UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the Quarterly Period Ended
or
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VIVAKOR, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2024
TABLE OF CONTENTS
i
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VIVAKOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, 2024 |
December 31, 2023 |
|||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Accounts receivable- related party | ||||||||
| Prepaid expenses | ||||||||
| Marketable securities | ||||||||
| Inventories | ||||||||
| Other assets | ||||||||
| Total current assets | ||||||||
| Other investments | ||||||||
| Notes receivable | ||||||||
| Property and equipment, net | ||||||||
| Right of use assets- operating leases | ||||||||
| License agreements, net | ||||||||
| Intellectual property, net | ||||||||
| Goodwill | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accounts payable and accrued expenses- related parties | ||||||||
| Accrued compensation | ||||||||
| Operating lease liabilities, current | ||||||||
| Finance lease liabilities, current | ||||||||
| Loans and notes payable, current | ||||||||
| Loans and notes payable, current- related parties | ||||||||
| Total current liabilities | ||||||||
| Operating lease liabilities, long term | ||||||||
| Finance lease liabilities, long term | ||||||||
| Loans and notes payable, long term | ||||||||
| Loans and notes payable, long term- related parties | ||||||||
| Long-term debt (working interest royalty programs) | ||||||||
| Deferred tax liability | ||||||||
| Total liabilities | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, $ par value; shares authorized, outstanding | ||||||||
| Common stock, $ par value; shares authorized; and were issued and outstanding as of September 30, 2024 and December 31, 2023, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Treasury stock, at cost | ( |
) | ( |
) | ||||
| Accumulated deficit | ( |
) | ( |
) | ||||
| Total Vivakor, Inc. stockholders’ equity | ||||||||
| Noncontrolling interest | ( |
) | ||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes to consolidated financial statements
1
VIVAKOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenues | ||||||||||||||||
| Product revenue - third parties | $ | $ | $ | $ | ||||||||||||
| Product revenue - related party | ||||||||||||||||
| Total revenues | ||||||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Amortization and depreciation | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other income (expense): | ||||||||||||||||
| Unrealized gain (loss) on marketable securities | ( |
) | ( |
) | ||||||||||||
| Gain deconsolidation of subsidiary | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Interest expense- related parties | ( |
) | ( |
) | ||||||||||||
| Other income | ||||||||||||||||
| Total other income (expense) | ( |
) | ( |
) | ( |
) | ||||||||||
| Loss before provision for income taxes | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Provision for income taxes | ( |
) | ( |
) | ||||||||||||
| Consolidated net loss | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Less: Net loss attributable to noncontrolling interests | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Net loss attributable to Vivakor, Inc. | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Basic and diluted net loss per share | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Basic weighted average common shares outstanding | ||||||||||||||||
See accompanying notes to consolidated financial statements
2
VIVAKOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
| Series A Preferred Stock |
Common Stock | Additional Paid-in |
Treasury | Accumulated | Non-controlling | Total Stockholders’ |
||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Stock | Deficit | Interest | Equity | ||||||||||||||||||||||||||||
| June 30, 2024 (unaudited) | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||||||||||
| Issuance of common stock for services | - | |||||||||||||||||||||||||||||||||||
| Issuance of common stock for cash | - | |||||||||||||||||||||||||||||||||||
| Issuance of common stock on conversion of debt | ||||||||||||||||||||||||||||||||||||
| Stock based compensation | - | |||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||
| September 30, 2024 (unaudited) | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||||||||||
| Series A Preferred Stock |
Common Stock | Additional Paid-in |
Treasury | Accumulated | Non-controlling | Total Stockholders’ |
||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Stock | Deficit | Interest | Equity | ||||||||||||||||||||||||||||
| December 31, 2023 | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||||||||||||||||
| Issuance of common stock for services | - | |||||||||||||||||||||||||||||||||||
| Issuance of common stock for cash | - | |||||||||||||||||||||||||||||||||||
| Issuance of common stock for a reduction of liabilities | - | |||||||||||||||||||||||||||||||||||
| Issuance of common stock on conversion of debt | ||||||||||||||||||||||||||||||||||||
| Issuance of warrants for services | - | - | ||||||||||||||||||||||||||||||||||
| Stock based compensation | - | |||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||
| September 30, 2024 (unaudited) | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||||||||||
| Series A Preferred Stock |
Common Stock | Additional Paid-in |
Treasury | Accumulated | Non-controlling | Total Stockholders’ |
||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Stock | Deficit | Interest | Equity | ||||||||||||||||||||||||||||
| June 30, 2023 (unaudited) | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||||||||||||||||
| Issuance of common stock for a reduction of liabilities | - | |||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interest | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
| Issuance of noncontrolling interest for a reduction of debt | - | - | ||||||||||||||||||||||||||||||||||
| Stock based compensation | - | |||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||
| September 30, 2023 (unaudited) | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||||||||||||||||
| Series A Preferred Stock |
Common Stock | Additional Paid-in |
Treasury | Accumulated | Non-controlling | Total Stockholders’ |
||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Stock | Deficit | Interest | Equity | ||||||||||||||||||||||||||||
| December 31, 2022 | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||||||||||||||||
| Issuance of common stock for a reduction of liabilities | - | |||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interest | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
| Issuance of noncontrolling interest for a reduction of debt | - | - | ||||||||||||||||||||||||||||||||||
| Non-qualified stock options issued to third party | - | - | ||||||||||||||||||||||||||||||||||
| Stock based compensation | - | |||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||
| September 30, 2023 (unaudited) | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||||||||||||||||
See accompanying notes to consolidated financial statements
3
VIVAKOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Nine Months Ended September 30, |
||||||||
| 2024 | 2023 | |||||||
| OPERATING ACTIVITIES: | ||||||||
| Consolidated net loss | $ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net income to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Forgiveness of liabilities | ( |
) | ||||||
| Stock-based compensation | ||||||||
| Unrealized (gain) loss- marketable securities | ( |
) | ||||||
| Gain on deconsolidation of variable interest entity | ( |
) | ||||||
| Deferred income taxes | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( |
) | ||||||
| Prepaid expenses | ( |
) | ( |
) | ||||
| Inventory | ( |
) | ( |
) | ||||
| Other assets | ( |
) | ( |
) | ||||
| Right of use assets- finance leases | ( |
) | ||||||
| Right of use assets- operating leases | ||||||||
| Operating lease liabilities | ( |
) | ( |
) | ||||
| Accounts payable and accrued expenses | ( |
) | ||||||
| Interest on notes receivable | ( |
) | ||||||
| Interest on notes payable | ||||||||
| Net cash provided (used) in operating activities | ( |
) | ||||||
| INVESTING ACTIVITIES: | ||||||||
| Purchase of equipment | ( |
) | ( |
) | ||||
| Net cash used in investing activities | ( |
) | ( |
) | ||||
| FINANCING ACTIVITIES: | ||||||||
| Payment on financing lease liabilities | ( |
) | ( |
) | ||||
| Proceeds from loans and notes payable | ||||||||
| Proceeds from loans and notes payable- related party | ||||||||
| Proceeds from sale of common stock | ||||||||
| Payment of notes payable | ( |
) | ||||||
| Payment of notes payable- related party | ( |
) | ( |
) | ||||
| Distributions to noncontrolling interest | ( |
) | ||||||
| Net cash provided by financing activities | ||||||||
| Net increase (decrease) in cash and cash equivalents | ( |
) | ( |
) | ||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | ||||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | $ | ||||||
| SUPPLEMENTAL CASHFLOW INFORMATION: | ||||||||
| Cash paid during the year for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Noncash transactions: | ||||||||
| Accounts payable on purchase of equipment | ||||||||
| Noncontrolling interest issued for a reduction in liabilities | $ | $ | ||||||
| Capitalized interest on construction in process | $ | $ | ||||||
| Common stock issued with debt | $ | $ | ||||||
| Non-qualified stock options issued with debt | $ | $ | ||||||
| Common stock issued for services | $ | $ | ||||||
| Common stock issued on conversion of debt | $ | $ | ||||||
| Common stock issued for a reduction in liabilities | $ | $ | ||||||
See accompanying notes to consolidated financial statements
4
VIVAKOR, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Basis of Presentation
Interim Financial Information
The accompanying unaudited condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. Accordingly, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes for the year ended December 31, 2023 that were filed with our Form 10-K. The unaudited condensed consolidated financial statements have been prepared on a basis consistent with that used to prepare the audited annual consolidated financial statements and include, in the opinion of management, all adjustments, consisting of normal and recurring items, necessary for the fair presentation of the condensed consolidated financial statements. The operating results for the three and nine months ended September 30, 2024 are not necessarily indicative of the results expected for the full year ending December 31, 2024.
Business
Vivakor, Inc. (“Vivakor” or the “Company”) is a socially responsible operator, acquirer and developer of technologies and assets in the oil and gas industry, as well as related environmental solutions. Currently, our efforts are primarily focused on operating crude oil gathering, storage and transportation facilities, as well as contaminated soil remediation services.
One of our facilities in Delhi, Louisiana sells crude under agreements with a large energy company. A different facility owns crude oil storage tanks near Colorado City, Texas. The storage tank is presently connected to the Lotus pipeline system and an extension to a major pipeline system is being constructed.
Our soil remediation services specialize in the remediation of soil and the extraction of hydrocarbons, such as oil, from properties contaminated by or laden with heavy crude oil and other hydrocarbon-based substances utilizing our Remediation Processing Centers (RPCs). Our patented process allows us to successfully recover the hydrocarbons which we believe could then be used to produce asphaltic cement and/or other petroleum-based products. We are currently focusing our soil remediation efforts on our project in Kuwait and our upcoming project in the Houston, Texas area.
Deconsolidation
On September 7, 2023 we entered into an Acquisition Agreement (the “Agreement”) to sell 100% of the common stock of VivaSphere, Inc. (“VivaSphere”) and its assets, which were completely impaired by the Company in the fiscal year 2022, to a private buyer. The transaction closed on February 15, 2024. Under the terms of the Agreement, the purchase price of approximately $
In accordance with ASC 810, as of October 1, 2023, we deconsolidated Viva Wealth Fund I, LLC (“VWFI”), recognizing a gain on deconsolidation of $
5
Long Lived Assets
The Company reviews the carrying values of its long-lived assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the expected future cash flow from the use of the asset and its eventual disposition is less than the carrying amount of the asset, an impairment loss is recognized and measured using the fair value of the related asset. For the nine months ended September 30, 2024, the Company continued to build its wash plant for planned operations at its Houston, Texas site. The Company evaluated, and determined that there was no trigger event, and therefore there was no impairment incurred during the nine months ended September 30, 2024. There can be no assurance that market conditions will not change or demand for the Company’s services will continue, which could result in impairment of long-lived assets in the future.
Intangible Assets and Goodwill
We account for intangible assets and goodwill in accordance with ASC 350 “Intangibles-Goodwill and Other” (“ASC 350”). We assess our intangible assets in accordance with ASC 360 “Property, Plant, and Equipment” (“ASC 360”). Impairment testing is required when events occur that indicate an asset group may not be recoverable (“triggering events”). As detailed in ASC 360-10-35-21, the following are examples of such events or changes in circumstances (sometimes referred to as impairment indicators or triggers): (a) A significant decrease in the market price of a long-lived asset (asset group) (b) A significant adverse change in the extent or manner in which a long-lived asset (asset group) is being used or in its physical condition. (c) A significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset (asset group), including an adverse action or assessment by a regulator (d) An accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset (asset group) (e) A current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset (asset group) (f) A current expectation that, more likely than not, a long-lived asset (asset group) will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. The term more likely than not refers to a level of likelihood that is more than 50 percent. We performed an analysis and assessed no triggering event has occurred, and no impairment for the nine months ended September 30, 2024.
Revenue Recognition
For the nine months ended September 30, 2024, our sales consisted of storage services and the sale of crude oil or like products. For the nine months ended September 30, 2024, disaggregated revenue by customer type was as follows: $
Related Party Revenues
We sell crude oil or like products and provide storage services to related parties under long-term contracts. We acquired these contracts in our August 1, 2022 acquisition of Silver Fuels Delhi, LLC and White Claw Colorado City, LLC. Our revenue from related parties for 2024 and 2023 was $
Major Customers and Concentration of Credit Risk
The Company has two major customers, which account for approximately
Advertising Expense
Advertising costs are expensed as incurred. The Company did
6
Basic net income (loss) per share is calculated by subtracting any preferred interest distributions from net income (loss), all divided by the weighted-average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net income (loss) per common share is computed by dividing the net income (loss) by the weighted-average number of common share equivalents outstanding for the period determined using the treasury stock method if their effect is dilutive. Potential dilutive instruments have been excluded from the calculation of the weighted-average number of common shares outstanding when the Company is in a net loss position. For the three and nine months ended September 30, 2024 and 2023 our potential dilutive instruments were excluded from the weighted-average calculation as they were antidilutive. Potential dilutive instruments as of September 30, 2024 and 2023 include the following: convertible notes payable, which are convertible into approximately and shares of common stock, stock options and vesting or unissued stock awards granted to previous and current employees of and shares of common stock, stock options and vesting or unissued stock awards granted to board members or consultants of and shares of common stock. The Company issued free standing stock options to purchase
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates, judgments, and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We believe our critical accounting estimates relate to the following: Recoverability of current and noncurrent assets, stock-based compensation, income taxes, effective interest rates related to long-term debt, lease assets and liabilities, valuation of stock used to acquire assets, derivatives, and fair values of the intangible assets and goodwill.
While our estimates and assumptions are based on our knowledge of current events and actions we may undertake in the future, actual results may ultimately differ from these estimates and assumptions.
Fair Value of Financial Instruments
The Company follows Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures” (“ASC 820”), for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that requires the use of fair value measurements, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements. The adoption of ASC 820 did not have an impact on the Company’s financial position or operating results but did expand certain disclosures.
ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:
Level 1: Applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2: Applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3: Applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Company analyzes all financial instruments with features of both liabilities and equity under the Financial Accounting Standard Board’s (“FASB”) accounting standard for such instruments. Under this standard, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The carrying amounts reported in the consolidated balance sheets for marketable securities are classified as Level 1 assets due to observable quoted prices for identical assets in active markets. The carrying amounts reported in the consolidated balance sheets for cash, prepaid expenses and other current assets, accounts payable and accrued expenses approximate their estimated fair market values based on the short-term maturity of these instruments. The recorded values of notes payable approximate their current fair values because of their nature, rates, and respective maturity dates or durations.
7
Note 2. Going Concern & Liquidity
We have historically suffered net losses and cumulative negative cash flows from operations, and as of September 30, 2024, we had an accumulated deficit of approximately $72.8 million. As of September 30, 2024 and 2023, we had a working capital deficit of approximately $
During the nine months ended September 30, 2024, subject to available cash flows,
Based on the above, we believe there is substantial doubt about the Company’s ability to continue as a going concern. The Company has prepared the consolidated financial statements on a going concern basis. If the Company encounters unforeseen circumstances that place constraints on its capital resources, management will be required to take various measures to conserve liquidity. Management cannot provide any assurance that the Company will be able to execute its plans to raise additional capital, close its merger and acquisitions, or that its operations or business plan will be profitable.
