UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

Form 10-K

 

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2016

 

☐ 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: 000-49752

 

LEGEND OIL AND GAS, LTD.

(Exact name of registrant as specified in its charter)

 

Colorado   84-1570556
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
     
555 North Point Center East, Suite 410,
  Alpharetta, Georgia, 30022  

(Address of principal executive offices)

 

  (678) 366-4587  

 

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act
None

 

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value per share

 

Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

 

Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒

 

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

 

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

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

 

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. (Check one):  

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

 

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

 

The registrant does not have any non-voting common stock outstanding.

 

As of March 31, 2017, the Company had 942,083,273 shares of common stock issued and outstanding and 9,658 shares of preferred stock issued and outstanding.

 

List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933. The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1980).

 

None.

 

 

 

 

 

 

LEGEND OIL AND GAS, LTD.
Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2016

 

Table of Contents

 

  Page
   
Cautionary Notice Regarding Forward-Looking Statements 3
   
Oil and Gas Volumes 4
   
Glossary of Industry Terms 4
   
PART I  
   
Item 1. Business 6
     
Item 1A. Risk Factors 10
     
Item 1B. Unresolved Staff Comments 15
     
Item 2. Oil and Gas Properties 16
     
Item 3. Legal Proceedings 16
     
Item 4. Mine Safety Disclosures 16
     
PART II  
   
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 17
     
Item 6. Selected Financial Data 18
     
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 18
     
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 22
     
Item 8. Financial Statements and Supplementary Data 23
     
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 49
     
Item 9A. Controls and Procedures 49
     
Item 9B. Other Information 51
     
PART III  
   
Item 10. Directors, Executives Officers and Corporate Governance 52
     
Item 11. Executive Compensation 54
     
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 56
     
Item 13. Certain Relationships and Related Transactions, and Director Independence 57
     
Item 14. Principal Accountant Fees and Services 58
     
PART IV  
   
Item 15. Exhibits and Financial Statements 59

 

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CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS

 

This Annual Report on Form 10-K (“ Report ”) and the documents incorporated herein by reference contain forward-looking statements. Specifically, all statements other than statements of historical facts included in this Report regarding our financial position, business strategy and plans and objectives of management for future operations are forward-looking statements. These forward-looking statements are based on the beliefs of management, as well as assumptions made by and information currently available to management. When used in this Report, the words “anticipate,” “believe,” “estimate,” “expect,” “may,” “will,” “plan,” “assume,” “anticipate,” “continue” and “intend,” and words or phrases of similar import, as they relate to our financial position, business strategy and plans, or objectives of management, are intended to identify forward-looking statements.

 

These statements reflect our current view with respect to future events and are inherently subject to risks and uncertainties, many of which we cannot predict with accuracy and some of which we might not even anticipate. Although we believe that the expectations reflected in such forward-looking statements are based upon reasonable assumptions at the time made, we can give no assurance that such expectations will be achieved. Future events and actual results, financial and otherwise, may differ materially from those expressed in the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements. We have no duty to update or revise any forward-looking statements after the date of this Report and any documents incorporated herein by reference or to conform them to actual results, new information, future events or otherwise.

 

Various risk factors, including the risks outlined under the section herein entitled “ITEM 1A – RISK FACTORS” and the matters described in this Report generally, are important factors of which we are currently aware that could cause actual results, performance or achievements to differ materially from those expressed in any of the forward looking statements. We operate in a continually changing business environment and new risk factors emerge from time to time. Other unknown or unpredictable factors could have material adverse effects on our future results, performance or achievements. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this report may not occur.

 

Readers are urged to carefully review and consider the various disclosures made by us in this Report and in our other reports previously filed with the Securities and Exchange Commission, including our periodic reports on Forms 10-Q and 8-K, and those described from time to time in our press releases and other communications, which attempt to advise interested parties of the risks and factors that may affect our business, prospects and results of operations.

 

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OIL AND GAS VOLUMES

 

Unless otherwise indicated in this Report, natural gas volumes are stated at the legal pressure base of the state or geographic area in which the reserves are located at 60 degrees Fahrenheit. Crude oil and natural gas equivalents are determined using the ratio of six Mcf of natural gas to one barrel of crude oil, condensate or natural gas liquids.

 

GLOSSARY OF INDUSTRY TERMS

 

Terms used to describe quantities of crude oil and natural gas:

 

“ Bbl ” – barrel or barrels.

 

“ BOE ” – barrels of crude oil equivalent.

 

“ Boepd ” – barrels of crude oil equivalent per day.

 

“ MBbl ” – thousand barrels.

 

“ MBoe ” – thousand barrels of crude oil equivalent.

 

“ Mcf ” – thousand cubic feet of gas.

 

“ MMcf ” – million cubic feet of gas.

 

Terms used to describe our interests in wells and acreage:

 

“ developed acreage ” means acreage consisting of leased acres spaced or assignable to productive wells. Acreage included in spacing units of infill wells is classified as developed acreage at the time production commences from the initial well in the spacing unit.

 

“ development well ” is a well drilled within the proved area of a crude oil or natural gas reservoir to the depth of stratigraphic horizon (rock layer or formation) known to be productive for the purpose of extracting proved crude oil or natural gas reserves.

 

“ dry hole ” is an exploratory or development well found to be incapable of producing either crude oil or natural gas in sufficient quantities to justify completion as a crude oil or natural gas well.

 

“ exploratory well ” is a well drilled to find and produce crude oil or natural gas in an unproved area, to find a new reservoir in a field previously found to be producing crude oil or natural gas in another reservoir, or to extend a known reservoir.

 

“ gross acres ” refer to the number of acres in which we own a gross working interest.

 

“ gross well ” is a well in which we own a working interest.

 

“ net acres ” represent our percentage ownership of gross acreage. Net acres are deemed to exist when the sum of fractional ownership working interests in gross acres equals one (e.g., a 10% working interest in a lease covering 640 gross acres is equivalent to 64 net acres).

 

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“ net well ” is deemed to exist when the sum of fractional ownership working interests in gross wells equals one.

 

“ productive well ” is an exploratory or a development well that is not a dry hole.

 

“ undeveloped acreage ” means those leased acres on which wells have not been drilled or completed to a point that would permit the production of economic quantities of crude oil and natural gas, regardless of whether or not such acreage contains proved reserves. Undeveloped acreage includes net acres under the bit until a productive well is established in the spacing unit.

 

“ working interest ” – refers to the gross operating interest including royalties, in a particular lease or well.

 

Terms used to assign a present value to or to classify our reserves:

 

“ proved reserves ” or “ reserves ” – Proved crude oil and natural gas reserves are those quantities of crude oil and natural gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible—from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations—prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time.

 

“ proved developed reserves (PDP’s) ” – Reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. Additional crude oil and natural gas expected to be obtained through the application of fluid injection or other improved recovery techniques for supplementing the natural forces and mechanisms of primary recovery are included in “proved developed reserves” only after testing by a pilot project or after the operation of an installed program has confirmed through production response that increased recovery will be achieved.

 

“ proved developed non-producing reserves (PDNP’s) ” – Proved crude oil and natural gas reserves that are developed behind pipe, shut-in or that can be recovered through improved recovery only after the necessary equipment has been installed, or when the costs to do so are relatively minor. Shut-in reserves are expected to be recovered from (1) completion intervals which are open at the time of the estimate but which have not started producing, (2) wells that were shut-in for market conditions or pipeline connections, or (3) wells not capable of production for mechanical reasons. Behind-pipe reserves are expected to be recovered from zones in existing wells that will require additional completion work or future recompletion prior to the start of production.

 

“ proved undeveloped reserves (PUDs) ” – Proved crude oil and natural gas reserves that are expected to be recovered from new wells on undrilled acreage or from existing wells where a relatively major expenditure is required for development. Reserves on undrilled acreage are limited to those drilling units offsetting productive units that are reasonably certain of production when drilled. Proved reserves for other undrilled units are claimed only where it can be demonstrated with certainty that there is continuity of production from the existing productive formation. Estimates for proved undeveloped reserves are not attributed to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proven effective by actual tests in the area and in the same reservoir.

 

“ probable reserves ” – are those additional reserves which analysis of geoscience and engineering data indicate are less likely to be recovered than proved reserves but which together with proved reserves, are as likely as not to be recovered.

 

“ possible reserves ” – are those additional reserves which analysis of geoscience and engineering data suggest are less likely to be recoverable than probable reserves.

 

“ Standardized Measure ” – means estimated future net revenue, discounted at a rate of 10% per annum, after income taxes and with no price or cost escalation, calculated in accordance with Accounting Standards Codification 932, formerly Statement of Financial Accounting Standards No. 69 “Disclosures About Oil and Gas Producing Activities.”

 

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PART I

 

ITEM 1. BUSINESS

 

Overview

 

Legend Oil and Gas, Ltd. (the “Company” or “Legend”) is a crude oil hauling and trucking company with principal operations in the Bakken region of North Dakota and the Permian Basin in Texas and New Mexico. These crude oil hauling operations commenced through our acquisition of Black Diamond Energy Holdings, LLC and its wholly-owned subsidiaries Maxxon Energy, LLC and Treeline Diesel Center, LLC (collectively, “Maxxon Energy” or “Maxxon”) on April 3, 2015. Our current focus is to grow our core business and expand our crude oil hauling operations into other basins throughout the United States. Our field operations are managed by employees in Texas, New Mexico and North Dakota. Our back office operations staff is based out of North Dakota and Colorado, with the Company’s combined Chief Executive Officer and Chief Financial Officer based out of Georgia, and our Controller based in Florida.

 

Further, through October 27, 2015, we were also an oil and gas exploration, development and production company; whose business was to acquire producing and non-producing oil and gas interests and develop oil and gas properties that we owned or in which we had a leasehold interest. Our oil and gas property interests were located in the United States (Kansas and Oklahoma). On October 27, 2015, we sold our oil and gas exploration operations and we have presented those operations as discontinued operations.

 

We are a publicly traded company and our shares of common stock (“ common shares ”) are quoted for trading on the Over-the-Counter Bulletin Board (“ OTCBB ”). We were incorporated under the laws of the State of Colorado on November 27, 2000 under the name “SIN Holdings, Inc.” On November 29, 2010, we changed our name to Legend Oil and Gas, Ltd. Our only subsidiary, effective April 3, 2015, is Black Diamond Energy Holdings, LLC, which is our crude oil hauling entity, further known as Black Diamond Energy, LLC (“Maxxon Energy” or “Maxxon”).

 

Background

 

Oil and Gas Properties Business

 

We previously held interests in oil and gas properties located in the United States (Kansas and Oklahoma). During the first quarter of 2015, we sold two properties in Kansas, leaving one producing oil and gas property in Kansas (Landers/Volunteer lease) which was sold on October 27, 2015, and one nonproducing oil and gas property in Oklahoma (Van Pelt lease) which had a carrying value of $-0- at December 31, 2015.

 

We sold the properties operated in Kansas to Hillair Petroleum Holdings, Inc (“HPH”), in exchange for debt forgiveness in the amount of approximately $1.9 million owed to Hillair Capital Investments L.P. (“Hillair”), with no gain recorded on the sale as HPH is a related party. See further discussion of the entire transaction within the Liquidity and Capital Resources section of ITEM 7.

 

Crude Hauling/Trucking Business- Purchase of Black Diamond Energy (Maxxon)

 

On April 3, 2015, the Company entered into a Membership Interest Purchase Agreement with Sher Trucking, LLC (“Sher”), the majority owner, and two minority owners, which made up all of the members of Maxxon to purchase all of the outstanding membership interests of Maxxon. The Company paid $1,500,000 in cash to Sher; issued a secured promissory note to Sher (“Sher Note”) in the amount of $2,854,000 at 5% per annum, due April 3, 2016 and issued 148,500,000 shares of the Company’s common stock to the minority owners, then valued at $861,300. The Company also paid $125,000 to Sher after closing as an anticipated purchase price adjustment related to the target working capital at April 3, 2015, of Maxxon.

 

On April 5, 2016, the Company entered into an agreement with Sher that restructured the original secured promissory note with a carrying balance of $2,854,000 plus accrued interest of $142,700 (the “Restructuring”), totaling $2,996,700 to Sher, with the Sher Note remaining collateralized on that date, by the same collateral as the original promissory note. At December 31, 2016, the note was uncollateralized as a result of the collateral oil trailers being sold at auction, with the proceeds being paid directly to Sher, as well as our payment against the restructured promissory note to Sher to release all liens on the collateral tractors. Refer to Note 10 – Long Term Debt in the accompanying consolidated financial statements.

 

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Operations

 

Prior to the acquisition of Maxxon, we structured our operations in such a way as to mitigate certain operating expenses by maintaining a limited in-house employee base outside of our executive team. The majority of our operational duties were outsourced to consultants and independent contractors, including drilling, maintaining and operating our wells. Subsequent to the Maxxon acquisition, we terminated certain employees at Maxxon to effect operating efficiencies and reduce our operating costs.

 

Maxxon is our crude oil hauling and trucking subsidiary. We perform hauling services for large institutional drilling and exploration companies as well as crude oil marketers. The largest clients we served during 2016 included Statoil ASA, Inland Oil & Gas Corporation, HollyFrontier and Plains All American Pipeline, L.P.

 

Warren S. Binderman serves as our Chief Executive Officer (CEO), Chief Financial Officer (CFO), and Principal Accounting Officer. Binderman also serves as a member of our Board of Directors and as its Corporate Secretary.

 

Markets for Crude Hauling Services

 

Our crude hauling business markets depend on many factors beyond our control, including the extent of domestic production and imports of crude oil, the proximity and capacity of crude oil and other transportation facilities, demand for crude oil, the marketing of competitive fuels and the effects of state and federal regulation. The crude oil industry also competes with other industries in supplying the energy and fuel requirements of industrial, commercial and individual consumers.

 

Our crude oil hauling pricing structure is market driven, with customers principally controlling the rates they will pay per mile driven for hauling services from the well-head to the drop-off facility. Our rates are based on market conditions, which, based on the 2015 global decline in oil prices, with slight increases in 2016, required us to reduce our pricing markedly, to maintain and strengthen existing customers as well as acquire new customers.

 

Historically, the hauling rates we are able to charge to customers is based on the price of oil, which has fluctuated widely. Among the factors that can cause these fluctuations are: 

 

● changes in global supply and demand for oil and natural gas;

 

● the actions of the Organization of Petroleum Exporting Countries, or OPEC;

 

● the price and quantity of imports of foreign oil and natural gas;

 

● acts of war or terrorism;

 

● political conditions and events, including embargoes, affecting oil-producing activity;

 

● the level of global oil and natural gas exploration and production activity;

 

● the level of global oil and natural gas inventories;

 

● weather conditions;

 

● technological advances affecting energy consumption; and

 

● the price and availability of alternative fuels.

 

We did not enter into any derivative commodity contracts in any of our operations.

 

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Seasonality

 

Seasonality in the crude oil hauling sector differs by region. Regarding our current work in the Bakken, seasonality on hauling load counts may occur during “frost laws” (typically in the late February early March timeframe, annually). Counties have various roads mandated weight restrictions as the winter frost thaws roads. During these periods (an approximate six week timeframe), we are required to abide by County road restrictions on weight. Thus, we are able to haul lighter loads of crude oil while billing customers for full loads, per our agreements with those customers, translating into higher revenue due to the additional load counts carried and delivered.

 

Competition

 

Our crude oil hauling competition is significant, as larger haulers, integrated marketing companies and crude companies may have their own fleets of tractors and tankers for hauling purposes. Further, oil transported through pipelines impedes our ability to compete, as that as a more cost efficient alternative to truck hauling. However, there are many wells that are not on the pipeline, in addition to the fact that there are certain down periods of the pipeline where our customer base contacts us to service their well production.

 

Governmental Regulation

 

All of our operations are subject to various federal, state and local laws and regulations governing transportation (the US Department of Transportation and its affiliated agencies (DOT), prospecting, exploration, development, production, labor standards, occupational health and safety, control of toxic substances and emissions into the environment, storage and disposition of hazardous wastes and other matters involving environmental protection and employment. Environmental and DOT laws in the United States address the maintenance of air and water quality standards, the preservation of threatened and endangered species of wildlife and vegetation, the preservation of certain archaeological sites, reclamation, and limitations on the generation, transportation, storage, and disposal of solid and hazardous wastes, among other things. Such laws and regulations increase the costs of these activities and may prevent or delay the commencement or continuation of a given operation.

 

We do not believe that our environmental risks are or will be materially different from those of comparable companies in our industry. We believe our present activities substantially comply, in all material respects, with existing DOT, environmental, health and safety laws and regulations. However, our relative size compared to our competitors may make the impact of any environmental risk more significant to us than it would to our competitors. Compliance with DOT, environmental laws and our exposure to environmental risks could adversely affect our financial condition and results of operations, including by curtailment of production or material increases in the cost of insurance, fuel, personnel, or otherwise.

 

Laws and Regulations in the United States

 

The following is a summary of some of the material existing environmental, health and safety laws and regulations in the United States to which our business operations are subject.

 

Waste handling . The Resource Conservation and Recovery Act, or “RCRA”, and comparable state statutes, regulate the generation, transportation, treatment, storage, disposal and cleanup of hazardous and non-hazardous wastes. Under the auspices of the federal Environmental Protection Agency, or “EPA”, the individual states administer some or all of the provisions of RCRA, sometimes in conjunction with their own, more stringent requirements. Drilling fluids, produced waters and most of the other wastes associated with the exploration, development and production of crude oil or natural gas are currently regulated under RCRA’s non-hazardous waste provisions. However, it is possible that certain oil and natural gas exploration and production wastes now classified as non-hazardous could be classified as hazardous wastes in the future. Any such change could result in an increase in our costs to manage and dispose of wastes, which could have a material adverse effect on our results of operations and financial position.

 

Comprehensive Environmental Response, Compensation and Liability Act . The Comprehensive Environmental Response, Compensation and Liability Act, or “CERCLA”, also known as the Superfund law, imposes joint and several liability, without regard to fault or legality of conduct, in connection with the release of a hazardous substance into the environment. Persons potentially liable under CERCLA include the current or former owner or operator of the site where the release occurred and anyone who disposed or arranged for the disposal of a hazardous substance to the site where the release occurred. Under CERCLA, such persons may be subject to joint and several liabilities for the costs of cleaning up the hazardous substances that have been released into the environment, damages to natural resources and the costs of certain health studies. In addition, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the hazardous substances released into the environment.

 

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We leased and operated numerous properties that have been used for oil and natural gas exploration and production for many years. Hazardous substances may have previously been released on, at or under the properties owned, leased or operated by us, or on, at or under other locations, including off-site locations, where such substances have been taken for disposal. In addition, some of our properties have been or are operated by third parties or by previous owners or operators whose handling, treatment and disposal of hazardous substances were not under our control. These properties and the substances disposed or released on, at or under them may be subject to CERCLA, RCRA and analogous state laws. In certain circumstances, we could be responsible for the removal of previously disposed substances and wastes, to remediate contaminated property or to perform remedial plugging or pit closure operations to prevent future contamination. In addition, federal and state trustees can also seek substantial compensation for damages to natural resources resulting from spills or releases.

 

Water Discharges . The Federal Water Pollution Control Act, or the “Clean Water Act”, and analogous state laws, impose restrictions and strict controls with respect to the discharge of pollutants, including oil and other substances generated by our operations, into waters of the United States or state waters. Under these laws, the discharge of pollutants into regulated waters is prohibited except in accordance with the terms of a permit issued by EPA or an analogous state agency. Federal and state regulatory agencies can impose administrative, civil and criminal penalties for non-compliance with discharge permits or other requirements of the Clean Water Act and analogous state laws and regulations.

 

The Safe Drinking Water Act, or “SDWA”, and analogous state laws impose requirements relating to underground injection activities. Under these laws, the EPA and state environmental agencies have adopted regulations relating to permitting, testing, monitoring, record keeping and reporting of injection well activities, as well as prohibitions against the migration of injected fluids into underground sources of drinking water.

 

Air Emission . The Federal Clean Air Act and comparable state laws regulate emissions of various air pollutants through air emissions permitting programs and the imposition of other requirements. In addition, EPA and certain states have developed and continue to develop stringent regulations governing emissions of toxic air pollutants at specified sources. Federal and state regulatory agencies can impose administrative, civil and criminal penalties for non-compliance with air permits or other requirements of the Federal Clean Air Act and analogous state laws and regulations.

 

The Kyoto Protocol to the United Nations Framework Convention on Climate Change became effective in February 2005. Under the Protocol, participating nations are required to implement programs to reduce emissions of certain gases, generally referred to as greenhouse gases that are suspected of contributing to global warming. The United States is not currently a participant in the Protocol, and Congress has not acted upon recent proposed legislation directed at reducing greenhouse gas emissions. However, there has been support in various regions of the country for legislation that requires reductions in greenhouse gas emissions, and some states have already adopted legislation addressing greenhouse gas emissions from various sources, primarily power plants. The oil and natural gas industry is a direct source of certain greenhouse gas emissions, namely carbon dioxide and methane, and future restrictions on such emissions could impact our future operations.

 

Health Safety and Disclosure Regulation . We are subject to the requirements of the federal Occupational Safety and Health Act, or “OSHA” and comparable state statutes. The OSHA hazard communication standard, the Emergency Planning and Community Right to Know Act and similar state statutes require that we organize and disclose information about hazardous materials stored, used or produced in our operations.

 

Other Laws and Regulations . Various laws and regulations require certain permitting by the Department of Transportation, as to our crude oil hauling services. The effect of these laws and regulations, as well as other regulations that could be promulgated by the jurisdictions in which we provide hauling services, could be to limit the number of loads hauled due to various facts and circumstances in each of the local jurisdictions.

 

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Employees

 

As of December 31, 2016, we had approximately 18 full-time employees working out of Texas and New Mexico, 13 in North Dakota, and 6 in Colorado. We have a corporate management team that includes one executive (the CEO and CFO) residing in Georgia and a corporate controller in Florida.

 

Principal Offices

 

Our principal offices are located at 555 North Point Center East, Suite 410, Alpharetta, Georgia 30022. Our lease is on a month-to-month basis of approximately $2,000 per month. We anticipate using our current space until it is no longer suitable for our operations or circumstances demand otherwise.

