Conrads, Giddings Oil & Gas LP, Hunton Oil Partners LP, ASYM Energy Fund III LP. “PKG Respondents” and cross claimants were William F. Pettinati, Jr., Sigma Gas Barbastella Fund, Sigma Gas Antrozous Fund, Nicholas P. Garafolo (the plaintiffs in the above-referenced stockholder litigation) who made claims against Charles Henry, Bradford Higgins and SOS Ventures LLC. The relief respondents were Rubicon Resources LLC, Sean O'Sullivan, King Lee, Michael Rihner, Scott Decker, Andrew Gillick, Briana Gillick, Steve Heinemann, Stanley Goldstein, Sidney Orbach, James P. Ashman, and Patricia R. Ashman. The claims, counterclaims and cross claims relate to the governance, control and termination of the Partnerships, including the distribution by the Partnerships’ of our common stock shares to the limited partners in the Partnerships in a liquidating distribution in February 2014 as part of a “monetization” event.

On September 10, 2015, the American Arbitration Association issued an arbitration award (“Award”). A copy of the Award may be found by reference to Exhibit 10.9 to this Form 10-Q and was filed as Exhibit 99.1 to our Form 8-K filed September 14, 2015. The Award states as follows:

1) All claims asserted by Claimants, including Gregory Imbruce and various business entities controlled by Mr. Imbruce against all Respondents were denied and award was made in favor of the “Certain” respondents, including our director, Charles S. Henry, as well as SOSventures, LLC, Bradford Higgins, John Paul Otieno, Estate of William Mahoney, Ahmed Ammar, John P. Vaile, as Trusteee of John P. Vaile Living Trust, Edward M. Conrads, Robert J. Conrads, Giddings Oil & Gas LP, Asym Energy Fund III LP and Hunton Oil Partners LP.

All claims asserted by Claimants, Gregory Imbruce and various business entities controlled by Mr. Imbruce against Relief Respondents, including Rubicon Resources LLC, Sean O’Sullivan Revocable Living Trust, King Lee, Michael Rihner, Scott Decker, Andrew Gillick, Briana Gillick, Steve Heinemann, Stanly Goldstein, Sidney Orbach, James P. Ashman and Patricia R. Ashman, were denied.

An award was made in favor of the “Certain” respondents, including our director, Charles S. Henry, III, as well as SOSventures, Bradford Higgins, John Paul Otieno, Estate of William Mahoney, Ahmad Ammar, John P. Vaile, as Trustee of John P. Vaile Living Trust, Edward M. Conrads, Robert J. Conrads, Giddings Oil & Gas LP, Asym Energy Fund III LP and Hunton Oil Partners LP against Mr. Imbruce and his entities on the following claims:

breach of fiduciary duty;

breach of implied covenant of good faith and fair dealing;

partnership dissolution;

unjust enrichment;

3) An award was made in favor of the “Certain” respondents, including our director, Charles S. Henry, as well as SOSventures, LLC, Bradford Higgins, John Paul Otieno, Estate of William Mahoney, Ahmad Ammar, John P. Vaile, as Trustee of John P. Vaile Living Trust, Edward M. Conrads, Robert J. Conrads, Giddings Oil & Gas LP, Asym Energy Fund III LP and Hunton Oil Partners LP against Mr. Imbruce and his entities on the following claims:Index

ae) breach of ~~fiduciary duty;~~contract;

bf) ~~breach of implied covenant of good faith and fair dealing;~~accounting;

cg) ~~partnership~~violation ~~dissolution;~~of Connecticut Unfair Trade Practices Act;

dh) ~~unjust~~civil ~~enrichment;~~theft; and

e) breach of contract;

f) accounting;

g) violation of Connecticut Unfair Trade Practices Act;

h) civil theft; and

piercing the corporate veil.

4) All claims asserted by William F. Pettinati, Jr. Sigma Gas Barbastella Fund, Sigma Gas Antrozous Fund and Nicholas P. ~~Garafolo~~Garofolo against our director, Charles S. Henry III, as well as SOSventures, ~~LLC~~ and Bradford Higgins were denied.

