BAKKEN RESOURCES,
INC
CONSOLIDATED BALANCE SHEETS
|
|
(unaudited)
|
|
(audited)
|
|
|
31-Mar-16
|
|
31-Dec-15
|
ASSETS
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
85,072
|
|
$
|
228,952
|
Accounts receivable - trade
|
|
|
719,618
|
|
|
683,146
|
Related party receivable
|
|
|
110,652
|
|
|
101,976
|
Prepaid expenses
|
|
|
34,442
|
|
|
61,876
|
Other receivables
|
|
|
271,279
|
|
|
390,524
|
Income tax refunds receivable
|
|
|
470,487
|
|
|
354,951
|
Investments available for
sale
|
|
|
4,135,216
|
|
|
4,005,777
|
Total current assets
|
|
|
5,826,766
|
|
|
5,827,202
|
|
PROPERTY, PLANT AND EQUIPMENT, net
of accumulated depreciation of $31,036 and $30,410
|
|
|
2,352
|
|
|
2,977
|
UNPROVED MINERAL RIGHTS AND LEASES
|
|
|
801,941
|
|
|
801,941
|
Total Assets
|
|
$
|
6,631,059
|
|
$
|
6,632,120
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
58,252
|
|
$
|
114,921
|
Accrued liabilities
|
|
|
111,440
|
|
|
74,324
|
Total Liabilities
|
|
|
169,692
|
|
|
189,245
|
|
COMMITMENTS AND CONTINGENCIES (
Note 7)
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY:
|
|
|
|
|
|
|
Preferred stock, $.001 par value,
10,000,000 shares authorized, none issued or outstanding
|
|
|
|
|
|
|
Common stock, $.001 par value, 100,000,000 shares authorized,
56,735,350 shares issued and outstanding
|
|
|
56,735
|
|
|
56,735
|
Additional paid-in
capital
|
|
|
3,510,759
|
|
|
3,510,759
|
Accumulated other comprehensive income, net of tax
|
|
|
77,459
|
|
|
2,313
|
Retained earnings
|
|
|
2,816,414
|
|
|
2,873,068
|
Total Stockholders' Equity
|
|
|
6,461,367
|
|
|
6,442,875
|
Total Liabilities and
Stockholders' Equity
|
|
$
|
6,631,059
|
|
$
|
6,632,120
|
See accompanying notes to
the consolidated financial statements
3
BAKKEN RESOURCES,
INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
|
|
(unaudited)
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2016
|
|
2015
|
REVENUES
|
|
$
|
99,954
|
|
|
$
|
222,625
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
Depreciation and depletion
|
|
|
626
|
|
|
|
1,570
|
|
Payroll
|
|
|
79,670
|
|
|
|
83,854
|
|
Professional fees
|
|
|
187,253
|
|
|
|
211,420
|
|
General and administrative expenses
|
|
|
71,542
|
|
|
|
27,236
|
|
Total Operating Expenses
|
|
|
339,091
|
|
|
|
324,080
|
|
LOSS
FROM OPERATIONS
|
|
|
(239,137
|
)
|
|
|
(101,455
|
)
|
OTHER INCOME (EXPENSES):
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
1,339
|
|
|
|
654
|
|
Dividend Income
|
|
|
11,790
|
|
|
|
|
|
Realized loss on investments
|
|
|
(2,695
|
)
|
|
|
|
|
Total other income (expenses)
|
|
|
10,434
|
|
|
|
654
|
|
|
NET
LOSS BEFORE INCOME TAXES
|
|
|
(228,703
|
)
|
|
|
(100,801
|
)
|
Income tax benefit (provision)
|
|
|
172,049
|
|
|
|
22,844
|
|
NET
LOSS
|
|
$
|
(56,654
|
)
|
|
$
|
(77,957
|
)
|
|
OTHER COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
Unrealized gains on investments, net of tax
|
|
|
75,146
|
|
|
|
-
|
|
TOTAL COMPREHENSIVE INCOME (LOSS)
|
|
$
|
18,492
|
|
|
$
|
(77,957
|
)
|
NET
INCOME (LOSS) PER COMMON SHARE
|
|
|
|
|
|
|
|
|
BASIC
|
|
$
|
Nil
|
|
|
$
|
Nil
|
|
DILUTED
|
|
$
|
Nil
|
|
|
$
|
Nil
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
basic
|
|
|
56,735,350
|
|
|
|
56,735,350
|
|
diluted
|
|
|
56,735,350
|
|
|
|
56,735,350
|
|
See accompanying notes to
the consolidated financial statements
4
BAKKEN RESOURCES,
INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
(unaudited)
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2016
|
|
2015
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(56,654
|
)
|
|
$
|
(77,957
|
)
|
Adjustments to reconcile net loss