 

ITEM 1A. RISK FACTORS

 

You should carefully consider the risks described below together with all of the other information included in this Report. Many of the statements contained in or incorporated herein that are not historic facts constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by such statements. If any of the following risks actually occurs, our business, financial condition or results of operations could be harmed. In that case, you may lose a portion or all of your investment.

 

Risks Relating to Our Business

 

We are highly dependent on Warren S. Binderman, CEO and CFO. The loss of Mr. Binderman, upon whose knowledge, leadership and technical expertise we rely, could harm our ability to execute our business plan.

 

Our success depends heavily upon the continued contributions of Mr. Binderman, whose knowledge, leadership and technical expertise would be difficult to replace, and on our ability to retain and attract experienced professional staff. If we were to lose the services of Mr. Binderman, our ability to execute our business plan could be harmed and we may be forced to cease or limit operations until such time as we are able to attract suitable replacements. We do not maintain key person life insurance on these members of our management team.

 

We may be unable to obtain additional capital required to implement our business plan, which could restrict our ability to grow.

 

We will need additional capital to continue to grow our business via acquisitions and to further expand our crude oil hauling business. We may be unable to obtain additional capital if and when required.

 

Future acquisitions and future tractor and oil trailer purchases, and marketing activities, as well as our administrative requirements (such as salaries, insurance expenses and general overhead expenses, as well as legal compliance costs and accounting expenses) will require a substantial amount of capital and cash flow.

 

We may pursue sources of additional capital through various financing transactions or arrangements, including joint venturing of projects, debt financing, equity financing or other means. We may not be successful in identifying suitable financing transactions in the time period required or at all, and we may not obtain the capital we require by other means. If we do not succeed in raising additional capital, our resources will not be sufficient to fund our planned expansion of operations in the future.

 

Any additional capital raised through the sale of equity may dilute the ownership percentage of our stockholders. Raising any such capital could also result in a decrease in the fair market value of our equity securities because our assets would be owned by a larger pool of outstanding equity. The terms of securities we issue in future capital transactions may be more favorable to our new investors, and may include preferences, superior voting rights and the issuance of other derivative securities. In addition, we have granted and will continue to grant equity incentive awards under our equity incentive plans, which may have a further dilutive effect. 

 

Our ability to obtain financing, if and when necessary, may be impaired by such factors as the state of the crude oil capital market, our limited operating history, the location of our crude oil hauling operations, and prices of crude oil on the commodities market (which will impact the amount of asset-based financing available to us), and the strength of our key employees. Further, if crude oil prices on the commodities markets decline, our revenues will likely decrease and such decreased revenues may increase our requirements for capital. If the amount of capital we are able to raise from financing activities, together with our revenues from operations, is not sufficient to satisfy our capital needs (even to the extent that we reduce our operations), we may be required to cease or limit our operations, divest our assets at unattractive prices or obtain financing on unattractive terms.

 

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We may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees, accounting fees, securities law compliance fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we may issue, which may adversely impact our financial condition.

 

We have a limited operating history, and may not be successful in achieving or sustaining profitable business operations.

 

We have a limited operating history and have not generated a sustained profit. Our business operations must be considered in light of the risks, expenses and difficulties frequently encountered in establishing a business in the crude oil industry. We first generated revenues from operations in the quarter ended December 31, 2010. There can be no assurance that our business operations will prove to be successful in the long-term. Our future operating results will depend on many factors, including: 

 

● our ability to raise adequate working capital;

 

● success of our crude oil hauling and marketing efforts;

 

● demand for and pricing of crude oil;

 

● the level of our competition;

 

● our ability to attract and maintain key management and employees; and

 

● our ability to efficiently develop our crude oil hauling activities in a highly competitive market, with the global oil price downturn while maintaining quality and controlling costs.

 

To achieve and sustain profitability in the future, we must, alone or with others, successfully manage the factors stated above, as well as continue to develop ways to enhance our crude oil hauling marketing efforts to diversify our customer base. Despite our best efforts, we may not be successful in our efforts. Our failure to successfully address the obstacles that may arise, including those discussed above, could have a material adverse effect on our business.

 

Strategic relationships upon which we may rely are subject to change, which may diminish our ability to conduct our operations.

 

Our ability to successfully acquire additional customers, to increase our crude oil hauling, and to identify and enter into commercial arrangements with customers will depend on developing and maintaining close working relationships with strategic partners, vendors, distributors and other industry participants. To continue to develop our business, we will endeavor to use the business relationships of our management to enter into strategic relationships, which may take the form of joint ventures or contractual arrangements with other similar companies, including those that supply property and equipment and services, and other resources which we may use in our business. We may not be able to establish these strategic relationships, or if established, we may not be able to adequately maintain them. In addition, the dynamics of our relationships with strategic partners may require us to incur expenses or undertake activities we would not otherwise be inclined to in order to fulfill our obligations to these partners or maintain relationships. If our strategic relationships are not established or maintained, our business, prospects, financial condition and results of operations may be materially adversely affected.

 

The oil market may significantly impact our business and financial condition for the foreseeable future.

 

The crude oil hauling operations are inextricably linked to the oil markets, and may adversely impact our business and our financial condition, and we may face challenges if conditions in these markets do not improve. Our ability to access the capital markets may be restricted at a time when we would like, or need, to raise financing, which could have a material negative impact on our flexibility to react to changing economic and business conditions. The economic situation could have a material negative impact on our lenders or customers, causing them to fail to meet their obligations to us. Additional capital will be required in the event that we accelerate customer acquisition program or that crude oil prices decline further, resulting in significantly lower revenues.

 

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We may be prevented from conducting our business if we cannot obtain or maintain necessary licenses.

 

Our operations require licenses, permits and in some cases renewals of licenses and permits from various governmental authorities. Our ability to obtain, sustain or renew such licenses and permits on acceptable terms is subject to changes in regulations and policies and to the discretion of the applicable governments, among other factors. Our inability to obtain, or the loss of or denial of extension of, any of these licenses or permits could hamper or prevent us from operating our business.

 

The report of our independent registered public accounting firm expressed substantial doubt about the Company’s ability to continue as a going concern.

 

Our auditors, Marcum, LLP in 2016 and GBH CPAs, P.C. in 2015, indicated in their reports on the Company’s consolidated audited financial statements for the years ended December 31, 2016 and 2015, that conditions existed that raise substantial doubt about our ability to continue as a going concern due to the Company’s recurring losses from operations and net working capital deficit at both December 31, 2016 and 2015. Uncertainties related to our continuation as a going concern may impair our ability to finance our operations through the sale of equity, incurring debt, or other financing alternatives and/or negatively affect our relationships with partners and service providers. Our ability to continue as a going concern will depend upon the availability and terms of future funding, our ability to grow our operations and integrate newly acquired assets and operations, our ability to acquire additional assets and operations, and our ability to improve operating margins and regain profitability. If we are unable to achieve these goals, our business would be jeopardized and the Company may not be able to continue. If we ceased operations, it is likely that all of our investors would lose their investment.

 

Risks Related to Our Industry

 

Environmental risks may adversely affect our business.

 

All facets of the oil industry presents environmental risks and hazards and are subject to environmental regulation pursuant to a variety of federal, state, provincial and municipal laws and regulations. Environmental legislation provides for, among other things, restrictions and prohibitions on spills, releases or emissions of various substances produced in association with oil and gas operations. The legislation also requires that wells and facility sites be operated, maintained, abandoned and reclaimed to the satisfaction of applicable regulatory authorities. Compliance with such legislation can require significant expenditures, and a breach may result in the imposition of fines and penalties, some of which may be material. Environmental legislation is evolving in a manner that we expect may result in stricter standards and enforcement, larger fines and liability and potentially increased capital expenditures and operating costs. The discharge of oil, natural gas or other pollutants into the air, soil or water may give rise to liabilities to governments and third parties and may require us to incur costs to remedy such discharge. Compliance with environmental laws applicable to our business may cause us to curtail our future production or increase the costs of our production, development or exploration activities. If substantial enough, the costs could cause us to cease operations.

 

Government regulations and legal uncertainties could affect our ability to profitably grow our customer base.

 

Legislative and regulatory actions by governments may lead to changes in laws or regulations that negatively affect various aspects of the crude oil hauling business. The adoption of new laws or regulations, or the application of existing laws may decrease the growth in the demand or alter the cost of and demand for our hauling services or increase our costs of doing business. Any of these restrictions could have a material adverse effect on our financial position and results of operations.

 

Companies operating in the oil and gas industry are subject to substantial competition.

 

The oil and gas industry is highly competitive. Other crude oil haulers may seek to acquire customers at pricing and cost models that are lower than ours. This competition is increasingly intense as prices of oil have decreased globally. Additionally, other companies engaged in our line of business may compete with us in obtaining capital from investors. Competitors include larger companies that may have access to greater resources, may be more successful in the recruitment and retention of qualified employees and may conduct their own crude oil hauling operations, which may give them a competitive advantage in the industry. If we are unable to compete effectively or respond adequately to competitive pressures, our results of operation and financial condition may be materially adversely affected.

 

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The domestic prices at which oil and natural gas trade in the open market have experienced significant volatility, which can significantly negatively impact our crude oil hauling business and revenues.

 

The prices we may charge our customers may heavily influence our revenue, profitability, access to capital and future rate of growth. In recent years, the domestic prices at which oil and natural gas trade in the open market have experienced significant volatility, and we believe will likely continue to fluctuate in the foreseeable future due to a variety of influences beyond our reasonable control, including without limitation the following:

 

● the price and quantity of imports of foreign oil and gas;

 

● political and economic conditions, including embargoes, in oil-producing countries or affecting other oil-producing activity;

 

● the level of global and domestic oil and gas exploration and production activity and inventories;

 

● technological advances affecting the level of oil and gas consumption;

 

● domestic and foreign governmental regulations;

 

● proximity and capacity of oil and gas pipelines and other transportation facilities;

 

● the price and availability of competitors’ supplies of oil and gas in captive market areas;

 

● the introduction, price and availability of alternative forms of fuel to replace or compete with oil and natural gas;

 

● domestic and foreign demand for oil and natural gas by both refineries and end users;

 

● competitive measures implemented by competitors in the oil and gas industry;

 

● political climates in nations that traditionally produce and export significant quantities of oil and natural gas and regulations and tariffs imposed by exporting and importing nations, including actions taken by the Organization of Petroleum Exporting Countries; and

 

● adverse weather conditions, including freezing temperatures and severe storms.

 

Risks Associated with Our Securities

 

Our Board of Directors’ ability to issue undesignated preferred shares and the existence of anti-takeover provisions may depress the value of our common shares.

 

Our authorized capital includes 100,000,000 preferred shares, all of which are blank check preferred shares available for issuance. Our Board of Directors has the power to issue any or all of the preferred shares, including the authority to establish one or more series and to fix the powers, preferences, rights and limitations of such class or series, without stockholder approval. Our Board may, in the future, consider adopting additional anti-takeover measures. The authority of our Board to issue undesignated stock and the anti-takeover provisions of Colorado law, as well as any future anti-takeover measures adopted by us, may, in certain circumstances, delay, deter or prevent takeover attempts and other changes in control of us that are not approved by our Board. As a result, our stockholders may lose opportunities to dispose of their common shares at favorable prices generally available in takeover attempts or that may be available under a merger proposal and the market price, voting and other rights of the holders of common shares may also be affected. 

 

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Our common shares are quoted on the Over-the-Counter Bulletin Board, which may have an unfavorable impact on our stock price and liquidity.

 

Our common shares are quoted on the Over-the-Counter Bulletin Board (the “OTCBB”). The OTCBB is a significantly more limited market than the New York Stock Exchange, the American Stock Exchange or NASDAQ system. The OTCBB market is an inter-dealer market much less regulated than the major exchanges and the common shares are subject to abuses, volatility and shorting. There is currently no broadly followed and established trading market for our common shares. An established trading market may never develop or be maintained. Active trading markets generally result in lower price volatility and more efficient execution of buy and sell orders. Absence of an active trading market reduces the level of liquidity available to the holders of our common shares.

 

It may not be possible for a stockholder to sell their common shares within any particular time period, for an acceptable price, or at all. There is no certainty that a holder of common shares will be able to identify a buyer for common shares or realize any monetary value whatsoever from a sale thereof. 

 

Our common shares are considered highly speculative and there is no certainty that common shares will continue to be quoted for trading on the OTCBB or on any other form of quotation system or stock exchange, and even if the common shares were to be listed on a quotation system or stock exchange senior to the OTCBB, the common shares would continue to be subject to the resale restrictions and other limitations described above.

 

Our common shares are thinly traded, so you may be unable to sell at or near asking prices or at all.

 

Currently, our common shares are quoted in the OTCBB and the trading volume in our common shares may be limited by the fact that many major institutional investment funds, including mutual funds, as well as individual investors follow a policy of not investing in OTCBB stocks and certain major brokerage firms restrict their brokers from recommending OTCBB stocks because they are considered speculative, volatile and thinly traded. The market price of our common shares could fluctuate substantially due to a variety of factors, including market perception of its ability to achieve its planned growth, quarterly operating results of other companies in the same industry, trading volume in the common shares, changes in general conditions in the economy and the financial markets or other developments affecting us or our competitors. In addition, the stock market is subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their operating performance and could have the same effect on our common shares.

 

The trading volume of our common shares has been and may continue to be limited and sporadic. As a result of such trading activity, the quoted price for our common shares on the OTCBB may not necessarily be a reliable indicator of its fair market value. When fewer shares of a security are being traded on the OTCBB, volatility of prices may increase and price movement may outpace the ability to deliver accurate quote information. Due to lower trading volumes in the common shares, there may be a lower likelihood of one’s orders for common shares being executed, and current prices may differ significantly from the price one was quoted at the time of one’s order entry.

 

Further, if our common shares cease to be quoted, holders would find it more difficult to dispose of their common shares or to obtain accurate quotations as to the market value of the common shares and as a result, the market value of the common shares likely would decline.

 

Our common shares may not become listed or quoted on a stock market senior to the OTCBB.

 

In the future, we may seek to apply for listing on another market or exchange within the United States, such as Nasdaq or the New York Stock Exchange. We currently do not meet all of the initial listing standards for any of these exchanges, particularly the corporate governance requirements and director independence. There are no assurances that we will satisfy the applicable listing standards of any such market that we apply to, or that we will be able to obtain or maintain a more senior listing for our common shares.

 

We are subject to the penny stock rules adopted by the SEC that require brokers to provide extensive disclosure to its customers prior to executing trades in penny stocks. These disclosure requirements may make it difficult for our stockholders to sell their shares.

 

Our common shares are subject to the SEC regulations for “penny stock.” Penny stock includes any non-NASDAQ or other exchange listed equity security that has a market price of less than $5.00 per share, subject to certain exceptions. The regulations require that prior to any non-exempt buy/sell transaction in a penny stock, a disclosure schedule set forth by the SEC relating to the penny stock market must be delivered to the purchaser of such penny stock. This disclosure must include the amount of commissions payable to both the broker-dealer and the registered representative and current price quotations for the common stock. The regulations also require that monthly statements be sent to holders of penny stock which disclose recent price information for the penny stock and information of the limited market for penny stocks. These requirements adversely affect the market liquidity of our common stock.

 

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In addition, our common stock is subject to Rule 15g-1 through 15g-9 under the Exchange Act, which imposes certain sales practice requirements on broker-dealers who sell our common stock to persons other than established customers and “accredited investors” (generally, individuals with a net worth in excess of $1,000,000 (exclusive of the value of their primary residence) or annual incomes exceeding $200,000 individually, or $300,000 together with their spouse)). For transactions covered by this rule, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to the sale. This rule adversely affects the ability of broker-dealers to sell our common stock and purchasers of our common stock to sell their shares of such common stock.

 

If we raise capital through the sale of equity securities, existing stockholders will be diluted.

 

Any additional capital we raise through the sale of our equity securities will dilute the ownership percentage of our stockholders. Raising any such capital could also result in a decrease in the nominal fair market value of our equity securities because our assets would be owned by a larger pool of outstanding equity. The terms of securities that we issue in future capital transactions may be more favorable to new investors, and may include preferences, superior voting rights and the issuance of other derivative securities, and issuances of incentive awards under equity employee incentive plans, all of which may have a dilutive effect to existing investors. 

 

The elimination of monetary liability against our directors, officers and employees under Colorado law and the existence of indemnification rights to our directors, officers and employees may result in substantial expenditures by us and may discourage lawsuits against our directors, officers and employees.

 

Our organizational documents contain provisions that limit the liability of our directors for monetary damages and provide for indemnification of our executive officers and directors. These provisions may discourage stockholders from bringing a lawsuit against our officers and directors for breaches of fiduciary duty and may also reduce the likelihood of derivative litigation against its officers and directors even though such action, if successful, might otherwise have benefited the stockholders. We may also have contractual indemnification obligations under our agreements with our officers. In addition, to the extent that costs of settlement and damage awards against our officers or directors are paid by us pursuant to the indemnification provisions in our governing documents, this actually may have the effect of deterring the stockholder from bringing suit against our officers or directors. We have been advised that the SEC takes the position that these types of indemnification provisions are unenforceable under applicable federal and state securities laws. However, management has obtained Directors and Officers liability insurance coverage to mitigate exposure should any events occur.

 

Restricted securities may not be resold outside of a registered offer and sale.

 

Securities that we sell and issue and that have not been registered under the Securities Act are “restricted securities” within the meaning of Rule 144. As a result, such restricted securities may not be offered, sold, pledged or otherwise transferred by the holders of such shares, directly or indirectly, unless the shares are registered under the Act and all applicable states securities laws, or unless there is an available exemption or exclusion from such registration requirements.

 

Unless certain conditions are met, Rule 144 is not available for the resale of securities of issuers that are, or have ever previously been, issuers with (i) no or nominal operations and (ii) no or nominal assets other than cash and cash equivalents (a “shell company”). The Asset Purchase Agreement with Wi2Wi concluded that we may have been at one time a “shell company” in the past. We believe that we were never a shell company and that, even if we were deemed to have been a shell, we ceased to be a shell company in October 2010, when we acquired our first oil and gas producing properties, and that the filing of our Annual Report on Form 10-K for the year ended December 31, 2010 satisfied the Form 10 disclosure requirements. However, if it is deemed that we did not satisfy the conditions for use of Rule 144, our stockholders would not be able to use Rule 144 for resales of restricted securities.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

Not applicable.

 

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ITEM 2. OIL AND GAS PROPERTIES

 

We previously held interests in oil and gas properties located in the United States (Kansas and Oklahoma). During the first quarter of 2015, we sold two properties in Kansas, leaving one producing oil and gas property in Kansas (Landers/Volunteer lease) which was sold on October 27, 2015, and one nonproducing oil and gas property in Oklahoma (Van Pelt lease) which was impaired to $ -0- at December 31, 2015, and is a nonproducing property. Further, we have accrued the appropriate asset retirement obligations as a liability in our consolidated financial statements at December 31, 2016 and 2015, related to this specific lease.

 

We sold the lease operated in Kansas to HPH, in exchange for debt forgiveness in the amount of approximately $1.9 million owed to Hillair, with no gain or loss recorded on the sale as HPH is a related party.

 

Summary of Oil and Gas Reserves as of December 31, 2015

 

On October 27, 2015, we sold the remaining productive oil and gas property that the Company owned and at that date, became solely a trucking hauler of crude oil in the Bakken region of North Dakota. During the year ended December 31, 2016, we also commenced operations in the Permian basin of Texas and New Mexico, while maintaining our operations in North Dakota.

 

See “ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS” for more information about our production from our oil and gas properties.

 

ITEM 3. LEGAL PROCEEDINGS 

 

As of the date of this Report, there are no other claims, proceedings, actions or lawsuits in existence, or to our knowledge threatened or asserted claims, against us or with respect to any of our assets that would materially adversely affect our business, property or financial condition, including environmental actions or claims. In addition, there are no outstanding judgments against us or any consent decrees or injunctions to which we are subject or by which our assets are bound. However, from time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.

 

We do not know of any proceedings to which any of our directors, executive officers, or affiliates, any owner of record of the beneficially or more than five percent of its common stock, or any associate of any such director, officer, affiliate, or security holder is a party adverse or has a material interest adverse to us. 

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

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PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

 

Market Information 

 

Our common shares have been quoted for trading on the Over-the-Counter Bulletin Board under the trading symbol “LOGL” since March 15, 2011. Prior to March 15, 2011, our common shares were quoted on the OTCBB under the trading symbol “SNHI”, although there was no active trading in the shares.

 

Although our common shares are quoted on the OTCBB, there is no assurance that an active, liquid market for our common shares will develop or that a trading market will continue. The OTCBB is a significantly more limited market than the New York Stock Exchange, American Stock Exchange or NASDAQ system. The quotation of our common shares on the OTCBB may result in a less liquid market available for our stockholders to trade common shares, could depress the trading price of the common shares and could have a long-term adverse impact on its ability to raise capital in the future.

 

The table below sets forth, for the period indicated, the average high and low closing prices for our common shares on the OTCBB as reported by various OTCBB market makers. The quotations reflect inter-dealer prices without adjustments for retail mark-ups, mark-downs, or commissions and may not necessarily reflect actual transactions.

 

      High     Low  
Fiscal 2016:              
Fourth quarter, ended December 31, 2016   $ 0.00   $ 0.00  
Third quarter, ended September 30, 2016     0.00     0.00  
Second quarter, ended June 30, 2016     0.00     0.00  
First quarter, ended March 31, 2016     0.00     0.00  
               
Fiscal 2015:              
Fourth quarter, ended December 31, 2015   $ 0.01   $ 0.00  
Third quarter, ended September 30, 2015     0.01     0.00  
Second quarter, ended June 30, 2015     0.01     0.01  
First quarter, ended March 31, 2015     0.01     0.00  

 

As of March 31, 2017, the closing sales price for our common shares on the OTCBB was $0.00.

 

Holders

 

As of the latest practicable date before filing this annual report, there were 942,083,273 common shares issued and outstanding, with 29 holders of record. Further , there are 9,643 and 15 Series B Preferred shares issued and outstanding to Hillair and Lorton, respectively, as of December 31, 2016.

 

Transfer Agent and Registrar

 

VStock Transfer, LLC, located at 18 Lafayette Place, Woodmere, New York 11598 is currently the transfer agent and registrar for our common shares. Its phone number is (212) 828-8436.