5) A declaratory award was entered declaring that the removal of Hunton Oil Genpar LLC, Giddings Genpar LLC and Asym Capital III LLC and/or Gregory Imbruce as the General Partner(s) of ~~Giddings~~the ~~Oil~~Partnerships ~~& Gas LP, Asym Energy Fund III LP and Hunton Oil Partners LP~~ was lawful and in compliance with all legal and contractual requirements, and thus was effective;;

6) A declaratory award that the distribution of ~~Company~~our -issued common stock ~~shares~~ made in February 2014 to limited partners in ~~Giddings~~the ~~Oil~~Partnerships ~~& Gas LP, Asym Energy Fund III LP and Hunton Oil Partners LP~~ with remaining shares of common stock ~~shares~~ ultimately being interpleaded into Court in Connecticut was lawful, met all legal requirements and is effective in that the distribution was the result of a “monetization” event under the Partnership agreements;;

7) A declaratory award that the Partnerships were effectively dissolved at the time of the distribution of the above-referenced shares of common stock ~~shares~~ issued by ~~the~~us ~~Company~~ from the Partnerships to the limited partners in the Partnerships;;

8) A denial of any and all fees and expenses claimed by Mr. Imbruce and his entities due to “multiple and repeated violations of the Connecticut Uniform Securities Act;;”

9) A denial of fees and expenses claimed by Mr. Imbruce and his entities for the time periods subsequent to the 2011 rollup that formed ~~our Company;~~us;

10) An award of damages in favor of ~~certain of~~ the ~~Respondents~~“Certain” respondents, in the amount of $1,602,235, subject to trebling under a Civil Theft finding to $4,806,705, plus attorney and expert fees of $2,998,839 for a total award of $7,805,544, payable by Claimants, including Mr. Imbruce and his business entities;;

11) Injunctive relief ordering an accounting of the sources and uses of all funds and other assets of the Partnerships during the time that Mr. Imbruce and his entities served as general partners of the Partnerships;;

12) Post-judgment interest at 10 percent per year payable by Mr. Imbruce and his business entities;; and

13) Arbitration administrative fees, expenses and compensation of the Arbitrator totaling $122,200 to be paid by Gregory Imbruce et al, and William F. Pettinati, Jr., Sigma Gas Barbastella Fund, Sigma Gas Antrozous Fund and Nicholas P. ~~Garafolo~~Garofolo.

The “Certain” respondents ~~have~~ filed in Connecticut Superior Court seeking to confirm the Award. Likewise, Claimants have filed in Connecticut Superior Court to vacate the Award. If the Connecticut Superior Court confirms the Award, we anticipate that the Court will subsequently issue a related order as to ownership of the 2,190,891 shares of our common stock ~~shares~~, which may result in modifying our ownership structure.

Index

Bexar County Proceedings

On April 17, 2015, we were served with a lawsuit filed in Bexar County, Texas (the “Bexar County Proceedings”) by William F. Pettinati, Jr., Nicholas Garofolo, Sigma Gas Barbastella Fund and Sigma Gas Antrozous Fund against Starboard (now Brushy), its directors, its Chief Operating Officer, Edward Shaw, its former Chief Financial Officer, Eric Alfuth, our stockholder, Bradford Higgins, and Sean O’Sullivan, the managing director of our stockholder, SOSventures (the “Plaintiffs”). Mr. Pettinati, Mr. Garofolo and the Sigma Gas Antrozous Fund are stockholders. Mr. Pettinati owns 145,112 shares, Mr. Garofolo owns 226,680 shares of common stock and Sigma Gas Antrozous Fund owns 44,610 shares of common stock. Combined these stockholders account for approximately 3.3% of our outstanding common stock. These parties became stockholders in February 2014.

The Plaintiffs allege several derivative and direct causes of action. These derivative claims include, breach of fiduciary duty, waste of corporate assets, concerted action and conspiracy, joint enterprise, agency, alter ego, exemplary damages, and unjust enrichment. The direct claims include, breach of fiduciary duty, conversion, stockholder oppression, concerted action and conspiracy, declaratory judgment that the distribution of stock to the plaintiffs was invalid, joint enterprise, agency, alter ego, exemplary damages, concerted action and conspiracy and failure to allow for inspection of books and records. Many of the allegations relate to events that allegedly happened before the Plaintiffs became stockholders, including the distributions from the Partnerships that led to the Plaintiffs becoming stockholders in February 2014. Some similar claims involving these Plaintiffs (including the legality of the Partnerships’ liquidating distribution) were previously heard in the arbitration relating to the Partnerships referenced above. Plaintiffs were parties to that arbitration. For actions after February 2014, Plaintiffs complain that our common stock still lacks a trading venue, that a books and records request was not honored, that we “delayed” a public offering, that SOSventures had allegedly taken steps to “foreclose” on our assets under the SOSventures Credit Agreement and that we filed for an extension to the filing date for our annual report on Form 10-K for the year ending December 31, 2014. On October 6, 2015 Plaintiffs withdrew the claim about not honoring a books and records request.