Note 3. Property and Equipment
The following table sets forth the components of the Company’s property and equipment at September 30, 2024 and December 31, 2023:
| September 30, 2024 | December 31, 2023 | |||||||||||||||||||||||
| Gross Carrying Amount |
Accumulated Depreciation |
Net Book Value |
Gross Carrying Amount |
Accumulated Depreciation |
Net Book Value |
|||||||||||||||||||
| Office furniture | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Vehicles | ||||||||||||||||||||||||
| Equipment | ||||||||||||||||||||||||
| Property | ||||||||||||||||||||||||
| Finance lease- Right of use assets | ||||||||||||||||||||||||
| Construction in process: | ||||||||||||||||||||||||
| Wash Plant Facilities | ||||||||||||||||||||||||
| Cavitation device | ||||||||||||||||||||||||
| Remediation Processing Unit 1 | ||||||||||||||||||||||||
| Remediation Processing Unit 2 | ||||||||||||||||||||||||
| Remediation Processing Unit System A | ||||||||||||||||||||||||
| Remediation Processing Unit System B | ||||||||||||||||||||||||
| WCCC Tank Expansion | ||||||||||||||||||||||||
| Total fixed assets | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
For the nine months ending September 30, 2024 and 2023, depreciation expense was $
8
Note 4. Intangible Assets, Net and Goodwill
The following table sets forth the components of the Company’s intangible assets at September 30, 2024 and December 31, 2023:
| September 30, 2024 | December 31, 2023 | |||||||||||||||||||||||
|
Gross Carrying |
Accumulated Amortization |
Net Book Value |
Gross Amount |
Accumulated Amortization |
Net Book Value |
|||||||||||||||||||
| Extraction Technology patents | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Extraction Technology | ||||||||||||||||||||||||
| Acquired crude oil contracts | ||||||||||||||||||||||||
| Total intangible assets | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
The changes in the carrying amount of goodwill are as follows:
| Goodwill | ||||
| January 1, 2023 | $ | |||
| Business combination acquisition(1) | ||||
| December 31, 2023 | $ | |||
| September 30, 2024 | $ | |||
| (1) |
Note 5. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Accounts payable | $ | $ | ||||||
| Office access deposits | ||||||||
| Unearned revenue | ||||||||
| Accrued interest (various notes and loans payable) | ||||||||
| Accrued interest (working interest royalty programs) | ||||||||
| Accrued tax penalties and interest | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Accounts payable- related parties | $ | $ | ||||||
| Accrued interest (notes payable)- related parties | ||||||||
| Accounts payable and accrued expenses- related parties | $ | $ | ||||||
| Accrued compensation | $ | $ | ||||||
9
For the nine months ended September 30, 2024, our accounts payable and accrued expenses include unverified billings from a service provider in the amount of $
As of September 30, 2024 and December 31, 2023, our accounts payable are primarily made up of trade payables for the purchase of crude oil and unearned revenue related to the construction of and intended sale leaseback of Remediation Processing Unit- System A & B.
As of September 30, 2024 and December 31, 2023, trade accounts payables in the amount of $
As of September 30, 2024, accrued compensation to current employees includes $
On August 22, 2024,
Note 6. Loans and Notes Payable
Loans and notes payable and their maturities consist of the following:
Third party debt:
| September 30, 2024 |
December 31, 2023 |
|||||||
| Various promissory notes and convertible notes | $ | $ | ||||||
| Novus Capital Group LLC Note | ||||||||
| National Buick GMC | ||||||||
| Blue Ridge Bank | ||||||||
| Small Business Administration | ||||||||
| Al Dali International for Gen. Trading & Cont. Co. (a) | ||||||||
| RSF, LLC | ||||||||
| Keke Mingo | ||||||||
| Justin Ellis (b) | ||||||||
| Cedarview Opportunities Master Fund LP | ||||||||
| Total notes payable | $ | $ | ||||||
| Loans and notes payable, current | $ | $ | ||||||
| Loans and notes payable, long term | $ | $ | ||||||
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Related party debt:
| September 30, 2024 |
December 31, 2023 |
|||||||
| Jorgan Development, LLC | $ | |||||||
| Ballengee Holdings, LLC (c) | ||||||||
| Tyler Nelson | ||||||||
| Triple T Trading Company LLC | ||||||||
| Total notes payable- related parties | $ | $ | ||||||
| Loans and notes payable, current- related parties | $ | $ | ||||||
| Loans and notes payable, long term- related parties | $ | $ | ||||||
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total | $ |
| (a) | ||
| (b) | ||
| (c) |
As previously disclosed, on May 23, 2024, we issued a promissory note to Ballengee Holdings, LLC, in the principal amount of up to $1,500,000, for which loan advances of $804,150 have been made to the Company.
Additionally, on July 5, 2024, the Company received a loan from Ballengee Holdings, LLC, in the principal amount of $500,000, and in connection therewith, we agreed to issue 21,552 ($50,000) restricted shares of the Company’s common stock, which is currently accrued in related party accounts payable in stock until the shares are issued. The loan bears interest at the rate of 10% per annum. The loan originally matured on December 31, 2024 and was amended on July 19, 2024 to mature on September 30, 2025. The note allows the holder to convert the outstanding principal and interest due under the note into shares of our common stock at price equal to 90% of the average closing price of our common stock for the previous five (5) trading days prior to the conversion date, with a floor conversion price of $1.00 per share. The lender may not convert amounts owed under the note if such conversion would cause him to own more than 4.99% of our common stock after giving effect to the issuance, which limitation may be raised to 9.99% upon from the lender. |
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Note 7. Commitments and Contingencies
Finance Leases
On August 9, 2024, our subsidiary White Claw Colorado City, LLC (“WCCC”), entered into a supplement (“Supplement No. 4”) to an existing Master Agreement (the “Master Agreement”) with Maxus Capital Group, LLC (“Maxus”). Under Supplement No. 4, Maxus agreed to finance approximately $2.1 million for the build-out of certain equipment and facilities related to a pipeline extension at our WCCC facility in Texas. Once the relevant equipment is constructed Maxus will own the addition and we will lease these additions from Maxus under the terms of Supplement No. 4. Under the terms of the lease, we expect our lease payments to Maxus to be approximately $
On June 18, 2024, our subsidiary WCCC, entered into a supplement (“Supplement No. 3”) to an existing Master Agreement (the “Master Agreement”) with Maxus. Under Supplement No. 3, Maxus agreed to finance approximately $1 million for the build-out of certain equipment and facilities related to the wash plant we are in the process of constructing on land leased by our subsidiary, VivaVentures Remediation Corp., in Houston, Texas. Once the relevant equipment is constructed Maxus will own the equipment and we will lease these additions to our wash plant facility from Maxus under the terms of Supplement No. 3. Under the terms of the lease, we expect our lease payments to Maxus to be approximately $
As previously disclosed, on May 23, 2023 we entered into a supplement (“Supplement No. 2”) to the Master Agreement Maxus, under which Maxus funded approximately $2.2 million to finance the build-out of other Houston wash plant equipment additions, which such lease was anticipated to commence in the second quarter of 2024. As of September 30, 2024, we anticipate that this lease will now commence in the first quarter of 2025. Under the terms of this lease, we expect our lease payments to Maxus under the supplement to be approximately $
Because we were involved in the construction of the wash plant and the Texas pipeline extension, and were responsible for paying a portion of the construction costs, we evaluated the control criteria in ‘build to suit’ lease accounting guidance under GAAP ASC 842 (Leases) where the Company was deemed, for accounting purposes, to have control of the wash plant and pipeline extension during the construction period. Accordingly, the Company recorded project construction costs incurred during the construction period for the wash plant and pipeline extension incurred by the landlord as a construction-in-process asset and a related financing obligation on our consolidated balance sheets. The total of the projects’ construction costs have been capitalized and recorded to construction-in-process within ‘Property and equipment, net’. The total $3.9 million of construction costs funded by Maxus have been recorded as a component of ‘Accounts payable and accrued expenses.
Employment Agreements
On August 22, 2024,
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Stock Options & Awards
Generally accepted accounting principles require share-based payments to employees, including grants of employee stock options, warrants, and common stock to be recognized in the income statement based on their fair values at the date of grant, net of estimated forfeitures.
The Company has granted stock-based compensation to employees, including stock options and stock awards in conjunction with our Board of Director and executive employment agreements, including stock awards and bonuses that are prorated or vest. In 2024, we issued additional stock awards for common shares that vested immediately or that will vest quarterly in conjunction with annual compensation for current and a new Board of Direct compensation, and three executed executive employment contracts. In 2023, our CEO’s executive employment agreement renewed including stock awards of common shares that vest quarterly, and the continued vesting of two stock incentive awards issued to our Executive Vice President, Operations quarterly of common shares, one of which vests quarterly and second cliff vests at 12 and 18 months. For the nine months ended September 30, 2024, stock-based compensation was $. Non-statutory stock-based compensation was $
There were no other options or awards granted during the nine months ended September 30, 2024. The following table summarizes all stock option activity of the Company for the nine months ended September 30, 2024 and 2023:
| Number of Shares |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Life (Years) |
||||||||||
| Outstanding, December 31, 2023 | $ | |||||||||||
| Granted | - | |||||||||||
| Exercised | ( |
) | $ | - | ||||||||
| Forfeited | - | |||||||||||
| Outstanding, September 30, 2024 | $ | |||||||||||
| Outstanding, December 31, 2022 | $ | |||||||||||
| Granted | ||||||||||||
| Exercised | - | |||||||||||
| Forfeited | ( |
) | - | |||||||||
| Outstanding, September 30, 2023 | $ | |||||||||||
| Exercisable, December 31, 2023 | $ | |||||||||||
| Exercisable, September 30, 2024 | $ | |||||||||||
| Exercisable, December 31, 2022 | $ | |||||||||||
| Exercisable, September 30, 2023 | $ | |||||||||||
As of September 30, 2024 and 2023, the aggregate intrinsic value of the Company’s outstanding options was approximately . The aggregate intrinsic value will change based on the fair market value of the Company’s common stock.
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Note 9. Income Tax
The Company calculates its quarterly tax provision pursuant to the guidelines in ASC 740 Income Taxes. ASC 740 requires companies to estimate the annual effective tax rate for current year ordinary income. In calculating the effective tax rate, permanent differences between financial reporting and taxable income are factored into the calculation, and temporary differences are not. The estimated annual effective tax rate represents the Company’s estimate of the tax provision in relation to the best estimate of pre-tax ordinary income or loss. The estimated annual effective tax rate is then applied to year-to-date ordinary income or loss to calculate the year-to-date interim tax provision.
The Company recorded a provision for income taxes of $
Note 10. Related Party Transactions
In 2023 we subleased office space to Spectra Global Cuisine, LLC (Spectra), which shares officers with WealthSpace, LLC (the Fund Manager of VWFI). For the nine months ended September 30, 2024, we realized $
On June 15, 2022, we entered into a Membership Interest Purchase Agreement (the “MIPA”), with Jorgan Development, LLC, (“Jorgan”) and JBAH Holdings, LLC, (“JBAH” and, together with Jorgan, the “Sellers”), as the equity holders of Silver Fuels Delhi, LLC (“SFD”) and White Claw Colorado City, LLC (“WCCC”) whereby, at closing, which occurred on August 1, 2022, we acquired all of the issued and outstanding membership interests where the consideration included secured three-year promissory notes issued by us in favor of the Sellers (the “Notes”). At the time of the closing of these transactions Jorgan, JBAH, and our newly hired CEO, James Ballengee were not considered related parties. As James Ballengee is now our Chief Executive Officer and is the beneficiary of Jorgan and JBAH, and the Sellers are significant shareholders, certain transactions, as noted below, related to Jorgan, JBAH, and James Ballengee are now considered related party transactions. As of September 30, 2024 and 2023, we have accrued interest of approximately
In the business combination of acquiring WCCC we also acquired WCCC’s Oil Storage Agreement with White Claw Crude, LLC (“WC Crude”), who shares a beneficiary, James Ballengee, with Jorgan and JBAH. Under this agreement, WC Crude has the right, subject to the payment of service and maintenance fees, to store volumes of crude oil and other liquid hydrocarbons at a certain crude oil terminal operated by WCCC. WC Crude is required to pay $150,000 per month even if the storage space is not used. The agreement expires on December 31, 2031. For the nine months ended September 30, 2024 and 2023, we realized tank storage revenue of approximately $
In the business combination of acquiring SFD, we acquired an amended Crude Petroleum Supply Agreement with WC Crude (the “Supply Agreement”), under which WC Crude supplies volumes of Crude Petroleum to SFD, which provides for the delivery to SFD a minimum of 1,000 sourced barrels per day, and includes a guarantee that when SFD resells these barrels, if SFD does not make at least a $5.00 per barrel margin on the oil purchased from WC Crude, then WC Crude will pay to SFD the difference between the sales price and $5.00 per barrel. In the event that SFD makes more than $5.00 per barrel, SFD will pay WC Crude a profit-sharing payment in the amount equal to 10% of the excess price over $5.00 per barrel, which amount will be multiplied by the number of barrels associated with the sale. The Supply Agreement expires on December 31, 2031. For the nine months ended September 30, 2024 and 2023, we made crude oil purchases from WC Crude of $
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In the business combination of acquiring SFD and WCCC we also entered into a Shared Services Agreement with Endeavor Crude, LLC (“Endeavor”), who shares a beneficiary, James Ballengee, with Jorgan and JBAH. Under this agreement, we have the right, but not the obligation to use Endeavor for certain consulting services. For the nine months ended September 30, 2024 and 2023, Endeavor rendered services in the amount of $
On May 14, 2024, we issued a promissory note, to James Ballengee, in the principal amount of up to $
On June 13, 2024, we owed our Chief Financial Officer $
On July 5, 2024, the Company received a loan from Ballengee Holdings, LLC, in the principal amount of $500,000, and in connection therewith, we agreed to issue 21,552 ($50,000) restricted shares of the Company’s common stock, which is currently accrued in related party accounts payable in stock until the shares are issued. The loan bears interest at the rate of
We have an existing note payable issued to Triple T, which is owned by Dr. Khalid Bin Jabir Al Thane, the 51% majority-owner of Vivakor Middle East LLC. The note is interest free, has no fixed maturity date and will be repaid from revenues generated by Vivakor Middle East LLC. As of September 30, 2024 and 2023, the balance owed was $
Note 11. Subsequent Events
The Company has evaluated subsequent events through the date the financial statements were available to issue.
Acquisition of Endeavor Entities
On October 1, 2024, Jorgan Development, LLC, a Louisiana limited liability company (“Jorgan”) and JBAH Holdings, LLC, a Texas limited liability company (“JBAH” and, together with Jorgan, the “Sellers”), as the equity holders of Endeavor Crude, LLC, a Texas limited liability company, Equipment Transport, LLC, a Pennsylvania limited liability company, Meridian Equipment Leasing, LLC, a Texas limited liability company, and Silver Fuels Processing, LLC, a Texas limited liability company (collectively, the “Endeavor Entities”) closed the transactions that were the subject of the previously-disclosed Membership Interest Purchase Agreement among them dated March 21, 2024, as amended (the “MIPA”) (the “Closing”). In accordance with the terms of the MIPA, at the Closing, the Company acquired all of the issued and outstanding membership interests in each of the Endeavor Entities (the “Membership Interests”), making them wholly-owned subsidiaries of the Company.
15
The Endeavor Entities own and operate a combined fleet of more than 500 commercial tractors and trailers for the hauling of crude oil and produced water. On a daily basis, the trucking fleet hauls approximately 60,000 barrels of crude oil, tank bottoms, and petroleum wastes, and approximately 30,000 barrels of produced water. In addition, the Endeavor Entities own and operate a crude oil shuttle pipeline and exclusive connected blending and processing facility in Blaine County, Oklahoma.
The purchase price for the Membership Interests is $
As a result of the Closing, the Company will issue to the Sellers, (i) a number of shares of Common Stock equal to an undivided nineteen and ninety-nine hundredths percent (19.99%) of all of the Company’s issued and outstanding Common Stock immediately prior to Closing, or a lesser percentage, if such issuance would result, when taking into consideration the percentage of Common Stock owned by Sellers prior to such issuance, in Sellers owning in excess of 49.99% of the Common Stock issued and outstanding on a post-Closing basis, with such shares of Common Stock valued at $1.00 per share (the “Common Stock Consideration”), and (ii) a number of shares of Preferred Stock equal to the Purchase Price, less the value of the Common Stock Consideration (the “Preferred Stock Consideration”). Sellers will entered into 18-month lock-up agreements at Closing, with regard to the Common Stock Consideration and any Common Stock they receive during the lock-up period in connection with conversions of Preferred Stock or the payment of dividends on the Preferred Stock.
According to our Chief Financial Officer’s previously disclosed employment contract, upon the closing (October 1, 2024) of the Endeavor Entities, he will be paid $200,000, with $100,000 to be paid in cash and the remaining $100,000 to be paid in shares of the Company’s common stock, valued at approximately $1.89 per share.