 

Dividend Policy

 

We have never declared or paid dividends on our capital stock. However, under the provisions of our preferred stock, dividends must be computed and reported as undeclared (and not accrued in our financial statements) until the Company's Board of Directors approve the payment of such dividends. We have undeclared dividends related to our Series B Preferred Stock totaling $990,580 (2016 and 2015 undeclared dividends were $837,245 and $153,335, respectively). We intend to retain earnings, if any, to support the development of our business and therefore do not anticipate paying cash dividends for the foreseeable future. Payment of future dividends, if any, will be at the discretion of the Board of Directors after taking into account various factors, including current financial condition, operating results and current and anticipated cash needs.

 

There are no dividend restrictions that limit our ability to pay dividends on our common stock in our Articles of Incorporation, as amended, or Bylaws.

 

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ITEM 6. SELECTED FINANCIAL DATA

 

Not Applicable.

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, and should be read in conjunction with our financial statements and related notes. We incorporate by reference into this Report our audited consolidated financial statements for the years ended December 31, 2016 and 2015. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on 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 under different assumptions or conditions. In addition, the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, including, but not limited to, those discussed in “Forward Looking Statements,” and elsewhere in this Report.

 

The following management’s discussion and analysis is intended to assist in understanding the principal factors affecting our results of operations, liquidity, capital resources and contractual cash obligations. This discussion should be read in conjunction with our consolidated financial statements which are incorporated by reference herein, information about our business practices, significant accounting policies, risk factors, and the transactions that underlie our financial results, which are included in various parts of this filing. 

 

Overview of Business 

 

On April 3, 2015, the Company entered into a Membership Interest Purchase Agreement with Sher Trucking, LLC (“Sher”), the majority owner, and two minority owners, which made up all of the members of Black Diamond Energy Holdings, LLC (“Maxxon Energy” or “Maxxon”) to purchase all of the outstanding membership interests of Maxxon. The Company paid $1,500,000 in cash to Sher; issued a secured promissory note to Sher in the amount of $2,854,000 at 5% per annum, due April 3, 2016 and issued 148,500,000 shares of the Company’s common stock to the minority owners, then valued at $861,300. In April 2016, we paid an additional $1,000,000 to Sher, as well as restructured this note, which is further described in detail within Note 10 to the accompanying Consolidated Financial Statements.

 

Prior to the acquisition of Maxxon, our sole business focus was to acquire producing and non-producing oil and gas leases and to develop oil and gas properties that we owned or in which we had a leasehold interest. This is a discontinued operation, as we sold our producing oil and gas assets in October 2015, while remaining the owner of the Van Pelt lease, which is non-producing, and for which there is no asset value related to this lease as of December 31, 2016 and 2015. 

 

Maxxon is our crude oil hauling and trucking subsidiary. We perform hauling services for large institutional drilling and exploration companies as well as crude oil marketers. Our largest clients are multibillion dollar market cap companies, most of which are either publicly held, or large multinational privately held companies. We principally serve both the Bakken region of North Dakota, and the Permian Basin in Texas and New Mexico.

  

Our Company was incorporated under the laws of the State of Colorado on November 27, 2000 under the name “SIN Holdings, Inc.” On November 29, 2010, we changed our name to Legend Oil and Gas, Ltd.

 

Results of Operations

 

The following is a discussion of our consolidated results of operations, financial condition and capital resources. You should read this discussion in conjunction with our Consolidated Financial Statements and the Notes thereto contained elsewhere in this report. Comparative results of operations for the periods indicated are discussed below.

 

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Trucking activities

 

Maxxon had revenue of $3,859,142 for the year ended December 31, 2016, compared to $4,269,323 during the year ended December 31, 2015. Since the acquisition of Maxxon on April 3, 2015, we hauled a total of 2,131,317 barrels of oil, averaging 7,836 barrels hauled per day during the year ended December 31, 2015. For the year ended December 31, 2016, we hauled a total of 2,487,789 barrels of oil, averaging 6,816 barrels hauled per day. The decrease in both barrels hauled per day and our overall revenue during the year ended December 31, 2016, compared to the year ended December 31, 2015, is due to a decrease in the average barrels hauled and a substantial decrease in the commodity price of oil per barrel as a result of the global depression in the oil markets. In order to maintain our customer base, we needed to significantly reduce our rates per hauled barrel to be in line with the reduced prices of oil our customers were receiving. The average hauling price per barrel received by Maxxon during the year ended December 31, 2016 was $1.55, down from $2.00 per barrel in 2015.

 

The table below summarizes our barrels hauled for the year ended December 31, 2016 and the year ended December 31, 2015:

 

    Year Ended December 31,              
    2016   2015   Change   % Change  
Barrels hauled     2,487,789     2,131,317     356,472     17 %

 

Revenue and cost of revenue

 

Gross margin during the year ended December 31, 2016, compared to the year ended December 31,2015, is lower due to (1) the reduction in hauling rates per barrel as a reaction to lower oil prices, while maintaining driver compensation at similar levels to 2015, to retain drivers, (2) addition of multiple vehicle lease agreements in 2016 to expand the size of our fleet while moving into the Permian basin, (3) lower hauling rates to acquire new customers in the Permian basin, and (4) $121,655 in revenue during 2015 related to our Treeline service center, which was closed during the year ended December 31, 2015.

 

The table below summarizes our revenue and cost of revenue for the year ended December 31, 2016 and the year ended December 31, 2015:

  

    Year Ended December 31,              
    2016   2015   Change   % Change  
Revenue   $ 3,859,142   $ 4,390,978   $ (531,836 )   -12 %
Cost of revenue     3,091,106     2,866,351     224,755     8 %
Gross margin     768,036     1,524,627     (756,591 )   -50 %
Gross margin %     20 %   35 %            

 

General and administrative expenses

 

General and administrative expenses include: professional fees; management fees; travel expenses; office and administrative expenses; and marketing and SEC compliance and filing expenses. General and administrative expenses decreased during the year ended December 31, 2016, compared to the year ended December 31, 2015, due to lower professional fees. Professional fees are lower in the year ended December 31, 2016, compared to the year ended December 31, 2015, due to transaction related costs for the acquisition of Maxxon in 2015, and the decrease in 2016 due to cost cutting measures implemented by management, as well as a negotiated settlement of $2,000, for a previously accrued amount of approximately $80,000. Thus, professional fees were credited by the difference between the accrued and settlement amount. This credit was mostly offset by the increase in employees and office expenses related to the expansion of Maxxon’s oil hauling operations to the Permian basin located in Texas and New Mexico, and the relocation of its back-office operations headquarters to Colorado. 

 

    Year Ended December 31,              
    2016   2015   Change   % Change  
General and administrative expenses                          
Professional fees   $ 380,675   $ 898,428   $  (517,753 )    -58 %
Salaries and benefits     2,143,399     1,779,468     363,931     20 %
Office and administration     1,543,752     1,433,239     110,513     8 %
Total     4,067,826     4,111,135     (43,309 )   -1 %

 

 Depreciation and amortization

 

The Company incurred $741,043 for depreciation and amortization for the year ended December 31, 2016, compared to $532,708 for the year ended December 31, 2015, from continuing operations. The increase is reflective of the additional property and equipment acquired in 2016.

 

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Accretion expense

 

For year ended December 31, 2016, the Company had accretion expense of $43,798, compared to $27,574 for the year ended December 31, 2015, related to the Company’s asset retirement obligations. Although we had no oil and gas operations in 2016, we still own the Van Pelt lease (carrying balance fully impaired) in Oklahoma, and have asset retirement obligations and accretion expense as a result of that property. These amounts are recorded in discontinued operations for the years ended December 31, 2016 and 2015, respectively.

 

Loss on sale of oil and gas properties

 

For year ended December 31, 2015, the Company sold its Piqua property for approximately $1.5 million, and its McCune property for $165,000. As the sale significantly altered the relationship between the Company’s capitalized costs and its total proved reserves, the Company recorded a loss on the sale of approximately $901,114 for the year ended December 31, 2015. The loss is reported in the loss from discontinued operations in the Company’s Consolidated Statements of Operations. For the year ended December 31, 2016, the Company only owned the non-operating Van Pelt lease, which as of December 31, 2015 there was no recorded asset value; and no sales of oil and gas properties during the year ended December 31, 2016.

 

Impairment of goodwill

 

During the year ended December 31, 2015, the Company acquired Maxxon and as a result recorded goodwill of $438,106. The Company performed a fair value assessment of its goodwill as of December 31, 2015 and determined that the acquired goodwill was impaired. Accordingly, impairment expense of $438,106 was recorded as of December 31, 2015. For the year ended December 31, 2016, no further impairment of goodwill was required as we had no goodwill remaining.

 

Impairment of Long-Lived Assets

 

The Company reviews the carrying value of its long-lived assets annually or whenever events or changes in circumstances indicate that the historical cost-carrying value of an asset may no longer be recoverable. The Company assesses recoverability of the carrying value of the asset by estimating the future net undiscounted cash flows expected to result from the asset, including eventual disposition. If the future net undiscounted cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and estimated fair value calculated utilizing a discounted cash flow model or appraised value depending on the nature of the asset. There were no impairments of intangible assets for the years ended December 31, 2016 and 2015. There were no impairments of property and equipment for the year ended December 31, 2016, however refer to the following discussion related to impairment of property and equipment during the year ended December 31, 2015.

 

Impairment of property and equipment

 

During the year ended December 31, 2015, the Company acquired Maxxon and as a result recorded property and equipment of $3,188,615. The Company performed a fair value assessment of its property and equipment as of December 31, 2015, and determined that certain acquired property and equipment was impaired. Accordingly, impairment expense of $224,835 was recorded on our Treeline service center fixed assets as of December 31, 2015. 

 

Loss on disposal of property and equipment

 

 

Loss on sale on disposal of property and equipment was $1,113,067 for the year ended December 31, 2016, compared to $10,255 for the year ended December 31, 2015. The increase in the loss on disposal of property and equipment is related to the Company selling 19 oil trailers with a net book value of $1,235,346 (net of accumulated depreciation of $428,654). The Company received $158,355 in proceeds, resulting in a recorded loss on the sale of the vehicles of $1,076,991 during the year ended December 30, 2016. The Company also disposed of several vehicles during the year ended December 31, 2016 that resulted in additional loss on disposal of approximately $36,076. During the year ended December 31, 2015, we exchanged 2 vehicles for 2 new vehicles. The exchange of these vehicles resulted in the Company recording a loss on disposal of $10,255.

 

Interest expense

 

Interest expense was $737,998 for the year ended December 31, 2016, compared to $3,621,017 for the year ended December 31, 2015. Interest expense decrease is principally the result of the conversion by Hillair of certain debt to preferred and common stock, settlement of debt with oil and gas properties, less total interest bearing debt on our balance sheet, as well as the related reduction in amortization of original issue discounts.

 

Discontinued operations

 

During the year ended December 31, 2016, the Company accounted for its oil and gas operations as discontinued operations. There were no revenues and minimal costs incurred during the year ended December 31, 2016, which the Company recorded a loss from discontinued operations in the amount of $355,445. During the year ended December 31, 2015, there was little activity, as most activity of our discontinued operations occurred in the first three months of 2015. Further, the year ended December 31, 2015 consolidated statements of operations and cash flows have been reclassified to depict the accounting for discontinued operations. During the year ended December 31, 2015, the Company recorded a loss from discontinued operations in the amount of $1,020,473.  

 

Change in fair value of embedded derivatives

 

The Company recorded a loss of $6,551,333 for the year ended December 31, 2015, due to the change in the fair value of the derivative liabilities. On May 1, 2015, Hillair converted its outstanding Series A Convertible Preferred Stock into 600 million shares of the Company’s common stock. The Company used the market price on the date of the conversion to value the embedded derivative liabilities associated with certain convertible debt and convertible preferred stock. There were no derivatives during the year ended December 31, 2016.

 

Net Loss

 

The Company recorded a net loss of $6.2 million ($5.9 million from continuing operations and $0.4 million from discontinued operations) for the year ended December 31, 2016, as compared to a net loss of approximately $15.0 million for the year ended December 31, 2015. The decrease in losses is mainly due to recognition of the noncash charge related to the derivative liability discussed above, and the discontinued operations related to our oil and gas activities. Further, when evaluating the net loss for 2015, after reducing the derivative charge as well as our discontinued operations, the loss in the year ended December 31, 2015 was approximately $7.4 million. The decrease in our loss for the year ended December 30, 2016 compared to 2015, when extracting the above factors, was approximately $1.5 million. This decrease in our loss for the year ended December 31, 2016, was primarily attributable to the decrease in interest expense in the year ended December 31, 2016 of approximately $2.9 million which was offset by losses on the disposal of property and equipment of approximately $1.1 million, a decrease in revenues as a result of our strategy to decrease the rates charged to customers per barrel to attract and obtain new customers to overcome the global oil depression, and an increase in general and administrative expenses related to the expansion of Maxxon’s oil hauling operations.

 

20  

 

 

Liquidity and Capital Resources

 

Liquidity

 

We have incurred net operating losses and operating cash flow deficits over the last several years, continuing through the year ended December 31, 2016. We sold our oil and gas properties and acquired a crude oil hauling company in 2015, and we have been funded primarily by a combination of equity issuances, debentures, and borrowings under loan agreements and to a lesser extent by operating cash flows, to expand our trucking services beyond the Bakken Region in North Dakota to the Permian basin located in Texas and New Mexico. During the year ended December 31, 2016, we had a net loss of $6,247,343 as well as negative operating cash flows of $3,220,833. However, management believes that based on various cost reductions, increased and normalized revenue within our core business, as well as acquisition of new customers, positive cash flow will result through Maxxon adding overall value to the Company. If volumes and revenue do not increase as expected, we may be at break-even rates or lower, depending on hauling volumes and revenue. Should this be the case, we would require additional operating funding in amounts which are not yet determinable. At December 31, 2016, we had cash and cash equivalents totaling $161,039. We have currently forecasted losses of approximately $200,000 per month, on average, which are expected to decrease as we obtain new customers, increase our hauling rates and drive our top line revenue, which should also reduce our net losses.

  

Many of our operating costs have decreased over the year due to the implementation of expense efficiencies, to levels we believe will effectively operate our business. We expect our additional cash requirements over the next 12 months to be approximately $2.4 million, including capital additions for tractors and trailers, as well as normal corporate general and administrative expenses.

 

However, should the Company seek additional financing to fund operations, such financings may not be available and the terms of the financing may only be available on unfavorable terms.

 

These financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that could result should the Company be unable to continue as a going concern.

 

Hillair has been our principal funding source since 2014, and has provided debt capital convertible into various instruments, including common stock. Further, Hillair has acquired preferred stock as well as converted certain preferred stock into common stock. They have provided us total capital through debt and preferred stock instruments of over $13.5 million in face value since 2014.

 

The Company has continued to enter into various Securities Purchase Agreements with Hillair to fund continuing working capital and capital expenditures. Outstanding at the end of 2016, the Company had entered into Securities Purchase Agreements with debenture amounts totaling $5,797,976   and received net proceeds of $5,020,000 (net of original issue discount, legal and diligence fees of $777,976), with maturity dates of March 1, 2018. The debentures are convertible into 193,265,879 of our common shares at $0.03 per share. Refer to Note 8 – Related Party Transactions within the accompanying consolidated financial statements for further discussion.

 

21  

 

 

On September 30, 2016, the Company entered into a credit facility with Lorton Finance Company (“Lorton”), an affiliate of Hillair, due on September 30, 2019. The aggregate amount of this facility is $2,000,000, with the initial draw by the Company of $1,150,000. Subsequent to the initial draw, future draws require the Company to issue Lorton our Series B Preferred Stock in amounts equivalent to five percent (5%) of the amount of the draw divided by the $1,000 stated value of the Series B Preferred Stock. Each of these preferred shares is convertible into our common stock at $0.03 per share. In October 2016, the Company drew an additional $300,000 from this facility and issued to Lorton, 15 shares of its Series B Preferred Stock valued at $14,500, accounted as debt discount of long term debt-related party and additional paid-in-capital. Refer to Note 8 – Related Party Transactions within the accompanying consolidated financial statements for further discussion.

 

The table below summarizes our cash flows for the periods ended December 31, 2016 and December 31, 2015, respectively: 

 

    Year Ended December 31,
    2016   2015
Net cash flows from operating activities   $

(3,220,833

)   $ (2,536,108 )
Net cash flows from investing activities     (569,552 )     (758,206 )
Net cash flows from financing activities    

3,487,921

      3,055,969  
Net change in cash during period   $ (302,464 )   $ (238,345 )

   

Cash from Operating Activities

 

Cash used by operating activities was $3,220,833 for the year ended December 31, 2016, as compared to cash used by operating activities of $2,536,108 in the year ended December 31, 2015. The increase in cash used in operating activities is a result of the Company’s reduced realized revenue per barrel hauled pricing that was incurred in the year December 31, 2016. The Company awarded new customers with contracts that contained below market pricing to induce customer acquisition. This resulted in the Company receiving a much lower margin in the year ended December 31, 2016. The Company implemented cost reducing measures to offset the lowered margin received by the Company on these contracts. However, the Company increased its vehicle fleet size to service the new customers, which increased the number of drivers paid, fuel costs, insurance, maintenance and other associated costs with the increased fleet size, which increased the Company’s use of cash in operating activities.  

 

Cash from Investing Activities

 

Cash used for investing activities for the year ended December 31, 2016 was $569,552 as compared to cash used for investing activities of $758,206 during the year ended December 31, 2015. The cash flows used in investing activities for 2016 are related to updating the Company’s fleet vehicles, which includes cash received from the sale of 19 oil trailers of approximately $0.2 million and $0.8 million used for capital additions; including hauling trucks, oil trailers, and corporate and administrator vehicles. The cash flows used in investing activities for 2015 include cash received from the sale of 2 oil and gas properties in the first quarter of approximately $1.7 million less costs incurred of approximately $0.9 million for the development of oil and gas properties, which is included within our discontinued operations, acquisition of fixed assets of approximately $0.5 million, and net cash paid for the purchase of Maxxon of approximately $1.2 million.

 

Cash from Financing Activities 

 

Total net cash provided by financing activities was $3,487,921 for the year ended December 31, 2016, consisting of repayment of bank debt, offset by proceeds of notes payable to Hillair. Total net cash from financing activities in the year ended December 31, 2015 was $3,055,969.

 

Off Balance Sheet Arrangements

 

We have no off balance sheet financing activities.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Disclosure under this item is not required because we are a smaller reporting company.

 

22  

 

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Page
   
Report of Marcum, LLP Independent Registered Public Accounting Firm 24
   
Report of GBH CPAs, P.C. Independent Registered Public Accounting Firm 25
   
Consolidated Financial Statements:  
   
Consolidated balance sheets at December 31, 2016 and 2015 26
   
Consolidated statements of operations for the years ended December 31, 2016 and 2015 27
   
Consolidated statements of stockholders’ deficit for the years ended December 31, 2016 and 2015 28
   
Consolidated statements of cash flows for the years ended December 31, 2016 and 2015 29
   
Notes to consolidated financial statements 30

 

23  

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Audit Committee of the
Board of Directors and Stockholders
of Legend Oil and Gas, Ltd.

 

We have audited the accompanying consolidated balance sheet of Legend Oil and Gas, Ltd. and Subsidiaries (the “Company”) as of December 31, 2016, and the related consolidated statements of operations, stockholders’ deficit and cash flows for the year then ended. The financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Legend Oil and Gas, Ltd. and Subsidiaries, as of December 31, 2016, and the consolidated results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has suffered recurring losses from operations and has a working capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ Marcum LLP

 

Marcum LLP
Hartford, CT
March 31, 2017 

 

24  

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors
Legend Oil and Gas, Ltd.
Alpharetta, Georgia

 

We have audited the accompanying consolidated balance sheet of Legend Oil and Gas, Ltd. as of December 31, 2015, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity (deficit), and cash flows for the year then ended. Legend Oil and Gas, Ltd.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Legend Oil and Gas, Ltd. as of December 31, 2015, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying consolidated financial statements have been prepared assuming that Legend Oil and Gas, Ltd. will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, Legend Oil and Gas Ltd. has suffered recurring losses from operations and has a net working capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ GBH CPAs, PC  
   
GBH CPAs, PC  
www.gbhcpas.com  
Houston, Texas  

April 7, 2016

(except for the effects of discontinued operations as discussed in Note 2 as to which the date is March 31, 2017)

 

 

25  

 

 

Legend Oil and Gas, Ltd. 