The matter is styled Sigma Barbastella Fund et al v. Charles S. Henry, III et al. and it is Cause No. 20105-CI-05672 in the 224th District Court in Bexar County, Texas.

Our directors and officers are subject to indemnification under our bylaws.

Settlement of Interpleader Action and Bexar County Proceedings

On February 17, 2016, the various parties to the Interpleader Action and the Bexar County Proceedings entered into a global settlement agreement (the “Settlement Agreement”) under which the parties to the proceedings issued mutual releases and the plaintiffs in all proceedings agreed to withdraw their claims. In return, the plaintiffs received a cash settlement, the majority of which was covered by our insurance. $350,000 of the settlement payment will be due and payable on the first to occur of (a) consummation of the merger with Lilis and (b) July 31, 2016.

Item 1A.

Risk Factors.

In addition to the information set forth in this Form 10-Q, you should also carefully review and consider the risk factors contained in our other reports and periodic filings with the SEC, including without limitation the risk factors contained under the caption “Item 1A—Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2015 that could materially and adversely affect our business, financial condition, and results of operations. The risk factors discussed in that Form 10-K do not identify all risks that we face because our business operations could also be affected by additional factors that are not presently known to us or that we currently consider to be immaterial to our operations. There have been no material changes in the significant factors that may affect our business and operations as described in “Item 1A—Risk Factors” of the Annual Report on 10-K for the year ended December 31, 2015.

Index

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

~~Employee Compensation:~~None.

Under our employment agreements dated April 1, 2012 and August 14, 2014, with Michael Pawelek, Edward Shaw and Kim Vo each earned 116,550 common stock shares as of March 1, 2015 under the employment agreements with the Company. These common stock grants were not made pursuant to an equity compensation or stock grant plan. The stock awards were valued at $10 per share under FASB ASC Topic 718 in 2012 when we were a private company. We currently had no market for its common stock shares at the time of the stock awards. Our stockholders ratified these common stock grants at our October 28, 2014 stockholder meeting. These common stock shares have been issued.

Under employment agreement with Michael J. Pawelek and Edward Shaw dated August 14, 2014, both Mr. Pawelek and Mr. Shaw each received options to purchase 450,000 common stock shares for a total of 900,000 options. These stock options carry an exercise price of $4.75 per share, customary cashless exercise provisions and a ten year term. The first 150,000 of these stock options each for Mr. Pawelek and Mr. Shaw will vest on August 14, 2015. Thereafter these stock options will vest at 12,500 per month each for Mr. Pawelek and Mr. Shaw over the following two years. If a “Business Combination” occurs before August 14, 2016, then Mr. Pawelek and Mr. Shaw will each receive an additional 150,000 common stock options.

SOSventures, LLC Credit Agreement Amendment – Issuance of Warrants

On July 25, 2013 we entered into an amended credit agreement with SOSventures, LLC providing for a term loan through February 16, 2016 in an amount up to $10,000,000 at a 17.00% interest rate through May 29, 2014 and 22.00% interest rate thereafter. The loan under this Agreement will be secured by a second lien on the Company’s assets. The credit agreement and the related intercreditor agreement are attached as Exhibits 10.6.1 and 10.6.2.

The SOSventures, LLC credit agreement requires us to maintain certain financial ratios. First, we must maintain an interest coverage ratio of 3:1 at the end of each quarter so that our consolidated net income less our fees under the credit facility, lender expenses, non-cash charges relating to the hedge agreements, interest, income taxes, depreciation, depletion, amortization, exploration expenditures and costs and other non-cash charges (netted for noncash income) (“EBITDAX”) is greater than 3 times our interest expense under the credit facility. Second, we must maintain a debt to EBITDAX ratio of less than 3.5:1 at the end of each quarter. Third, we must maintain a current ratio of at greater than 1:1 at the end of each quarter, meaning that our consolidated current assets (including the unused amount of the credit facility by excluding non-cash assets under ASC 410 and 815) must be greater than our consolidated current liabilities (excluding non-cash obligations under ASC 410 and 815 and current maturities under the credit facility.) The Company is not in compliance with its debt covenants at September 30, 2015.

The credit agreement prevents us from incurring indebtedness to banks or lenders, other than Independent Bank, without the consent of SOSventures, LLC. It also prevents us from incurring most contingent obligations or liens (other than to Independent Bank). It also restricts our ability to pay dividends, issue options and warrants and repurchase our common stock shares. The limitation on options and warrants does not apply to equity compensation plans.

