NOTE 15 – LITIGATION

In March 2016, a complaint was filed by a lessor of property leased by REGS, a subsidiary of the Company. The month-to-month lease expired February 29, 2016, when REGS vacated the property. The landlord has made certain claims including property damage, and loss of rents, attorney fees and other costs totaling approximately $97,000. REGS has engaged defense counsel and intends to zealously oppose the claims. While the Company’s management believes the claims are without merit, the Company has accrued $48,400 as a loss against this claim.

In January 2016, an employee of SEM was involved in a vehicle accident while on Company business. The accident resulted in one fatality and injuries to another party. The two parties filed lawsuits against SEM as a result of the accident and the claims were turned over to our insurance carrier. Defense counsel was provided for and appointed by the Company’s insurance carrier. In August 2016, both claimants each filed a claim with our insurance carrier for the full amount of our insurance coverage, approximately $6 million. Later in August 2016, an involuntary proceeding was commenced by one of the claimants against SEM under Chapter 7 of the Bankruptcy code by one claimant as a result of both claimants filing for the $6 million in insurance available under our policies. SEM engaged bankruptcy counsel who filed certain motions on behalf of SEM. In September, the case was converted to a Chapter 11 under the Bankruptcy code and the Bankruptcy court granted SEM’s motion and ordered that the $6 million in insurance proceeds under our policy would be an asset of the estate of SEM. In October 2016, the Company filed a plan of reorganization with the court that allows for an equitable split of the $6 million in insurance proceeds, as determined by the two claimants, and allows for all creditors of SEM, both secured and unsecured, to be paid in full if the two claimants can come to terms with an equitable allocation of the $6 million in insurance proceeds. At this time SEM continues to manage its affairs and is currently operating normally. The ultimate outcome of this Chapter 11 proceeding is uncertain at this time. Management does not currently believe that any assets of SEM are impaired as of September 30, 2016. Operations and production are continuing uninterupted.