Upon the Closing of our acquisition of the Endeavor Entities, the parties of that certain Membership Interest Purchase Agreement dated June 15, 2022, and the Amendment of Transaction Documents Related to Threshold Payment dated March 31, 2024 (together, the “2022 MIPA”), agreed that Section 8.7 Unwinding of the 2022 MIPA expired and is no longer enforceable. As a result, the selling entities in the 2022 MIPA no longer have the right to unwind our acquisitions of White Claw Colorado City and Silver Fuels Dehli.
Executive Employment Agreements
In connection with the Closing of the Endeavor Entities on October 1, 2024, the
On October 1, 2024 (the “Effective Date”), Vivakor Administration, LLC, a subsidiary of Vivakor, Inc, entered into an executive employment agreement with Jeremy Gamboa as the Company’s Division President, Logistics (the “Gamboa Agreement”).
The Gamboa Agreement provides for an annual base salary of $
16
Upon the Closing of our acquisition of the Endeavor Entities, a certain Subordinated Business Loan and Security Agreement by and between Agile Capital Funding, LLC and Agile Lending, LLC (the lenders and Endeavor Crude, LLC, Meridian Equipment Leasing, LLC, and Silver Fuels Processing, LLC (the borrowers) dated September 27, 2024 (the “Agile Agreement”) will be contained in our consolidated financial statements going forward. Under the Agile Agreement, the listed borrowers received $1,420,000 in October 2024.
Loan and Security Agreement and Issuance of Secured Promissory Note
On October 31, 2024, Vivakor, Inc., as the borrower, and certain of its subsidiaries, being Vivaventures Management Company, Inc., Vivaventures Oil Sands, Inc., Silver Fuels Delhi, LLC, White Claw Colorado City, LLC, Vivaventures Remediation Corporation, Vivaventures Energy Group, Inc., Endeavor Crude, LLC, and Meridian Equipment Leasing, LLC, and Silver Fuels Processing, LLC, as guarantors (collectively, the “Guarantors” or “Subsidiaries”, as context requires), Cedarview Opportunities Master Fund LP, as the lender (the “Lender”); and Cedarview Capital Management, LLC, as the agent (the “Agent”), entered into a Loan and Security Agreement (the “Loan Agreement”).
Pursuant to the Loan Agreement, the Company issued a secured promissory note (the “Note”) in the principal amount of $
The amounts borrowed under the Loan Agreement will bear interest at a rate per annum of
In the event of any prepayment, the Company shall pay a prepayment premium in the amount of ten percent (10%) of the balance of the Term Loan outstanding prior to such prepayment. Notwithstanding the foregoing, if and when the Company raises in the aggregate $10,000,000 or more from the sale of its equity in sales (other than in connection with any acquisition, merger, or like transaction), the Company shall immediately offer to prepay the entire outstanding balance of the Term Loan, which offer may be accepted or rejected by the Agent.
In connection with the Loan Agreement, and as additional consideration for the Lender agreeing to loan funds to the Company thereunder, the Company issued an irrevocable letter to its transfer agent (the “Transfer Agent”) to reserve 3,000,000 shares of the Company’s common stock (the “Collateral Securities”) until the Term Loan is repaid in full. In the event the Term Loan is not paid in full by the Maturity Date, the Agent may instruct the Transfer Agent to issue the Collateral Securities to the Agent, which the Agent may then sell until such time the amounts due under the Term Loan are repaid in full, after which any shares of Collateral Securities remaining shall be returned to the Company.
As a result of the Term Loan, and the use of proceeds of the Term Loan, the Previous Cedarview Loan has been paid in full and the irrevocable letter to the transfer agent regarding the Previous Cedarview Loan has been withdrawn.
In connection with the Closing of the Endeavor Entities on October 1, 2024, a certain Secured Promissory Note dated December 31, 2023, made by Meridian Equipment Leasing, LLC, as Borrower (“Borrower”), to the order of Pilot OFS Holdings LLC, as Lender (“Lender”), in the original principal amount of $
17
In connection with the Closing of the Endeavor Entities on October 1, 2024, a certain Repair and Maintenance Subscription Plan dated October 1, 2024 was entered into between Horizon Truck and Trailer, LLC, which is a related party as our Chief Executive Officer is the beneficiary, and Meridian Equipment Leasing, LLC (“MEL”) for the maintenance and repairs of all commercial trailers and tractors owned, leased, or controlled by MEL, which includes a $100,000 monthly retainer that is credited against open monthly charges and invoices.
On October 17 2024, our newly acquired subsidiaries under the Endeavor Entities, received funding of $
On October 29, 2024, our subsidiary Meridian Equipment Leasing LLC (“MEL”), which subsidiary was acquired on October 1, 2024 in the acquisition of the Endeavor Entities, entered into a supplement (“Supplement No. 21”) to an existing Master Agreement (the “Master Agreement”) with Maxus Capital Group, LLC (“Maxus”). Under Supplement No. 21, Maxus agreed to finance approximately $1.5 million for the build-out of a pipeline at our acquired pipeline facility in Oklahoma. Once the pipeline is constructed Maxus will own the addition and we will lease these additions from Maxus under the terms of Supplement No. 21. Under the terms of the lease, we expect our lease payments to Maxus to be approximately $41,522 per month over four years, with an early buyout option or option at the end of the base term to purchase the wash plant equipment for approximately $484,111 or lease-end option to purchase the facilities for the fair market value. We anticipate that the lease will commence in the first quarter of 2025.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) that reflect management’s current views with respect to future events and financial performance. These statements are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by the Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used herein, the words “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “future,” “intend,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks relating to the Company’s business, industry, and the Company’s operations and results of operations. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.
Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates and actual results. The following discussion should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this report. The forward-looking statements made in this report are based only on events or information as of the date on which the statements are made in this report. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this report and the documents we refer to in this report and have filed as exhibits to this report completely and with the understanding that our actual future results may be materially different from what we expect.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, or performance. Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the SEC. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time except as required by law. We believe that our assumptions are based upon reasonable data derived from and known about our business and operations. No assurances are made that actual results of operations or the results of our future activities will not differ materially from our assumptions.
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As used in this Quarterly Report on Form 10-Q and unless otherwise indicated, the terms “Company,” “we,” “us,” and “our” refer to Vivakor, Inc., its wholly owned and majority-owned active subsidiaries, or joint ventures (collectively, the “Company”). Intercompany balances and transactions between consolidated entities are eliminated. Vivakor has the following wholly and majority-owned subsidiaries: Silver Fuels Delhi, LLC, a Louisiana limited liability company, White Claw Colorado City, LLC, a Texas limited liability company, RPC Design and Manufacturing LLC (“RDM”), a Utah limited liability company, Vivaventures Remediation Corp., a Texas corporation, Vivaventures Management Company, Inc., a Nevada corporation, Vivaventures Oil Sands, Inc., a Utah corporation, Vivakor Supply & Trading, LLC, a Texas limited liability company, Empire Energy Acquistion Corp, a Delaware corporation. We have a 99.95% ownership interest in Vivaventures Energy Group, Inc., a Nevada Corporation; the 0.05% minority interest in Vivaventures Energy Group, Inc. is held by a private investor unaffiliated with us. We also have an approximate 49% ownership interest in Vivakor Middle East Limited Liability Company, a Qatar limited liability company. Vivakor manages and consolidates RPC Design and Manufacturing LLC, which includes a noncontrolling interest investment from Vivaopportunity Fund, LLC, which is also managed by Vivaventures Management Company, Inc. In accordance with ASC 810, as of October 1, 2023, we deconsolidated Viva Wealth Fund I, LLC (VWFI), recognizing a gain on deconsolidation of $438,099 for the year ended December 31, 2023, and as of February 15, 2024 we deconsolidated Vivasphere, Inc. (Vivasphere), recognizing a gain of $177,550 for the six months ended September 30, 2024. The assets, liabilities and equity related to VWFI and Vivasphere were removed from our financial statements on their respective deconsolidation dates, resulting in the gains on deconsolidation.
Business Overview
Vivakor, Inc. is a socially responsible operator, acquirer and developer of technologies and assets in the oil and gas industry, as well as related environmental solutions. Currently, our efforts are primarily focused on operating crude oil gathering, storage and transportation facilities, as well as contaminated soil remediation services.
One of our facilities in Delhi, Louisiana sells crude under agreements with a large energy company. A different facility owns crude oil storage tanks near Colorado City, Texas. The storage tank is presently connected to the Lotus pipeline system and an extension to a major pipeline system is being constructed.
Our soil remediation services specialize in the remediation of soil and the extraction of hydrocarbons, such as oil, from properties contaminated by or laden with heavy crude oil and other hydrocarbon-based substances utilizing our Remediation Processing Centers (RPCs). Our patented process allows us to successfully recover the hydrocarbons which we believe could then be used to produce asphaltic cement and/or other petroleum-based products. We are currently focusing our soil remediation efforts on our project in Kuwait and our upcoming project in the Houston, Texas area.
Reclassifications
Certain reclassifications may have been made to prior years’ amounts to conform to the 2024 presentation.
Recent Developments
Finance Leases
On August 9, 2024, our subsidiary White Claw Colorado City, LLC (“WCCC”), entered into a supplement (“Supplement No. 4”) to an existing Master Agreement (the “Master Agreement”) with Maxus Capital Group, LLC (“Maxus”). Under Supplement No. 4, Maxus agreed to finance approximately $2.1 million for the build-out of certain equipment and facilities related to a pipeline extension at our WCCC facility in Texas. Once the relevant equipment is constructed Maxus will own the addition and we will lease these additions from Maxus under the terms of Supplement No. 4. Under the terms of the lease, we expect our lease payments to Maxus to be approximately $32,161 per month over four years, with an early buyout option or option at the end of the base term to purchase the wash plant equipment for approximately $374,702 or lease-end option to purchase the facilities for the fair market value. We anticipate that the lease will commence in the first quarter of 2025.
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On June 18, 2024, our subsidiary White Claw Colorado City, LLC (“WCCC”), entered into a supplement (“Supplement No. 3”) to an existing Master Agreement (the “Master Agreement”) with Maxus Capital Group, LLC (“Maxus”). Under Supplement No. 3, Maxus agreed to finance approximately $1 million for the build-out of certain equipment and facilities related to the wash plant we are in the process of constructing on land leased by our subsidiary, VivaVentures Remediation Corp., in Houston, Texas. Once the relevant equipment is constructed Maxus will own the equipment and we will lease these additions to our wash plant facility from Maxus under the terms of Supplement No. 3. Under the terms of the lease, we expect our lease payments to Maxus to be approximately $58,595 per month over four years, with an early buyout option or option at the end of the base term to purchase the wash plant equipment for approximately $683,000, or lease-end option to purchase the facilities for the fair market value. We anticipate that the lease will commence in the first quarter of 2025.
As previously disclosed, on May 23, 2023, we entered into a supplement (“Supplement No. 2”) to the Master Agreement Maxus, under which Maxus funded approximately $2.2 million to finance the build-out of other Houston wash plant equipment additions, which such lease was anticipated to commence in the second quarter of 2024. As of September 30, 2024, we anticipate that this lease will now commence in the first quarter of 2025. Under the terms of this lease, we expect our lease payments to Maxus under the supplement to be approximately $57,962 per month over four years, with an early buyout option of approximately $685,000 or lease-end option to purchase the facilities for the fair market value.
Promissory Note with Related Party
As previously disclosed, on May 14, 2024, we issued a promissory note, to Ballengee Holdings, LLC, of which our Chief Executive Officer is the beneficiary, in the principal amount of up to $1,500,000, for which loan advances will be made to the Company as requested. The Company will use the proceeds of the promissory note for general working capital purposes and to repay certain indebtedness. The intent of the promissory note is to be short term in nature and be repaid in 30 days. Any amounts that are not repaid in 30 days will bear interest thereafter at a rate of 11% per annum. Each advance matures after six months from the date the Company receives the funds. On May 23, 2024, we issued a promissory note to Ballengee Holdings, LLC, of which our Chief Executive Officer is the beneficial owner, which replaced and rescinded the above referenced note with James Ballengee effective back to May 14, 2024, under the same terms such that all obligations under the notes are the responsibility of Ballengee Holdings, LLC and the prior note with James Ballengee is no longer enforceable. As of September 30, 2024, the principal and accrued interest balance of this note was $804,150 and $21,274.
Sales Contract with Related Party
During the third quarter of 2024, the Company entered into a Crude Petroleum Sales Agreement with White Claw Crude, LLC (“WC Crude”). Both the WC Crude Crude Petroleum Sales Agreement and the existing WC Crude Crude Petroleum Supply Agreement(s) are cash net settled at market prices.
Director Appointment
On June 3, 2024, the Board of Directors (the “Board”) of the Company appointed Mr. Michael Thompson as a member of the Board, effective immediately. Mr. Thompson has been determined by the Board to be an independent director consistent with Rule 5605(a)(2) of the NASDAQ listing standards. In addition to serving as an independent director, Mr. Thompson will serve as chair of the Audit Committee of the Board (the “Audit Committee”).
Executive Employment Agreement and Settlement Agreement with Chief Financial Officer
On June 9, 2022, the Company entered into an executive employment agreement (the “Original Agreement”) with Tyler Nelson, the Chief Financial Officer of the Company (the “Executive”), for a term of two years, and, on January 16, 2023, Mr. Nelson was appointed as member of the Company’s Board of Directors (the “Board”).
As previously disclosed, on February 26, 2024, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Empire Energy Acquisition Corp., a Delaware corporation, and wholly owned subsidiary, Empire Diversified Energy, Inc., a Delaware corporation (collectively “Empire”), whereby, at closing, subject to the conditions set forth in the Merger Agreement, Empire will become a wholly-owned subsidiary of the Company. On March 21, 2024, the Company entered into a Membership Interest Purchase Agreement (the “Endeavor MIPA”), the equity holders of Endeavor Crude, LLC (“Endeavor”), whereby, at closing, subject to the conditions set forth in the Endeavor MIPA, the Company will acquire several entities that will become wholly-owned subsidiaries of the Company.
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On June 13, 2024, the Company entered into a new Executive Employment Agreement (the “New Employment Agreement”) with Mr. Nelson, and, in connection therewith the Company and Mr. Nelson also entered into a settlement agreement with respect to compensation owed by the Company to Mr. Nelson (the “Settlement Agreement”).
New Employment Agreement
On June 13, 2024, the Company entered into the New Employment Agreement with respect to the Company’s appointment of Mr. Nelson as Chief Financial Officer. Pursuant to the New Employment Agreement, Mr. Nelson will receive: (i) $450,000 annually (the “Base Salary”); (ii) an annual cash incentive bonus of a minimum of 50% of the Base Salary (a portion of which may be payable in the form of restricted common stock of the Company) and a maximum of 120% of the Base Salary; and (iii) an annual equity incentive bonus of a minimum of 25% of the Base Salary and a maximum of 120% of the Base Salary in shares of restricted stock. Mr. Nelson will also be eligible for a cash transaction bonus (the “Transaction Bonus”) for Qualified Transactions, as defined in the New Employment Agreement, of 0.5% of the enterprise value of the assets, equity or business sold or acquired or the listing value of the equity or debt being listed on a national exchange. For each of the closing of the Merger Agreement and Endeavor MIPA, Mr. Nelson will receive a bonus of $200,000, with $100,000 for each such bonus to be paid in cash and the remaining $100,000 for each such bonus to be paid in shares of the Company’s common stock, valued on the date of close of the Merger Agreement and the Endeavor MIPA, respectively. The foregoing bonuses are in lieu of a Transaction Bonus for either the Merger Agreement or the Endeavor MIPA. The New Employment Agreement is for an initial term of two years and will auto-renew for subsequent one-year terms if not terminated by either party at the end of a term, which requires 90 days prior notice. The New Employment Agreement may also be terminated under standard cause and without cause termination and resignation provisions.
Settlement Agreement and Promissory Note
At the time of the termination of the Original Agreement, the Company owed Mr. Nelson $1,167,750 in accrued salary and bonuses, plus interest (together, the “Accrued Compensation”), for serving as the Company’s Chief Financial Officer under the Original Agreement. Pursuant to the Settlement Agreement, the Company and Mr. Nelson agreed the Accrued Compensation would be paid to Mr. Nelson under of a straight promissory note in the principal amount of the Accrued Compensation (the “Note”). Under the terms of the Note, the amounts due under the Note will accrue interest at 8% per annum and will be paid to Mr. Nelson by paying him 5% of any money received by the Company from closed future financings or acquisition/merger/sale transactions until the Note has been paid in full. In the event the Note has not been paid in full by December 31, 2024, the Note will mature and any amounts due thereunder will be due and payable in full in such date.