As of November 12, 2015, with accrued and unpaid interest we have a $20 million balance on the SOSventures, LLC credit facility.

On April 15, 2015 we entered the Second Amendment to the First Amendment and Restated Credit Agreement (Exhibit 10.6.4) and several other agreements which provided that SOSventures, LLC will provide an additional $3 million on its credit facility to be used to pay the outstanding balance of the Independent Bank term loan, pay on the Independent Bank credit facility and for operations. Additionally, SOSventures deposit $5 million into a controlled account at Independent Bank to be used to drill two wells in the Crittenden Field referenced in the Independent Bank Amendment. Further, SOSventures, LLC will receive interest on its credit facility and a 1% overriding royalty interest on the Company’s Crittenden Field properties effective upon the drilling of these two oil and gas wells until such time as the credit facility is repaid. Finally, SOSventures, LLC shall receive warrants to purchase 2,542,397 of our common shares for $1.00 per share with a two-year term. If fully purchased 2,542,397 would equal 20% of our currently outstanding common stock.

SOSventures, LLC is part of a group that currently owns approximately 38% of our Company stock. SOSventures, LLC now has sufficient warrants to be able to increase its group ownership to a point where the SOSventures, LLC group becomes the Company’s controlling stockholder.

Item 3.

Defaults Upon Senior Securities

In aNovember ~~letter dated October 20,~~ 2015, counsel for Independent Bank notified ~~the~~us ~~Company~~ of the following defaults under ~~our~~the 2013 Credit Agreement ~~with~~between us and Independent Bank, acting for itself and as administrative agent for the other lenders (as amended, the “IB Credit Agreement”): i) the interest coverage ratio covenant set forth in Section 7.15.1 of the IB Credit Agreement for the fiscal quarter ended June 30, 2015, (ii) the current ratio covenant set forth in Section 7.15.2 of the IB Credit Agreement for the fiscal quarter ended June 30, 2015, (iii) the leverage ratio covenant set forth in Section 7.15.3 of the IB Credit Agreement for the fiscal quarter ended June 30, 2015, and (iv) the ~~Borrower~~Company is not currently maintaining the minimum Commodity Hedging Transactions (as defined in the IB Credit Agreement) required by Section 7.21 of the IB Credit Agreement. The letter further stated that the bank was contemplating its course of action.

~~The~~On ~~letter~~November ~~from~~24, 2015, we entered into the Forbearance Agreement and the Third Amendment to the Amended and Restated Credit Agreement with Independent Bank’s ~~counsel~~under ~~further~~which ~~stated:~~Independent Bank, acting for itself and as administrative agent for other lenders, agreed to forbear exercising any of its remedies for the existing covenant defaults for period of time to permit us to seek refinancing of the indebtedness owed to Independent Bank in the approximate amount of $11,000,000, which is referred to as the IB Indebtedness or a sale of sufficient assets to repay the IB Indebtedness. The Forbearance Period began with the execution of the IB Forbearance Agreement on November 24, 2015 and ended on January 31, 2016. The Forbearance Period was subsequently extended to March 31, 2016.

~~The~~Furthermore, ~~Lender~~this isalso ~~considering~~cross ~~what~~defaulted ~~actions to take in respect of~~ the ~~Listed~~SOSventures ~~Defaults. The Lender expressly retains and reserves all rights and remedies now or hereafter available to it under the~~ Credit Agreement ~~and the other Loan Documents. The Lender does not~~, ~~and~~however ~~does not intend to, waive~~ the ~~Listed~~maturity ~~Defaults or any other Default or Event~~ of ~~Default~~the orsecond ~~agree~~lien tonote ~~forbear from any rights or remedies with respect thereto; any such waiver or forbearance, if done, would only be effective~~ to ~~the~~SOSventures ~~extent,~~was ~~and~~extended ~~subject~~ to ~~terms~~August ~~and conditions~~1, ~~set forth in a separate written instrument executed and delivered in accordance with the Credit Agreement~~2016.

~~Negotiations~~Please ~~with~~see ~~Independent~~the ~~Bank~~information ~~are~~set ~~ongoing.~~forth Wein doItem ~~not~~5 ~~anticipate~~below aregarding ~~renewal~~the further extension of the ~~credit~~Forbearance ~~facility~~Agreement, inwhich ~~2016~~information ~~and~~is ~~are~~incorporated ~~seeking~~by ~~alternative~~reference ~~financing~~herein. We Ifare ~~negotiations~~also ~~with~~in ~~Independent~~discussions ~~Bank~~with Lilis and ~~obtaining~~other ~~alternative~~financings ~~financing~~parties ~~are~~regarding ~~not~~possible ~~successful,~~refinance weoptions ~~may~~for bethe ~~required~~amount tooutstanding ~~take~~under ~~actions~~the toIB ~~preserve~~Credit ~~corporate assets~~Agreement.