to net cash provided (used) in operating activities:
|
|
|
|
|
|
|
Depreciation expense
|
|
|
626
|
|
|
|
1,570
|
|
Realized loss on investments
|
|
|
2,695
|
|
|
|
|
|
Deferred income taxes on unrealized investment
gains
|
|
|
(53,309
|
)
|
|
|
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable - trade
|
|
|
(36,472
|
)
|
|
|
219,333
|
|
Related Party Receivable
|
|
|
-
|
|
|
|
37,062
|
|
Other receivables
|
|
|
119,245
|
|
|
|
(98,190
|
)
|
Income tax refunds receivable
|
|
|
(115,536
|
)
|
|
|
-
|
|
Prepaids
|
|
|
27,434
|
|
|
|
(22,213
|
)
|
Accounts payable
|
|
|
(56,671
|
)
|
|
|
(78,175
|
)
|
Royalty payable to related party
|
|
|
(8,676
|
)
|
|
|
-
|
|
Accrued liabilities
|
|
|
37,116
|
|
|
|
(21,710
|
)
|
Income tax payable
|
|
|
|
|
|
|
114,687
|
|
NET
CASH PROVIDED (USED) BY OPERATING ACTIVITIES
|
|
|
(140,202
|
)
|
|
|
74,408
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Purchases of investments, net
|
|
|
(3,678
|
)
|
|
|
|
|
Cash provided from restricted cash asset
|
|
|
|
|
|
|
170,000
|
|
NET
CASH PROVIDED (USED) BY INVESTING ACTIVITIES
|
|
|
(3,678
|
)
|
|
|
170,000
|
|
|
NET
CHANGE IN CASH AND CASH EQUIVALENTS
|
|
|
(143,880
|
)
|
|
|
244,410
|
|
Cash
at beginning of period
|
|
$
|
228,952
|
|
|
|
6,334,092
|
|
Cash
at end of period
|
|
$
|
85,072
|
|
|
$
|
6,578,500
|
|
See accompanying notes to
the consolidated financial statements
5
BAKKEN RESOURCES, INC.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 BASIS OF
PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of
Presentation
The accompanying unaudited
interim consolidated financial statements and related notes have been prepared
in accordance with accounting principles generally accepted in the United States
of America and with the rules and regulations of the Securities and Exchange
Commission to Form 10-Q and Article 8 of Regulation S-X. These unaudited interim
consolidated financial statements should be read in conjunction with the
financial statements of the Company for the years ended December 31, 2015 and
2016 and notes thereto contained in the information as part of the Companys
Annual Report on Forms 10-K filed with the SEC on September 30, 2016 and June
20, 2017, respectively. Notes to the consolidated financial statements which
would substantially duplicate the disclosure contained in the audited financial
statements as reported in the Form 10-K have been omitted. In the opinion of
management, the unaudited interim consolidated financial statements reflect all
adjustments (consisting of normal recurring adjustments) which are necessary to
present fairly the financial position and the results of operations for the
interim periods presented herein. Unaudited interim results are not necessarily
indicative of the results for the full year.
Certain amounts in the
prior period financial statements have been reclassified to conform with the
current period presentation. Reclassified amounts are immaterial to the
financial statements.
Oil and Gas
Properties
The Company owns royalty
interests and one working interest. The Company capitalizes asset acquisition
costs. Unproved oil and gas properties are periodically assessed to determine
whether they have been impaired, and any impairment in value is charged to
expense. The costs of properties, which are determined to be productive, are
transferred to prove oil and gas properties and amortized on an equivalent
unit-of-production basis.
During the three months
ended March 31, 2016 and 2015, the Company recognized no impairment of its oil
and gas properties.