Stock Option
Under the terms of the Settlement Agreement, the Company issued Mr. Nelson a stock option agreement (the “Option Agreement”) setting forth the stock options Mr. Nelson were issued on June 9, 2022 (the “Grant Date”). Pursuant to the Option Agreement, as of the Grant Date, Mr. Nelson was granted 917,825 stock options (the “Options”) at an exercise price per share of $1.80. The Options shall vest as follows: (i) 360,145 shares on the Grant Date, (ii) 219,312 shares three (3) months after the Grant Date, (iii) 48,338 shares for each of the following six (6) quarters, and (iv) 48,340 shares following the eighth (8th) quarter after the Grant Date. The Options were fully vested as of June 9, 2024.
Executive Employment Agreement with Executive Vice President, General Counsel and Secretary
On June 26, 2024 (the “Effective Date”), Vivakor, Inc., pursuant to the approval of its Board of Directors (the “Board”), on the recommendation of the Compensation Committee of the Board entered into that certain Executive Employment Agreement with Patrick M. Knapp to join the Company as its Executive Vice President, General Counsel, & Secretary (the “Knapp Agreement”).
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The Knapp Agreement provides for an annual base salary of $350,000, payable in equal installments every two weeks. In addition, the Knapp Agreement provides for annual incentive cash and equity compensation of up to $840,000 based on certain performance goals as further set forth therein. As an inducement to enter into the Knapp Agreement, Mr. Knapp shall receive a one-time signing grant of Company common stock equivalent in value to $250,000, which are priced per share based on the volume-weighted average price for the preceding five (5) trading days prior to the day of such grant (calculated to be 140,190 shares based on the effective date of the Knapp Agreement), subject to an eighteen (18) month lockup period and a conditional clawback obligation concurrent therewith, which shall be granted within thirty (30) days after the Start Date, as defined therein. Pursuant to the Knapp Agreement, Mr. Knapp’s employment is at-will under Texas law, except as modified therein. Mr. Knapp’s employment with the Company began on June 26, 2024.
As previously disclosed in the Company’s Current Report on Form 8-K filed with the SEC on March 1, 2024, the Company entered into that certain Agreement and Plan of Merger dated effective February 26, 2024 with Empire Energy Acquisition Corp. and Empire Diversified Energy, Inc. (the “Merger Agreement”). The Company obtained the consent of Empire Diversified Energy, Inc. with respect to the Knapp Agreement, as required under Section 5.02(iv) of the Merger Agreement.
New Executive Employment Agreement Vice President, Marketing
On August 22, 2024, we entered into a new executive employment agreement with our Vice President, Marketing. Pursuant to the new employment agreement, our Vice President, Marketing will receive $200,000 annually (the “Base Salary”), which after the first annual anniversary the Base Salary may increase to $350,000 contingent upon the Company achieving net profitability of $500,000 of all commodity trades by the Vice President, Marketing. In addition, the employment agreement provides for annual incentive cash and equity compensation of up to $440,000 based on certain performance goals as further set forth therein. As an inducement to enter into the executive employment agreement, the Vice President, Marketing is entitled to receive a one-time signing grant of Company common stock equivalent in value to $150,000, which are priced per share based on the closing price on the day of such grant (calculated to be 71,090 shares based on the effective date of the executive employment agreement). The signing bonus has not been issued and is due not later than thirty (30) calendar days after we file an amended Registration Statement on Form S-8 with the Securities and Exchange Commission registering shares under a Long-Term Incentive Plan (“LTIP”), and the shares will only vest as set forth in the LTIP.
Sale of Common Stock
On July 26, 2024, the Company entered into a stock purchase agreement under which the Company agreed to sell an aggregate of 67,568 shares of restricted common stock in exchange for $125,000.
On July 26, 2024, the Company entered into a stock purchase agreement under which the Company agreed to sell an aggregate of 1,600,000 shares of restricted common stock in exchange for $800,000.
On September 5, 2024, the Company entered into a stock purchase agreement under which the Company agreed to sell an aggregate of 1,000,000 shares of restricted common stock in exchange for $500,000.
Loan and Security Agreement and Issuance of a Secured Promissory Note
As previously disclosed, on February 5, 2024, we issued a secured promissory note (the “Note”) due as described below, to Cedarview Opportunities Master Fund LP (the “Lender”), in the principal amount of $3,000,000 (the “Principal Amount”), in relation to a Loan and Security Agreement by and between the Company, its subsidiaries, and the Lender (the “Agreement”). The Company will use the proceeds of the Note for general working capital purposes and to repay certain indebtedness. The Company received the funds on February 6, 2024, minus a 3% origination fee. Through September 30, 2024, we have repaid $250,000 of principal due under the Note, as well as $220,000 in interest, and still owe $2,750,000 as of September 30, 2024.
This summary is not a complete description of all of the terms of the Agreement and the Note and is qualified in its entirety by reference to the full text of the Agreement and the Note, which are filed as Exhibit 10.2 hereto, which are incorporated by reference into the Company’s Form 10-K for the year ended December 31, 2023, filed with the SEC on April 17, 2024. On October 31, 2024, entered into a Loan and Security Agreement (the “Loan Agreement”) with the Lender.
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Pursuant to the Loan Agreement, the Company issued a secured promissory note (the “Note”) in the principal amount of $3,670,160.77, and the Lenders agreed to provide such term loan to the Company (the “Term Loan”) with maturity on October 31, 2025. On November 5 and 6, 2024, the Company received the net proceeds from the Term Loan less (i) a 3% origination fee, and (ii) repayment of $2,000,000 in outstanding principal, $68,009 in accrued interest, and a $242,991 prepayment fee pursuant to that certain Loan and Security Agreement dated February 5, 2024, by and between the Company, as borrower thereunder, certain of its Subsidiaries, as guarantors thereunder, and Lender and Agent (the “Previous Cedarview Loan”).
The amounts borrowed under the Loan Agreement will bear interest at a rate per annum of 22%. As a result, the Company will be obligated to make 12 equal monthly payments of $343,506.42 beginning November 30, 2024.
In the event of any prepayment, the Company shall pay a prepayment premium in the amount of ten percent (10%) of the balance of the Term Loan outstanding prior to such prepayment. Notwithstanding the foregoing, if and when the Company raises in the aggregate $10,000,000 or more from the sale of its equity in sales (other than in connection with any acquisition, merger, or like transaction), the Company shall immediately offer to prepay the entire outstanding balance of the Term Loan, which offer may be accepted or rejected by the Agent.
In connection with the Loan Agreement, and as additional consideration for the Lender agreeing to loan funds to the Company thereunder, the Company issued an irrevocable letter to its transfer agent (the “Transfer Agent”) to reserve 3,000,000 shares of the Company’s common stock (the “Collateral Securities”) until the Term Loan is repaid in full. In the event the Term Loan is not paid in full by the Maturity Date, the Agent may instruct the Transfer Agent to issue the Collateral Securities to the Agent, which the Agent may then sell until such time the amounts due under the Term Loan are repaid in full, after which any shares of Collateral Securities remaining shall be returned to the Company.
As a result of the Term Loan, and the use of proceeds of the Term Loan, the Previous Cedarview Loan has been paid in full and the irrevocable letter to the transfer agent regarding the Previous Cedarview Loan has been withdrawn.
Exercise of Stock Option
On September 9, 2024, Al Dali International for Gen. Trading & Cont. Co. (“DIC”), exercised its stock option to purchase 1,000,000 shares of our common stock at an exercise price of $1.179 per share, which was originally issued as security to secure repayment of our June 20, 2023 secured promissory note with DIC. Under the terms of the stock option, DIC used as consideration for the stock option, a reduction of principal and interest under its Note in the amount of $1,179,000. We are currently analyzing the exercise of the stock option and related issuance of the shares to ensure they complied with the terms of our agreement with DIC. If we determine the issuance is in line with our agreement with DIC, then any remaining portion of note is anticipated to be paid out of operations of the RPC per the terms of the note agreement as previously disclosed.
Issuance of a Convertible Promissory Notes
On July 5, 2024, the Company received a loan from Ballengee Holdings, LLC, whose beneficial owner is our Chief Executive Officer, in the principal amount of $500,000, and in connection therewith, we agreed to issue 21,552 ($50,000) restricted shares of the Company’s common stock, which is currently accrued in related party accounts payable in stock until the shares are issued. The loan bears interest at the rate of 10% per annum. The loan originally matured on December 31, 2024 and was amended on July 19, 2024 to mature on September 30, 2025. The note allows the holder to convert the outstanding principal and interest due under the note into shares of our common stock at price equal to 90% of the average closing price of our common stock for the previous five (5) trading days prior to the conversion date, with a floor conversion price of $1.00 per share. The lender may not convert amounts owed under the note if such conversion would cause him to own more than 4.99% of our common stock after giving effect to the issuance, which limitation may be raised to 9.99% upon from the lender. As of September 30, 2024 the balance of principal and accrued interest was $500,000 and $11,957.
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On July 8, 2024, we received a loan from a non-affiliated individual lender in the principal amount $350,000, and in connection therewith, the Company agreed to issue 15,982 ($35,000) restricted shares of the Company’s common stock. As of September 30, 2024, these shares have not been issued and are accrued for accounts payable. The loan bears interest at the rate of 10% per annum. The loan originally matured on December 31, 2024 and was amended on July 19, 2024 to mature on September 30, 2025. The note allows the holder to convert the outstanding principal and interest due under the note into shares of our common stock at price equal to 90% of the average closing price of our common stock for the previous five (5) trading days prior to the conversion date, with a floor conversion price of $1.00 per share. The lender may not convert amounts owed under the note if such conversion would cause him to own more than 4.99% of our common stock after giving effect to the issuance, which limitation may be raised to 9.99% upon from the lender.
Merger Agreement with Empire
The Merger Agreement
On February 26, 2024 (the “Execution Date”), we (the “Parent”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Empire Energy Acquisition Corp., a Delaware corporation and wholly owned subsidiary of the Parent (“Merger Sub”), and Empire Diversified Energy, Inc., a Delaware corporation (“Empire” and collectively with the Parent and Merger Sub, the “Parties”). Pursuant to the Merger Agreement, on the Closing Date, subject to the terms and conditions set forth in the Merger Agreement, Merger Sub will merge with and into Empire (the “Merger”), with Empire surviving the Merger as a wholly owned subsidiary of the Parent (the “Surviving Company”). Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Merger Agreement.
As a result of the Merger, at Closing, all shares of Empire’s common stock, par value $0.00001 per share (the “Empire Common Stock”), on a fully diluted and as converted basis, shall be converted into and exchanged for the right to receive an aggregate of 67,200,000 shares (the “Consideration Shares”) of the Parent’s common stock, par value $0.001 per share (the “Parent Common Stock”), stipulated to be $1.00 per share of Parent Common Stock for an aggregate value equal to $67,200,000.
Representations and Warranties; Covenants
Pursuant to the Merger Agreement, the Parties made customary representations and warranties for transactions of this type; provided, that the Parties agreed that each of the Parent and Empire shall deliver fully completed copies of their respective disclosure schedules as soon as reasonably practicable, but in no event later than fourteen (14) days following the Execution Date. Both Parties shall have sixty (60) days from the Execution Date (the “Diligence Expiration Date”) to conduct due diligence review of the other Party, giving rise to the termination right by either Party until the Diligence Expiration Date.
Net Cash Minimum
Pursuant to the Merger Agreement, at the Closing, Empire is required to have a minimum of $2,500,000 of unrestricted net cash on its books (“Net Minimum Cash”), which Net Minimum Cash shall be available to the Parent following the Closing.
Registration Statement and Proxy
As promptly as practicable following the date the Net Minimum Cash is obtained pursuant to the Merger Agreement, but in no event after the later of the (i) 45th day following the Execution Date and (ii) 10th day following the date the Net Minimum Cash is obtained, so long as the Parent has received all necessary information from Empire, the Parent shall file with the U.S. Securities and Exchange Commission (the “SEC”) a registration statement on Form S-4 (the “Registration Statement”) relating to, among other things, the registration of the Consideration Shares issuable to the Empire Stockholders pursuant to the Merger Agreement, including the Proxy Statement portion thereof relating, among other things, to the approval of the Proposals (as defined below) to be voted on at the Parent Stockholders Meeting (as defined below).
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Parent Stockholders Meeting
As promptly as practicable following the date on which the Registration Statement is declared effective by the SEC pursuant to the Securities Act of 1933, as amended (the “Securities Act”), and after reasonable consultation with Empire, the Parent shall establish the record date, and duly call, give notice of, convene and hold a special meeting of the stockholders of the Parent (the “Parent Stockholders Meeting”) in accordance with Nevada law (and in any event within 10 Business Days after the date of effectiveness of the Registration Statement, unless otherwise required by applicable Laws). At such Parent Stockholders Meeting, the Parent’s board of directors (the “Board”) is to recommend that the Parent Stockholders approve and adopt the following proposals (the “Proposals”): (i) the Merger Agreement, the Merger, the Ancillary Agreements and the Transactions; (ii) for purposes of complying with Nasdaq listing Rule 5635(a), (b) and (d), the issuance of the Consideration Shares to the Empire Stockholders as contemplated in the Merger Agreement; (iii) the adjournment of such Parent Stockholders Meeting as permitted by Section 5.08 of the Merger Agreement; and (iv) any other proposal or proposals that the Parent reasonably deems necessary or desirable to consummate the transactions contemplated by the Merger Agreement (collectively, the “Parent Board Recommendations”).
Board of Directors and Officers
Upon the Closing, (i) the number of members of the Board shall be fixed at seven, and (ii) the members of the Board shall be (A) James Ballengee, who shall serve as Chairman, (B) three (3) members to be chosen by Empire, (C) two (2) members to be chosen by the Parent, and (D) one (1) member to be chosen by both the Parent and Empire. At least four (4) of the individuals identified in (B), (C), and (D) shall qualify as independent directors under the rules of the Nasdaq Stock Market LLC (“Nasdaq”). If any individual identified in (B) of the foregoing clause (ii) is unable or unwilling to serve in such capacity, Empire may choose a successor but not less than five (5) days in advance of the Closing or such earlier period as may be required by disclosure requirements under applicable Law. If any individual identified in (C) of the foregoing clause (ii) is unable or unwilling to serve in such capacity, the Parent may choose a successor but not less than five days in advance of the Closing or such earlier period as may be required by disclosure requirements under applicable Law.
From and after the Effective Time, James Ballengee shall continue to serve as the Parent’s Chief Executive Officer until the earlier of the Board’s appointment of a successor or Mr. Ballengee’s death, resignation, termination or removal.
Conditions to Each Party’s Obligations to Consummate the Transactions
The respective obligation of each Party to effect, or cause to be effected, the Transactions, including the Merger, is subject to the satisfaction on or before the Closing Date of each of the following conditions, unless waived in writing by each of Parent and the Parent: (a) the Parent Board Recommendations have been approved by the required Parent Stockholders at the Parent Stockholders Meeting; (b) the Merger Agreement and the Merger shall have been duly adopted by the required Empire Stockholders; (c) the Registration Statement shall have become effective; (d) the Parties shall have received all approvals with any Governmental Authority necessary to consummate the Transactions, including, but not limited to, the expiration or termination of the waiting period under the HSR Act, if applicable; (e) there shall not have been enacted, promulgated or made effective after the Execution Date any Law or Orders by a Governmental Authority of competent jurisdiction that enjoins or otherwise prohibits or makes illegal, or any Legal Action by any Governmental Authority seeking to enjoin or prohibit or make illegal, consummation of the Transactions and there shall not be in effect any injunction (whether temporary, preliminary or permanent) by any Governmental Authority of competent jurisdiction that enjoins or otherwise prohibits consummation of the Transactions; (f) the Parent shall have obtained a Fairness Opinion concluding that the Merger and the related Transactions are fair to the Parent Stockholders from a financial point of view; (g) the executed Lock-Up Agreement has been delivered to the Parent; (h) the Lock-Up Extension has been delivered to Empire; and (i) all of the Convertible Securities of Empire have been exercised, converted or exchanged for Empire Common Stock and the Parties shall have mutually agreed as to the treatment of warrants exercisable for shares of Empire Common Stock (the “Empire Warrants”) at Closing provided that if the Empire Warrants have been terminated or exercised into Empire Common Stock prior to the Closing, this condition shall have been deemed satisfied.