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5.

Other Information

~~None~~Because this Form 10-Q is being filed within four business days from the date of the reportable event, we have elected to make the following disclosure in this Form 10-Q instead of in a Current Report on Form 8-K under Item 1.01.

~~Item~~The ~~6. Exhibits~~foregoing description of the Third Amendment is not complete and ~~Reports~~is onqualified in its entirety by reference to the full text of the Third Amendment, a copy of which is filed as Exhibit 10.1.03 to this Form 810-KQ and is incorporated herein by reference.

~~(a)~~Item ~~The~~6. ~~following documents are filed as part of this report:~~Exhibits

~~1. Financial~~The ~~Statements. See~~documents listed in the Exhibit Index of this Form 10-Q are incorporated by reference or are filed with this Form 10-Q, in each case as indicated therein (numbered in accordance with Item 1601 of Regulation S-K).

2. Financial Statement Schedules. Not applicable.

All other schedules have been omitted because the required information is shown in the consolidated financials or notes thereto, or they are not applicable.

3. Exhibits. See Index to Exhibits for listing of exhibits which are filed herewith or incorporated by reference

(b) Reports on Form 8-K.

On April 15, 2015 the Company disclosed in its Item 9B “Other Information” in its Form 10-K the following:

Material Agreements

Independent Bank Credit Agreement

As stated above in Part II, the Company has entered into the Fourth Amendment to the Credit Agreement with Independent Bank Exhibit 10.5.15), the Fifth Amendment to the Credit Agreement with Independent Bank (Exhibit 10.5.16) the Second Amendment to the Credit Agreement with SOSventures, LLC (Exhibit 10.6.4) and the related Intercreditor Agreement amendment (Exhibit 10.6.5). These are material definitive agreements. These agreements are further described in Item 7 herein relating to Management’s Discussion and Analysis or Plan of Operations.

SOSventures, LLC Credit Agreement

Unregistered Sales of Equity Securities

In connection with the Second Amendment to our Credit Agreement with SOSventures, LLC, SOSventures, LLC will be issued warrants to purchase up to 2,542,397 of our common stock common stock shares at $1.00 per share with a two year term. If fully purchased, 2,542,397 common stock shares would equal 20% of our currently outstanding common stock.

Material Impairments

We reported an impairment of $4,428,378, which is material, in our Form 10-K for the year ending December 31, 2014. In the Form 10-K, the Company also reported a material weakness in its internal controls in connection with its accounting for this material impairment.

In the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015 we report that as of July 31, 2015 we sold all of the Oklahoma properties for $7,249,390 and $1,349,693 impairment charge for the Oklahoma properties was record. We have amended the Quarterly Report on Form 10-Q/A for the quarterly period ended June 30, 2015 to correct this computation and also reported a material weakness in its internal controls in connection with its accounting for this material impairment.Index

In this Form 10-Q was reported an impairment of $863,028.

Changes in Control of Registrant

SOSventures, LLC is part of a group that currently owns approximately 38% of our Company stock. As described above, SOSventures, LLC now has warrants that could allow it to purchase a controlling interest in the Company. Further SOSventures, LLC and its affiliates will very likely receive a significant portion of the 2,190,891 common stock shares we interpleaded into Connecticut Superior Court should the Connecticut Superior Court enter judgment on the September 10, 2015 American Arbitration Association Award against Gregory Imbruce and his affiliates.

Forms 8-K

On August 5, 2015, we disclosed the sale of our Oklahoma properties for $7,249,390, the use of the proceeds of this sale, and the entry into the Fifth Amendment to our credit agreement with Independent Bank.

On September 14, 2015 we disclosed the Award dated September 10, 2015 from the American Arbitration Association described above in Part II, Item 1 relating to legal proceedings.

Schedule 14C Information Statement

On July 28, 2015 we distributed to stockholders and filed with the Securities and Exchange Commission our Schedule 14C Information Statement which notified stockholders of the election of Bill Liao, Peter Benz, Charles S. Henry, III, Craig Dermody and Michael J. Pawelek to our Board of Directors, our name change to Brushy Resources, Inc. through a Certificate of Amendment to our Certificate of Incorporation and an amendment to our by-laws to provide mandatory venue for stockholder derivative lawsuits against our officers and directors in the Delaware Chancery Court.