Fair value of
financial instruments
The Company follows the
FASB Accounting Standards Codification for disclosures about fair value of its
financial instruments and has adopted the FASB Accounting Standards Codification
to measure the fair value of its financial instruments. The FASB Accounting
Standards Codification establishes a framework for measuring fair value in
generally accepted accounting principles (GAAP), and expands disclosures about
fair value measurements. To increase consistency and comparability in fair value
measurements and related disclosures, the FASB Accounting Standards Codification
establishes a fair value hierarchy which prioritizes the inputs to valuation
techniques used to measure fair value into three (3) broad levels. The fair
value hierarchy gives the highest priority to quoted prices (unadjusted) in
active markets for identical assets or liabilities and the lowest priority to
unobservable inputs. The three (3) levels of fair value hierarchy defined by the
FASB Accounting Standards Codification are described below:
Level 1
|
|
Quoted market prices available in active
markets for identical assets or liabilities as of the reporting
date.
|
|
|
|
Level 2
|
|
Pricing inputs other than quoted prices in
active markets included in Level 1, which are either directly or
indirectly observable as of the reporting date.
|
|
|
|
Level 3
|
|
Pricing inputs that are generally observable
inputs and not corroborated by market data.
|
The carrying amounts of
financial assets and liabilities, such as cash, approximate their fair values
because of the short maturity of these instruments.
The Company has assets
measured at fair value on a recurring basis (See Note 3). As of March 31, 2016,
the Company also had assets that, under certain conditions, are subject to
measurement at fair value on a non-recurring basis like those associated with
oil and gas producing properties, and mineral rights and leases, and other
long-lived assets. For these assets, measurement at fair value in periods
subsequent to their initial recognition is applicable if any of these assets are
determined to be impaired. If recognition of these assets at their fair value
becomes necessary, such measurements will be determined utilizing Level 3
inputs.
6
NOTE 2 RELATED PARTY
TRANSACTIONS
Eagle Private Equity
In May, 2016, the Company entered into a transaction with Eagle Private Equity whereby Eagle provided the Company with a $1 million acquisition-line credit facility. The events of July 20, 2016 (see Note 7) triggered Eagles right to put and convert loans, which Eagle exercised by obtaining 600,000 shares of the Companys Series A Preferred Stock, with voting rights equivalent to 60 million shares of common stock. The Eagle transaction documents executed in May 2016 also contemplated a renewal, at the Companys option, at the expiration of the term of original facility.
Following the expiration of the Eagle credit line in January 2017, the Company entered into negotiations for an extension/renewal of the credit line, a potential redemption of preferred Series A shares obtained by Eagle in connection with the attempted takeover of July 20, 2016, and a consulting agreement pertaining to debt and equity underwriting services.
In the first quarter 2017, the Company had certain negotiations relating to such extension/renewal of the Eagle facility and the redemption of the preferred Series A shares. However, the Company did not close on this proposed additional transaction with Eagle, but placed $250,000 into a fully-refundable escrow to secure the rights to close the proposed extension/renewal, renegotiate key terms, or abandon the proposed extension/renewal. The $250,000 placed into escrow represents, in part, potential fees associated with the renewal and execution of the stock redemption agreement. These funds will remain in escrow until such time as the parties elect to terminate such escrow. If the extension/renewal closes and the redemption is exercised, then all or a portion of the $250,000 will be remitted to Eagle.
Related Party Receivable
In connection with the
acquisition of the Holms Property, the Company granted to Holms Energy LLC
(Holms Energy), which is owned by a former officer of the Company, a 5%
overriding royalty payable on all revenue generated from the Holms Property for
ten years from the date of the acquisitions closing. In 2015, the Company had
determined that payments made to Holms Energy had exceeded royalties payable and
recognized a royalty receivable as of March 31, 2016, and December 31, 2015, of
$110,652 and $101,976, respectively. The royalty expense for the three months
ended March 31, 2016 and 2015 is $ 43,760 and $119,101, respectively.
Big Willow
Lease
On July 9, 2014, the
Companys CEO entered into a two-year lease agreement on 28,000 gross acres
(approximately 9,300 net mineral acres) in southwest Idaho. The agreement,
referred to as the Big Willow lease, included a two year primary term with the
option to extend for an additional term. The Idaho lease contemplated that the
property will be eventually operated by Holms Energy Development Corporation, an
entity that is controlled by the Companys former CEO. Terms of such
arrangements between the Company and Holms Energy Development Corporation have
not been considered and approved by the disinterested members of the Companys
Board of Directors. See Note 5 below for additional information relating to the
Idaho Lease.
NOTE 3 INVESTMENTS
AVAILABLE FOR SALE
In December 2015, the
Company invested cash into an investment portfolio. The portfolio is composed of
available-for-sale investments consisting of equities, fixed income, and money
market securities.