CONSOLIDATED BALANCE SHEETS  

As of December 31, 2016 and 2015

 

    2016   2015
         
ASSETS        
Current Assets        
Cash and cash equivalents   $ 161,039     $ 463,503  
Accounts receivable     234,321       183,773  

Prepaid expenses 

    299,229       281,737  
Other current assets     187,792       137,475  
Total Current Assets     882,381       1,066,488  
                 
Property and equipment net     2,572,259       3,212,174  
Assets held for sale – discontinued operations     —       398,680  
Intangible assets     268,320       317,242  
                 
Total Assets   $ 3,722,960     $ 4,994,584  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT                
Current Liabilities                
Accounts payable and accrued expenses   $ 614,101   $ 943,799  
Accounts payable-related party     —       120,000  
Accrued interest     253,955       106,505  
Accrued interest-related party     69,236       10,034  
Short term debt     214,694       249,348  
Current portion of long term debt     238,580       1,074,781  

Current portion of long term debt-related party 

    241,667     —    
Total Current Liabilities     1,632,233     2,504,467  
                 
Liabilities of discontinued operations     139,927       96,129  
Long term debt, net of deferred financing costs of $166,667 in 2016 and $0 in 2015     1,988,440       2,040,518  

Long term debt-related party, net of debt discount and deferred financing costs of $94,690 in 2016

    1,113,643       —    
Convertible debt-related party, net of debt discount and deferred financing costs of $516,009 in 2016 and $89,323 in 2015     5,281,967       564,677  
Total Liabilities     10,156,210     5,205,791  
                 
Stockholders’ Deficit                
Preferred stock – $0.001 par value, 100,000,000 shares authorized     —         —    
Preferred stock Series A – $0.001 par value; 0 shares issued and outstanding     —         —    
Preferred stock Series B - $0.001 par value; 9,658 and 9,643 shares issued and outstanding in 2016 and 2015, respectively (liquidation preference of $10,648,579)     10       10  
Common stock – 4,900,000,000 shares authorized; $0.001 par value; 942,083,273 and 936,083,273 shares issued and outstanding in 2016 and 2015, respectively     942,083       936,083  
Additional paid-in capital     44,864,248       44,844,948  
Accumulated deficit     (52,239,591 )     (45,992,248 )
Total Stockholders’ Deficit     (6,433,250 )     (211,207 )
                 
Total Liabilities and Stockholders’ Deficit   $ 3,722,960     $ 4,994,584  

   

  

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

 

26  

 

 

Legend Oil and Gas, Ltd.
CONSOLIDATED STATEMENTS OF OPERATION
For the Years ended December 31, 2016 and 2015

 

    2016     2015  
             
Revenue   $ 3,859,142     $ 4,390,978  
                 
Operating Expenses:                
Cost of revenue     3,091,106       2,866,351  
General and administrative     4,067,826       4,111,135  
Depreciation and amortization     741,043       532,708  
Impairment of goodwill     —       438,106  
Impairment of property and equipment     —       224,835  
Loss on disposal of property and equipment     1,113,067       10,255  
Total operating expenses     9,013,042      

8,183,390

 
                 
Operating loss     (5,153,900 )     (3,792,412 )
                 
Other Expense:                
Interest expense     (737,998 )     (3,621,017 )
Change in fair value of embedded derivative liabilities     —       (6,551,333 )
Other expense     —        (4,600 )
Total Other Expense     (737,998 )     (10,176,950 )
                 
Loss from continuing operations     (5,891,898 )    

(13,969,362

)
Loss from discontinued operations      (355,445 )     (1,020,473 )
Net loss   $ (6,247,343 )   $ (14,989,835 )
                 
Undeclared dividends on preferred stock     (837,245 )     (153,335 )
                 
Net loss from continuing operations available to common stockholders     (6,729,143 )    

(14,122,697

)
Net loss from discontinued operations available to common stockholders     (355,445 )     (1,020,473 )
Net loss attributable to common stockholders   $ (7,084,588 )   $ (15,143,170 )
                 
Basic and diluted net loss from continuing operations attributable to common stockholders   $ (0.01 )   $ (0.02 )
Basic and diluted net loss from discontinued operations attributable to common stockholders   $ (0.00 )   $ (0.00 )
Basic and diluted net loss attributable to common stockholders   $ (0.01 )   $ (0.02 )
Weighted average number of common shares outstanding – basic and diluted     941,066,880       658,763,332  

 

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

 

27  

 

  

Legend Oil and Gas, Ltd.  

STATEMENTS OF CONSOLIDATED STOCKHOLDERS’ DEFICIT  

For the Years ended December 31, 2016 and 2015

 

                                                       
    Series A
Preferred Stock 		    Series B
Preferred Stock 		    Common Stock                    
    Shares     Amount     Shares     Amount     Shares     Amount     Additional
Paid-in
Capital 		    Accumulated
Deficit 		    Total
Stockholders’
Deficit 		 
Balance, January 1, 2015     600     $ 1       —     $ —       187,583,273     $ 187,583     $ 27,227,181     $ (31,002,413 )   $ (3,587,648 )
                                                                         
Conversion of Preferred Stock     (600 )     (1 )                     600,000,000       600,000       (599,999 )             —  
                                                                         
Derivative liability settled upon conversion of preferred stock                                                     7,680,000               7,680,000  
                                                                         
Acquisition of Maxxon                                     148,500,000       148,500       712,800               861,300  
                                                                         
Issuance of convertible preferred stock                     9,643        10                        9,824,966               9,824,976  
                                                                         
Net Loss                                                             (14,989,835 )     (14,989,835 )
                                                                         
Balance, December 31, 2015     —     $ —       9,643     $ 10       936,083,273     $ 936,083     $ 44,844,948     $ (45,992,248 )   $ (211,207 )
                                                                         
Issuance of convertible preferred stock                     15        —                        14,500               14,500  
                                                                         
Issuance of common stock to employee                                     6,000,000       6,000       4,800               10,800  
                                                                         
Net Loss                                                              (6,247,343 )     (6,247,343 )
                                                                         
Balance, December 31, 2016     —     $ —       9,658     $ 10       942,083,273     $ 942,083     $ 44,864,248     $ (52,239,591 )   $ (6,433,250 )

 

 

  

28  

 

 

Legend Oil and Gas, Ltd. 

CONSOLIDATED STATEMENTS OF CASH FLOWS  

For the Years ended December 31, 2016 and 2015

 

    2016     2015  
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net loss   $ (6,247,343 )   $ (14,989,835 )
Loss attributed to discontinued operations     355,445       1,020,473  
Loss from continuing operations     (5,891,898 )     (13,969,362 )
Adjustments to reconcile net loss to cash flows used in operating activities:                
Stock issued to employee     10,800       —  
Depreciation and amortization     741,043       532,708  
Loss on disposal of property and equipment     1,113,067       10,255  
Impairment of property and equipment     —       224,835  
Write-off of inventory     —       143,689  
Loss on legal settlement     20,000       —  
Impairment of goodwill     —       438,106  
Amortization of discounts on long term debt     90,688       —  
Amortization of discounts on convertible debt     247,290       854,576  
Non-cash debt prepayments penalties     —       1,927,071  
Change in fair value of embedded derivative liabilities     —       6,551,333  
Changes in operating assets and liabilities:                
Accounts receivable     (50,548 )     885,310  
Prepaid expenses     610,475       (243,359 )
Inventory     —       63,748  
Other current assets     (50,317 )     23,279  
Accounts payable and accrued expenses     (292,418 )     338,433  
Accounts payable-related party     (120,000 )     (457,000 )
Other current liabilities     —       (72,094 )
Accrued interest     294,750       112,790  
Accrued interest-related party     59,202       (333 )
Net cash flows used in operating activities – continuing operations     (3,217,866 )     (2,636,015 )
Net cash flows (used in) provided by operating activities – discontinued operations     (2,967 )     99,907
Net cash flows used in operating activities     (3,220,833 )     (2,536,108 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
Proceeds from certificate of deposit     —       85,000  
Cash paid for the purchase of property and equipment     (817,907 )     (483,542 )
Proceed from sale of property and equipment     158,355       21,355  
Cash paid for the purchase of Black Diamond Energy Holdings, net cash received of $435,339 in 2015     —       (1,189,661 )
Net cash flows used in investing activities – continuing operations     (659,552 )     (1,566,848 )
Net cash flows provided by investing activities – discontinued operations     90,000       808,642  
Net cash flows used in investing activities     (569,552 )     (758,206 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Proceeds from convertible debt-related party     4,470,000       2,310,000  
Proceeds from short term debt     170,000       100,000  
Proceeds on short term convertible debt-related party     —       1,750,000  
Proceeds from long term debt-related party     1,362,455       —  
Payments on short term debt     (2,334,721 )     (390,602 )
Payments on short term debt-related party     —       (713,429 )
Payments on long term debt     (179,813 )     —  
Net cash flows provided by financing activities     3,487,921       3,055,969  
                 
Net change in cash and cash equivalents     (302,464 )     (238,345 )
Cash and cash equivalents, beginning of period     463,503       701,848  
Cash and cash equivalents, end of period   $ 161,039     $ 463,503  
                 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                
Cash paid during the year for:                
Interest   $ 34,454     $ 5,453  
Taxes   $ —     $ —  
                 
NON-CASH INVESTING AND FINANCING ACTIVITIES                
Change in estimate of asset retirement obligations   $ —     $ 69,132  
Accrual of oil and gas development costs through accounts payable   $ —     $ 20,789  
Sale of oil and gas properties to settle related party debt   $ —     $ 1,814,289  
Fair value of derivative liability extinguished upon conversion of preferred stock to common stock   $ —     $ 7,680,000  
Preferred stock issued for conversion of debt   $ —     $ 9,824,976  
Conversion of preferred stock to common stock   $ —     $ 600,000  
Debt and common stock issued/to be issued for the purchase of Black Diamond Energy Holdings   $ —     $ 3,715,300  
Financed debt issuance costs and original issue discounts   $ 1,011,521     $ 104,000  
Financing for insurance policies   $ 627,967     $ —  
Debt issued for the acquisition of property and equipment   $ 524,961     $ 271,623  
Reclassification of accounts payable to short term debt   $ 40,850     $ —  
Reclassification of accrued interest on short term debt   $ 147,300     $ 6,601  
Preferred stock issued in conjunction with long term debt-related party   $ 14,500     $ —  

    

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

 

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Legend Oil and Gas, Ltd.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – ORGANIZATION AND DESCRIPTION OF OPERATIONS

 

Description of Business  

 

Legend Oil and Gas, Ltd. (the “Company” or “Legend”) is a crude oil hauling and trucking company with principal operations in the Bakken region of North Dakota and the Permian Basin in Texas and New Mexico. These crude oil hauling operations commenced through our acquisition of Black Diamond Energy Holdings, LLC on April 3, 2015. Our current focus is to grow our core business and expand our crude oil hauling operations into other basins throughout the United States. Our field operations are managed by employees in Texas, New Mexico and North Dakota. Our back office operations staff is based out of North Dakota and Colorado, with the Company’s combined Chief Executive Officer and Chief Financial Officer based out of Georgia, and our Controller based in Florida.

 

Further, through October 27, 2015, we were also an oil and gas exploration, development and production company; this business was to acquire producing and nonproducing oil and gas interests and develop oil and gas properties that we owned or in which we had a leasehold interest. Our oil and gas property interests were located in the United States (Kansas and Oklahoma). On October 27, 2015, we sold our oil and gas exploration operations and we have presented those operations as discontinued operations. 

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  

 

Principles of Consolidation

 

The consolidated financial statements for the year ended December 31, 2016 include the accounts of the Company and our wholly owned subsidiary, Black Diamond Energy Holdings, LLC and its wholly-owned subsidiaries Maxxon Energy, LLC and Treeline Diesel Center, LLC. Intercompany transactions and balances have been eliminated in consolidation.

 

Basis of Presentation

 

The accompanying consolidated financial statements of the Company, have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America and the rules of the Securities and Exchange Commission (“SEC”).

 

Reclassifications

 

Certain information from the year ended December 31, 2015, have been retroactively reclassified to conform with the current year’s presentation in connection with our discontinued operations.

 

Long-lived assets that are expected to be recovered through a sale or disposition are classified as held for sale. Assets classified as held for sale are evaluated for impairment using the lower of fair value less disposal costs and carrying value. Assets held for sale are not depreciated. Further, no impairment loss for the assets held for sale was recorded in either of the years ended December 31, 2016 or 2015.

 

Accordingly, the revenues and expenses related to the Company’s oil and gas operations have been reclassified to loss from discontinued operations in the Company’s consolidated statements of operations for the years ended December 31, 2016 and 2015. Corresponding reclassifications have also been made to the consolidated statements of cash flows. This change in classification does not materially affect previously reported cash flows from operations, investing or from financing activities in the consolidated statements of cash flows.  The below tables summarize the reclassifications made in the Company’s consolidated balance sheet, consolidated statement of operations and consolidated statement of cash flows for the year ended December 31, 2015 which were included in the December 31, 2015 consolidated financial statements included in Form 10-K. 

 

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Consolidated Balance Sheet   As Originally
Stated   		    Adjustment     As Restated    
Property and equipment   $ 3,610,854     $ (398,680 )   $ 3,212,174  
Assets held for sale – discontinued operations     —       398,680       398,680  
Asset retirement obligations     96,129       (96,129 )     —  
Liabilities of discontinued operations     —       96,129       96,129  
                         
Consolidated Statement of Operations                        
Oil and gas revenue     350,315       (350,315 )     —  
                         
Oil and gas production expenses     387,501       (387,501 )     —  
General and administrative     4,141,012       (29,877 )     4,111,135  
Depreciation and amortization     657,448       (124,740 )     532,708  
Accretion of asset retirement obligation     27,574       (27,574 )     —  
Loss on sale of oil and gas properties     901,114       (901,114 )     —  
Operating loss     (4,912,903 )     1,120,491       (3,792,412 )
Other income (expense)     95,418       (100,018 )     (4,600 )
Loss from continuing operations     (14,989,835 )     1,020,473       (13,969,362 )
Loss from discontinued operations     —       (1,020,473 )     (1,020,473 )
                         
Consolidated Statement of Cash Flows                        
Loss from continuing operations   $ (14,989,835 )     1,020,473     $ (13,969,362 )
Loss from discontinued operations     —       (1,020,473 )     (1,020,473 )
Depreciation and amortization     657,448       (124,740 )     532,708  
Accretion of asset retirement obligation     27,574       (27,574 )     —  
Loss on sale of oil and gas properties     901,114       (901,114 )     —  
Accounts receivable     952,262       (66,952 )     885,310  
Net cash flows used in operating activities – continuing operations     (2,536,108 )     (99,907 )     (2,636,015 )
Net cash flows provided by operating activities – discontinued operations     —       (99,907 )     (99,907 )
Proceeds from sale of oil and gas properties     1,665,000       (1,665,000 )     —  
Cash paid for oil and gas properties development costs     (856,358 )     856,358       —  
Net cash flows used in investing activities – continuing operations     (758,206 )     (808,642 )     (1,566,848 )
Net cash flows provided by investing activities – discontinued operations     —       808,642       808,642  

 

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Use of Estimates

 

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the financial statements in the period in which the change is determined. Estimates are used when accounting for such items as allowance for doubtful accounts, estimates used in the assessment of impairment for long-lived assets, fair value of financial instruments, cost of asset retirement obligations, management’s assessment of going concern, contingencies and litigation.

 

Cash and Cash Equivalents

 

We consider all highly liquid short-term investments with original maturities of three months or less to be cash equivalents. The Company has deposits in United States financial institutions that maintain FDIC deposit insurance on all accounts, collectively, with an aggregate coverage up to $250,000 per depositor per financial institution. At times, the amount of the deposits exceeds the FDIC limits. The portion of the deposits in excess of FDIC limits represents a credit risk of the Company.

 

Concentrations

 

We derived certain revenue and accounts receivable as of and for the years ended December 31, 2016 and 2015, that exceeded 10% of accounts receivable and revenue in each of those years. Approximately 77% and 100% of accounts receivable at December 31, 2016 and 2015, respectively, were derived from two customers. Approximately 73% and 95% of crude hauling revenue for the years ended December 31, 2016 and 2015 were derived from two and one customer(s), respectively. 

   

Accounts Receivable

 

Accounts receivable typically consist of crude oil hauling customer receivables, and are presented on the consolidated balance sheets net of allowances for doubtful accounts. The Company establishes provisions for losses on accounts receivable for estimated uncollectible accounts and regularly reviews collectability and establishes or adjusts the allowance as necessary using the specific identification method. Account balances that are deemed uncollectible are charged off against the allowance. No allowance for doubtful accounts was necessary as of December 31, 2016 and 2015.

 

Inventory

 

Inventories consist primarily of diesel truck parts for repairs to the Company’s fleet and for third parties. Inventories are stated at the lower of cost or market, using the average cost method. Cost includes the purchase price of the inventory from our vendors. All items are considered raw materials related to service repairs. During December 31, 2015, the Company wrote off inventories of approximately $144,000 which were included within the cost of revenue line on the accompanying consolidated statements of operations. The write off was due to expectation of no future sale of the inventories. The Company had no inventory as of December 31, 2016.  

 

Prepaid Expense

 

Prepaid expenses consist primarily of prepaid insurance premiums. The Company amortizes these prepayments to expense over the requisite time period.

 

Property and Equipment

 

Property and equipment are stated at cost less accumulated depreciation. Maintenance and repairs are charged to expense as incurred. Renewals and betterments which extend the life or improve existing equipment are capitalized. Upon disposition or retirement of equipment, the cost and related accumulated depreciation are removed and any resulting gain or loss is reflected in operations. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, which are 5-7 years.  

 

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Intangibles

 

Intangible assets are comprised of a customer list, a trademark and a non-compete agreement obtained in the acquisition of Maxxon during the year ended December 31, 2015. The intangible assets are amortized on a straight-line basis over the assets’ respective life, ranging from 36 months to 120 months.

 

Impairment of Long-Lived Assets

 

The Company reviews the carrying value of its long-lived assets annually or whenever events or changes in circumstances indicate that the historical cost-carrying value of an asset may no longer be recoverable. The Company assesses recoverability of the carrying value of the asset by estimating the future net undiscounted cash flows expected to result from the asset, including eventual disposition. If the future net undiscounted cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and estimated fair value calculated utilizing a discounted cash flow model or appraised value depending on the nature of the asset. There were no impairments of long-lived assets for the year ended December 31, 2016. The Company impaired property and equipment in the amount of $224,835 for the year ended December 31, 2015.  

 

Goodwill

 

Goodwill represents the excess of purchase price over the estimated fair value of net assets acquired related to the Maxxon acquisition. The Company annually evaluates the value of its goodwill and determines if it is impaired by comparing the carrying value of goodwill to its estimated fair value. The Company fully impaired its goodwill during the year ended December 31, 2015.

 

Liabilities of Discontinued Operations – Asset Retirement Obligation

 

The Company records the fair value of a liability for an asset retirement obligation in the period in which the asset is acquired and a corresponding increase in the carrying amount of the related long-lived asset if a reasonable estimate of fair value can be made. The associated asset retirement cost capitalized as part of the related asset is allocated to expense over the asset’s useful life. If the liability is settled for an amount other than the recorded amount, a gain or loss is recognized. The asset retirement obligation is recorded at its estimated fair value and accretion is recognized over time as the discounted liability is accreted to its expected settlement value. Fair value is determined by using the expected future cash outflows discounted at our credit-adjusted risk-free interest rate. The asset retirement obligation on the accompanying consolidated balance sheet at December 31, 2016, is related to our nonproducing Van Pelt lease in Oklahoma, and has been reclassified as l iabilities of discontinued operations .

 

Oil and Gas Revenue Recognition – Discontinued Operations

 

The Company used the sales method of accounting for its oil and gas revenue recognition. Revenue from production on properties in which the Company shared an economic interest with other owners was recognized on the basis of the Company’s interest. Revenues were reported on a gross basis for the amounts received before taking into account production taxes, royalties, and transportation costs, which were reported as production expenses. Under the sales method, revenues were recognized based on the actual volumes of gas and oil sold to purchasers at a fixed or determinable price, when delivery had occurred and title had transferred, and if collectability of revenue was probable.

 

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Oil Hauling and Service Revenue Recognition

 

Our wholly-owned subsidiary, Maxxon, recognizes revenue based on the relative transit time of the freight transported and as other services are provided. Accordingly, a portion of the total revenue that will be billed to the customer once a load is delivered is recognized in each reporting period based on the percentage of the freight pickup and delivery service that has been completed at the end of the reporting period. The Company records revenues on the gross basis at amounts charged to its customers because the Company is the primary obligor, a principal in the transaction, it invoices its customers and retains all credit risks, and maintains discretion over pricing. Additionally, the Company is responsible for the selection of third-party transportation providers. Independent contractor providers of revenue equipment are classified as purchased transportation expense, which is included in cost of revenue in the consolidated statements of operations. 

 

Income Taxes

 

The Company recognizes income taxes on an accrual basis based on a tax position taken or expected to be taken in its tax returns. A tax position is defined as a position in a previously filed tax return or a position expected to be taken in a future tax filing that is reflected in measuring current or deferred income tax assets or liabilities. Tax positions are recognized only when it is more likely than not (i.e. likelihood of greater than 50%), based on technical merits, that the position would be sustained upon examination by taxing authorities. Tax positions that meet the more likely than not threshold are measured using a probability-weighted approach as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement. Should they occur, interest and penalties related to tax positions are recorded as interest expense. No such interest or penalties have been incurred in either of the years ended December 31, 2016 and 2015. We have statutes of limitation open for Federal income tax returns related to tax years 2012 through 2016. We have state income tax returns subject to examination primarily for tax years 2012 through 2016. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service, or state tax authorities to the extent utilized in a future period.

 

Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements or tax returns. A valuation allowance is established to reduce deferred tax assets if all, or some portion, of such assets will more likely than not be realized. A valuation allowance for the full amount of the net deferred tax asset was recorded at December 31, 2016 and 2015.

 

Stock-based compensation

 

The Company measures compensation cost for stock-based payment awards at fair value and recognizes it as compensation expense over the service period for awards expected to vest. Legend’s policy is to issue new shares when options are exercised. Compensation cost from the issuance of stock options and stock grants is recorded as a component of general and administrative expenses in the consolidated statements of operations, and amounted to $10,800 and $0 for the years ended December 31, 2016 and 2015, respectively. This compensation expense was an inducement to an employee to transfer their ownership of four tractor units to the Company.

 

The Black-Scholes option pricing model is used to estimate the fair value of employee stock option awards at the date of grant, which requires the input of highly subjective assumptions, including expected volatility and expected life. Changes in these inputs and assumptions can materially affect the measure of estimated fair value of our share-based compensation. These assumptions are subjective and generally require significant analysis and judgment to develop. When estimating fair value, some of the assumptions will be based on, or determined from, external data and other assumptions may be derived from our historical experience with stock-based payment arrangements. The appropriate weight to place on historical experience is a matter of judgment, based on relevant facts and circumstances.

 

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The Company estimates volatility by considering the historical stock volatility. The Company has opted to use the simplified method for estimating expected term, which is generally equal to the midpoint between the vesting period and the contractual term.

 

Net Loss Attributable to Common Stockholders

 

The computation of basic net loss attributable to common stockholders is based on the weighted average number of shares that were outstanding during the period, including contingently redeemable common stock and adding accumulated dividends on the Company’s Series B Convertible Preferred Stock to the numerator. The computation of diluted net loss per common share is based on the weighted average number of shares used in the basic net loss per share calculation plus the number of common shares that would be issued assuming the exercise of all potentially dilutive common shares outstanding. All potentially dilutive shares or convertible instruments outstanding for the years ended December 31, 2016 and 2015 were anti-dilutive. All potentially dilutive common shares include convertible preferred stock and convertible debentures.

    

    December 31,
2016 		    December 31,
2015 		 
Potentially dilutive of common stock equivalents:                
Convertible preferred stock     327,999,200       327,499,200  
Convertible Debt     193,265,879       21,800,000  

  

Advertising and Marketing Costs

 

The Company expenses the costs of advertising and marketing at the time the related activities take place, which are included in general and administrative expenses.  