We filed the Certificate of Amendment to change our name to Brushy Resources, Inc. on August 25, 2015.

SIGNATURES

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

	Brushy Resources, Inc.
	(Registrant)
Date: May 23, 2016	By:	/s/ Michael J. Pawelek
Date: November 13, 2015	By:	/s/ Michael J. Pawelek
		Chief Executive Officer
		(Principal Executive Officer)
Date: November 13, 2015		/s/ N. Kim Vo
Date: May 23, 2016	By:	/s/ N. Kim Vo
		Controller
		(Chief Accounting Officer)
		(Principal Financial Officer and Accounting Officer)

Index

EXHIBIT INDEX

Exhibit No.	Description

10.1.01	First Amendment to Forbearance Agreement, between Brushy Resources, Inc., ImPetro Resources, LLC, ImPetro Operating, LLC and Independent Bank, dated February 18, 2016 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed with the SEC on February 24, 2016).

10.1.02	Second Amendment to Forbearance Agreement, between Brushy Resources, Inc., ImPetro Resources, LLC, ImPetro Operating, LLC and Independent Bank, dated March 9, 2016 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed with the SEC on March 11, 2016).

10.1.03	Third Amendment to Forbearance Agreement, between Brushy Resources, Inc., ImPetro Resources, LLC, ImPetro Operating, LLC and Independent Bank, dated May 20, 2016 (filed herewith).

31.1	Management Certification - Principal Executive Officer (filed herewith).

31.2	Management Certification - Principal Accounting Officer (filed herewith).

32.1	Section 1350 Certification (furnished herewith).

101.INS	XBRL Instance Document (filed herewith).

101.SCH	XBRL Taxonomy Schema Linkbase Document (filed herewith).

101.CAL	XBRL Taxonomy Calculation Linkbase Document (filed herewith).

101.DEF	XBRL Taxonomy Definition Linkbase Document (filed herewith).

101.LAB	XBRL Taxonomy Labels Linkbase Document (filed herewith).

101.PRE	XBRL Taxonomy Presentation Linkbase Document (filed herewith).

EXHIBITS

EXHIBIT LIST

The following exhibits are included as part of this Form 10-K. References to “the Company” in this Exhibit List mean Brushy Resources, Inc., a Delaware corporation.

Exhibit No.		Description
3.1.1		Certificate of Incorporation.(1)
3.1.2		Certificate of Conversion.(2)
3.1.3		Certificate of Amendment.(3)
3.2.1		Amended and Restated Bylaws.(4)
3.2.2		Starboard Resources Amended and Restated Operating Agreement dated January 20, 2012.(5)
4.1		Securities Purchase and Exchange Agreement between Starboard Resources, LLC, Longview Marquis Master Marquis Fund, L.P., Summerview Marquis Fund, L.P., Longview Marquis Fund, L.P., LMIF Investments, LLC, SMF Investments, LLC, and Summerline Capital Partners, LLC dated June 10, 2011.(6)
4.2		Agreement between Asym Capital III LLC, Giddings Genpar LLC, Hunton Oil Genpar LLC and SOSventures, LLC regarding Starboard Resources, LLC dated January 20, 2012.(7)
4.3		Agreement between Starboard Resources, LLC, Longview Marquis Master Marquis Fund, L.P., Summerview Marquis Fund, L.P., Longview Marquis Fund, L.P., LMIF Investments, LLC, SMF Investments, LLC, and Summerline Capital Partners, LLC dated July 20, 2012 (Relating to Waiver of Put Option).(8)
4.4		2014 Equity Compensation Plan.(9)
10.1		Amended and Restated Employment Agreement, dated as of August 14, 2014, between Starboard Resources, Inc. and Michael Pawelek.(10)
10.2		Amended and Restated Employment Agreement, dated as of August 14, 2014, between Starboard Resources, Inc. and Edward Shaw.(11)
10.3		Employment Agreement, dated as of April 1, 2012, between Starboard Resources, Inc. and N. Kim Vo.(12)
10.4		Participation Agreement with Husky Ventures, LLC.(13)
10.5.01		Credit Agreement dated as of June 27, 2013 between Starboard Resources, Inc. as borrower and Independent Bank as lender.(14)
10.5.02		Security Agreement dated as of June 27, 2013 between Starboard Resources, Inc. as debtor and Independent Bank as secured party. (15)
10.5.03		Mortgage, Deed of Trust, Security Agreement, Fixture Filing and Financing Statement for Texas oil and gas properties from Starboard Resources, Inc., Mortgagor, to John E. Davis, Trustee, and Independent Bank, mortgagee.(16)
10.5.04		Note from Starboard Resources, Inc. to Independent Bank dated July 27, 2012.(17)
10.5.05		Certificate of Ownership Interests – Starboard Resources, Inc. dated June 27, 2013.(18)
10.5.06		Omnibus Certificate – Starboard Resources, Inc. dated June 27, 2013.(19)
10.5.07		Guaranty dated June 27, 2013 from ImPetro Operating, LLC.(20)
10.5.08		Security Agreement dated June 27, 2013 between ImPetro Operating, LLC and Independent Bank.(21)