The investment portfolio
had unrealized gains of $75,146, net of deferred income taxes. Deferred income
taxes related to the unrealized gains were $53,309. All unrealized gains and
losses have resulted from changes in fair value during the last 3 months.
The fixed income portfolio
includes one $100,000 bond maturing in 2-5 years and one $100,000 bond maturing
in 5-10 years.
Money market funds,
publicly traded equity securities, and other available-for-sale investments are
classified within Level 1 of the fair value hierarchy because they are valued
using quoted market prices in active markets. Corporate bonds were priced by
independent pricing services and are classified within Level 2 of the fair value
hierarchy. These independent pricing services use market approach methodologies
that model information generated by transactions involving identical or
comparable assets.
The table below set forth
the Companys investments measured at fair value on a recurring basis:
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Money Market Funds
|
|
$
|
427,039
|
|
|
|
|
|
|
$
|
427,039
|
|
Fixed income investments:
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations
|
|
|
|
|
$
|
206,761
|
|
|
|
|
206,761
|
Fixed income mutual funds
|
|
|
|
|
|
634,040
|
|
|
|
|
634,040
|
Publicly traded equities
|
|
$
|
1,910,446
|
|
|
|
|
|
|
|
1,910,446
|
Other investments:
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate funds
|
|
|
381,208
|
|
|
|
|
|
|
|
381,208
|
Managed investment funds
|
|
|
575,722
|
|
|
|
|
|
|
|
575,721
|
Total
|
|
$
|
3,294,415
|
|
$
|
840,801
|
|
|
|
$
|
4,135,216
|
7
NOTE 4 INCOME TAXES
During the three months
ended March 31, 2016, aggregate income tax expense totaled $0. During the three
months ending March 31, 2016 The Companys income tax benefit of $172,049 for
the three months ended June 30, 2016, results primarily from expected income tax
refunds receivable and the tax effect on unrealized gains on investments. The
Companys income tax benefit of $22,844 for the three months ended June 30,
2015, results primarily from expected income tax refunds receivable.
NOTE 5 BIG WILLOW
LEASE - IDAHO
On July 9, 2014, the
Companys CEO entered into a two-year lease agreement on 28,000 gross acres
(approximately 9,300 net mineral acres) in southwest Idaho. The agreement,
referred to as the Big Willow lease, included a two year primary term with the
option to extend for an additional term.
On October 15, 2014, the
lease was amended to extend the bonus payment date to December 15, 2014. Along
with the lease amendment, a $250,000 bonus payment was paid. In April 2015, the
Big Willow lease has been extended a second time to June 15, 2015, pending the
completion of title work. This lease extension included a $105,000 bonus
payment. As a result of the lease amendments, the final bonus payment was
increased by $5,000 to compensate the leaseholder for additional costs incurred
by the lease amendments. The Big Willow lease was subsequently terminated in
July of 2016 (see Note 7)
NOTE 6 - COMMITMENTS AND
CONTINGENCIES
Office Lease
Commitment
On June 1, 2016, BRI entered into a four-year office lease for executive offices at 825 Great Northern Boulevard, Expedition Block Suite 304, Helena, MT 59601. The base monthly rent is $1,672 for the first year; $1,822 second year; $2,000 third year; $1,950 fourth year; and $2,000 fifth year. The lease agreement includes additional provisions for property taxes, condo fees, and utilities.
Litigation
On April 2, 2012, BRI was
served with a summons relating to a complaint filed by Allan Holms, both
individually and derivatively through Roil Energy, LLC. Allan Holms is the
half-brother of BRIs former CEO, Val Holms. The Complaint (filed in the Superior Court
of the State of Washington located in Spokane County) names, among others,
Joseph Edington, Val and Mari Holms, Holms Energy, LLC and BRI as defendants.
The Complaint primarily alleges breach of contract, tortious interference with
prospective business opportunity and fraud. The complaint focuses on events
allegedly occurring around February and March 2010 whereby Allan Holms alleged
an oral agreement took place whereby he was to receive up to 40% of the
originally issued equity of Roil Energy, LLC. Allan Holms alleges Roil Energy
was originally intended to be the predecessor entity to BRI. After various court
proceedings, the Washington Court of Appeals affirmed a trial courts ruling
against the plaintiff and reversed the trial courts ruling against certain of
the defendants. The Company believes the possibility of any future economic
damages to BRI to be unlikely in this matter. When the Company filed the appeal
with the Washington Court of appeals, the Company was required to post a bond of
$462,485. This amount was identified on the income statement as Settlement
Expense in 2014. The bond was returned to the Company in February 2017 following
a successful appeal.