 

Derivative Financial Instruments

 

The Company evaluates financial instruments for freestanding or embedded derivatives. Derivative instruments that do not qualify for permanent equity classification as the instruments have been determined not to be indexed to the Company’s stock are recorded as liabilities at fair value, with changes in value recognized as other income (expense) in the consolidated statements of operations in the period of change. Derivative liabilities are categorized as either short-term or long-term based upon management’s estimates as to when the derivative instrument may be realized or based upon the holder’s ability to realize the instrument. At December 31, 2016 and 2015, no derivative financial instruments existed.

 

Fair Value Measurements

 

The Company follows FASB ASC 820, Fair Value Measurement (“ASC 820”), which clarifies fair value as an exit price, establishes a hierarchal disclosure framework for measuring fair value, and requires extended disclosures about fair value measurements. The provisions of ASC 820 apply to all financial assets and liabilities measured at fair value.

 

As defined in ASC 820, fair value, clarified as an exit price, represents the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a result, fair value is a market-based approach that should be determined based on assumptions that market participants would use in pricing an asset or a liability.

 

As a basis for considering these assumptions, ASC 820 defines a three-tier value hierarchy that prioritizes the inputs used in the valuation methodologies in measuring fair value.

 

Level 1: Observable market inputs such as quoted prices in active markets;

 

Level 2: Observable market inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

 

Level 3: Unobservable inputs where there is little or no market data, which require the reporting entity to develop its own assumptions.

 

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Recently Issued Accounting Pronouncements

 

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or FASB or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed below, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.

 

In May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers , which will replace numerous requirements in U.S. GAAP, including industry-specific requirements. This guidance provides a five-step model to be applied to all contracts with customers, with an underlying principle that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. ASU No. 2014-09 requires extensive quantitative and qualitative disclosures covering the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including disclosures on significant judgments made when applying the guidance. This guidance is effective for annual reporting periods beginning after December 15, 2017 and interim periods therein. An entity can elect to apply the guidance under one of the following two methods: (i) retrospectively to each prior reporting period presented – referred to as the full retrospective method or (ii) retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial application in retained earning – referred to as the modified retrospective method. The Company is currently evaluating the impact of adopting ASU 2014-09 on its consolidated financial statements.

 

In April 2015, FASB issued Accounting Standards Update No. 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (ASU 2015-03). 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 that debt liability, consistent with debt discounts. ASU 2015-03 is effective for the Company in the first quarter of 2016 with early adoption permitted. The adoption of ASU 2015-03 was not significant to the Company’s consolidated financial statements.

 

In February 2016, the FASB issued ASU No. 2016-2,  Leases . ASU 2016-2 is aimed at making leasing activities more transparent and comparable, and requires substantially all leases be recognized by lessees on their balance sheet as a right-of-use asset and corresponding lease liability, including leases currently accounted for as operating leases. ASU 2016-2 is effective for the Company in the fiscal year beginning after December 15, 2018, and interim periods within those fiscal years with early adoption permitted. The new standard must be adopted using a modified retrospective transition approach for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements; the guidance provides certain practical expedients. The Company is currently evaluating the impact of adopting ASU 2016-2 on its financial statements, and expects it will impact its current operating leases on its financial statements.

 

On March 30, 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The amendments in ASU 2016-09 affect all entities that issue share-based payment awards to their employees and involve multiple aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The adoption of ASU 2016-09 by the Company did not have a material effect on the Company’s consolidated financial statements. 

 

In November 2015, FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes, which simplifies the presentation of deferred taxes by requiring that deferred tax assets and liabilities be presented as noncurrent on the balance sheet. ASU 2015-17 is effective for the Company in the fiscal year beginning after December 15, 2016, and interim periods within those fiscal years. The Company does not believe the impact of adopting ASU 2015-17 will be significant.  

 

NOTE 3 – GOING CONCERN

 

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. This principle is applicable to all entities except for entities in liquidation or entities for which liquidation appears imminent. The Company has incurred significant losses from continuing operations of approximately $5.9 million and has cash flows used in operating activities of $3.2 million for the year ended December 31, 2016, and had negative working capital of approximately $750,000 at December 31, 2016. Additionally, the Company is dependent on a small number of customers in obtaining its revenue goals. Further, obtaining additional debt and/or equity financing to roll-out and scale its planned principal business operations may be limited due to our losses from operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

As a result, if the Company is unable to (i) obtain additional liquidity for working capital and/or (ii) make the required principal and interest payments on long term debt, there would be a significant adverse impact on the financial position and operating results of the Company. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amounts and classification of liabilities that may result from the outcome of this uncertainty.  

 

Management’s plans in regard to these matters consist principally of seeking additional debt and/or equity financing combined with restructuring its current debt obligations. Further, we expect cash flows from our crude oil hauling company to increase significantly through 2017. There can be no assurance that the Company’s efforts will be successful and its failure to raise capital or restructure its debt would limit its ability to continue its operations.

  

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NOTE 4 – ACQUISITION OF MAXXON

 

On April 3, 2015, the Company entered into a Membership Interest Purchase Agreement (“MIPA”) with Sher Trucking, LLC (“Sher”), Albert Valentin (“Valentin”) and Steven Wallace (“Wallace”), which made up all of the members of Maxxon to purchase all of the outstanding membership interests of Maxxon. The Company paid $1,500,000 in cash to Sher; issued a secured promissory note to Sher in the amount of $2,854,000; issued 90,817,356 shares of the Company’s common stock to Valentin, valued at $526,741; agreed to issue 57,682,644 shares of the Company’s common stock to Wallace valued at $334,559 which was issued in December 2015. The principal amount of the note to Sher initially bore interest at five percent (5%) per annum and was due and payable in full on April 3, 2016 . The note to Sher was restructured during the year ended December 31, 2016. See Note 10 – Long Term Debt for further details. The note was secured by certain rolling stock trucks and trailers owned by subsidiaries of Maxxon. The Company also paid $125,000 to Sher after closing as an advance against an anticipated purchase price adjustment related to the working capital changes of Maxxon. The post-closing payment was included in the final purchase price as a result of the working capital adjustments. On October 27, 2016, the note was uncollateralized as a result of the collateral oil trailers being sold at auction, with the proceeds being paid directly to Sher, as well as our payment of $300,000 for the collateral tractors/trucks paid directly to Sher.  

 

Purchase price on April 3, 2015        
Cash paid   $ 1,625,000  
Promissory note     2,854,000  
Fair value of common stock issued     861,300  
Total purchase price   $ 5,340,300  
Fair value of net assets at April 3, 2015        
Cash   $ 435,339  
Accounts receivable     1,063,629  
Inventory     207,437  
Prepaid and other current assets     199,132  
Property and equipment     3,188,615  
Intangibles     354,000  
Goodwill     438,106  
Total assets     5,886,258  
         
Accounts payable     (455,632 )
Other current liabilities     (90,326 )
Total liabilities     (545,958 )
Net assets acquired   $ 5,340,300  

 

Below are the condensed unaudited pro forma statements of operations for Legend and Maxxon presented as if the entities were combined at the beginning of the year ended December 31, 2015:

 

    2015  
Revenue     $ 7,205,568  
Total operating expenses     10,469,714  
Net loss from operations     (3,264,146 )
Total other expense     (10,164,196 )
Loss from continuing operations     (13,428,342 )
Income from discontinued operations     (1,020,473 )
Net loss     (14,448,815 )
Weighted average number of common shares outstanding – basic and diluted     738,822,999  
Net loss per common share     (0.02 )
Net loss per common share for continuing operations     (0.02 )
Net loss per common share for discontinued operations     0.00  

  

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NOTE 5 – PROPERTY AND EQUIPMENT

 

The amount of capitalized costs related to property and equipment and the amount of related accumulated depreciation at December 31, 2016 and 2015:

 

    2016     2015  
                 
Trucks, trailers, and vehicles   $ 3,073,034     $  3,263,411  
Furniture and equipment     186,770       444,713  
Property and equipment, at cost     3,259,804       3,708,124  
Accumulated depreciation     (687,545 )     (495,950 )
Property and equipment, net   $ 2,572,259     $ 3,212,174  

   

During 2015, the Company closed the repair facility operation for its subsidiary, Treeline Diesel Center LLC. As of December 31, 2015, the Company fully impaired the value of their Treeline Diesel Center, LLC subsidiary assets with a carrying value of $224,835 (net of accumulated depreciation of $33,108).

 

In September 2016, the Company sold 19 oil trailers with a net book value of $1,235,346 (net of accumulated depreciation of $428,654) through Ritchie Bros. Auctioneers (America) Inc. The Company received $158,355 in proceeds, resulting in a recorded loss on the sale of the oil trailers of $1,076,991 during the year ended December 30, 2016.

 

The Company also disposed of $259,404 in other assets (net of accumulated depreciation of $20,735) during the year ended December 31, 2016, resulting in a recorded loss of $36,076 during the year ended December 31, 2016. The total loss on disposal of property and equipment for the years ended December 31, 2016 and 2015 is $1,113,067 and $10,255, respectively.

 

The Company recorded depreciation expense from assets in continuing operations for the years ended December 30, 2016 and 2015 in the amount of $741,043 and $495,950 , respectively.

 

NOTE 6 – INTANGIBLES

 

The amount of intangible assets related to the Maxxon acquisition and the amount of related accumulated amortization are as follows:

 

      2016       2015  
Non-compete agreement   $ 39,200     $ 39,200  
Trademark     47,800       47,800  
Customer relationships     267,000       267,000  
Total intangible assets     354,000       354,000  
Accumulated amortization of intangible assets     (85,680 )     (36,758 )
Net Intangible asset ending balance, December 31   $ 268,320     $ 317,242  

 

Amortization of intangible assets for the years ended December 31, 2016 and 2015 was $48,922 and $36,758, respectively. Estimated aggregate future amortization for the years ending December 31 are approximately; $48,900 in 2017, $39,400 in 2018, $36,000 in 2019, $29,200 in 2020, $26,500 in 2021 and thereafter $88,320.

 

During 2015, the Company determined that goodwill was fully impaired. As a result, the Company recorded an impairment in the amount of $438,106 for the year ended December 31, 2015.  

 

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NOTE 7 – LIABILITIES OF DISCONTINUED OPERATIONS – ASSET RETIREMENT OBLIGATION

 

The asset retirement obligation recorded as of both December 31, 2016 and 2015 was related to the Van Pelt lease, a nonproducing field and discontinued operation, and for which we still own the lease as of December 31, 2016. The asset retirement obligation at both December 31, 2016 and 2015 was $139,927 and $96,129, respectively, and has been included within liabilities of discontinued operations on the consolidated balance sheets. The Company recorded $43,798 and $27,574 in accretion expense of the asset retirement obligation liability during the years ended December 31, 2016 and 2015, respectively, and has been included in the loss from discontinued operations in the Company’s Consolidated Statements of Operations.

 

The table below reconciles the value of the asset retirement obligation at December 31, 2016 and 2015: 

 

      2016       2015  
Opening balance, January 1   $ 96,129     $ 202,586  
Liabilities incurred     —       81,710  
Liabilities settled     —       (203,163 )
Accretion expense     43,798       27,574  
Changes in estimate     —       (12,578 )
Ending balance, December 31   $ 139,927     $ 96,129  

 

NOTE 8 – RELATED PARTY TRANSACTIONS

 

On November 29, 2016, the CEO at that time, resigned from his position with the Company. Prior to our former CEO assuming any role in the Company, including his former Chief Restructuring Officer duties, Northpoint Energy Partners (“NPE”), of which our former CEO is a principal, was engaged by the owners of Maxxon to obtain a buyer for Maxxon. During 2015, our Board of Directors reviewed this agreement between NPE and the sellers, and deemed the agreement and acquisition by the Company to be appropriate, and negotiated a brokerage fee with Northpoint of $225,000 to be paid by the Company.

 

During the year ended December 31, 2015, the related party amounts due to NPE were reduced by payments of $180,400. NPE was due a balance of $451,600, as a result of the former CEO agreement initially negotiated with NPE, the former CEO and the Company, during 2014. In July 2015, NPE agreed to forgive the amount due to NPE of $451,600. During the year ended December 31, 2015, the Company reduced its general and administrative expense by the total of $451,600. As of December 31, 2015, the only amount due to NPE was $120,000, which was the revised contractual bonus accrual under the NPE letter agreement for CEO services. The $120,000 was fully paid during the year ended December 31, 2016. 

 

On May 1, 2015, Hillair Capital Investments, L.P. (“Hillair”), a related party and majority stockholder of the Company, converted all of its 600 Series A Convertible Preferred Stock to 600 million shares of common stock.

 

On October 22, 2015, the Company consummated a Securities Exchange Agreement with Hillair, its controlling stockholder, pursuant to which it issued 9,643 shares of Series B Convertible Preferred Stock (the “Series B Preferred Shares”) with conversion price of $0.03 in exchange for the cancellation of debentures held by Hillair with a total carrying value of $9,824,976 (the “Exchanged Debentures”). The shares can be converted into 327,499,200 shares of the Company’s common stock. See Note 12 – Stockholders’ Equity (Deficit). 

 

Also, on October 22, 2015, the Company consummated a Securities Purchase Agreement with Hillair pursuant to which it issued an Original Issue Discount Senior Secured Convertible Debenture in the aggregate amount of $654,000, payable in full on March 1, 2017. The debenture was convertible into up to 21,800,000 shares of common stock at a conversion price of $0.03 per share. After taking into account the original issue discount, legal and diligence fees of $104,000 reimbursed to Hillair, which were recorded as debt discount within the convertible note – related party line of the accompanying consolidated balance sheet, the net proceeds received by the Company was $550,000. The debenture was restructured on January 29, 2016. 

 

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On January 29, 2016, the Company and Hillair amended the Securities Purchase Agreement (the “Amended SPA”) to increase the aggregate amount available to the Company. The Amended SPA increased the amount from $654,000 to $1,439,400. As a result, the Company received $630,000 in new proceeds, net of the increased amount of original issue discount, legal and diligence fees of $155,400, which were recorded as a debt discount within the convertible debt - related party line of the accompanying consolidated balance sheet. The debenture is convertible into 47,980,000 shares of common stock at a conversion price of $0.03 per share. The Amended SPA also extended the maturity date to March 1, 2018. All other terms of the debenture remain the same.

 

On March 25, 2016, the Company entered into a convertible debenture with Hillair totaling $410,788, due and payable on March 1, 2018. This debenture is convertible into 13,692,933 shares of common stock at $0.03 per share. The Company received net proceeds of $360,000, net of original issue discount, legal and diligence fees of $50,788, which were recorded as a debt discount within the convertible debt related party line of the accompanying consolidated balance sheet.

 

On April 6, 2016, the Company entered into a convertible debenture with Hillair totaling $1,150,206, due and payable on March 1, 2018. This debenture is convertible into 38,340,200 shares of common stock at $0.03 per share. We received net proceeds of $1,000,000, net of original issue discount, legal and diligence fees of $150,206, which were recorded as a debt discount within the convertible debt related party line of the accompanying consolidated balance sheet.  

 

On May 27, 2016, the Company entered into a convertible debenture with Hillair totaling $460,082, due and payable on March 1, 2018. This debenture is convertible into 15,336,080 shares of common stock at $0.03 per share. The Company received net proceeds of $400,000, net of original issue discount, legal and diligence fees of $60,082, which were recorded as a debt discount within the convertible debt related party line of the accompanying consolidated balance sheet.

 

On July 5, 2016, the Company entered into a convertible debenture with Hillair totaling $330,000, payable in full on March 1, 2018. This debenture is convertible into 11,000,000 shares of common stock at $0.03 per share. The Company received net proceeds of $300,000, net of original issue discount, legal and diligence fees of $30,000, which were recorded as a debt discount within the convertible debt related party line of the accompanying consolidated balance sheet.

 

On July 27, 2016, the Company entered into a convertible debenture with Hillair totaling $550,000, payable in full on March 1, 2018. This debenture is convertible into 18,333,333 shares of common stock at $0.03 per share. The Company received net proceeds of $475,000, net of original issue discount, legal and diligence fees of $75,000, which were recorded as a debt discount within the convertible debt related party line of the accompanying consolidated balance sheet.

 

On August 21, 2016, the Company entered into a convertible debenture with Hillair totaling $385,000, payable in full on March 1, 2018. This debenture is convertible into 12,833,333 shares of common stock at $0.03 per share. The Company received net proceeds of $340,000, net of original issue discount, legal and diligence fees of $45,000, which were recorded as a debt discount within the convertible debt related party line of the accompanying consolidated balance sheet.

 

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On October 31, 2016, the Company entered into a convertible debenture with Hillair totaling $440,000, payable in full on March 1, 2018. The debenture is convertible into 14,666,667 shares of common stock at $0.03 per share. The Company received net proceeds of $390,000, net of original issue discount, legal and diligence fees of $50,000, which were recorded as a debt discount within the convertible debt related party line of the accompanying consolidated balance sheet.

 

On November 29, 2016, the Company entered into a convertible debenture with Hillair totaling $302,500, payable in full on March 1, 2018. The debenture is convertible into 10,083,333 shares of common stock at $0.03 per share. The Company received net proceeds of $275,000, net of original issue discount, legal and diligence fees of $27,500, which were recorded as a debt discount within the convertible debt related party line of the accompanying consolidated balance sheet.

 

On December 16, 2016, the Company entered into a convertible debenture with Hillair totaling of $330,000, payable in full on March 1, 2018. The debenture is convertible into 11,000,000 shares of common stock at $0.03 per share. The Company received net proceeds of $300,000, net of original issue discount, legal and diligence fees of $30,000, which were recorded as a debt discount within the convertible debt related party line of the accompanying consolidated balance sheet.  

 

The information in the below table includes all related party convertible debt at December 31, 2016, and the details of that debt. Debenture net is the debenture amount less the unamortized original issue discount and deferred financing costs (“OID & DFC”). 

 

    Debtor   Issue
Date 		  Maturity
Date 		  Common Share
Conversion Price 		  Convertible
Common Shares 		    Debenture
Amount 		    Unamortized
OID & DFC 		    Debenture
 Net 		 
                                         
a)   Hillair Capital Investments, L.P.   January 29, 2016   March 1, 2018  $ 0.03   47,980,000   $ 1,439,400   $ 139,445   $ 1,299,955  
                                         
b)   Hillair Capital Investments, L.P.   March 25, 2016   March 1, 2018   0.03   13,692,933     410,788     30,574     380,214  
                                         
c)   Hillair Capital Investments, L.P.   April 7, 2016   March 1, 2018   0.03   38,340,200     1,150,206     92,118     1,058,088  
                                         
d)   Hillair Capital Investments, L.P.   May 27, 2016   March 1, 2018   0.03   15,336,080     460,082     42,609     417,473  
                                         
e)   Hillair Capital Investments, L.P.   July 5, 2016   March 1, 2018   0.03   11,000,000     330,000     21,109     308,891  
                                         
f)   Hillair Capital Investments, L.P.   July 27, 2016   March 1, 2018   0.03   18,333,333     550,000     54,768     495,232  
                                         
g)   Hillair Capital Investments, L.P.   August 21, 2016   March 1, 2018   0.03   12,833,333     385,000     34,336     350,664  
                                         
h   Hillair Capital Investments, L.P.   October 31, 2016   March 1, 2018   0.03   14,666,667     440,000     46,499     393,501  
                                         

i) 

  Hillair Capital Investments, L.P.   November 29, 2016   March 1, 2018   0.03   10,083,333     302,500     25,574     276,926  
                                         
j)   Hillair Capital Investments, L.P.   December 16, 2016   March 1, 2018   0.03   11,000,000     330,000     28,977     301,023  
                                         
     Total convertible debt-related party               193,265,879   $ 5,797,976   $ 516,009   $ 5,281,967  

 

The total debt discount and deferred financing costs for the convertible debentures amount to $516,009 and $89,323 (net of accumulated amortization of $261,967 and $14,677) as of December 31, 2016 and 2015, respectively. Amortization related to debt discount and deferred financing costs amount to $247,290 and $14,677 for the years ended December 31, 2016 and 2015, respectively, and have been included within interest expense on the accompanying consolidated statements of operations.

 

The convertible debentures outstanding to Hillair of $5,797,976 are due in full on March 1, 2018. There are no installment payments required by these convertible notes of either principal or interest.

 

On September 30, 2016, the Company entered into a line of credit facility (the “Credit Facility”) with Lorton Finance Company (“Lorton”), an affiliate of Hillair, due on September 30, 2019. This line of credit facility is not convertible into common or preferred shares of the Company; rather, as discussed in the below paragraph, certain draws require us to issue our Series B Preferred Stock based on the formula described below.

 

The aggregate amount of the above Lorton facility is $2,000,000, with the initial draw by the Company of $1,150,000. Draws made subsequent to the initial draw provide that we issue Lorton shares of the Company’s Series B Preferred Stock in amounts equivalent to five percent (5%) of the amount of the draw divided by the $1,000 stated value of the Series B Preferred Stock. Each of these preferred shares is convertible into the Company’s common stock at $0.03 per share. The facility bears interest at the rate of 20% per annum, payable monthly beginning March 31, 2017. Beginning September 30, 2017, the Company is obligated to make monthly principal payments of $47,917. The Credit Facility is secured by titles to 19 trucks owned by the Company. After taking into account legal and diligence fees of $87,545, which were recorded as a deferred financing cost within the long term debt-related party line of the accompanying consolidated balance sheet, and the payment in full of our line of credit with State Bank & Trust Company (see Note 10 – Long Term Debt) in the amount of $274,955, the net proceeds received by the Company was $787,500.

  

On October 27, 2016, pursuant to the mutual agreement of Lorton and the Company, the Company made an additional $300,000 draw in principal amount of the Credit Facility. Such additional Debenture (i) bears interest at the rate of 20% per annum, payable monthly beginning March 31, 2017, (ii) beginning September 30, 2017, the Company is obligated to make monthly principal payments of $12,500, (iii) has a first priority security interest in the assets being acquired in connection with such additional purchase, and (iii) is otherwise in substantially the form of the Credit Facility. In addition, the Company issued Lorton 15 shares of the Company’s Series B Preferred Stock valued at $14,500, accounted as additional paid in capital and debt discount on long term debt-related party. These shares are convertible into 500,000 shares of the Company’s common stock. Total outstanding with Lorton amounted to $1,355,310 (net of unamortized debt discount and deferred financing costs of $94,690) at December 31, 2016.

 

The debt discount and deferred financing costs for the long term debt-related party amount to $94,690 (net of accumulated amortization of $7,355) as of December 31, 2016. Amortization related to the debt discount and deferred financing cost amount to $7,355 for the year ended December 31, 2016, and has been included within interest expense on the accompanying consolidated statements of operations.