Exhibit No.		Description
10.5.09		Omnibus Certificate – ImPetro Operating, LLC dated June 27, 2013.(22)
10.5.10		Waiver of Operator’s Lien – ImPetro Operating, LLC dated June 27, 2013.(23)
10.5.11		Guaranty dated June 27, 2013 from ImPetro Resources, LLC.(24)
10.5.12		Security Agreement dated June 27, 2013 between ImPetro Resources, LLC and Independent Bank.(25)
10.5.13		Omnibus Certificate – ImPetro Resources, LLC dated June 27, 2013.(26)
10.5.14		Note dated June 27, 2013 – Starboard Resources, Inc.(27)
10.5.15		Fourth Amendment to Credit Agreement with Independent Bank dated April 15, 2015.(28)
10.5.16		Fifth Amendment to Credit Agreement with Independent Bank dated July 31, 2015.(29)
10.6.1		Credit Agreement dated July 25, 2013 between Starboard Resources, Inc. and SOSventures, LLC(.30)
10.6.2		Intercreditor Agreement dated July 25, 2013 between Independent Bank, and SOSventures LLC.(31)
10.6.3		Second Amendment to Credit Agreement between SOSventures, LLC and Starboard Resources dated April 15, 2015.(32)
10.6.4		Amendment to Intercreditor Agreement between Independent Bank, SOSventures, LLC and Starboard Resources, Inc. dated April 15, 2015.(33)
10.7.1		Sunoco – Texon LP Crude Purchase Agreemen.t(34)
10.7.2		Sunoco – Texon LP Crude Purchase Agreement Amendment.(35)
10.8		DCP Midstream, LP Gas Purchase Agreement.(36)
10.9		American Arbitration Association Award dated September 10, 2015.(37)
14		Code of Ethics.(38)
21		List of subsidiaries(39)
23.2		Consent of Forrest A. Garb & Associates, Inc., independent petroleum engineers.(40)
31.1		Management Certification – Principal Executive Officer.
31.2		Management Certification – Principal Accounting Officer.
32.1		Section 1350 Certification.
99.2		Reserve Report as of January 1, 2015 from Forrest Garb & Associates, Inc.(41)
99.3		Reserve Report as of January 1, 2014 from Forrest Garb & Associates, Inc.(42)

Reference No.		Reference Description
(1)		Incorporated by reference to Exhibit 3.1.1 of the Company’s Form 10 filed with the SEC on June 7, 2013 which became effective August 6, 2013.
(2)		Incorporated by reference to Exhibit 3.1.2 of the Company’s Form 10 filed with the SEC on June 7, 2013 which became effective August 6, 2013.
(3)		Incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed with the SEC on November 13, 2014.
(4)		Incorporated by reference to Exhibit 3.2 of the Company’s Form 8-K filed with the SEC on October 31, 2014.
(5)		Incorporated by reference to Exhibit 3.2.3 of the Company’s Form 10 filed with the SEC on June 7, 2013 which became effective August 6, 2013.
(6)		Incorporated by reference to Exhibit 4.1 of the Company’s Form 10 filed with the SEC on June 7, 2013 which became effective August 6, 2013.
(7)		Incorporated by reference to Exhibit 4.2 of the Company’s Form 10 filed with the SEC on June 7, 2013 which became effective August 6, 2013.
(8)		Incorporated by reference to Exhibit 4.3 of the Company’s Form 10 filed with the SEC on June 7, 2013 which became effective August 6, 2013.
(9)		Incorporated by reference to Exhibit 3.2 of the Company’s Form 8-K filed October 31, 2014.
(10)		Incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed with the SEC on September 4, 2014.
(11)		Incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed with the SEC on September 4, 2014.
(12)		Incorporated by reference to Exhibit 10.3 of the Company’s Form 10 filed with the SEC on June 7, 2013 which became effective August 6, 2013.
(13)		Incorporated by reference to Exhibit 10.4 of the Company’s Form 10 filed with the SEC on June 7, 2013 which became effective August 6, 2013.
(14)		Incorporated by reference to Exhibit 10.5.01 of the Company’s Form 10/A filed with the SEC on July 26, 2013 which became effective August 6, 2013.
(15)		Incorporated by reference to Exhibit 10.5.02 of the Company’s Form 10/A filed with the SEC on July 26, 2013 which became effective August 6, 2013.
(16)		Incorporated by reference to Exhibit 10.5.03 of the Company’s Form 10/A filed with the SEC on July 26, 2013 which became effective August 6, 2013.
(17)		Incorporated by reference to Exhibit 10.5.04 of the Company’s Form 10/A filed with the SEC on July 26, 2013 which became effective August 6, 2013.
(18)		Incorporated by reference to Exhibit 10.5.05 of the Company’s Form 10/A filed with the SEC on July 26, 2013 which became effective August 6, 2013.
(19)		Incorporated by reference to Exhibit 10.5.06 of the Company’s Form 10/A filed with the SEC on July 26, 2013 which became effective August 6, 2013.
(20)		Incorporated by reference to Exhibit 10.5.07 of the Company’s Form 10/A filed with the SEC on July 26, 2013 which became effective August 6, 2013.
(21)		Incorporated by reference to Exhibit 10.5.08 of the Company’s Form 10/A filed with the SEC on July 26, 2013 which became effective August 6, 2013.