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Conditions to Obligations of the Parent
The obligations of the Parent to effect, or cause to be effected, the Transactions, including the Merger, are subject to the satisfaction on or before the Closing Date of the following conditions, unless waived in writing by the Parent (subject to certain qualifications and exceptions as set forth in the Merger Agreement for each): (A) the representations and warranties of Empire regarding the capitalization of Empire shall be true and correct as of the Closing as though made on such date; (B) the representations and warranties of Empire set forth in Section 3.01 (Organization and Power), Section 3.04 (Corporate Authorizations), Section 3.06 (Capitalization) (other than subsections (a), and (b) and (g)), and Section 3.24 (Brokers) shall be true and correct in all material respects as of the Closing as though made on such date; (C) the remaining representations and warranties of Empire contained in Article III shall be true and correct, in each case as of the Closing as though made on such date; (D) each of the covenants of Empire to be performed as of or prior to the Closing shall have materially been performed; (E) there shall not have been a Company Material Adverse Effect (as defined in the Merger Agreement); (F) the Parent shall have received the Company Officer’s Certificate (as defined in the Merger Agreement); (G) Empire shall have the Net Cash Minimum on hand; and (H) the Parent shall have received each of the agreements, instruments and other document set forth in Section 1.11(b) of the Merger Agreement.
Conditions to Obligations of Empire
The obligations of Empire to effect, or cause to be effected, the Transactions, including the Merger, are subject to the satisfaction on or before the Closing Date of the following conditions, unless waived in writing by Empire (subject to certain qualifications and exceptions as set forth in the Merger Agreement for each): (A) the representations and warranties of the Parent regarding the capitalization of the Parent shall be true and correct as of the Closing as though made on such date; (B) the representations and warranties of the Parent set forth in in Section 4.01 (Organization and Power), Section 4.04 (Corporate Authorizations), Section 4.06 (Capitalization) (other than subsections (a) and (b) and (g)), Section 4.08 (Business Operations), Section 4.24 (Takeover Statutes), Section 5.22 (Opinion of Financial Advisor) and Section 4.28 (Brokers) shall be true and correct in all material respects as of the Closing as though made on such date; (C) the remaining representations and warranties of the Parent contained in Article IV shall be true and correct, in each case as of the Closing as though made on such date; (D) each of the covenants of the Parent to be performed as of or prior to the Closing shall have materially been performed; (E) there shall not have been a Parent Material Adverse Effect (as defined in the Merger Agreement); (F) Empire shall have received the Parent Officer’s Certificate (as defined in the Merger Agreement); (G) the Parent Common Stock (i) shall be listed on Nasdaq and (ii) shall not have been suspended, as of the Closing Date, by the SEC or Nasdaq from trading on Nasdaq nor shall (x) the Parent have received any notice or communication from Nasdaq noting noncompliance with listing requirements or threatening suspension or delisting of the Parent Common Stock or (y) the Parent fails to meet any of the continued listing requirements applicable to it in order to be in compliance with all such listing and maintenance requirements; (H) the transactions referenced in Section 6.03(f) of the Merger Agreement have been consummated or terminated; and (I) Empire shall have received each of the agreements, instruments, and other documents set forth in Section 1.11(a) of the Merger Agreement.
Indemnification; Limits
Pursuant to Article VIII of the Merger Agreement, and subject to the limitations set forth therein from the date that is twelve (12) months after the Closing, each Party agreed to indemnify and hold harmless the other party for any all Damages incurred or suffered as a result of (a) any inaccuracy in or breach of any representation or warranty or in any certificate or instrument delivered pursuant to the Merger Agreement and (b) any breach of any covenant or agreement of such Party as set forth in the Merger Agreement. Section 8.04(a) of the Merger Agreement (i) limits Empire’s ability to assert claims for Damages against the Parent unless and until the aggregate amount of all such Damages exceeds $250,000 (the “Parent Threshold”) and (ii) caps Parent’s liability for any indemnification payments at $500,000 (the “Parent Cap”).
Section 8.04(b) of the Merger Agreement limits the Parent’s ability to assert claims for Damages against Empire unless and until the aggregate amount of all such Damages exceeds $250,000 (the “Empire Threshold”). Notwithstanding anything in the Merger Agreement to the contrary, the Parent Threshold, the Parent Cap and the Empire Threshold shall not apply to Damages that arise from, relate to or are accrued, suffered or incurred as a result of claims relating to fraud or intentional misrepresentation.
Except for claims relating to fraud or intentional misrepresentation, the sole remedy of the Parent under the Merger Agreement shall be the Escrow Shares held pursuant to the Escrow Agreement (discussed below).
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Termination
The Merger Agreement may be terminated and the transactions therein may be abandoned: (A) by mutual written consent of the Parties; (B) by the Parent or Empire (i) within sixty (60) days from the Execution Date as a result of the terminating Party’s due diligence review of the other Party, (ii) at any time before the Effective Time if the Closing has not occurred on or before the date that is nine (9) months from the Execution Date (the “Termination Date”), (iii) at any time before the Effective Time the Parent fails to obtain the vote required to pass the proposals presented at the Parent Stockholders Meeting, (iv) at any time before the Effective Time if Empire fails to obtain the vote required to pass the proposals presented at the special meeting of Empire’s stockholders as set forth in the Merger Agreement (the “Empire Stockholder Meeting”), or (v) at any time before the Effective Time if any Law or Order is enacted, issued, promulgated or entered by a Governmental Authority of competent jurisdiction (including Nasdaq) that permanently enjoins, or otherwise prohibits the consummation of the Transactions, and (in the case of any Order) such Order has become final and non-appealable; (C) by Empire if, among other things, (i) there has been a Parent Adverse Recommendation Change (as defined in the Merger Agreement), (ii) if the Board recommends a Superior Proposal (as defined in the Merger Agreement) to the Parent Stockholders or if a tender offer, exchange offer, or other transaction for any outstanding shares of the Parent’s capital stock is commenced before obtaining the required vote at the Parent Stockholders Meeting and if the Board fails to recommend against any such Superior Proposal within ten (10) Business Days after commencement; (iii) if there is a material breach of Section 5.05 of the Merger Agreement, (iv) if the Parent or any of its subsidiaries breach any of its representations, warranties, covenants or agreements in the Merger Agreement, subject to Parent’s ability to cure such breach within the timeframe set forth in the Merger Agreement, (v) if the obligations in Section 6.01 and 6.02 of the Merger Agreement have been satisfied and the Parent has failed to fulfill its respective obligations and consummate the Closing within three (3) Business Days following written notice that Empire is willing and able to consummate the Closing, (iv) the Parent fails to pass the proposals at the Parent Stockholders Meeting by the Termination Date solely due to the action or inaction of the Parent and such action or inaction constitutes a material breach of the Merger Agreement, or (vii) if Empire’s board of directors approves termination and Empire has concurrently with such termination entered into a definitive agreement, arrangement or understanding providing for the implementation of a Superior Proposal (Parent) (as defined in the Merger Agreement); or (D) by the Parent if, among other things, (i) Empire breaches any of its representations, warranties, covenants or agreements contained in the Merger Agreement, subject to Empire’s ability to cure such breach within the timeframe set forth in the Merger Agreement, (ii) if the obligations in Section 6.01 and 6.02 of the Merger Agreement have been satisfied and Empire has failed to fulfill its respective obligations and consummate the Closing within three (3) Business Days following written notice that Empire is willing and able to consummate the Closing; (iii) if Empire fails to pass the proposals presented at the Empire Stockholder Meeting by the Termination Date, or (iv) if the Board approves termination and the Parent has concurrently with such termination entered into a definitive agreement, arrangement or understanding providing for the implementation of a Superior Proposal (Parent) (as defined in the Merger Agreement).
Ancillary Agreements to Merger Agreement
Voting and Support Agreements
Within 30 days of the Execution Date, the Parent agreed to deliver the written agreement of certain directors and executive officers and certain Parent Stockholders holding at least 51% of the voting power of Parent Common Stock (the “Relevant Parent Insiders”), to enter into, in their capacity as stockholders, a voting and support agreement with the Parent, Empire and Merger Sub (the “Parent Voting and Support Agreement”), pursuant to which such Relevant Parent Insiders agree to vote in favor of the adoption of the Merger Agreement and the Transactions and to take (and refrain from taking) certain other actions in connection with the Transactions, including the Merger, in each case, on the terms set forth in the Parent Voting and Support Agreement.
Within 30 days of the Execution Date, Empire agreed to deliver the written agreement of certain directors, executive officers and certain Empire Stockholders holding at least 51% of the voting power of shares of Empire Common Stock (the “Relevant Empire Insiders”), to enter into, in their capacity as stockholders, a voting and support agreement with Empire, the Parent and Merger Sub (the “Empire Voting and Support Agreement”), pursuant to which the Relevant Empire Insiders agree to vote in favor of the adoption of the Merger Agreement and the Transactions and to take (and refrain from taking) certain other actions in connection with the Transactions, including the Merger, in each case, on the terms set forth in the Empire Voting and Support Agreement.
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Lock-Up Agreements
As a condition to the Parent’s obligations to consummate the Transactions, at Closing, one or more Empire Stockholders representing, individually or collectively, such number of shares of Empire Common Stock that represent not less than 65% of the issued and outstanding shares of Empire Common Stock, in the aggregate, on a fully diluted and as-converted basis, shall enter into a lock-up agreement (the “Lock-Up Agreement”) whereby such Empire Stockholders agree to a lock-up of their respective Consideration Shares for a period of 12 months following the Closing.
As a condition to Empire’s obligations to consummate the Transactions, at or prior to Closing, the Parent shall cause the lock-up period contained in the lock-up agreement dated August 1, 2022 by and between the Parent and JBAH Holdings, LLC to be amended or extended to February 1, 2025 (the “Lock-Up Extension”).
Escrow Agreement and Escrow Shares
The Parties agreed to enter into an Escrow Agreement (the “Escrow Agreement”), pursuant to which certain of the Empire Stockholders (the “Indemnifying Empire Stockholders”) are to deposit with the Escrow Agent, at Closing, an aggregate of 5,040,000 Consideration Shares otherwise issuable to such Indemnifying Empire Stockholders (the “Escrow Shares”) as security for the obligations of the Parent, its members, shareholders, partners, managers, directors, officers, employees and agents, and its and their respective Affiliates (including, after the Closing, the Surviving Company), successors and permitted assigns (each, an “Indemnified Acquiror” and together, the “Indemnified Acquirors”). The Escrow Agreement shall become effective on the Closing Date and terminate on the 12-month anniversary thereof (the “Escrow Termination Date”). On the Escrow Termination Date, any Escrow Shares not previously released or distributed to cover the obligations of the Indemnified Acquirors as set forth in the Merger Agreement shall be released to the Indemnifying Empire Stockholders.
The foregoing descriptions of the Merger Agreement, the Parent Voting and Support Agreement, the Empire Voting and Support Agreement, the Lock-Up Agreement and the Escrow Agreement do not purport to be complete and are qualified their entirety by reference to the Merger Agreement, the form of Parent Voting and Support Agreement, the form of Empire Voting and Support Agreement, the form of Lock-Up Agreement and the form of Escrow Agreement attached to our Current Report on Form 8-K as Exhibits 2.1, 10.1, 10.2, 10.3 and 10.4, respectively, filed with the SEC on March 1, 2024.
Promissory Note
On December 5, 2023, the Company received a loan from an individual lender in the principal amount of one million dollars ($1,000,000) (the “Loan”) and, in connection therewith, the Company and agreed to issue 100,000 restricted shares of the Company’s common stock. The Loan bears interest at the rate of 10% per annum, matures on December 31, 2024, has been personally guaranteed by James Ballengee, the Company’s Chief Executive Officer. The lender is not a related party or affiliate of the Company. On April 8, 2024, we executed an amended and restated convertible promissory note for the original promissory note (the “Amended Note”). The convertible promissory note replaces the original note, but maintains the same interest rate and maturity date of the Original Note, and the obligation to issue 100,000 shares of the Company’s restricted stock remains in effect. Pursuant to the terms of the Amended Note the holder can convert the outstanding principal and interest due under the Amended Note into shares of our common stock at price equal to 90% of the average closing price of the Company’s common stock for the previous three (3) trading days prior to the conversion date, with a floor conversion price of $0.75 per share. The holder may not convert amounts owed under the Amended Note if such conversion would cause him to own more than 4.99% of our common stock after giving effect to the issuance, which limitation may be raised to 9.99% upon no less than 61 days’ notice to us regarding his desire to increase the conversion limitation percentage. In May 2024, the lender converted all outstanding amounts ($1,048,493) into 903,095 shares of common stock at approximately $1.161 per share.
The foregoing is only a brief description of the material terms of and does not purport to be a complete description of the rights and obligations of the parties to the agreement in connection with the Loan (the “Loan Agreement”), and such description is qualified in its entirety by reference to the full text of the Agreement, which is attached hereto as Exhibit 10.13.
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Acquisition Agreement with Endeavor
Membership Interest Purchase Agreement
Effective March 21, 2024 (the “Execution Date”), Vivakor, Inc., (the “Company” or “Purchaser”) entered into a Membership Interest Purchase Agreement, a copy of which is filed herewith as Exhibit 2.2 (the “Endeavor MIPA”) and incorporated by reference herein, with Jorgan Development, LLC, a Louisiana limited liability company (“Jorgan”) and JBAH Holdings, LLC, a Texas limited liability company (“JBAH” and, together with Jorgan, the “Sellers”), as the equity holders of Endeavor Crude, LLC (f/k/a Meridian Transport, LLC), a Texas limited liability company (“Endeavor”), Equipment Transport, LLC, a Pennsylvania limited liability company (“ET”), Meridian Equipment Leasing, LLC, a Texas limited liability company (“MEL”), and Silver Fuels Processing, LLC, a Texas limited liability company (“SFP” and, together with Endeavor, ET, and MEL, the “Acquirees”) whereby, at closing, subject to the conditions set forth in the Endeavor MIPA, the Company will acquire all of the issued and outstanding membership interests in each of the Acquirees (the “Membership Interests”) making Endeavor, ET, MEL and SFP wholly owned subsidiaries of the Company. The purchase price for the Membership Interests is $120 million (the “Purchase Price”), subject to post-closing adjustments, payable by the Company in a combination of Company common stock, $0.001 par value per share (“Common Stock”) and Company Series A Preferred Stock $0.001 par value per share (“Preferred Stock”). The Preferred Stock will have the terms set forth in the Form of Series A Preferred Stock Certificate of Designations filed herewith as Exhibit 3.2 and incorporated by reference herein, including, but not limited to, the payment of a cumulative six percent (6%) annual dividend per share payable quarterly in arrears and conversion rights following the first anniversary of their issuance at a price of one dollar ($1) per share of Common Stock. The Sellers are beneficially owned by James Ballengee, the Company’s chairman, chief executive officer and principal shareholder. At a meeting held on March 20, 2024, the Company’s board of directors authorized and approved the Endeavor MIPA and the transactions contemplated thereby. Mr. Ballengee recused himself from the vote. On October 1, 2024, Jorgan Development, LLC, a Louisiana limited liability company (“Jorgan”) and JBAH Holdings, LLC, a Texas limited liability company (“JBAH” and, together with Jorgan, the “Sellers”), as the equity holders of Endeavor Crude, LLC, a Texas limited liability company, Equipment Transport, LLC, a Pennsylvania limited liability company, Meridian Equipment Leasing, LLC, a Texas limited liability company, and Silver Fuels Processing, LLC, a Texas limited liability company (collectively, the “Endeavor Entities”) closed the transactions that were the subject of the previously-disclosed Membership Interest Purchase Agreement among them dated March 21, 2024, as amended (the “MIPA”) (the “Closing”). In accordance with the terms of the MIPA, at the Closing, the Company acquired all of the issued and outstanding membership interests in each of the Endeavor Entities (the “Membership Interests”), making them wholly-owned subsidiaries of the Company.