 

The following table represents the aggregate future maturities required on the Lorton credit facility for the years ending December 31:

 

2017    $ 241,667  
2018     725,000  
2019     483,333  
Total payments   $ 1,450,000  

 

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NOTE 9 – SHORT TERM DEBT  


On October 28, 2013, a vendor filed a complaint against the Company seeking to collect $68,913, plus interest at 12% for services rendered on or before November 30, 2012. This claim has been satisfactorily resolved between the parties, and Legend is remitting $2,500 per month in settlement of this claim, until such balance is fully repaid. The outstanding principal balance of the claim was $20,297 and $45,805 as of December 31, 2016 and 2015, respectively.

 

On April 1, 2014, the Company issued a note payable to New Western Energy Corporation (“NWTR”) for $75,000. The note has no interest provision and was due on February 28, 2015. On January 6, 2015, the Company entered into a settlement with NWTR to repay the remainder of principal in 5 monthly installments starting on February 15, 2015 with no interest accruing. The note was in default as of December 31, 2016, but the Company has not received a waiver nor a default notice from NWTR. The Company is accruing interest at an estimated rate of 12% due to the default. The outstanding principal balance of the note was $26,664 as of December 31, 2016 and 2015, respectively. 

 

On June 19, 2014, a vendor filed a complaint against the Company seeking to collect $35,787, plus interest at 12% for services rendered. The outstanding principal balance of the note was $3,507 as of December 31, 2015. This claim has been satisfactorily resolved between the parties.

  

On October 20, 2014, the Company issued a note payable for the purchase of drilling rig for $315,000. The note bore interest at 6% per annum and was due on April 12, 2016. This note was fully repaid as of December 31, 2016. The outstanding principal balance of the note was $73,372 as of December 31, 2015.

 

On December 16, 2015, the Company entered into a secured line of credit facility with State Bank and Trust Company in the aggregate amount of $275,000. The facility bore interest at 4% and was due on December 16, 2016. The note was collateralized by certain property of Maxxon. On September 30, 2016, the secured line of credit facility was repaid with the proceeds from the related party line of credit facility with Lorton, and this agreement with State Bank and Trust Company was terminated. The outstanding principal balance of the line of credit was $100,000 as of December 31, 2015.

 

On November 25, 2016, the Company entered into an agreement with Merchants to repay $4,336 of employee housing expenses related to the cancellation of North Dakota apartment leases. The agreement required a $366 down payment and monthly payments of $500 through December 15, 2017. The outstanding principal balance on this agreement at December 31, 2016 was $3,500.

 

During the year ended December 31, 2016, the Company entered into various insurance financing agreements. The agreements are payable in nine monthly payments and accrue interest at various rates (ranging from 3.45% and 4.61%). These financing agreements are unsecured; however, should there be a default, the Company’s insurance policies would be subject to cancellation. The outstanding principal balance on these financing agreements at December 31, 2016 was $164,233.

 

Total short term debt amounted to $214,694 and $249,348   as of December 31, 2016 and 2015, respectively. 

 

NOTE 10 – LONG TERM DEBT 

 

Long Term Debt consist of the following:            
2016 2015  
               
a) On April 5, 2016, the Company entered into an agreement with Sher Trucking, LLC (Sher) that restructured the existing secured promissory note ($2,854,000) plus accrued interest ($142,700) and a $250,000 restructuring fee, (the “Restructuring”), with an amended and restated note totaling $3,246,700. This note accrues interest at 15% per annum, with all principal and interest due upon maturity. The restructuring fee of $166,667 (net of accumulated amortization of $83,333) is being amortized to interest expense using the effective interest method through the term of the agreement. The Company recorded $83,333 in interest expense for the year ended December 31, 2016 related to the amortization of the restructuring fee. The note is due on April 3, 2018. The note remained collateralized by the same collateral assets (tractors and trailers) as the original promissory note to Sher. On October 27, 2016, Sher released the collateral, due to our payment of $300,000, which also allowed the Company to obtain full title to the 12 secured trucks. The promissory note is now unsecured.      $ 1,799,544   $ 2,854,000  
                   
b) On March 29, 2016, the Company entered into a trailer purchase agreement with Southwest Truck & Trailer, Inc. (“Southwest”). The Company purchased 7 trailers valued at $278,636. The Company paid $28,000 as a down payment and entered into a financing agreement with a third party for the remaining balance of $250,636. The financing requires monthly payments of $6,962 for the next 3 years and has a 0% interest rate, but imputed interest has been accrued based on a 3.45% discount rate and is reflected as a reduction of principal.  The note is secured by the related trailers acquired with a net book value of $240,573 (net of accumulated depreciation of $38,063).       188,831     —  
                   
c) On April 8, 2016, the Company entered into a trailer purchase agreement with Southwest. The Company purchased 6 trailers valued at $217,369. The Company paid $32,400 as a down payment and entered into a financing agreement with a third party for the remaining balance of $184,968. The financing requires monthly payments of $5,138 for the next 3 years and has a 0% interest rate, but imputed interest has been accrued based on a 3.45% discount rate and is reflected as a reduction of principal. The note is secured by the related trailers acquired with a net book value of $188,748 (net of accumulated depreciation of $28,621).       143,864     —  

 

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d) On October 19, 2015, the Company entered into a secured note agreement with a financial institution for the purchase of a vehicle in the amount of $118,110. The note bore interest at 5.99% and was due on December 3, 2020. In February 2016, the Company traded in the vehicle for a new vehicle. As part of the trade in, the note was settled and a new note was issued with a principal balance of $135,278 with interest at 3.99% and is due on April 1, 2021. The new note is secured by the new vehicle acquired with a net book value of $100,288 (net of accumulated depreciation of $18,653). This vehicle was turned into a dealer and the related note was repaid on January 5, 2017 with a net loss on disposition of approximately $30,000.       118,042     116,411  
                   
e) On November 12, 2015, the Company entered into a secured note agreement with a financial institution for the purchase of a vehicle in the amount of $57,106. The note bore interest at 3.99% and was due on November 12, 2020. In February 2016, the Company traded in the vehicle for a new vehicle. As part of the trade in, the note was settled and a new note was issued with a principal balance of $76,380 with interest at 3.90% and is due on April 5, 2021. This vehicle and related note were disposed of by the Company as they were acquired at market value by an executive of the Company. This transaction, on November 4, 2016, resulted in a net loss on disposition of approximately $4,800.       —     55,843  
                   
f) On November 1, 2015, the Company purchased three trucks from A&H Sterling Energy, LLC (“A&H”). The trucks were financed by A&H with an outstanding promissory note in the aggregate amount of $96,407 owed to Cunard Holdings LLC. The Company assumed the outstanding promissory note as part of the acquisition of the trucks. The note bears interest at 7%, is secured by those trucks with a net book value of $77,199 (net of accumulated depreciation of $19,208) and is due on January 1, 2018.         46,412     89,045  
                   
g) On May 19, 2016, the Company entered into a secured note agreement with a financial institution for the purchase of a vehicle valued at $53,355. The Company paid $4,000 as a down payment and financed the remaining amount of $49,355. The note was issued with a 7.49% interest rate and is due on May 19, 2020. The loan is secured by the related vehicle with a net book value of $46,225 (net of accumulated depreciation of $7,131).       42,265     —  
                   
h) On December 26, 2016, the Company entered into a secured note agreement with a financial institution for the purchase of a vehicle valued at $45,000. The Company paid $5,000 as a down payment. The Company owes the remaining amount of $40,000. This note is being financed by the dealer over a four month period at a 0% interest rate, with payments of $10,000 each, which commenced in February 2017. The vehicle has a net book value of $46,884 (net of accumulated depreciation of $116).       40,000     —  
                   
i) In January 2016, the Company entered into a forbearance agreement to transfer amounts owed on a credit card to Origin Bank into a note agreement, in the aggregate amount of $40,850. The note bears interest at 4% per annum and is payable in 12 monthly payments beginning April 15, 2016 of $3,000 per month with the remaining balance and accrued interest due on April 15, 2017.       14,729      —  
                   
  Total       2,393,687     3,115,299  
                   
  Less deferred financing costs       (166,667 )    —  
                   
  Less current portion of long term debt       (238,580 )    (1,074,781 )
                   
  Long term debt     $ 1,988,440   $ 2,040,518  

 

The following table represents the aggregate future maturities required on the long term notes for the years ending December 31: 

 

2017   $ 255,076  
2018     1,978,718  
2019     118,920  
2020     33,751  
2021     7,222  
Total payments   $ 2,393,687  

 

 

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NOTE 11 – EMBEDDED DERIVATIVE LIABILITIES

 

The table below is a reconciliation of embedded derivative liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the year ended December 31, 2015:

       
     
Balance as of December 31, 2014   $ 1,128,667  
Fair value of warrants issued     —  
Fair value upon conversion of preferred stock to common stock     (7,680,000 )
Change in fair value     6,551,333  
Balance as of December 31, 2015   $ —  

 

The Company used the market price of $0.0128 for its common stock on the date of conversion of the Series A Convertible Preferred Stock to calculate the fair value of the embedded derivative extinguished during the year ended December 31, 2015. As of December 31, 2016 and 2015, the Company had no outstanding derivative liabilities.

 

During the year ended December 31, 2015, t he Company valued the embedded derivative liabilities using a Black-Scholes model. A summary of quantitative information with respect to valuation methodology, estimated using a Black-Scholes model, and significant unobservable inputs used for the Company’s embedded derivative liabilities for the year ended December 31, 2015 is as follows: 

         
Expected dividend yield     —  
Strike price   $ 0.001-0.01  
Expected stock price volatility     196.27-218.76 %
Risk-free interest rate     1.52-1.78 %
Expected term (in years)     4-5  

 

NOTE 12 – STOCKHOLDERS’ EQUITY (DEFICIT)

 

On December 21, 2015, the Company obtained stockholder approval to amend the Company’s Articles of Incorporation to effect an increase in the amount of authorized shares of from 1,100,000,000 to 5,000,000,000. The Company increased the number of authorized shares of common stock from 1 billion shares, with a par value of $0.001, to 4.9 billion shares, with a par value of $0.001 and 100 million shares designated as blank check preferred stock.

 

The Company designated 600 shares of its 100 million shares of blank check preferred stock as Series A Convertible Preferred Stock.  

 

The Company designated 9,643 shares of its 100 million shares of blank check preferred stock as Series B Convertible Preferred Stock.

 

On October 27, 2016, the Company designated an additional 15 shares of its 100 million shares of blank check preferred stock as Series B Convertible Preferred Stock.

 

Convertible Preferred Stock

 

On October 22 2015, the Company consummated a Securities Exchange Agreement with Hillair, its majority stockholder, pursuant to which it issued 9,643 shares of Series B Convertible Preferred Stock (the “Series B Preferred Shares”) in exchange for the cancellation of debentures held by Hillair with a total principal value of $9,642,546 and accrued interest of $182,430. The shares are convertible into 327,499,200 shares of the Company’s common stock at $0.03 per share.

 

On October 27, 2016, the Company made a draw on the Credit Facility in the amount of $300,000 with Lorton. Per the terms of the Credit Facility, the Company issued to Lorton 15 shares of its Series B Preferred Shares, valued at $14,500 and treated as a debt discount. The shares are convertible into 500,000 shares of the Company’s common stock at $0.03 per share.

 

The Series B Convertible Preferred Stock has a liquidation preference of $10,648,579 at December 31, 2016, inclusive of undeclared dividends totaling $990,579 ($837,245 and $153,335 for the years ended December 31, 2016 and 2015, respectively). The Series B Convertible Preferred Stock are convertible into shares of the Company’s common stock at $0.03 per share, have a stated value of $1,000 per share, accrue dividends daily at 8% per annum on the total stated value of the Series B Convertible Preferred Stock plus all unpaid accrued and accumulated dividends, are redeemable at the Company’s option upon achieving certain common stock trading pricing and have voting rights on an as converted basis.

 

As of January 1, 2015, the Company had issued and outstanding 600 shares of its Series A Convertible Preferred Stock. This convertible preferred stock had a 0% dividend rate. The shares of preferred stock were convertible into 600 million shares of the Company¹s common stock at $0.001 per share, and had an anti-dilution provision. The shares were converted to 600 million shares of common stock in May 2015.  

 

44  

 

 

Common Stock Issuances

 

In April 2015, the Company issued 90,817,356 shares of common stock to Albert Valentin as part of its purchase of Maxxon. The stock had a fair value of $526,741. The fair value of the common stock was determined using the closing price of the shares on the date of acquisition.

 

In December 2015, the Company issued 57,682,644 shares of common stock to Steven Wallace as part of its purchase of Maxxon. The stock had a fair value of $334,559. The fair value of the common stock was determined using the closing price of the shares on the date of acquisition.

 

On March 2, 2016, the Company issued common stock to an employee in lieu of cash for the purchase of property and equipment. A total of six million shares were issued with a fair value of $10,800 using the closing market price on the date of issuance.

 

Stock Incentive Plan

 

On October 26, 2016, the Company’s Board approved the 2016 Stock Incentive Plan and reserved 250,000,000 shares of common stock for issuance thereunder. All prior Stock Incentive Plans were cancelled. The Company did not issue any common stock, stock options or warrants under this or any prior Stock Incentive Plans during the years ended December 31, 2016 or 2015.

   

NOTE 13 – SEGMENT INFORMATION

 

The Company had the following reporting segments for the year ended December 31, 2015:

 

● Legend is an oil and gas exploration, development and production company. The Company’s oil and gas property interests are located in the United States (Kansas and Oklahoma).

 

● Maxxon is a trucking and oil and gas services company that operates in North Dakota (the Bakken) and Texas and New Mexico (the Permian).

 

The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performances based on profit or loss from operations before income taxes, not including nonrecurring gains and losses and foreign exchange gains and losses. Legend’s reportable segments are strategic business units that offer different technology and marketing strategies.

 

For the year ended December 31, 2016, trucking activities were the Company’s only segment, as the oil and gas activities were discontinued in the third quarter of 2015.

  

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NOTE 14 – DISCONTINUED OPERATIONS

 

The Company’s oil and gas activities were discontinued in October 2015 and are presented as a net loss from discontinued operations in the Company’s Consolidated Statements of Operations. The amounts of net assets related to the discontinued operations of the Company’s oil and gas operations as of December 31, 2016 and 2015 were $(139,927) and $302,551, respectively. The table below summarizes the operations of the Company’s oil and gas activities for years ended December 31, 2016 and 2015.  

             
    2016     2015  
Revenues   $ —     $ 350,315  
Production expenses     —       (387,501 )
General and administrative expense             (29,877 ) 
Depletion, depreciation and amortization     —       (124,740 )
Accretion of asset retirement obligation     (43,798 )     (27,574 )
Loss on sale of oil and gas properties     —       (901,114 )
Loss on disposal of property and equipment     (308,680 )      —  
Other expense     (2,967 )     100,018  
Loss from discontinued operations   $ (355,445 )   $ (1,020,473 )

 

During 2015, the Company sold its Piqua property for approximately $1.5 million, and its McCune property for $165,000. As the sale significantly altered the relationship between the Company’s capitalized costs and its total proved reserves, we recorded a loss on the sale of $901,114. The Company recorded the net loss from the sale in the loss from discontinued operations within the accompanying statements of operations. The Company disbursed the proceeds of $1,425,000 to Hillair, the mortgage holder of the properties.

 

On October 28, 2015, the Company sold the Volunteer property to Hillair in exchange for the forgiveness of approximately $1.9 million in prepayment penalty obligations. No gain was recorded on the sale as Hillair is a related party. The excess fair value of the debt over the property settled, of $144,355 was recorded as a reduction of interest expense.

 

During the year ended December 31, 2015, the Company incurred development costs (which include fixed asset purchases as well as certain operating costs) of $856,358 related to the completion of the Piqua, McCune, Landers, Volunteer, and Van Pelt wells. During the year ended December 31, 2015, the Company recorded depletion expense of $70,045.

 

There were no development costs or depletion expense for the year ended December 31, 2016 as the Company discontinued oil and gas operations in 2015.

 

The Company owned a drilling rig, in the amount of $398,680 (net of accumulated depreciation of $66,320) was previously included in property and equipment, and has been reclassified to assets held for sale – discontinued operations, as the Company has ceased all drilling operations. During the year ended December 31, 2015, prior to reclassifying to assets held for sale – discontinued operations, the Company recorded $54,695 of depreciation, which has been reclassified to loss from discontinued operations for the year ended December 31, 2015. There was no depreciation recorded for the year ended December 31, 2016. On November 14, 2016, the Company sold the rig for $90,000 to an unaffiliated party, resulting in a loss of $308,680, which has been included on the loss on disposal of property and equipment line above.  

 

NOTE 15 – COMMITMENTS AND CONTINGENCIES

 

The Company is not aware of any pending or threatened legal proceedings, nor is the Company aware of any pending or threatened legal proceedings, affecting any current officer, director or control stockholder, or their affiliates.

 

As part of its regular operations, the Company may become party to various pending or threatened claims, lawsuits and administrative proceedings seeking damages or other remedies concerning its commercial operations, products, employees and other matters. Although the Company can give no assurance about the outcome of these or any other pending legal and administrative proceedings and the effect such outcomes may have on the Company, the Company believes that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided for or covered by insurance, will not have a material adverse effect on the Company’s financial condition or results of operations.

 

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The Company leases office space on a month-to-month basis, with monthly rental payments due of approximately $10,900, which includes the New Mexico operations facility of $5,500, and accounting, dispatch and executive office rents in Colorado and Georgia.

 

On May 18, 2015, the Company entered into a trailer lease agreement with Polar Service Centers. The Company leased 7 trailers at a monthly rent of $17,500 for 28 months commencing on June 1, 2015 and continuing until September 30, 2017.

 

On February 15, 2016, the Company entered into a trailer lease agreement with Wallwork Truck Center. The Company leased 10 trailers at a monthly rent of $17,335 for 48 months commencing on February 12, 2016 and continuing until February 12, 2020.

 

On July 26, 2016, the Company entered into a trailer lease agreement with Wholesale Truck and Finance. The Company leased 3 trailers at a monthly rent of $5,717 for 60 months commencing on August 1, 2016 and continuing until August 1, 2021.

 

The Company leases office space, a diesel repair shop, and employee housing under non-cancelable lease agreements. The leases provide that we pay taxes, insurance, utilities, and maintenance expenses related to the leased assets. During March 2016, we entered into a restructured lease agreement with the property owner/landlord, where the facility lease has been restructured to a 60 month lease commencing April 1, 2016. The restructured lease indicates that we will not pay any cash lease payments while we deplete our $120,000 security deposit held by the landlord, which is included in other assets on the accompanying balance sheets. The revised lease and its payment structure will be such that we will use the funds contained in the security deposit in the amount of $6,000 per month as rent expense (in lieu of cash payments) while West Texas Intermediate (“WTI”) oil prices remain below $60.00 per barrel, for any 30 day period. When the price of WTI oil goes above $60.00 per barrel but less than $80.00 per barrel for any 30 day period, we will use the revised amount against our deposit of $7,500 per month. Upon the price of WTI oil being above the $80.00 per barrel level for a 30 day period, the Company’s rent payment will be $10,000 per month, the maximum rental payment under the restructured lease agreement.

  

The Company entered into 3 separate apartment leases in 2016, to provide employee housing in various operating locations. Each are 12 month agreements with a total monthly rent of $3,602.

 

Future minimum lease payments for these non-cancelable operating leases for the years ending December 31, are as follows:

 

2017     536,744  
2018     348,624  
2019     348,624  
2020     175,274  
2021     63,736  
Total net minimum payments   $ 1,473,002  

 

NOTE 16 – INCOME TAXES

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The components of the deferred tax assets and liability as of December 31, 2016 and 2015 are as follows:  

             
    2016     2015  
Deferred tax assets:                
  Net operating loss carryforward   $ 7,283,891     $ 5,110,387  
  Asset retirement obligation     48,974       33,645  
  Intangibles     15,533       —  
  Total deferred tax assets     7,348,398     $ 5,144,032  
  Valuation allowance     (7,029,664 )     (5,144,032 )
  Total deferred tax assets, net of valuation allowance     318,734       —  
Deferred tax liability                
  Property and equipment     (318,734 )     —  
Net deferred tax asset (liability)   $ —     $ —  

    

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The items accounting for the difference between income taxes computed at the statutory rates and the provisions for income taxes are as follows for the years ended December 31, 2016 and 2015:

 

    2016     2015  
Net loss   $ (6,247,343 )   $ (14,989,835 )
Tax rate     35 %     35 %
Tax benefit at statutory rate     (2,186,570 )     (5,246,442 )
50% of meals and entertainment     9,286       7,496  
Stock-based compensation     3,780       —  
Loss (gain) on embedded derivatives     —       2,292,967  
Timing difference on loss on sale of property and equipment     27,290       —  
Timing difference on accretion on asset retirement obligation     15,329       —  
Timing differences in amortization expense     15,533       143,115  
Depreciation of property and equipment     (346,024 )     —  
Prior year true up     62,990       —  
Valuation allowance     2,398,386       2,802,864  
Provision for income taxes   $ —     $ —  

 

The Company established a valuation allowance for the full amount of the net deferred tax asset as management currently does not believe that it is more likely than not that these assets will be recovered in the foreseeable future. The federal net operating loss at December 31, 2016 is approximately $20,750,866, and begins to expire in 2030 and fully expires in 2036. The total state net operating loss at December 31, 2016 is approximately $10,603,296 and begins to expire in 2035 and fully expires in 2036.

 

NOTE 17 – SUBSEQUENT EVENTS

 

The Company evaluated events and transactions occurring after December 31, 2016 through the date these consolidated financial statements were included in this Form 10-K and filed with the SEC, to identify subsequent events which may need to be recognized or non-recognizable events which would need to be disclosed.

 

On January 3, 2017, the Company entered into a convertible debenture with Hillair totaling $385,000, payable in full on March 1, 2018. The debenture is convertible into 12,833,333 shares of common stock at $0.03 per share. The Company received net proceeds of $345,000, net of original issue discount, legal and diligence fees of $40,000, which will be recorded as a debt discount within convertible debt-related party. 