Reference No.		Reference Description
(22)		Incorporated by reference to Exhibit 10.5.09 of the Company’s Form 10/A filed with the SEC on July 26, 2013 which became effective August 6, 2013.
(23)		Incorporated by reference to Exhibit 10.5.10 of the Company’s Form 10/A filed with the SEC on July 26, 2013 which became effective August 6, 2013.
(24)		Incorporated by reference to Exhibit 10.5.11 of the Company’s Form 10/A filed with the SEC on July 26, 2013 which became effective August 6, 2013.
(25)		Incorporated by reference to Exhibit 10.5.12 of the Company’s Form 10/A filed with the SEC on July 26, 2013 which became effective August 6, 2013.
(26)		Incorporated by reference to Exhibit 10.5.13 of the Company’s Form 10/A filed with the SEC on July 26, 2013 which became effective August 6, 2013.
(27)		Incorporated by reference to Exhibit 10.5.14 of the Company’s Form 10/A filed with the SEC on July 26, 2013 which became effective August 6, 2013.
(28)		Incorporated by reference to Exhibit 10.5.15 of the Company’s Form 10-K filed with the SEC on April 16, 2015.
(29)		Incorporated by reference to Exhibit 99.1 of the Company’s Form 8- filed with the SEC on August 5, 2015
(30)		Incorporated by reference to Exhibit 10.6.1 of the Company’s Form 10/A filed with the SEC on July 26, 2013 which became effective August 6, 2013.
(31)		Incorporated by reference to Exhibit 10.6.2 of the Company’s Form 10/A filed with the SEC on July 26, 2013 which became effective August 6, 2013.
(32)		Incorporated by reference to Exhibit 10.6.3 of the Company’s Form 10-K filed with the SEC on April 16, 2015.
(33)		Incorporated by reference to Exhibit 10.6.4 of the Company’s Form 10-K filed with the SEC on April 16, 2015.
(34)		Incorporated by reference to Exhibit 10.7.1 of the Company’s Form 10/A filed with the SEC on July 26, 2013 which became effective August 6, 2013.
(35)		Incorporated by reference to Exhibit 10.7.2 of the Company’s Form 10/A filed with the SEC on July 26, 2013 which became effective August 6, 2013.
(36)		Incorporated by reference to Exhibit 10.8 of the Company’s Form 10/A filed with the SEC on July 26, 2013 which became effective August 6, 2013.
(37)		Incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed with the SEC on September 14, 2015.
(38)		Incorporated by reference to Annex 3 of the Company’s Schedule 14A filed with the SEC on September 26, 2014.
(39)		Incorporated by reference to Exhibit 21 of the Company’s Form 10-K filed with the SEC on April 16, 2015.
(40)		Incorporated by reference to Exhibit 23.2 of the Company’s Form 10-K filed with the SEC on April 16, 2015.
(41)		Incorporated by reference to Exhibit 99.2 of the Company’s Form 10-K filed with the SEC on April 16, 2015.
(42)		Incorporated by reference to Exhibit 99.3 of the Company’s Form 10-K/A filed with the SEC on April 30, 2014

Filing Compare · Brushy Resources, Inc.