The Endeavor Entities own and operate a combined fleet of more than 500 commercial tractors and trailers for the hauling of crude oil and produced water. On a daily basis, the trucking fleet hauls approximately 60,000 barrels of crude oil, tank bottoms, and petroleum wastes, and approximately 30,000 barrels of produced water. In addition, the Endeavor Entities own and operate a crude oil shuttle pipeline and exclusive connected blending and processing facility in Blaine County, Oklahoma.
The purchase price for the Membership Interests is $120 million (the “Purchase Price”), subject to post-closing adjustments, including assumed debt and an earn-out adjustment, payable by the Company in a combination of Company common stock, $0.001 par value per share (“Common Stock”) and Company Series A Preferred Stock $0.001 par value per share (“Preferred Stock”). The Preferred Stock will have the terms set forth in the Series A Preferred Stock Certificate of Designations, including, but not limited to, liquidation preference over the Common Stock, the payment of a cumulative six percent (6%) annual dividend per share payable quarterly in arrears in shares of Common Stock (so long as such issuances of Common Stock would not result in the Sellers beneficially owning greater than 49.99% of the issued and outstanding Common Stock), and the Company having the right to convert the Preferred Stock at any time using the stated value of $1,000 per share of Preferred Stock and the conversion price of one dollar ($1) per share of Common Stock. The Sellers are beneficially owned by James Ballengee, the Company’s chief executive officer and principal shareholder. The Company is currently still calculating the reduction in the Purchase Price as a result of Endeavor Entities debt that the Company assumed at Closing.
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As a result of the Closing, the Company will issue to the Sellers, (i) a number of shares of Common Stock equal to an undivided nineteen and ninety-nine hundredths percent (19.99%) of all of the Company’s issued and outstanding Common Stock immediately prior to Closing, or a lesser percentage, if such issuance would result, when taking into consideration the percentage of Common Stock owned by Sellers prior to such issuance, in Sellers owning in excess of 49.99% of the Common Stock issued and outstanding on a post-Closing basis, with such shares of Common Stock valued at $1.00 per share (the “Common Stock Consideration”), and (ii) a number of shares of Preferred Stock equal to the Purchase Price, less the value of the Common Stock Consideration (the “Preferred Stock Consideration”). Sellers will entered into 18-month lock-up agreements at Closing, with regard to the Common Stock Consideration and any Common Stock they receive during the lock-up period in connection with conversions of Preferred Stock or the payment of dividends on the Preferred Stock.
The foregoing descriptions of the Endeavor MIPA and the related Exhibits do not purport to be complete and are subject to, and qualified by, the full text of the Endeavor MIPA and the Exhibits, copies of which are filed as Exhibits 2.2, 3.2, 10.10, 10.11 and 10.12 hereto and incorporated herein by reference.
Results of Operations for the Three and nine months ended September 30, 2024 and 2023
Revenue
For the three months ended September 30, 2024 and 2023 we realized revenues of $15,916,423 and $16,313,406, respectively, representing a decrease of $396,983 or 2.43%. For the nine months ended September 30, 2024 and 2023 we realized revenues of $48,118,936 and $45,448,916, respectively, representing an increase of $2,670,020 or 5.87%. The increase in revenue is primarily attributed to an average increase in crude oil product volumes purchased and sold for our oil and natural gas liquid products since September 30, 2023.
Cost of Revenue
For the three and nine months ended September 30, 2024, our cost of revenues consisted primarily of costs associated with selling oil and natural gas liquid through the operations from our business in SFD and WCCC.
For the three months ended September 30, 2024 and 2023, costs of revenue were $14,190,073 and $14,766,494, respectively, representing a decrease of $576,421 or 3.90%. For the nine months ended September 30, 2024 and 2023, costs of revenue were $44,213,635 and $41,174,082, respectively, representing an increase of $3,039,553 or 7.38%. The increase in cost of revenues is primarily attributed to an average increase in market prices and the Company increased its crude oil product volumes purchases for our oil and natural gas liquid inventory purchases since September 30, 2023.
Gross Profit and Gross Margin
For the three months ended September 30, 2024 and 2023 we realized gross profit of $1,726,350 and $1,546,912, respectively, representing a decrease of $179,438 or 11,60%. For the nine months ended September 30, 2024 and 2023 we realized gross profit of $3,905,301 and $4,274,834, respectively, representing a decrease of $369,533 or 8.64%. The decrease in gross profit is related net effect of an average increase in market and transportation costs for oil purchases and an increase in crude oil product volumes purchased and sold of our oil and natural gas liquid products.
Operating Expenses
For the three months ended September 30, 2024 and 2023, we realized operating expenses of $3,684,987 and $2,292,026, which represents an increase of $1,392,961, or 60.77%. For the nine months ended September 30, 2024 and 2023, we realized operating expenses of $10,333,274 and $6,982,754, which represents an increase of $3,350,520, or 47.98%. The increase in operating expenses is attributed to the net effect of new executive employment and board of director agreements, which increased employee compensation expense by approximately $1 million, including stock compensation expense related to new or renewed executive employment and board of director agreements, which issued immediate and vesting stock awards of approximately $650,000, amortization expense of approximately $800,000 related to lease accounting interest, and increased professional services of approximately $1 million related to merger, acquisition, and corporate governance services.
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Interest Expense
For the three months ended September 30, 2024 and 2023, we realized total interest expense of $641,244 and $1,345,096, which represents a decrease of $703,852, or 52.33%. For the nine months ended September 30, 2024 and 2023, we realized interest expense of $1,565,231 and $3,814,253, which represents a decrease of $2,249,022, or 58.96%. The decrease in interest expense is mainly attributable to our amendment of our note issued as consideration in the MIPA approved by the shareholders on November 10, 2023. As the amendment was accounted for as a troubled debt restructuring under ASC 470 – Debt (“ASC 470”), the note was thus written to the amount of the undiscounted future cash flows on the note to maturity, and therefore no interest expense is realized for the remainder of the note to maturity.
Unrealized Loss on Marketable Securities
For the three months ended September 30, 2024 and 2023, we reported an unrealized gain of $826,377 and an unrealized loss of $661,101, which represents an increase of $1,487,478, or 225%. For the nine months ended September 30, 2024 and 2023, we reported an unrealized gain of $743,739 and an unrealized loss of $991,652, which represents an increase of $1,735,391, or 175%. Our marketable securities were considered to be traded on an active market and were accounted for at a fair value based on the quoted prices in the active markets resulting in aggregate unrealized gains or losses as noted above.
Gain on Deconsolidation of Subsidiary
In accordance with ASC 810, as of February 15, 2024, we deconsolidated VivaSphere, Inc. (VivaSphere), recognizing a gain on deconsolidation of $177,550. The assets, liabilities, and equity related to VivaSphere was removed from our financial statements (Note 1), resulting in a gain on deconsolidation.
Cash flows
The following table sets forth the primary sources and uses of cash and cash equivalents for the nine months ended September 30, 2024 and 2023 as presented below:
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Net cash provided (used) in operating activities | $ | 165,359 | $ | (838,693 | ) | |||
| Net cash used in investing activities | (2,362,898 | ) | (3,841,589 | ) | ||||
| Net cash provided by financing activities | 2,140,404 | 2,696,586 | ||||||
Liquidity and Capital Resources
We have historically suffered net losses and cumulative negative cash flows from operations, and as of September 30, 2024, we had an accumulated deficit of approximately $72.8 million. As of September 30, 2024 and 2023, we had a working capital deficit of approximately $42.5 million and $19 million, respectively. As of September 30, 2024, we had cash of approximately $687 thousand. As of September 30, 2024, we have current obligations to pay approximately $24.8 million of debt. Of the $24.8 million, $13.8 million can be satisfied through the issuance of registered common stock under the terms of the debt. Approximately $13 million ($9.1 million of unearned revenue $3.9 million in accounts payable (Note 5)) is related to the sale leaseback of our Remediation Processing Unit A & B, wash plant facilities, and our White Claw Colorado City site pipeline extension. Once construction is completed of these sites, of the $13 million approximately $7.1 million will be financed over eight years and $3.9 million (Note 7) will be financed over four years. These conditions raise substantial doubt about the Company’s ability to continue as a going concern
As of September 30, 2024 and December 31, 2023, we had cash and cash equivalents of $687,172 and $744,307, respectively.
During the nine months ended September 30, 2024, subject to available cash flows, we continued to develop our technologies, strategy to monetize our intellectual properties and execute our business plan. To date we have financed our operations primarily through debt financing, private and public equity offerings and our working interest agreements. For the fiscal year 2023 we raised approximately $3 million through debt financings with individual investors, $2.2 million through a sale lease back agreement. During the nine months ended September 30, 2024, we raised an additional $4.7 million through debt financings and $1.4 million through the sale of common stock.
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For the nine months ended September 30, 2024 and 2023, our net cash used in operating activities was mainly comprised of net effect of the consolidated net loss of $6,983,978 and $7,391,089, and our depreciation and amortization of $3,062,416 and $2,269,445. For the nine months ended September 30, 2024 and 2023, stock-based compensation of $1,626,409 and $1,260,476 in lieu of using cash. We also realized interest expense on loans and notes payable of $1,115,347 and $3,058,522, an (increase) decrease in accounts receivable of $1,753,918 and ($442,307), and as increase (decrease) in accounts payable and accrued expenses of $1,184,103 and ($929,360).
For the nine months ended September 30, 2024 and 2023, our net cash used in investing activities was mainly attributed to our purchase of equipment of $2,362,898 and $3,841,589 related to the manufacturing of our RPC, wash plant facilities, and a White Claw Colorado City site extension on our pipeline.
Our net cash provided by our financing activities was mainly attributed to the net effect of the following events:
For the nine months ended September 30, 2024 and 2023, we received proceeds of $4,669,459 and $4,499,958 related to the issuance of notes and other loans of which$1,304,150 and $776,500 were from related parties. For the nine months ended September 30, 2024 and 2023, we received proceeds from the sale of common stock of $1,425,000 and none. For the nine months ended September 30, 2024 and 2023, we paid down notes payable and lease liabilities by $3,954,055 and $782,808, of which $2,150,537 and 482,815 were to related parties. For the nine months ended September 30, 2023, we made distributions to Viva Wealth Fund I, LLC (which was deconsolidated later on October 1, 2023) unit holders of $1,020,564.
Capitalized interest on construction in process was $1,015,402 and $735,919 for the nine months ended September 30, 2024 and 2023. There are no further existing firm obligations; however, we anticipate further construction costs of approximately $1.5 million in connection with our construction of our Texas remediation and wash plant facilities; and construction for each Nanosponge costs approximately $200,000, and we intend to manufacture and add a Nanosponge to our current and future RPCs.
Our ability to continue to access capital could be affected adversely by various factors, including general market and other economic conditions, interest rates, the perception of our potential future earnings and cash distributions, any unwillingness on the part of lenders to make loans to us and any deterioration in the financial position of lenders that might make them unable to meet their obligations to us. If we cannot raise capital through public or private debt financings, equity offerings, or other means, our ability to grow our business may be negatively affected. In such case, we may need to suspend site and plant construction or further acquisitions until market conditions improve.
Contractual Obligations
Our contractual obligations as of September 30, 2024 for finance lease liabilities are for the sale and leaseback of certain land, property, plant, and equipment that were acquired in the closing of our business combination, which acquired SFD and WCCC on August 1, 2022, which leases end in 2025 and 2026. Finance lease obligations as of September 30, 2024 are as follows:
| 2024 | $ | 240,975 | ||
| 2025 | 594,792 | |||
| 2026 | 471,756 | |||
| Total | $ | 1,307,523 |
On August 9, 2024, our subsidiary White Claw Colorado City, LLC (“WCCC”), entered into a supplement (“Supplement No. 4”) to an existing Master Agreement (the “Master Agreement”) with Maxus Capital Group, LLC (“Maxus”). Under Supplement No. 4, Maxus agreed to finance approximately $2.1 million for the build-out of certain equipment and facilities related to a pipeline extension at our WCCC facility in Texas. Once the relevant equipment is constructed Maxus will own the addition and we will lease these additions from Maxus under the terms of Supplement No. 4. Under the terms of the lease, we expect our lease payments to Maxus to be approximately $32,161 per month over four years, with an early buyout option or option at the end of the base term to purchase the wash plant equipment for approximately $374,702 or lease-end option to purchase the facilities for the fair market value. We anticipate that the lease will commence in the first quarter of 2025.
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On June 18, 2024, our subsidiary WCCC, entered into a supplement (“Supplement No. 3”) to an existing Master Agreement (the “Master Agreement”) with Maxus. Under Supplement No. 3, Maxus agreed to finance approximately $1 million for the build-out of certain equipment and facilities related to the wash plant we are in the process of constructing on land leased by our subsidiary, VivaVentures Remediation Corp., in Houston, Texas. Once the relevant equipment is constructed Maxus will own the equipment and we will lease these additions to our wash plant facility from Maxus under the terms of Supplement No. 3. Under the terms of the lease, we expect our lease payments to Maxus to be approximately $58,595 per month over four years, with an early buyout option or option at the end of the base term to purchase the wash plant equipment for approximately $683,000 or lease-end option to purchase the facilities for the fair market value. We anticipate that the lease will commence in the first quarter of 2025.
On May 23, 2023 we entered into a supplement (“Supplement No. 2”) to the Master Agreement Maxus, under which Maxus funded approximately $2.2 million to finance the build-out of other Houston wash plant equipment additions, which such lease was anticipated to commence in the second quarter of 2024. As of September 30, 2024, we anticipate that this lease will now commence in the first quarter of 2025. Under the terms of this lease, we expect our lease payments to Maxus under the supplement to be approximately $57,962 per month over four years, with an early buyout option of approximately $685,000 or lease-end option to purchase the facilities for the fair market value.
Because we were involved in the construction of the wash plant and the Texas pipeline extension, and were responsible for paying a portion of the construction costs, we evaluated the control criteria in ‘build to suit’ lease accounting guidance under GAAP ASC 842 (Leases) where the Company was deemed, for accounting purposes, to have control of the wash plant and pipeline extension during the construction period. Accordingly, the Company recorded project construction costs incurred during the construction period for the wash plant and pipeline extension incurred by the landlord as a construction-in-process asset and a related financing obligation on our consolidated balance sheets. The total of the projects’ construction costs have been capitalized and recorded to construction-in-process within ‘Property and equipment, net’. The total $3.9 million of construction costs funded by Maxus have been recorded as a component of ‘Accounts payable and accrued expenses.
Our contractual obligations as of September 30, 2024 for operating lease liabilities are for office and warehouse space, which leases end in 2024 and 2025, and a land lease which ends in 2042. Operating lease obligations as of September 30, 2024 are as follows:
| 2024 | $ | 51,307 | ||
| 2025 | 162,545 | |||
| 2026 | 136,975 | |||
| 2027 | 153,089 | |||
| 2028 | 143,237 | |||
| Thereafter | 2,921,733 | |||
| Total | $ | 3,568,885 |
Interest Rate and Market Risk
Interest rate risk is the potential for reduced net interest income and other rate-sensitive income resulting from adverse changes in the level of interest rates. We do not have variable interest rate-sensitive income agreements. We do have financing arrangements that were issued on August 1, 2022 as consideration for the business combination and acquisition of SFD and WCCC, in which the three year notes have variable interest rates based on the prime rate, which exposes us to further interest expense if the prime rate increases.
Market Risk - Equity Investments
Market risk is the potential for loss arising from adverse changes in the fair value of fixed-income securities, equity securities, other earning assets, and derivative financial instruments as a result of changes in interest rates or other factors. We own equity securities that are publicly traded. Because the fair value of these securities may fall below the cost at which we acquired them, we are exposed to the possibility of loss. Equity investments are approved, monitored, and evaluated by members of management.
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Inflation
Prolonged periods of slow growth, significant inflationary pressures, volatility and disruption in financial markets, could lead to increased costs of doing business. Inflation generally will cause suppliers to increase their rates, and inflation may also increase employee salaries and benefits. In connection with such rate increases, we may or may not be able to increase our pricing to consumers. Inflation could cause both our investment and cost of revenue to increase, thereby lowering our return on investment and depressing our gross margins.