In March 2014, the Company
received notice of a complaint titled Manuel Graiwer and T.J. Jesky v. Val
Holms, Herman Landeis, Karen Midtlyng, David Deffinbaugh, Bill Baber, W. Edward
Nichols, and Wesley Paul, Case No. CV14 00544 (the Graiwer Case), filed in the
Second Judicial District Court of the State of Nevada for Washoe County. Messrs.
Graiwer and Jesky, the plaintiffs in the Graiwer Case, brought action on behalf of
the Company derivatively, and the Company is also named as a nominal defendant.
Messrs. Graiwer and Jesky are shareholders of the Company and allege breach of
fiduciary duty, gross negligence, corporate waste, unjust enrichment, and civil
conspiracy against one or more of the named defendants. On September 27, 2016,
the court ordered a Final Judgment dismissing all defendants except for Val M.
Holms, The Company remains in the Graiwer Case as a nominal defendant.
Management of the Company assesses the likelihood of the plaintiffs chances to
prevail as remote.
Consolidated with the
Graiwer Case is a case that Val M. Holms filed in May 2016 against the Company.
Holms v. Bakken Resources, Inc.,
et al.
, Case No. CV 16-01086 (2d
Jud. Dist. Nev., Washoe Cnty. 2016) (consolidated with the Graiwer Case).
Shortly after consolidation into the Graiwer case, the Nevada court on July 14,
2016 issued findings that included a finding that Val M. Holms lacked a
reasonable probability of success on his claims. Then on July 20, 2016, Allan
Holms asserted proxies he obtained from his brother Val M. Holms and 22 other
shareholders in the attempted hostile takeover described in the Company's July
26, 2016 Current Report on Form 8-K. Based on those actions, the Company
obtained a July 22, 2016 TRO that was effectively converted into a preliminary
injunction on November 1, 2016. The TRO found that Allan Holms proxies and
takeover attempt were likely invalid and ineffectual, and accordingly it
preserves the Company's current composition and leadership without regard to
Allan Holms' attempted takeover. The Company also submitted counter claims
related to a contest for control of Bakken. Because Val M. Holms passed away
in December 2016, the Estate of Val M. Holms
now pursues the case on his behalf.
8
Also consolidated with the
Graiwer Case is an action filed by the Company against Allan Holms and Manuel
Graiwer. On February 21, 2017, the Company filed claims against Allan Holms,
Manuel Graiwer and other yet unnamed defendants.
Bakken Resources, Inc v. Allan Holms et
al.
, Case No. CV 17-00360 (2d
Jud. Dist. Nev., Washoe Cnty. 2017) (the Allan Holms NV Case). The Allan Holms
NV Case was brought following public disclosures made by Allan Holms in early
February 2017 that he had acquired and/or purchased shares that were previously
held by the Companys CEO, Val Holms. Allan Holms claimed that he acquired these
shares prior to Val Holms death in late December 2016. The Companys claims
against Allan Holms include fraud and injunctive relief. The Companys claims
against Manuel Graiwer involve Mr. Graiwers improper receipt of approximately
$20,000 under the guise of false legal invoices. A temporary restraining order
enjoining Allan Holms from claiming ownership of the shares in the name of Val
Holms was granted on February 21, 2017, and the applicable parties to this
portion of this action have stipulated to the extension of this TRO for the
duration of this case.
The Bakken Resources Inc.
bylaws state that the Company will indemnify officers and directors for actual
and reasonable amounts incurred while acting as an agent of the corporation. Val
Holms attorneys have submitted invoices to Bakken through September 30, 2016
for direct payment totaling more than $394,930. These services include the
Graiwer lawsuit and investigation related defense costs, as well as a litany of
other services that dont pertain to any litigation. The Company has reviewed
all submitted charges. The Company paid all billings that appear to be
indemnifiable under the Companys bylaws and Val Holms Leave of Absence
Agreement. Consequently, as of September 30, 2016 $277,720 in services billed
have not been reimbursed nor accrued as legal fees expense. It is managements
assessment that the Companys bylaws preclude payment of these invoices and the
likelihood that the Company will have any material liability due as a result of
these expenses is remote.
The nature of these
commitments and contingencies is such that management cannot accurately
determine what impact, if any, they may have on results of operation, cash
flows, and financial statements. Management believes, however, it is unlikely
that any adverse impact will occur from these commitments and contingencies.