 

On January 25, 2017, the Company entered into a convertible debenture with Hillair totaling $770,000, payable in full on March 1, 2018. The debenture is convertible into 25,666,667 shares of common stock at $0.03 per share. The Company received net proceeds of $690,000, net of original issue discount, legal and diligence fees of $80,000, which will be recorded as a debt discount within the convertible debt-related party. 

 

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

ITEM 9A. CONTROLS AND PROCEDURES

   

Evaluation of Disclosure Controls and Procedures

 

Our management evaluated, with the participation of the individual serving as our Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a15(e) and 15d15(e) under the Securities Exchange Act of 1934, as amended) as of the year end covered by this Report. Based on this evaluation, Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are not effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934, as amended, (i) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) is accumulated and communicated to our management, as appropriate, to allow timely decisions regarding required disclosure. Such conclusion was reached based on the following material weaknesses set forth below.

 

Our disclosure controls and procedures include components of our internal control over financial reporting and, as such, are designed to provide reasonable assurance that such information is accumulated and communicated to our management. Management’s assessment of the effectiveness of our internal control over financial reporting is expressed at the level of reasonable assurance that the control system, no matter how well designed and operated, can provide only reasonable, but not absolute, assurance that the control system’s objectives will be met (see the section below in this Item 4 entitled Limitations on the Effectiveness of Internal Controls ).

 

49  

 

 

Management’s Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d - 15(f) under the Securities Exchange Act of 1934. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes those policies and procedures that: (i) in reasonable detail accurately and fairly reflect our transactions; (ii) provide reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; (iii) provide reasonable assurance that our receipts and expenditures are made in accordance with management authorization; and (iv) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting, however well designed and operated can provide only reasonable, and not absolute, assurance that the controls will prevent or detect misstatements. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there is only the reasonable assurance that our controls will succeed in achieving their goals under all potential future conditions.

 

Management, under the supervision and with the participation of the individual serving as our Chief Executive Officer and our Chief Financial Officer conducted an evaluation of our internal control over financial reporting as of December 31, 2016, based on the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our evaluation under the COSO framework, management concluded that our internal control over financial reporting was not effective as of December 31, 2016, due to the material weaknesses set forth below.

 

a) Due to the small size of the Company, there are inadequate segregation of duties consistent with control objectives affecting authorization, recordkeeping and reconciliations. Due to the small size of the accounting department, consisting of the Chief Financial Officer and Controller, there are limited compensating controls around segregation of duties.
     
b) The Company currently does not have sufficient personnel with the appropriate level of accounting knowledge, experience and training in the selection, application and implementation of generally acceptable accounting principles as it relates to complex transactions, fair value measurements and financial reporting requirements.
     
c) Lack of controls that provide reasonable assurance regarding prevention or timely detection of unauthorized expense reimbursement that could have a material effect on the financial statements.

  

Management is in the process of remediating these weaknesses and is continuing to expand the accounting department. 

 

Changes in Internal Control Over Financial Reporting

 

On November 29, 2016, Andrew Reckles resigned as Chief Executive Officer, Chairman of the Board of Directors and a member of the Board of Directors of the Company. On November 29, 2016, Warren S. Binderman, President and Chief Financial Officer of the Company, was appointed to the additional role of Chief Executive Officer.

 

Limitations on the Effectiveness of Internal Controls

 

Our management does not expect that our disclosure controls and procedures or our internal controls over financial reporting will necessarily prevent all fraud and material error. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving our objectives and our President and Chief Financial Officer concluded that our disclosure controls and procedures are effective at that reasonable assurance level. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the internal control. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

 

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Attestation Report of the Registered Public Accounting Firm

 

This Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Additionally, management’s report was not subject to attestation by our registered public accounting firm pursuant to the permanent exemption from Section 404(b) of the Sarbanes-Oxley Act of 2002 for non-accelerated filers.

 

ITEM 9B. OTHER INFORMATION

 

See “BUSINESS – Recent Developments” in Item 1 of this Report.

 

ITEM 1 LEGAL PROCEEDINGS 

None.

 

ITEM 1A RISK FACTORS 

No material changes.

 

ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 

None.

 

ITEM 3 DEFAULTS UPON SENIOR SECURITIES 

None.

 

ITEM 4 MINE SAFETY DISCLOSURES 

None.

 

ITEM 5 OTHER INFORMATION 

None.

 

ITEM 6 EXHIBITS

 

The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Report.

 

Certain of the agreements filed as exhibits to this Report contain representations and warranties by the parties to the agreements that have been made solely for the benefit of the parties to the agreement. These representations and warranties:

 

  ● may have been qualified by disclosures that were made to the other parties in connection with the negotiation of the agreements, which disclosures are not necessarily reflected in the agreements;  
  ● may apply standards of materiality that differ from those of a reasonable investor; and  
  ● were made only as of specified dates contained in the agreements and are subject to subsequent developments and changed circumstances.

 

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date that these representations and warranties were made or at any other time. Investors should not rely on them as statements of fact.

 

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PART III  

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Directors and Executive Officers

 

As of the date of this report’s release, our Board of Directors consists of four members, one of which is an executive officer. The term of office of each director expires at the next annual meeting of our stockholders. Directors serve until their respective successors have been elected and qualified. Executive officers are appointed by and serve at the pleasure of the Board of Directors. 

 

Set forth below is biographical information for each of our current directors.

 

Name   Age   Position   Director Tenure
Warren Binderman     53  

Chief Executive Officer 

Chief Financial Officer,
Corporate Secretary Board Member 

  October 2014 – Current
             
Jeffrey Kaplin    50   Board Member,
Audit Committee Chair,
Independent Director 		  July 2015 – Current
             
Alais Griffin   43   Interim Chairman of the Board
Independent Director 		  March 2016 – Current
             
Neal Kaufman 48   Board Member   November 2016 – Current
           
Sean McAvoy 52   Board Member   January 2017 – Current

 

Warren S. Binderman

 

Warren is the Chief Executive Officer, and Chief Financial Officer of Legend. He previously served as the Chief Financial Officer since July 2014. He also serves on the Company’s Board and is the Corporate Secretary. He is also the managing member of the Binderman Group, LLC, a specialized accounting and business consulting firm performing services throughout the United States. Warren excels in servicing and communicating with clients as they move through the transaction process—from IPO, private equity deals, mergers and acquisitions, public shell transactions and reverse mergers, and other such ownership transitions. He is a skilled business partner who listens and is committed to helping Clients achieve their goals, ensuring that the transactions being considered are properly supported and meet the appropriate financial and strategic objectives. With deep knowledge and experience across industries, he works with clients to ensure that money makes sense for their business and life. Warren’s expertise includes investment due diligence, mergers and acquisitions, private placement reviews, and restructuring services. He has demonstrated experience in various industry sectors and has worked with many publicly held companies, financial institutions, and closely held companies. Due to his experience working with public and private sector entities, he has an excellent depth of knowledge in both sectors’ activities and transactions. Warren also has significant depth performing due diligence, consulting services, and audits of entities with complex structures. Before working with Legend and starting the Binderman Group, Warren served in various capacities with International accounting firms in the capacities of partner, director, manager and staff. He worked for Arthur Andersen LLP for nine years and KPMG LLP for over three years, as well as other national and international firms throughout his career. Warren received his Bachelor of Business Administration degree from the University of Maryland in 1990 and was a Magna Cum Laude graduate of The Smith Business School, with a major in Accounting. He is a member of the AICPA, and is a CPA in Georgia, and Maryland.

 

Unless otherwise stated above, none of our directors or executive officers is a director of any other public company, nor are they related to any officer, director or affiliate of the Company. Additionally, none of our directors or executive officers is a party to any pending legal proceeding, is subject to a bankruptcy petition filed against them or have been convicted in, or is subject to, any criminal proceeding.

 

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Alais Griffin

 

On March 7, 2016, Alais Griffin, age 43, joined the Company’s Board of Directors. Ms. Griffin currently serves as the General Counsel of a large, national nonprofit organization. As the organization’s chief legal officer, she oversees all legal issues concerning the entity’s operations.

 

Prior to joining the nonprofit world, Ms. Griffin was a partner in the Chicago office of an international law firm, where she focused her practice on litigation, compliance and internal investigations, with an emphasis on transportation. As a former senior political appointee in the United States Department of Transportation (DOT), Ms. Griffin brought extensive experience in transportation-related enforcement matters and litigation, as well as unique insights into DOT regulatory compliance, regulatory development and other government processes. She represented clients in a wide variety of enforcement, compliance and financing matters before almost every DOT agency. She also served as a Steering Committee Member of the American Bar Association’s Section of International Law, International Transportation Committee and was elected Vice-Chair before leaving private practice.

 

Ms. Griffin’s experience also includes assisting with the development and implementation of internal compliance initiatives for multinational companies subject to the Foreign Corrupt Practices Act (FCPA) and other bribery acts, including those in Sub-Saharan Africa. She has spoken both in the United States and abroad on compliance related-topics, including the FCPA and transportation regulations, and has been published widely on regulatory and compliance matters.

 

From 2009 to 2012, Ms. Griffin served as the Counselor to the DOT General Counsel, where she worked closely with the General Counsel, the Office of the Secretary and other senior political appointees on the Department’s regulatory, policy and litigation matters. She subsequently served as the Chief Counsel for the Federal Motor Carrier Safety Administration, the DOT agency that oversees commercial motor vehicles. As the Agency’s chief legal officer, Ms. Griffin managed FMCSA’s litigation matters as well as the legal and strategic review of Agency policies, programs and regulations. In her capacity as a senior advisor, Alais also worked regularly on legislative and regulatory matters with the White House, other Executive Branch agencies and Congress.

 

Ms. Griffin received a Bachelor of Arts degree, cum laude general studies, from Harvard University and a JD, cum laude, from Northwestern Pritzker School of Law, where she was Executive Editor of the Northwestern University Law Review and a member of the Order of the Coif. In 2013, she received the “Outstanding 50 Asian Americans in Business Award” from the Asian American Business Development Center.

 

Jeffrey Kaplin

 

Jeff has lived in Atlanta, GA since 1987. Jeff graduated from Indiana University in Bloomington, Indiana in May 1987 with a Bachelor of Science with a major in Accounting. He has practiced public accounting for over 20 years and is the managing partner of the public accounting firm, Rosenthal & Kaplin, P.C., which is a member firm of the AICPA. He is a financial expert in the areas of taxation (corporate, individual and partnership), and as a CPA, practices auditing and attestation services. Other areas relative to Jeff’s expertise include IRS representation, litigation support, and merger and acquisition services. Jeff is currently serving on the B’nai Torah Board of Trustees, The Standard Country Club Board of Governors and is a former Epstein School Trustee. He is an active CPA in Georgia, and is a member of the American Institute of Certified Public Accountants (AICPA) and the Georgia Society of Certified Public Accountants (GSCPA).

 

Neal Kaufman

 

Neal is a founding member of Hillair Capital, our majority stockholder. He has over fifteen years of operating experience with large and small publicly traded companies and also has significant experience supporting financing activities. Neal opened the West Coast operations for Ardour Capital Investments, LLC, an investment bank wholly focused on the clean technology sector and prior to that, served as the Chief Executive Officer of TieTek. Neal held various senior management positions at 3Com Corporation, and also worked for the Internet arm of NBC Television. He began his career at McKinsey & Co., working in the U.S., Europe and South America. Neal has an AB in economics magna cum laude from Harvard College, a MA from Stanford University and a MBA from Harvard Business School where he was a Baker Scholar. Mr. Kaufman’s pertinent experience, qualifications, attributes, and skills include expertise in finance, strategy, and operations.

 

Sean McAvoy

 

Sean M. McAvoy was appointed as a director of the Company as of January 1, 2017. Sean is a founding member, since 2010, of Hillair Capital Management LLC and its affiliated funds. He has over twenty years of experience in structuring and negotiating transactions primarily in the public markets. Between 1996 and 2008, Sean was a member of the mergers and acquisitions, private equity and corporate finance practices at Jones Day, an international law firm, where he served as a founding partner of the firm’s Silicon Valley office from 2002 to 2008. At Jones Day, Sean represented public companies and their boards of directors, as well as financial sponsors, in domestic and cross-border mergers and acquisitions, auctioned dispositions, unsolicited and negotiated tender offers, leveraged buyouts, including going-private transactions, and leveraged recapitalizations. Sean also counseled boards of directors and senior management regarding corporate governance, fiduciary duty and takeover preparedness as well as disclosure obligations. Prior to his corporate legal career, Sean served as a Legislative Aide to Senator William S. Cohen and as a Professional Staff Member of the United States Senate Governmental Affairs Committee. Sean also served as a Special Counsel and senior staff member on Senator John McCain’s 2008 presidential campaign. Currently, Sean serves on the boards of SG Blocks, Inc., the premier innovator and designer of container-based structures, and The Orvis Company, Inc., a specialty retailer and sporting goods company and also on the board of The Pacific Research Institute, a California-based free-market think tank. Sean is an honors graduate of Williams College and earned advanced degrees at the London School of Economics and Political Science, where he was an AFLSE Scholar, and Georgetown University Law School, where he was a member of the Georgetown Journal of International Law.

 

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Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and executive officers, and persons who own more than 10% of our common stock (collectively, “Reporting Persons”) to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of our common stock. Reporting Persons are also required by SEC regulations to furnish us with copies of all such ownership reports they file. SEC regulations also require us to identify in this Report any Reporting Person who failed to file any such report on a timely basis.

 

We believe that all Reporting Persons complied with all applicable Section 16(a) filing requirements for fiscal year 2015, based solely on our review of the copies of such reports received or written communications from certain Reporting Persons.

 

Code of Ethics

 

We have a Code of Ethics that applies to our three key executives and directors. A copy of the Code of Ethics is included as Exhibit 14.1 to this Report and is available on our corporate website at www.midconoil.com in the section “About Legend.”

  

Audit Committee

 

During 2015, Jeffrey Kaplin, CPA was appointed to our Board. He was appointed the sole, independent member of the committee, serving as our “financial expert” to serve as the Chair of the audit committee.

 

On November 25, 2016, Neal Kaufman, age 48, joined the Company’s Board of Directors. Neal is a founding member of Hillair, our majority stockholder.

  

On November 29, 2016, Alais Griffin, an outside director of the Company, assumed the role of interim Board Chair.

 

ITEM 11. EXECUTIVE COMPENSATION

 

Summary Compensation Table

 

The table below shows all compensation awarded, earned by or paid to Mssrs. Andrew Reckles, Former Chairman of the Board and CEO, Marshall Diamond-Goldberg, Former President and COO, Warren S. Binderman, President, CEO, CFO, and Secretary/Treasurer, James Vandeberg, former CFO and Secretary and Kyle Severson, former Chief Financial Officer (our “ NEOs ”) for each of the fiscal years ended December 31, 2016, 2015 and 2014:

 

Name
and Principal Position 		    Year    Salary     Bonus     Option Awards     All Other
Compensation
(5) 		    Total
Compensation 		 
Warren S. Binderman (4)     2016   $ 252,000     $ 120,000             $ 45,000     $ 417,000  

Chief Executive Officer and Chief Financial Officer

    2015   $ 240,000     $ 120,000             $ 1,500     $ 367,500  
Andrew Reckles (1)(3) (4)     2016   $ 239,000     $ 90,000             $ 30,000     $ 359,000  
Former Chief Executive Officer     2015   $ 240,000     $ 120,000       —     $ 3,000     $ 363,000  
Marshall Diamond-Goldberg (2)     2016   $  —     $ —       —     $ —     $ —  
Former President and Chief Operating Officer     2015   $  90,000      $ —       —     $ —     $ 90,000  

 

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(1) Andrew Reckles resigned as Chief Executive Officer, Chairman of the Board of Directors and a member of the Board of Directors of the Company on November 29, 2016.
(2) Mr. Diamond-Goldberg stepped down as President and COO on June 2015.
(3) Mr. Reckles’ compensation includes amounts paid and the balance accrued at December 31, 2016 and 2015.
(4) Mr. Reckles’ and Mr. Binderman’s compensation includes the balance accrued ($120,000) at December 31, 2016.
(5) These amounts result from usage of Company owned vehicles.

 

Compensation Philosophy and Objectives

 

Our executive compensation program that we apply to our NEOs will be designed to attract and retain qualified and experienced executives who will contribute to our success. The executive compensation program is designed to attract, motivate and retain individuals with the skills and qualities necessary to support and develop our business within the framework of our small size and available resources. The Board of Directors has sole and unfettered discretion with respect to decisions regarding the compensation of the NEOs.

 

Elements of Compensation

 

Our executive compensation program is anticipated to consist of two components: (i) base compensation, and (ii) a long-term compensation component in the form of stock options and stock awards. Both components are determined and administered by the Board of Directors. The stock incentive component is expected to form an essential part of the NEOs’ compensation.

 

Base Compensation

 

Base compensation for the NEOs is reviewed from time to time and set by the Board of Directors, and is based on the individual’s job responsibilities, contribution, experience and proven or expected performance, as well as to market conditions. In setting base compensation levels, consideration will be given to such factors as level of responsibility, experience and expertise. Subjective factors such as leadership, commitment and attitude will also be considered.

 

Stock Options and Awards

 

To provide a long-term component to the executive compensation program, our executive officers, directors, employees and consultants may be granted Options and Awards (as those terms are defined below) under our 2011 Stock Incentive Plan and 2013 Stock Incentive Plan. The maximization of stockholder value is encouraged by granting equity incentive awards. The President will make recommendations to the Board of Directors for the other executive officers and key employees. These recommendations take into account factors such as equity compensation given in previous years, the number of Options and Awards outstanding per individual and the level of responsibility.  

 

Narrative Disclosure to Summary Compensation Table

 

Outstanding Equity Awards at 2016 Fiscal Year-End

 

There are no outstanding equity awards at December 31, 2016.

 

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Director Compensation

 

We paid and/or accrued a monthly fee of $500 per month to Mr. Kaplin during his period as Director during 2015. In 2016, both outside directors, Ms. Griffin and Mr. Kaplin, are paid a monthly board fee of $2,000.

 

2016 Stock Incentive Plan

 

On October 26, 2016, our Board of Directors approved the Legend Oil and Gas, Ltd. 2016 Stock Incentive Plan (“Plan”). The Plan has not been formalized at this time, as we have not filed a Form S-8. This Plan provides for the grant of options (“ Options ”) to purchase common shares, and stock awards (“ Awards ”) consisting of common shares, to eligible participants, executive officers, and employees. The terms and conditions of the 2016 Plan apply equally to all participants. We reserved a total of 250,000,000 shares of common stock for issuance under the Plan. Further, the Board and the majority stockholders cancelled all prior Stock Incentive Plans, including the 2014 and 2014 Plans depicted below.  

 

On September 30, 2013, our Board of Directors adopted the Legend Oil and Gas, Ltd. 2013 Stock Incentive plan. The Plan provides for the grant of options to purchase shares of our common stock, and stock awards consisting of shares of our common stock, to eligible participants, including directors, executive officers, employees, and consultants of the Company. We have reserved 10,000,000 shares of common stock for issuance under the Plan and have issued 750,000 shares to Mr. Vandeberg.

 

The Plan Administrator, which is currently the Board of Directors, may designate which of our directors, officers, employees and consultants are to be granted Options and Awards. The Plan Administrator has the authority, in its sole discretion, to determine the type or types of awards to be granted under the Plan. Awards may be granted singly or in combination.

 

Potential Payments upon Resignation, Retirement, or Change of Control

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS  

 

The tables below set forth information with respect to the beneficial ownership of our common shares as of March 31, 2017 by our directors, named executive officers, and directors and executive officers as a group, as well as each person (or group of affiliated persons) who is known by us to beneficially own 5% or more of our common shares. As of the latest practical date before filing this annual report, there were 942,083,273 common shares issued and outstanding.

 

The percentages of common shares beneficially owned are reported on the basis of regulations of the Securities and Exchange Commission governing the determination of beneficial ownership of securities. Under the rules of the Securities and Exchange Commission, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or to direct the voting of the security, or investment power, which includes the power to dispose of or to direct the disposition of the security. To our knowledge, unless indicated in the footnotes to the table, each beneficial owner named in the tables below has sole voting and sole investment power with respect to all shares beneficially owned.

 

Title of Class   Name of Beneficial Owner   Amount and Nature of
Beneficial Ownership 		    Percent of Class  
Common stock, par value $0.001 (preferred stock, 9,643 shares, par value $.001   Hillair Capital Investments, L.P.
345 Lorton Avenue, Suite 303
Burlingame, CA 94010 		    604,155,998       64 %
Common stock, par value $0.001 (preferred stock, 15 shares, par value $.001   Lorton Finance     —       —  
Common stock, par value $0.001   Warren S. Binderman
555 Northpoint Center East, Suite 400
Alpharetta, GA 30022 		    7,500,000       — %
TOTAL:         611,655,998       64 %

 

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(1) The information for such stockholders are based on the list of record holders maintained by our stock transfer agent. Such stockholder has not filed a Schedule 13D with the SEC disclosing its greater than five percent ownership.

Securities Authorized for Issuance Under Equity Compensation Plans

 

On September 5, 2014, our Board of Directors adopted the Legend Oil and Gas, Ltd. 2014 Stock Incentive Plan, included in the Form S-8 filed on that date. This Stock Incentive Plan provides for the grant of options (“ Options ”) to purchase common shares, and stock awards (“ Awards ”) consisting of common shares, to eligible participants, including our directors, executive officers, employees and consultants. The terms and conditions of the 2014 Stock Incentive Plan apply equally to all participants. We reserved a total of 65,000,000 common shares for issuance under the Plan. No shares or stock options have been issued under this Plan as of this date. This Plan has been cancelled by the Board of Directors.

 

On October 17, 2013, our Board of Directors adopted the Legend Oil and Gas, Ltd. 2013 Stock Incentive Plan. We reserved a total of 10,000,000 common shares for issuance under the Plan. This Plan has not been approved by stockholders. There are currently no options outstanding under the 2013 Stock Incentive Plan, and a grant for 750,000 common shares was issued on October 17, 2014. This Plan has been cancelled by the Board of Directors.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

 

Related Party Transactions

 

Except as set forth below, we are not aware of any material interest, direct or indirect, of any of our directors or executive officers, any person beneficially owning, directly or indirectly, 10% or more of our voting securities, or any associate or affiliate of such person in any transaction since the beginning of the last fiscal year or in any proposed transaction which in either case has materially affected or will materially affect us.