Off Balance Sheet Arrangements
None.
Critical Accounting Policies & Use of Estimates
There have been no material changes to our critical accounting policies and the use of estimates from these disclosures reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the SEC on April 17, 2024.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As a smaller reporting company, we are not required to provide the information required by this Item.
Item 4. Controls and Procedures
The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, refers to controls and procedures that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact there are resource constraints and management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Our management, with the participation of our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer), evaluated the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
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Based on management’s evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as a result of the material weaknesses described below, as of September 30, 2024, our disclosure controls and procedures are not designed at a reasonable assurance level and are ineffective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The material weaknesses, which relate to internal control over financial reporting, that were identified are: (1) We did not have enough personnel in our accounting and financial reporting functions. Due to insufficient personnel in our accounting department, we were not able to achieve adequate segregation of duties, and, as a result, we did not have adequate review controls surrounding: (i) our technical accounting matters in our financial reporting process, and (ii) the work of specialists involved in the estimation process. (2) Due to new relationships with a small banking institution and consultants in 2023, we were not able to achieve adequate controls surrounding the review and dual authorization of certain treasury transactions and fixed assets. (3) We did not always follow certain review and authorization procedures related to corporate governance and the release of information to the public. After failing to adhere to certain corporate governance administrative procedures, we did not achieve adequate review at the executive or independent Board of Director level over certain accounting and risk assessments or the timely reporting of material transactions. We also did not achieve adequate review of certain public reports and disclosures prior to the public disclosure of the information. These control deficiencies, which are pervasive in nature, result in a reasonable possibility that material misstatements of the financial statements will not be prevented or detected on a timely basis. Management believes that the hiring of additional personnel who have the technical expertise and knowledge will result in both proper drafting, review, authorization, recording and reporting of these transactions. Since our assessment as of September 30, 2024, we have continued to hire additional experienced executives, and we are working to retain additional qualified valuation experts that report on their internal controls. We have also implemented further review controls and processes surrounding treasury and fixed assets, and the Audit Committee is reviewing the material weaknesses, and will be making recommendations to the Company on implementing further internal controls to assist the Company to adhere to its corporate review, authorization, and reporting policies.
We will continue to monitor and evaluate the effectiveness of our disclosure controls and procedures and our internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.
Changes in Internal Control Over Financial Reporting
As noted above, we continue to contract with additional external accounting staff in order to attempt to remediate our material weaknesses. Such changes include multiple additional reviewers of financial information before it is submitted for filing with the SEC. We have also instituted further internal controls surrounding treasury, so that proper dual authorization is required by our banking institutions to process capital expenditures in 2024. There were no other changes in our internal controls identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 under the Exchange Act that occurred during the three months ended September 30, 2024 that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may become involved in various legal actions that arise in the normal course of business. We intend to defend vigorously against any future claims and litigation. We are not currently involved in any material disputes and do not have any material litigation matters pending.
ITEM 1A. RISK FACTORS
Our business, financial condition, results of operations, and cash flows may be impacted by a number of factors, many of which are beyond our control, including those set forth in our most recent Annual Report on Form 10-K and in our other filings with the SEC, the occurrence of any one of which could have a material adverse effect on our actual results. There have been no material changes to the Risk Factors previously disclosed in our Annual Report on Form 10-K and our other filings with the SEC, except as follows:
On October 1, 2024, we closed the acquisition of the Endeavor Entities. We are in the process of integrating their operations and personnel with our own. If we are unable to complete this transition timely and effectively it could adversely affect our operations.
We are in the process of integrating the Endeavor Entities personnel and operations into our operations since we close the acquisition on October 1, 2024. Due to the size of the acquisition, we anticipate this transition will take some time. If we are not able to effectively and timely complete this transition it could adversely affect our operations.
The required Final Closing Statement for our acquisition of the Endeavor Entities has not been completed. We have also not completed the final purchase price accounting for the acquisition. Once these are completed, they may differ from our pre-closing expectations, which if they differ significantly could materially affect our business and financial results.
Under the Endeavor MIPA (as defined herein), the Endeavor Entities do not need to deliver certain final documents to us until after closing, such as the Final Closing Statement, which is due 60 days after closing. Additionally, our final purchase price accounting for the acquisition is not due until September 30, 2025, and is subject to a full valuation report. Once completed, if the results differ significantly from our pre-closing expectations, it may materially impact our business and financial results.
Prior to our acquisition of the Endeavor Entities, they were private companies and, as a result, they did not have the same audit and review of financial statements requirements that we have, and their disclosure controls and procedures processes for financial reporting were not the same as a reporting, public company. We anticipate we will have additional material weaknesses in our disclosure controls and procedures over financial reporting during the time that we integrate their financial reporting processes with our financial reporting processes.
As private companies the Endeavor Entities did not have the same requirements for audited and reviewed financial statements that we do as a public company reporting under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As a result, the methods the Endeavor Entities used to prepare their financial statements, as well as the disclosure controls and procedures they had in place around the preparation of such financial statements, may not have been as stringent as the requirements we have as a public company reporting under the Exchange Act. If this is the case, then we may have additional material weaknesses in our disclosure controls and procedures over financial reporting during the time we integrate their financial reporting processes with our financial reporting processes.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following sets forth information regarding all unregistered securities sold by us in transactions that were exempt from the requirements of the Securities Act. Except where noted, all of the securities discussed in this Item 2 were all issued in reliance on the exemption under Section 4(a)(2) of the Securities Act.
As part of the compensation the Company owes Patrick Knapp’s under his Employment Agreement, Mr. Knapp received a one-time signing grant of Company common stock equivalent in value to $250,000, which are priced per share based on the volume-weighted average price for the preceding five (5) trading days prior to the day of such grant (calculated to be 140,190 shares based on the effective date of the Knapp Agreement), subject to an eighteen (18)-month lockup period and a conditional clawback obligation concurrent therewith, which shall be granted within thirty (30) days after the Start Date, as defined therein.
On July 8, 2024, Vivakor, Inc. received a loan from a non-affiliated individual lender in the principal amount of Three Hundred Fifty Thousand Dollars ($350,000) (the “First Loan”) and, in connection therewith, the Company agreed to issue 15,982 restricted shares of the Company’s common stock. The First Loan bears interest at the rate of 10% per annum, matures on December 31, 2024, with all unconverted principal due on the maturity date and interest payable monthly on the last day of the month after the month in which the interest accrued. The Company issued a promissory note dated July 5, 2024 in connection with the First Loan (the “First Note”). The First Note allows the holder to convert the outstanding principal and interest due under the First Note into shares of our common stock at price equal to 90% of the average closing price of our common stock for the previous five (5) trading days prior to the conversion date, with a floor conversion price of $1.00 per share. The lender may not convert amounts owed under the First Note if such conversion would cause him to own more than 4.99% of our common stock after giving effect to the issuance, which limitation may be raised to 9.99% upon no less than 61 days’ notice to us regarding his desire to increase the conversion limitation percentage. The Company will issue the 15,982 shares in the near future.
On July 5, 2024, the Company received a loan from Ballengee Holdings, LLC, an entity controlled by James Ballengee, the Company’s Chairman, President, and Chief Executive Officer, in the principal amount of Five Hundred Thousand Dollars ($500,000) (the “BH Loan”) and, in connection therewith, the Company agreed to issue 21,552 restricted shares of the Company’s common stock. The BH Loan bears interest at the rate of 10% per annum, matures on December 31, 2024, with all unconverted principal due on the maturity date and all unconverted interest payable monthly on the last day of the month after the month in which the interest accrued. The Company issued a promissory note dated July 9, 2024 in connection with the BH Loan (the “BH Note”). The BH Note allows the holder to convert the outstanding principal and interest due under the BH Note into shares of our common stock at price equal to 90% of the average closing price of our common stock for the previous five (5) trading days prior to the conversion date, with a floor conversion price of $1.00 per share. The lender may not convert amounts owed under the BH Note if such conversion would cause him to own more than 4.99% of our common stock after giving effect to the issuance, which limitation may be raised to 9.99% upon no less than 61 days’ notice to us regarding his desire to increase the conversion limitation percentage. The Company will issue the 21,552 shares in the near future.
On July 5, 2024, the Company entered into a Consulting Agreement with 395 Group, LLC, a Nevada limited liability company (“395”), under which 395 agreed to provide the Company with general advisory and business development services. Specifically, 395 agreed to advise the Company for the next four (4) months regarding capitalization, business development, business relationships, industry guidance, and assist with understanding what is happening in the Company’s market space. In exchange for 395’s services, the Company agreed to pay total cash compensation of $340,000 and equity compensation of 50,000 shares of the Company’s restricted common stock, with one-half of the cash compensation and all the equity compensation due upon signing of the agreement and the other half of the cash compensation due in thirty (30) days. The 50,000 shares of common stock will be issued in the near future.
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On July 26, 2024, the Company entered into that certain Securities Purchase Agreement and Strata Purchase Agreement (the “ClearThink Agreements”) with ClearThink Capital Partners, LLC. Under the terms of the ClearThink Agreements, the Company agreed to issue ClearThink Capital (i) 67,568 shares of common stock in exchange for $125,000 upon the entry into the relevant term sheet (ii) 67,568 shares of common stock upon filing of the relevant S-1 Registration Statement, and (iii) 150,000 shares of common stock upon entry of the Strata Purchase Agreement. As a result, the Company has issued 217,568 to ClearThink.
On July 26, 2024, the Company entered into a Securities Purchase Agreement with James K. Granger (the “SPA” and “Granger”, respectively), under which Granger, or an entity he controls, purchased 1,600,000 common shares of the Company’s stock for $800,000, at a price of $0.50 per common share. Pursuant to the SPA, the shares issued to Granger will be subject to Rule 144 restrictions. Granger funded the purchase price in cash to the Company on July 31, 2024.
On August 22, 2024, we entered into a new executive employment agreement with our Vice President, Marketing. Pursuant to the new employment agreement, our Vice President, Marketing will receive $200,000 annually (the “Base Salary”), which after the first annual anniversary the Base Salary may increase to $350,000 contingent upon the Company achieving net profitability of $500,000 of all commodity trades by the Vice President, Marketing. In addition, the employment agreement provides for annual incentive cash and equity compensation of up to $440,000 based on certain performance goals as further set forth therein. As an inducement to enter into the executive employment agreement, the Vice President, Marketing is entitled to receive a one-time signing grant of Company common stock equivalent in value to $150,000, which are priced per share based on the closing price on the day of such grant (calculated to be 71,090 shares based on the effective date of the executive employment agreement). The signing bonus has not been issued and is due not later than thirty (30) calendar days after we file an amended Registration Statement on Form S-8 with the Securities and Exchange Commission registering shares under a Long-Term Incentive Plan (“LTIP”), and the shares will only vest as set forth in the LTIP.
On September 5, 2024, the Company closed on a Securities Purchase Agreement with E-Starts Money Co., a Delaware corporation (the “SPA” and “E-Starts”, respectively) dated August 28, 2024, under which E-Starts, purchased 1,000,000 shares of the Company’s common stock for $500,000, at a price of $0.50 per common share. Pursuant to the SPA, the shares issued to E-Starts will be subject to standard Rule 144 restrictions. E-Starts is controlled by William Tuorto, who also is a control person of Empire Diversified Energy, Inc., (“Empire”), serving as its Executive Chairman and Chairman of the Board of Directors. As previously disclosed in the Company’s Current Report on Form 8-K filed with the Commission on March 1, 2024 (the “March 8-K”), we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Empire under which Empire will merge with and into a subsidiary of the Company and Empire will become a wholly-owned subsidiary of the Company if the parties close the transaction contemplated by the Merger Agreement. There is no guarantee that the transactions contemplated by the Merger Agreement will close.
On September 9, 2024, Al Dali International for Gen. Trading & Cont. Co. (“DIC”), exercised its stock option to purchase 1,000,000 shares of our common stock at an exercise price of $1.179 per share, which was originally issued as security to secure repayment of our June 20, 2023 secured promissory note with DIC. Under the terms of the stock option, DIC used as consideration for the stock option, a reduction of principal and interest under its Note in the amount of $1,179,000. We are currently analyzing the exercise of the stock option and related issuance of the shares to ensure they complied with the terms of our agreement with DIC. If we determine the issuance is in line with our agreement with DIC, then any remaining portion of note is anticipated to be paid out of operations of the RPC per the terms of the note agreement as previously disclosed.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
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ITEM 5.
Acquisition of Endeavor Entities
On October 1, 2024, the Company, Jorgan Development, LLC, a Louisiana limited liability company (“Jorgan”) and JBAH Holdings, LLC, a Texas limited liability company (“JBAH” and, together with Jorgan, the “Sellers”), as the equity holders of Endeavor Crude, LLC, a Texas limited liability company, Equipment Transport, LLC, a Pennsylvania limited liability company, Meridian Equipment Leasing, LLC, a Texas limited liability company, and Silver Fuels Processing, LLC, a Texas limited liability company (collectively, the “Endeavor Entities”) closed the transactions that were the subject of the previously-disclosed Membership Interest Purchase Agreement among them dated March 21, 2024, as amended (the “MIPA”) (the “Closing”). In accordance with the terms of the MIPA, at the Closing, the Company acquired all of the issued and outstanding membership interests in each of the Endeavor Entities (the “Membership Interests”), making them wholly owned subsidiaries of the Company.
The Endeavor Entities own and operate a combined fleet of more than 500 commercial tractors and trailers for the hauling of crude oil and produced water. On a daily basis, the trucking fleet hauls approximately 60,000 barrels of crude oil, tank bottoms, and petroleum wastes, and approximately 30,000 barrels of produced water. In addition, the Endeavor Entities own and operate a crude oil shuttle pipeline and exclusive connected blending and processing facility in Blaine County, Oklahoma.
The purchase price for the Membership Interests is $120 million (the “Purchase Price”), subject to post-closing adjustments, including a reduction for assumed debt and a possible increase for an earn-out adjustment, payable by the Company in a combination of Company common stock, $0.001 par value per share (“Common Stock”) and Company Series A Preferred Stock $0.001 par value per share (“Preferred Stock”). The Preferred Stock will have the terms set forth in the Form of Series A Preferred Stock Certificate of Designations filed herewith as Exhibit 3.1 and incorporated by reference herein, including, but not limited to, liquidation preference over the Common Stock, the payment of a cumulative six percent (6%) annual dividend per share payable quarterly in arrears in shares of Common Stock (so long as such issuances of Common Stock would not result in the Sellers beneficially owning great than 49.99% of the issued and outstanding Common Stock), and the Company having the right to convert the Preferred Stock at any time using the stated value of $1,000 per share of Preferred Stock and the conversion price of one dollar ($1.00) per share of Common Stock. The Sellers are beneficially owned by James Ballengee, the Company’s chairman, chief executive officer and principal shareholder. The Company is currently still calculating the reduction in the Purchase Price as a result of Endeavor Entities debt the Company assumed at Closing.
As a result of the Closing, the Company will issue to the Sellers, (i) a number of shares of Common Stock equal to an undivided nineteen and ninety-nine hundredths percent (19.99%) of all of the Company’s issued and outstanding Common Stock immediately prior to Closing, or a lesser percentage, if such issuance would result, when taking into consideration the percentage of Common Stock owned by Sellers prior to such issuance, in Sellers owning in excess of 49.99% of the Common Stock issued and outstanding on a post-Closing basis, with such shares of Common Stock valued at $1.00 per share (the “Common Stock Consideration”), and (ii) a number of shares of Preferred Stock equal to the Purchase Price, less the value of the Common Stock Consideration (the “Preferred Stock Consideration”). Sellers will enter into 18-month lock-up agreements, in the form filed herewith as Exhibit 10.1 and incorporated by reference herein, at Closing, with regard to the Common Stock Consideration and any Common Stock they receive during the lock-up period in connection with conversions of Preferred Stock or the payment of dividends on the Preferred Stock.
According to our Chief Financial Officer’s previously disclosed employment contract, upon the closing (October 1, 2024) of the Endeavor Entities, he will be paid $200,000, with $100,000 to be paid in cash and the remaining $100,000 to be paid in shares of the Company’s common stock, valued at approximately $1.89 per share.