NOTE 7 SUBSEQUENT
EVENTS
Val Holms
Termination
: The Companys
founder and CEO, Val M. Holms, was terminated in May 2016 on the basis of
receiving kickbacks, fraud and other allegations levied against him.
Eagle Private Equity
Transaction
: In May 2016, the
Company entered into a financing agreement with Eagle Private Equity (Eagle).
The Eagle transaction provides a non-revolving line of credit not to exceed
$1,000,000 and primarily intended for the acquisition of non-working interest
assets. The Convertible Loan Credit Agreement is convertible into Series A
preferred stock in certain circumstances. Series A preferred stock generally
holds common stock voting rights equivalent to 100 shares of common stock for
each share of series A preferred stock.
The agreement includes
conversion rights if certain triggering events occur. On July 20, 2016, a
triggering event occurred (see Attempted Takeover below), which granted Eagle
the right to put up to $1 million loans to the Company and convert debt. Eagle
put $600,000 in loans and subsequently converted such loans into equity (600,000
preferred shares) having the voting equivalent of 60 million shares of the
Companys common stock.
Big Willow Lease
Expiration
: On July 9, 2014, Val
Holms entered into a two year lease agreement on 28,000 gross acres
(approximately 9,300 net mineral acres) in southwest Idaho. The agreement,
referred to as the Big Willow lease, included a two year primary term with the
option to extend for an additional term. On July 9, 2016 the lease expired. As
of December 31, 2015, the Company has invested more than $751,000 on lease bonus
payments, title work, and other development related costs. These costs have been
written off on July 9, 2016.
Attempted
Takeover
: On July 20, 2016, Val
Holms half-brother, Allan Holms, attempted a takeover of the Company. Allan
Holms and an armed security force attempted to remove the existing Board of
Directors, remove current management, remove all counsel and suspend litigation,
and take control of the Companys cash assets. Allan Holms purported to hold
proxies from Val Holms and other shareholders representing a majority of the
Companys common stock. The Company believes such proxies were improperly and
illegally obtained. The Company has filed for and received temporary restraining
orders in Montana and Nevada enjoining, among other things, Allan Holms from
taking such takeover actions in Montana and from Val Holms from providing
proxies relating to his shares, pending preliminary hearings. A hearing in
Montana has taken place and is pending a decision. Hearings in Nevada extended
such TROs until trial in Nevada.
9
Roil Lawsuit
Appeal
: In August 2016, the
Washington State Appellate Court ruled to affirm the lower courts ruling that
Allan Holms and Roil Energy, LLC did not have any claims to the Companys assets
and also ruled to overturn the lower courts ruling that found certain fraud and
awarded Allan Holms certain attorneys fees. The Company had posted a $462,000
appeal bond as part of the appeal process. The plaintiffs petitioned the Washington State Supreme Court for review which was denied in January 2017. As of March 31, 2016, the Company has not recorded the receivable, however, the appeal bond was returned to the Company in 1Q 2017.
Allan Holms Nevada
Action
: Allan Holms filed a Form
5 and Schedule 13D on February 14, 2017, claiming to have acquired approximately
26 million shares of Common Stock from his half-brother, Val M. Holms, to which
the Company responded in a Current Report on Form 8-K filed with the Commission
on February 16, 2017. On February 21, 2017, the Company filed a verified
complaint in Nevada against Allan Holms, Manuel Graiwer, and Doe Defendants 1-10
and Doe Entities I-X, seeking injunctive relief, declaratory relief, as well as
claims for conversion and fraud. The claims stem from Defendants improperly
attempting to convey ownership of Val Holms shares to Allan Holms as well as
Graiwers improper receipt of $19,929.00 as a finders fee for bringing
investors to the company. On March 17, 2017 the case was removed to the United
States District Court for the District of Nevada. The Company filed an emergency
motion to extend the Nevada TRO in federal court on March 24, 2017. The federal
court TRO was granted on March 28, 2017. On April 13, 2017 the parties filed a
Stipulation and Order to Extend the Temporary Restraining Order and to Vacate
the Hearing on Preliminary Injunction. The Stipulation and Order were approved
on April 17, 2017. The Company has since prevailed on a motion for remand back
to the Nevada state court and to consolidate this action with the other two
Nevada actions into an overall consolidated action.
Estate
Claims
: In April 2017, the
Company made a claim in excess of $3 million dollars against the Val Holms
estate to recover costs associated with the internal investigation and
tangential activities as well as to recover amounts due from excess override
payments.