 

Mr. Diamond-Goldberg previously served as a director of Wi2Wi from August 2010 until his resignation on July 1, 2011. As described in this Report, we entered into an Asset Purchase Agreement with Wi2Wi, Inc., formerly known as, International Sovereign Energy Corp. and acquired the Wi2Wi Assets on October 20, 2011. The terms of our acquisition of the Wi2Wi Assets was determined through independent negotiation between James Vandeberg, our former Vice President and Chief Financial Officer, and Sharad Mistry, Wi2Wi’s Chief Executive Officer and Chief Financial Officer. Mr. Diamond-Goldberg recused himself from all negotiations with respect to the transaction.

 

Andrew Reckles. is our former Chairman and Chief Executive Officer. He also a principal of Northpoint Energy Partners (“NPE”). NPE served as a broker on the acquisition of Maxxon. NPE received a brokerage payment from Legend on the Maxxon acquisition. The agreement between NPE and Legend was reviewed and approved by our Board, and found to be at or below market brokerage pricing.

 

Conflicts of Interest

 

Mr. Marshall Diamond-Goldberg is our former CEO, former President and Chief Operating Officer and former Director. He is also a former director of Wi2Wi. We have not found any reason to be concerned with this potential conflict of interest since Mr. Diamond-Goldberg resigned as a member of the board of directors of Wi2Wi effective as of July 1, 2011, and he was not involved on Wi2Wi’s behalf in negotiating the terms of the Asset Purchase Agreement.

 

As stated above, Andrew Reckles. is our former Chairman and Chief Executive Officer. He also a principal of Northpoint Energy Partners (“NPE”). NPE served as a broker on the acquisition of Maxxon.  NPE received a brokerage payment from Legend on the Maxxon acquisition.  The agreement between NPE and Legend was reviewed and approved by our Board, and found to be at or below market brokerage pricing.

  

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

 

Marcum. audited our financial statements for the year ended December 31, 2016. GBH CPAs, PC audited our financial statements for the year ended December 31, 2015.

 

Policy for Approval of Audit and Permitted Non-Audit Services

 

The Board of Directors, in its discretion, may direct the appointment of different public accountants at any time during the year, if the Board believes that a change would be in the best interests of the stockholders. During 2016 and 2015, the Board of Directors considered the audit fees, audit-related fees, tax fees and other fees paid to our accountants, as disclosed below, and determined that the provision of such services by our independent registered public accounting firm was compatible with the maintenance of that firm’s independence in the conduct of its auditing functions.  

 

Audit and Related Fees   

 

The table below sets forth the aggregate fees billed by Marcum LLP and GBH CPAs PC for professional services rendered in fiscal years ended December 31, 2016 and 2015, respectively.

 

    2016     2015  
         
Audit Fees (1)   $  163,148     $ 123,850  
                 
Audit-Related Fees (2)     —       85,305  
                 
Tax Fees (3)     11,000       7,500  
                 
All Other Fees     —       —  

 

(1) “Audit Fees” represent fees for professional services provided in connection with the audit of our annual financial statements and review of our quarterly financial statements included in our reports on Form 10-Q, and audit services provided in connection with other statutory or regulatory filings. Fees billed during the year ended December 31, 2016 from Marcum LLP and GBH CPAs PC totaled $67,310 and $95,838, respectively. All 2015 audit fees where for services rendered by GBH CPAs PC.
(2) “Audit-Related Fees” generally represent fees for assurance and related services reasonably related to the performance of the audit or review of our financial statements. All such fees in 2016 and 2015 were for services rendered by GBH CPAs PC.
(3) “Tax Fees” generally represent fees for tax advice. All tax fees in 2016 and 2015 were for services rendered by GBH CPAs PC.

 

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PART IV

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

(a) Documents filed as part of this Report are as follows: 

 

  1) Financial Statements: The consolidated financial statements, related notes and report of independent registered public accounting firm are included in Item 8 of Part II of this Report.
  2) Financial Statement Schedules: All schedules have been omitted because they are not applicable or not required, or the required information is included in the financial statements or notes thereto.
  3) Exhibits: The required exhibits are included at the end of this Report and are described in the exhibit index.

 

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 31, 2017. 

 

LEGEND OIL AND GAS, LTD.
   
By: /s/ Warren S. Binderman  
  Warren S. Binderman, Chief Executive Officer, Chief Financial Officer
  President, Secretary, Treasurer and Director

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. 

 

Signature   Capacities   Date
           
/s/ Warren S. Binderman   Chief Executive Officer, Chief Financial
Officer, and Director 		  March 31, 2017
Warren S. Binderman     (Principal Accounting Officer)    

 

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EXHIBIT   INDEX

 

The exhibits below are filed as part of this Annual Report on Form 10-K or are incorporated herein by reference. Where an exhibit is incorporated by reference, the document to which it is cross referenced is made.  

 

Exhibit
No. 		  Description   Location
2.1   Agreement and Plan of Merger with New Western Energy Corporation New Western Energy Merger Corporation and the Company, dated January 23, 2014   Incorporated by reference herein from our report on Form 8-K dated January 23, 2014, filed with the SEC on January 27, 2014.
         
2.2   Membership Interest Purchase Agreement dated April 3, 2015, among the Company, Sher Trucking, LLC, Albert Valentin and Steven Wallace   Incorporated by reference herein from our report on Form 8-K dated April 2, 2015 and filed with the SEC on April 7, 2015.
         
2.3   Letter Agreement between the Company and Steven Wallace   Incorporated by reference herein from our report on Form 8-K dated April 2, 2015 and filed with the SEC on April 7, 2015.
         
2.4   Letter Agreement between the Company and Sher Trucking, LLC dated April 13, 2015   Incorporated by reference herein from our report on Form 8-K dated April 2, 2015 and filed with the SEC on April 7, 2015.
         
3.1   Amended and Restated Articles of Incorporation dated January 29, 2007   Incorporated by reference herein from our report on Form 8-K dated January 29, 2007, filed with the SEC on January 30, 2007.
         
3.2   First Articles of Amendment to the Amended and Restated Articles of Incorporation dated October 4, 2010   Incorporated by reference herein from our definitive Information Statement filed with the SEC on October 19, 2010.
         
3.3   Articles of Amendment to the Articles of Incorporation dated August 12, 2011   Incorporated by reference herein from our amended current report on Form 8-K dated August 11, 2011, filed with the SEC on September 16, 2011.
         
3.4   Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock.   Incorporated by reference herein from our report on Form 8-K dated October 22, 2015 and filed with the SEC on October 28, 2015.   
         
3.5  

Articles of Amendment to the Articles of Incorporation dated December 21, 2015. 

  Incorporated by reference herein from our report on Form 10-K for the period ending December 31, 2016, and filed with the SEC on April 7, 2016.
         
3.6   Bylaws dated November 29, 2000  

Incorporated by reference herein from our registration statement on Form 10-SB, filed with the SEC on April 25, 2002. 

         
4.1   Specimen Legend Oil and Gas, Ltd. Common Stock Certificate   Incorporated by reference herein from our report on Form 10-K for the period ending December 31, 2010, and filed with the SEC on March 31, 2011.
         
4.2   Form of Warrant issued to Iconic Investment Co.   Incorporated by reference herein from our report on Form 10-Q for the period ended March 31, 2011, filed with the SEC on May 13, 2011.

 

61  

 

 

Exhibit
No. 		  Description   Location
4.3 Form of Warrant issued in connection with August 2011 unit financing Incorporated by reference herein from our report on Form 10-Q for the period ended June 30, 2011, filed with the SEC on August 12, 2011.
4.4   Specimen Legend Oil and Gas, Ltd. Convertible Preferred Stock Certificate   Incorporated by reference herein from our report on Form 10-Q for the period ended September 30, 2011, filed with the SEC on November 14, 2011.
4.5   Original Issue Discount Senior Secured Debenture Due May 16, 2016 dated April 2, 2015

Incorporated by reference herein from our report on Form 8-K dated April 2, 2015 and filed with the SEC on April 7, 2015. 

4.6   Original Discount Senior Secured Convertible Debenture Due March 1, 2016.

Incorporated by reference herein from our report on Form 8-K dated April 25, 2015 and filed with the SEC on April 29, 2015. 

4.7   Articles of Amendment to the Articles of Incorporation of the Company dated May 1, 2015.

Incorporated by reference herein from our report on Form 8-K dated May 7, 2015 and filed with the SEC on May 11, 2015. 

4.8   Original Discount Senior Secured Convertible Debenture Due March 1, 2016

Incorporated by reference herein from our report on 8-K dated June 30, 2015 and filed with the SEC on July 6, 2015. 

4.9   Original Discount Senior Secured Convertible Debenture Due March 1, 2017 in the original principal amount of $654,000   Incorporated by reference herein from our report on Form 8-K dated October 22, 2015 and filed with the SEC on October 28, 2015.   
4.10   Promissory Note dated October 22, 2015 in the original principal amount of $1,928,740.  

Incorporated by reference herein from our report on Form 8-K dated October 22, 2015 and filed with the SEC on October 28, 2015.

4.11   Original Discount Senior Convertible Debenture Due March 1, 2018.

Incorporated by reference herein from our report on Form 8-K dated January 29, 2016 and filed with the SEC on February 2, 2016.

4.12   Original Discount Senior Convertible Debenture Due March 1, 2018.  

Incorporated by reference herein from our report on Form 8-K dated March 25, 2016 and filed with the SEC on March 31, 2016. 

4.13   Original Discount Senior Convertible Debenture Due March 1, 2018.

Incorporated by reference herein from our report on Form 8-K dated May 27, 2016 and filed with the SEC on June 3, 2016. 

4.14   Original Discount Senior Convertible Debenture Due March 1, 2018.

Incorporated by reference herein from our report on Form 8-K dated July 5, 2016 and filed with the SEC on July 7, 2016. 

4.15   Original Discount Senior Convertible Debenture Due March 1, 2018.

Incorporated by reference herein from our report on Form 8-K dated July 27, 2016 and filed with the SEC on August 1, 2016. 

4.16   Original Discount Senior Convertible Debenture Due March 1, 2018.

Incorporated by reference herein from our report on Form 8-K dated August 22, 2016 and filed with the SEC on August 23, 2016.

4.17   Original Discount Senior Convertible Debenture Due March 1, 2018.

Incorporated by reference herein from our report on Form 8-K dated September 30, 2016 and filed with the SEC on October 6, 2016. 

4.18   Original Discount Senior Convertible Debenture Due March 1, 2018.

Incorporated by reference herein from our report on Form 8-K dated October 27, 2016 and filed with the SEC on November 2, 2016. 

4.19   Original Discount Senior Convertible Debenture Due March 1, 2018.   Incorporated by reference herein from our report on Form 8-K dated November 29, 2016 and filed with the SEC on December 2, 2016
10.1*   Consulting Agreement by and between Marlin Consulting Corp. and Legend dated September 1, 2010   Incorporated by reference herein from our report on Form 10-K for the period ending December 31, 2010, and filed with the SEC on March 31, 2011.
10.2   Agreement for Purchase and Sale by and between Piqua Petro, Inc. and the Company dated October 20, 2010 (Piqua Project)   Incorporated by reference herein from our report on Form 8-K dated October 29, 2010, filed with the SEC on November 4, 2010.
10.3   Assignment of Oil and Gas Lease by Wasaabee Energy Inc. dated February 25, 2011 (Bakken Project)   Incorporated by reference herein from our report on Form 10-K for the period ending December 31, 2010, and filed with the SEC on March 31, 2011.

 

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Exhibit
No. 		  Description   Location
10.4   Assignment of Oil and Gas Lease by Wasaabee Energy Inc. dated March 23, 2011 (Bakken Project)   Incorporated by reference herein from our report on Form 10-K for the period ending December 31, 2010, and filed with the SEC on March 31, 2011.
         
10.5   Assignment of Oil and Gas Lease by Wasaabee Energy Inc. dated March 30, 2011 (Bakken Project)   Incorporated by reference herein from our report on Form 10-K for the period ending December 31, 2010, and filed with the SEC on March 31, 2011
         
10.6   Subscription Agreement by and between Legend Oil and Gas, Ltd. and Iconic Investment Co. dated January 21, 2011   Incorporated by reference herein from our report on Form 10-Q for the period ended March 31, 2011, filed with the SEC on May 13, 2011.
         
10.7   Subscription Agreement by and between Legend Oil and Gas, Ltd. and Iconic Investment Co. dated April 28, 2011   Incorporated by reference herein from our report on Form 10-Q for the period ended March 31, 2011, filed with the SEC on May 13, 2011.
         
10.8A*   Legend Oil and Gas, Ltd. 2011 Stock Incentive Plan, as amended   Incorporated by reference herein from our report on Form 8-K dated February 7, 2012, filed with the SEC on February 13, 2012. 
         
10.8B*   Form of Stock Option Agreement under 2011 Stock Incentive Plan   Incorporated by reference herein from our report on Form 8-K dated February 7, 2012, filed with the SEC on February 13, 2012.
         
10.9   Form of Subscription Agreement in connection with August 2011 unit financing   Incorporated by reference herein from our report on Form 10-Q for the period ended June 30, 2011, and filed with the SEC on August 12, 2011.
         
10.10A   Asset Purchase Agreement by and among International Sovereign Energy Corp., Legend Oil and Gas, Ltd., and Legend Energy Canada Ltd. dated September 13, 2011   Incorporated by reference herein from our report on Form 8-K dated September 12, 2011, filed with the SEC on September 16, 2011.
         
10.10B   Amending Agreement to Asset Purchase Agreement, by and among International Sovereign Energy Corp., Legend Oil and Gas, Ltd., and Legend Energy Canada Ltd. dated October 20, 2011   Incorporated by reference herein from our report on Form 8-K/A dated October 20, 2011, filed with the SEC on November 23, 2011
         
10.11   Credit Facility Offering Letter by and between National Bank of Canada and Legend Energy Canada Ltd. dated August 15, 2011   Incorporated by reference herein from our amended current report on Form 8-K dated August 11, 2011, filed with the SEC on September 16, 2011.
         
10.12   Acknowledgment of Debt Revolving Demand Credit Agreement by and between National Bank of Canada and Legend Energy Canada Ltd. dated August 15, 2011   Incorporated by reference herein from our amended current report on Form 8-K dated August 11, 2011, filed with the SEC on September 16, 2011.
         
10.13   Fixed and Floating Charge Demand Debenture by and between National Bank of Canada and Legend Energy Canada Ltd. dated October 19, 2011   Incorporated by reference herein from our report on Form 10-Q for the period ended September 30, 2011, filed with the SEC on November 14, 2011.
         
10.14   Pledge by Legend Energy Canada Ltd. dated October 19, 2011   Incorporated by reference herein from our report on Form 10-Q for the period ended September 30, 2011, filed with the SEC on November 14, 2011.
         
10.15   Assignment of Book Debts by Legend Energy Canada Ltd. dated October 19, 2011   Incorporated by reference herein from our report on Form 10-Q for the period ended September 30, 2011, filed with the SEC on November 14, 2011.
         
10.16   Negative Pledge and Undertaking by and between National Bank of Canada and Legend Energy Canada Ltd. dated October 19, 2011   Incorporated by reference herein from our report on Form 10-Q for the period ended September 30, 2011, filed with the SEC on November 14, 2011.
         
10.17   Amending Offering Letter by and among National Bank of Canada, Legend Energy Canada Ltd. and the Company dated March 26, 2012   Incorporated by reference herein from our report on Form 10-K for the period ending December 31, 2011, and filed with the SEC on March 30, 2012.
         
10.18   CA $1.5 million Variable Rate Demand Note by Legend Energy Canada Ltd. in favor of National Bank of Canada   Incorporated by reference herein from our report on Form 10-K for the period ending December 31, 2011, and filed with the SEC on March 30, 2012.
         
10.19   Office Space Lease by and between Dundeal Canada (GP) Inc. and Legend Energy Canada Ltd., dated October 17, 2011   Incorporated by reference herein from our report on Form 8-K/A dated October 20, 2011, filed with the SEC on November 23, 2011
         
10.20*   Summary of Non-Employee Director Compensation   Incorporated by reference herein from our report on Form 8-K dated February 7, 2012, filed with the SEC on February 13, 2012
         
10.21*   Form of Director Indemnification Agreement   Incorporated by reference herein from our report on Form 8-K dated February 7, 2012, filed with the SEC on February 13, 2012
         
10.22   Settlement and Termination Agreement with Wi2Wi Corporation dated May 1, 2013   Incorporated by reference herein from our report on Form 8-K dated May 1, 2013, filed with the SEC on May 1, 2013.
         
10.23   Securities Purchase Agreement with Hillair Capital Investments L.P.   Incorporated by reference herein from our report on Form 8-K dated May 28, 2013, filed with the SEC on July 17, 2013.
         
10.24   Legend Oil and Gas, Ltd. 2013 Stock Incentive Plan   Incorporated by reference herein from our report on Form 8-K dated April 2, 2015, filed with the SEC on September 9, 2013.

 

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Exhibit
No. 		  Description   Location
10.25   Securities Purchase Agreement dated April 2, 2015, between the Company and Hillair Capital Investments, L.P.   Incorporated by reference herein from our report on Form 8-K dated April 2, 2015 and filed with the SEC on April 7, 2015.
         
10.26   Secured Promissory Note dated April 3, 2015, issued by the Company to Sher Trucking, LLC   Incorporated by reference herein from our report on Form 8-K dated April 2, 2015 and filed with the SEC on April 7, 2015.
       
10.27   Securities Purchase Agreement dated April 28, 2015   Incorporated by reference herein from our report on Form 10-K for the period ending April 25, 2015, and filed with the SEC on April 29, 2015.
         
10.28   Securities Purchase Agreement dated June 30, 2015.   Incorporated by reference herein from our report on Form 8-K dated June 30, 2015 and filed with the SEC on July 6, 2015.
         
10.29   Securities Purchase Agreement dated October 21, 2015.   Incorporated by reference herein from our report on Form 8-K dated October 22, 2015 and filed with the SEC on October 28, 2015.  
         
10.30   Securities Agreement dated October 21, 2015, between the Company and Hillair Capital Investments, L.P.   Incorporated by reference herein from our report on Form 8-K dated October 22, 2015 and filed with the SEC on October 28, 2015.   
         
10.31   Purchase and Sale Agreement dated October 28, 2015, between the Company and HPH Kansas LLC.   Incorporated by reference herein from our report on Form 8-K dated October 22, 2015 and filed with the SEC on October 28, 2015.
         
10.32   Assignment of Oil And Gas Lease and Bill Of Sale   Incorporated by reference herein from our report on Form 8-K dated October 22, 2015 and filed with the SEC on October 28, 2015.
         
10.33   Letter Agreement dated November 16, 2015, between the Company and Northpoint Energy Partners, LLC, with respect to the engagement of Andrew Reckles as Chairman and Chief Executive Officer of the Company   Incorporated by reference herein from our report on Form 10-Q dated September 30, 2011 and filed with the SEC on November 20, 2015.
         
10.34   Letter Agreement dated November 16, 2015, between the Company and Binderman Group, LLC, with respect to the engagement of Warren S. Binderman as President, Chief Financial Officer and Board Secretary/Treasurer of the Company.   Incorporated by reference herein from our report on Form 10-Q dated September 30, 2011 and filed with the SEC on November 20, 2015.
         
10.35   Securities Purchase Agreement dated January 29, 2016.   Incorporated by reference herein from our report on Form 8-K dated January 29, 2016 and filed with the SEC on February 2, 2016.
         
10.36   Securities Purchase Agreement dated March 25, 2016.  

Incorporated by reference herein from our report on Form 8-K dated March 25, 2016 and filed with the SEC on March 31, 2016. 

         
 10.37    Securities Purchase Agreement dated May 27, 2016.    Incorporated by reference herein from our report on Form 8-K dated May 27, 2016 and filed with the SEC on June 3, 2016.
         
10.38   Securities Purchase Agreement dated July 5, 2016.   Incorporated by reference herein from our report on Form 8-K dated July 5, 2016 and filed with the SEC on July 7, 2016.
         
10.39   Securities Purchase Agreement dated July 27, 2016.  

Incorporated by reference herein from our report on Form 8-K dated July 27, 2016 and filed with the SEC on August 1, 2016. 

         
 10.40   Securities Purchase Agreement dated August 22, 2016.   Incorporated by reference herein from our report on Form 8-K dated August 22, 2016 and filed with the SEC on August 23, 2016.
         
10.41   Securities Purchase Agreement dated September 30, 2016.  

Incorporated by reference herein from our report on Form 8-K dated September 30, 2016 and filed with the SEC on October 6, 2016.

         
10.42   Securities Purchase Agreement dated October 27, 2016.  

Incorporated by reference herein from our report on Form 8-K dated October 27, 2016 and filed with the SEC on November 2, 2016. 

         
10.43   Securities Purchase Agreement dated November 29, 2016.  

Incorporated by reference herein from our report on Form 8-K dated November 29, 2016 and filed with the SEC on December 2, 2016. 

         
10.44   Amended and Restated Secured Promissory Note payable to Sher Trucking, LLC   Incorporated by reference herein from our report on Form 10-K for the period ending December 31, 2016, and filed with the SEC on April 7, 2016.
         
14.1   Code of Ethics   Incorporated by reference herein from our report on Form 8-K dated March 25, 2016 and filed with the SEC on March 31, 2016.
         
21.1   Subsidiaries   Filed herewith

 

64  

 

 

Exhibit
No. 		  Description   Location
31.1   Certification by Warren S. Binderman, Chief Executive Officer, pursuant to Rule 13a-14(a), pursuant to Section 302 of the Sarbanes-Oxley Act of 2002   Filed herewith.
         
31.2   Certification by Warren S. Binderman, Chief Financial Officer, pursuant to Rule 13a-14(a), pursuant to Section 302 of the Sarbanes-Oxley Act of 2002     Filed herewith.
         
32.1   Certification by Warren S. Binderman, Chief Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002   Filed herewith.
         
101.INS**   XBRL Instance Document    
         
101.SCH**   XBRL Taxonomy Extension Schema Document    
         
101.CAL**   XBRL Taxonomy Extension Calculation Linkbase Document.    
         
101.DEF**   XBRL Taxonomy Extension Definition Linkbase    
         
101.LAB**   XBRL Taxonomy Extension Label Linkbase Document    
         
101.PRE**   XBRL Taxonomy Extension Presentation Linkbase Document    
         

 

 

*   Management contract or compensatory plan or arrangement.
**   Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.

 

 

65  

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