The MIPA, including the exhibits thereto and related agreements, filed with the Company’s Form 8-K filed with the Commission on March 25, 2024 (the “Execution 8-K”) as Exhibits 2.1. 3.1, 10.1, 10.2, 10.3, and 10.4 are incorporated herein by reference. The disclosure above does not purport to be a complete statement of the terms of the MIPA, or the transactions contemplated thereby, or the exhibits and related documents, and is qualified in their entirety by reference to the Execution 8-K and the full text of the Exhibits filed therewith.
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This section contains only a brief description of the material terms of the MIPA and does not purport to be a complete description of the rights and obligations of the parties to the MIPA, and such description is qualified in its entirety by reference to the full text of the MIPA, a copy of which is filed herewith as Exhibit 2.2.
Executive Employment Agreements
In connection with the Closing of the Endeavor Entities on October 1, 2024, the Company entered into an executive employment agreement with Russ Shelton (the “Shelton Agreement”) with respect to the Company’s appointment of Mr. Shelton as Executive Vice President and Chief Operating Officer of the Company. Pursuant to the Shelton Agreement, Mr. Shelton will receive (i) base salary compensation of $337,000 USD annually (the “Base Compensation”); (ii) an annual cash and equity incentive compensation of up to $808,000 based upon certain performance criteria as more particularly described therein. As an inducement to enter into the Shelton Agreement, Mr. Shelton shall receive a one-time signing grant of Company common stock equivalent in value to $150,000, which are priced per share based on the volume-weighted average price for the preceding five (5) trading days prior to the day of such grant, subject to an eighteen (18) month lockup period, which shall be granted promptly after the Effective Date, as defined therein. Pursuant to the Shelton Agreement, Mr. Shelton’s employment is at-will under Texas law, except as modified therein. Mr. Shelton’s employment with Vivakor Administration, LLC, a subsidiary of the Company, began on October 1, 2024.
This section contains only a brief description of the material terms of the Shelton Agreement and does not purport to be a complete description of the rights and obligations of the parties to the Shelton Agreement, and such description is qualified in its entirety by reference to the full text of the Shelton Agreement, a copy of which is filed herewith as Exhibit 10.24.
Russ Shelton, 48, Executive Vice President & Chief Operating Officer
Mr. Russ Shelton is a seasoned operations executive with more than three decades of management experience with midstream trucking, terminaling, and marketing companies, including for several of the business units being acquired in the Company’s purchase of the Endeavor Entities. Mr. Shelton was most recently the Chief Operating Officer for Endeavor Crude, LLC, and prior to that served as its Vice President of Transportation since 2023. Prior to Endeavor Crude, he worked as Director of Operations for Senergy Petroleum from 2021-23, and prior to that worked as Director of Transportation for Pilot Travel Centers LLC from 2018-21.
The Board believes that Mr. Shelton’s experience in management and operations and his extensive knowledge in the midstream petroleum industry make him ideally qualified to help lead the Company towards continued growth and success.
Family Relationships
Mr. Shelton does not have a family relationship with any of the current officers or directors of the Company.
Related Party Transactions
In connection with the Shelton Agreement, Mr. Shelton and Ballengee Holdings, LLC, an affiliate of James H. Ballengee, the Company’s Chairman, President, and CEO, have entered into a side letter agreement (the “Shelton Side Letter”) promising Mr. Shelton (i) certain additional Base Compensation equal to the difference between Mr. Shelton’s current salary and $375,000 by January 1, 2025, should the Company not increase Mr. Shelton’s Base Compensation, as defined in the Shelton Agreement, to such level, and (ii) a one-time special cash bonus of $100,000.00 USD upon completion of an equity capital raise, as more particularly set forth therein. A copy of the Shelton Side Letter is attached hereto as Exhibit 10.25.
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On August 22, 2024, we entered into a new executive employment agreement with our Vice President, Marketing. Pursuant to the new employment agreement, our Vice President, Marketing will receive $200,000 annually (the “Base Salary”), which after the first annual anniversary the Base Salary may increase to $350,000 contingent upon the Company achieving net profitability of $500,000 of all commodity trades by the Vice President, Marketing. In addition, the employment agreement provides for annual incentive cash and equity compensation of up to $440,000 based on certain performance goals as further set forth therein. As an inducement to enter into the executive employment agreement, the Vice President, Marketing is entitled to receive a one-time signing grant of Company common stock equivalent in value to $150,000, which are priced per share based on the closing price on the day of such grant (calculated to be 71,090 shares based on the effective date of the executive employment agreement). The signing bonus has not been issued and is due not later than thirty (30) calendar days after we file an amended Registration Statement on Form S-8 with the Securities and Exchange Commission registering shares under a Long-Term Incentive Plan (“LTIP”), and the shares will only vest as set forth in the LTIP.
Amendment to Promissory Notes
As previously disclosed in the Company’s Current Report on Form 8-K filed with the SEC on July 11, 2024, the Company received two loans in the amounts of $350,000 and $500,000 and issued two promissory notes dated July 5, 2024 and July 9, 2024, respectively. On July 19, 2024, the lenders and the Company entered into amendments to the promissory notes in order to extend the maturity date of the promissory notes from December 31, 2024 to September 30, 2025.
Sale of Common Stock
On July 26, 2024, the Company entered into a stock purchase agreement under which the Company agreed to sell an aggregate of 67,568 shares of restricted common stock in exchange for $125,000.
On July 26, 2024, the Company entered into a stock purchase agreement under which the Company agreed to sell an aggregate of 1,600,000 shares of restricted common stock in exchange for $800,000.
On September 5, 2024, the Company entered into a stock purchase agreement under which the Company agreed to sell an aggregate of 1,000,000 shares of restricted common stock in exchange for $500,000.
Finance Lease
On August 9, 2024, our subsidiary White Claw Colorado City, LLC (“WCCC”), entered into a supplement (“Supplement No. 4”) to an existing Master Agreement (the “Master Agreement”) with Maxus Capital Group, LLC (“Maxus”). Under Supplement No. 4, Maxus agreed to finance approximately $2.1 million for the build-out of certain equipment and facilities related to a pipeline extension at our WCCC facility in Texas. Once the relevant equipment is constructed Maxus will own the addition and we will lease these additions from Maxus under the terms of Supplement No. 4. Under the terms of the lease, we expect our lease payments to Maxus to be approximately $32,161 per month over four years, with an early buyout option or option at the end of the base term to purchase the wash plant equipment for approximately $374,702 or lease-end option to purchase the facilities for the fair market value. We anticipate that the lease will commence in the first quarter of 2025.
On June 18, 2024, our subsidiary White Claw Colorado City, LLC (“WCCC”), entered into a supplement (“Supplement No. 3”) to an existing Master Agreement (the “Master Agreement”) with Maxus Capital Group, LLC (“Maxus”). Under Supplement No. 3, Maxus agreed to finance approximately $1 million for the build-out of certain equipment and facilities related to the wash plant we are in the process of constructing on land leased by our subsidiary, VivaVentures Remediation Corp., in Houston, Texas. Once the relevant equipment is constructed Maxus will own the equipment and we will lease these additions to our wash plant facility from Maxus under the terms of Supplement No. 3. Under the terms of the lease, we expect our lease payments to Maxus to be approximately $58,595 per month over four years, with an early buyout option or option at the end of the base term to purchase the wash plant equipment for approximately $683,000, or lease-end option to purchase the facilities for the fair market value. We anticipate that the lease payments, our material obligation under Supplement No. 3, will commence in the first quarter of 2025.
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Loan and Security Agreement and Issuance of Secured Promissory Note
On October 31, 2024, Vivakor, Inc. (the “Company”), as the borrower, and certain of its subsidiaries, being Vivaventures Management Company, Inc., Vivaventures Oil Sands, Inc., Silver Fuels Delhi, LLC, White Claw Colorado City, LLC, Vivaventures Remediation Corporation, Vivaventures Energy Group, Inc., Endeavor Crude, LLC, and Meridian Equipment Leasing, LLC, and Silver Fuels Processing, LLC, as guarantors (collectively, the “Guarantors” or “Subsidiaries”, as context requires), Cedarview Opportunities Master Fund LP, as the lender (the “Lender”); and Cedarview Capital Management, LLC, as the agent (the “Agent”), entered into a Loan and Security Agreement (the “Loan Agreement”).
Pursuant to the Loan Agreement, the Company issued a secured promissory note (the “Note”) in the principal amount of $3,670,160.77, and the Lenders agreed to provide such term loan to the Company (the “Term Loan”) with maturity on October 31, 2025. On November 5 and 6, 2024, the Company received the net proceeds from the Term Loan less (i) a 3% origination fee, and (ii) repayment of $2,000,000 in outstanding principal, $68,009 in accrued interest, and a $242,991 prepayment fee pursuant to that certain Loan and Security Agreement dated February 5, 2024, by and between the Company, as borrower thereunder, certain of its Subsidiaries, as guarantors thereunder, and Lender and Agent (the “Previous Cedarview Loan”).
The amounts borrowed under the Loan Agreement will bear interest at a rate per annum of 22%. As a result, the Company will be obligated to make 12 equal monthly payments of $343,506.42 beginning November 30, 2024.
In the event of any prepayment, the Company shall pay a prepayment premium in the amount of ten percent (10%) of the balance of the Term Loan outstanding prior to such prepayment. Notwithstanding the foregoing, if and when the Company raises in the aggregate $10,000,000 or more from the sale of its equity in sales (other than in connection with any acquisition, merger, or like transaction), the Company shall immediately offer to prepay the entire outstanding balance of the Term Loan, which offer may be accepted or rejected by the Agent.
The amounts borrowed pursuant to the terms of the Loan Agreement are secured by substantially all of the present and after-acquired assets of the Company and the Subsidiaries, except for certain after-acquired assets as provided by the Loan Agreement. Additionally, the Company’s obligations under the Loan Agreement are jointly and severally guaranteed by the Subsidiaries.
The Loan Agreement contains customary representations, warranties and affirmative and negative financial and other covenants for a loan of this type. The closing was subject to customary closing conditions.
In connection with the Loan Agreement, and as additional consideration for the Lender agreeing to loan funds to the Company thereunder, the Company issued an irrevocable letter to its transfer agent (the “Transfer Agent”) to reserve 3,000,000 shares of the Company’s common stock (the “Collateral Securities”) until the Term Loan is repaid in full. In the event the Term Loan is not paid in full by the Maturity Date, the Agent may instruct the Transfer Agent to issue the Collateral Securities to the Agent, which the Agent may then sell until such time the amounts due under the Term Loan are repaid in full, after which any shares of Collateral Securities remaining shall be returned to the Company.
As a result of the Term Loan, and the use of proceeds of the Term Loan, the Previous Cedarview Loan has been paid in full and the irrevocable letter to the transfer agent regarding the Previous Cedarview Loan has been withdrawn.
This section contains only a brief description of the material terms of the Cedarview Loan and Security Agreement, and ancillary documents, and does not purport to be a complete description of, the rights and obligations of the parties to the agreements in connection with the Loan Agreement, and such description is qualified in its entirety by reference to the full text of the Loan Agreement and its exhibits, which are as Exhibits 4.1, 10.1, 10.2, 10.3 and 10.4 to our Amendment No. 1 to Current Report on Form 8-K/A filed on November 15, 2024.
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Pilot Agreement
In connection with the Closing of the Endeavor Entities on October 1, 2024, a certain Secured Promissory Note dated December 31, 2023, made by Meridian Equipment Leasing, LLC, as Borrower (“Borrower”), to the order of Pilot OFS Holdings LLC, as Lender (“Lender”), in the original principal amount of $12,500,000.00 USD plus the sum of $500,000 (the “Note”) will be contained in our consolidated financial statements going forward. On October 1, 2024 the parties entered into a Letter Agreement regarding the Secured Promissory Note and related Loan Documents, which stipulates and agrees to the amount outstanding pursuant to a certain AR Assignment (also acquired through the close of the Endeavor Entities) is equal to $2,910,574. Upon the full and final closing and initial funding of a revolving line of credit, Borrower shall cause to be paid to Lender the outstanding AR balance of $2,910,574, plus interest at a rate of one and one-half percent (1.5%) per month on all amounts outstanding from July 1, 2024 through the date of repayment, no later than the close of business two (2) business days thereafter. Borrower shall also cause to be paid $57,750, representing all amounts currently due and owing under the Truck Yard Leases (as defined below), all of which is stipulated and agreed to in exchange for the Lender entering into an amended secured promissory note that extends the maturity date of the loans to December 31, 2024, and the agree that the Truck Yard Leases are considered terminated effective as of September 30, 2024, which includes (a) that certain Lease Agreement dated effective December 31, 2023, by and between Borrower, as Tenant, and Pilot Travel Centers LLC, as Landlord, covering certain real property located at 306 E. Greene St., Carlsbad, New Mexico 88220, as amended, (b) that certain Lease Agreement dated effective December 31, 2023, by and between Borrower, as Tenant, and Pilot Travel Centers LLC, as Landlord, covering certain real property located at 2260 US 181, Hobson, Texas 78117, as amended, and (c) that certain Lease Agreement dated effective December 31, 2023, by and between Borrower, as Tenant, and Pilot Travel Centers LLC, as Landlord, covering certain real property located at 620 S CR 153, Kenedy, Texas 78119, as amended (collectively, the "Truck Yard Leases").
This section contains only a brief description of the material terms of the,Pilot Agreements and does not purport to be a complete description of, the rights and obligations of the parties to the agreements in connection with the Pilot Agreement, and such description is qualified in its entirety by reference to the full text of the Pilot Agreement and its exhibits, which are filed herewith as Exhibits 10.35, 10.36, and 10.37.
Meridian Equipment Leasing Lease Agreement
On October 29, 2024, our subsidiary Meridian Equipment Leasing LLC (“MEL”), which subsidiary was acquired on October 1, 2024 in the acquisition of the Endeavor Entities, entered into a supplement (“Supplement No. 21”) to an existing Master Agreement (the “Master Agreement”) with Maxus Capital Group, LLC (“Maxus”). Under Supplement No. 21, Maxus agreed to finance approximately $1.5 million for the build-out of a pipeline at our acquired pipeline facility in Oklahoma. Once the pipeline is constructed Maxus will own the addition and we will lease these additions from Maxus under the terms of Supplement No. 21. Under the terms of the lease, we expect our lease payments to Maxus to be approximately $41,522 per month over four years, with an early buyout option or option at the end of the base term to purchase the wash plant equipment for approximately $484,111 or lease-end option to purchase the facilities for the fair market value. We anticipate that the lease will commence in the first quarter of 2025.
Agile
Upon the Closing of our acquisition of the Endeavor Entities, a certain Subordinated Business Loan and Security Agreement by and between Agile Capital Funding, LLC and Agile Lending, LLC (the lenders and Endeavor Crude, LLC, Meridian Equipment Leasing, LLC, and Silver Fuels Processing, LLC (the borrowers) dated September 27, 2024 (the “Agile Agreement”) will be contained in our consolidated financial statements going forward. Under the Agile Agreement, the listed borrowers received $1,420,000 in October 2024.
This section contains only a brief description of the material terms of the,Agile Agreements and does not purport to be a complete description of, the rights and obligations of the parties to the agreements in connection with the Agile Agreement, and such description is qualified in its entirety by reference to the full text of the Agile Agreement, which is filed herewith as Exhibit 10.44.
White Claw Crude, LLC
During the third quarter of 2024, the Company entered into a Crude Petroleum Sales Agreement with White Claw Crude, LLC (“WC Crude”). Both the WC Crude Crude Petroleum Sales Agreement and the existing WC Crude Crude Petroleum Supply Agreement(s) are cash net settled at market prices.
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ITEM 6. EXHIBITS
EXHIBIT INDEX
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| * | Management contract or compensatory plan or arrangement. |
| ** | These exhibits are being furnished rather than filed and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K. |
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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.
| VIVAKOR, INC. | ||
| By: | /s/ James Ballengee | |
| James Ballengee | ||
| Chief Executive Officer (Principal Executive Officer) | ||
| Date: | November 19, 2024 | |
| VIVAKOR, INC. | ||
| By: | /s/ Tyler Nelson | |
| Tyler Nelson | ||
| Chief Financial Officer (Principal Financial and Accounting Officer) | ||
| Date: | November 19, 2024 | |
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