Item 1. Financial Statements
ITEM 1. FINANCIAL STATEMENTS
VIVAKOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31,
December 31,
2023
2022
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents
$
2,495,205
$
3,101,186
Cash and cash equivalents attributed to variable interest entity
204,714
81,607
Accounts receivable
2,222,079
2,615,354
Accounts receivable- related party
150,115
948,352
Prepaid expenses
90,632
31,523
Marketable securities
1,156,928
1,652,754
Inventories
69,998
47,180
Other assets
770,829
700,298
Total current assets
7,160,500
9,178,254
Other investments
4,000
4,000
Property and equipment, net
23,808,236
22,578,876
Rights of use assets- operating leases
1,795,440
1,880,056
License agreements, net
1,741,946
1,772,153
Intellectual property, net
27,537,612
28,251,053
Goodwill
12,678,108
12,678,108
Total assets
$
74,725,842
$
76,342,500
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses
$
4,557,135
$
3,242,667
Accounts payable and accrued expenses- related parties
1,278,982
4,142,978
Accrued compensation
1,846,072
1,302,890
Operating lease liabilities, current
509,327
471,991
Finance lease liabilities, current
963,900
963,900
Loans and notes payable, current
894,000
885,204
Loans and notes payable, current attributed to variable interest entity
2,595,000
1,325,000
Loans and notes payable, current attributed to variable interest entity- related parties
944,500
599,500
Long-term debt (working interest royalty programs), current
13,341
9,363
Total current liabilities
13,602,257
12,943,493
Operating lease liabilities, long term
1,367,031
1,457,483
Finance lease liabilities, long term
2,203,395
2,298,960
Loans and notes payable, long term
28,016,224
28,383,950
Loans and notes payable, long term- related party
300,000
300,000
Long-term debt (working interest royalty programs)
4,572,043
3,897,553
Total liabilities
50,060,950
49,281,439
Stockholders’ equity:
Convertible preferred stock, $ 0.001 par value; 3,400,000 shares authorized, none outstanding (1)
-
-
-
-
Common
stock, $ 0.001
par value; 41,666,667
shares authorized; 18,064,838
were issued and outstanding as March 31, 2023 and December 31, 2022, respectively (1)
18,065
18,065
Additional paid-in capital
74,026,163
74,026,163
Treasury stock, at cost
( 20,000
)
( 20,000
)
Accumulated deficit
( 57,704,373
)
( 55,169,781
)
Total Vivakor, Inc. stockholders’ equity
16,319,855
18,854,447
Noncontrolling interest
8,345,037
8,206,614
Total stockholders’ equity
24,664,892
27,061,061
Total liabilities and stockholders’ equity
$
74,725,842
$
76,342,500
(1)
Share and per share amounts have been retroactively adjusted to reflect the one-for-thirty reverse stock split effective February 14, 2022. See Note 1 – Organization and Basis of Presentation for additional information.
See accompanying notes to consolidated financial statements
1
VIVAKOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
March 31,
2023
2022
Revenues
Product revenue - third parties
$
11,194,467
$
-
Product revenue - related party
4,350,405
-
Total revenues
15,544,872
-
Cost of revenues
14,031,714
-
Gross profit
1,513,158
-
Operating expenses:
Sales and marketing
589
191,339
General and administrative
1,852,921
1,312,807
Amortization and depreciation
784,520
375,218
Total operating expenses
2,638,030
1,879,364
Loss from operations
( 1,124,872
)
( 1,879,364
)
Other income (expense):
Unrealized gain (loss) on marketable securities
( 495,826
)
1,239,566
Interest income
-
6,378
Interest expense
( 451,294
)
( 87,802
)
Interest expense- related parties
( 754,375
)
( 4,163
)
Other income
10,000
150
Total other income (expense)
( 1,691,495
)
1,154,129
Loss before provision for income taxes
( 2,816,367
)
( 725,235
)
Provision for income taxes
( 800
)
( 800
)
Consolidated net loss
( 2,817,167
)
( 726,035
)
Less: Net loss attributable to noncontrolling interests
( 282,575
)
( 125,152
)
Net loss attributable to Vivakor, Inc.
$
( 2,534,592
)
$
( 600,883
)
Basic and diluted net loss per share (1)
$
( 0.14
)
$
( 0.04
)
Basic weighted average common shares outstanding (1)
18,064,838
13,730,159
(1)
Share and per share amounts have been retroactively adjusted to reflect the one-for-thirty reverse stock split effective February 14, 2022. See Note 1 – Organization and Basis of Presentation for additional information.
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’
Equity
Shares
Amount
Shares
Amount
Capital
Stock
Deficit
Interest
(Deficit)
December 31, 2022
-
$
-
18,064,838
$
18,065
$
74,026,163
$
( 20,000
)
$
( 55,169,781
)
$
8,206,614
$
27,061,061
Distributions to noncontrolling interest
-
-
-
-
-
-
-
( 289,002
)
( 289,002
)
Issuance of noncontrolling interest for a reduction of debt
-
-
-
-
-
-
-
710,000
710,000
Net loss
-
-
-
-
-
-
( 2,534,592
)
( 282,575
)
( 2,817,167
)
March 31, 2023 (unaudited)
-
$
-
18,064,838
$
18,065
$
74,026,163
$
( 20,000
)
$
( 57,704,373
)
$
8,345,037
$
24,664,892
Series A
Preferred Stock
Common Stock
Additional
Paid-in
Treasury
Accumulated
Non-controlling
Total
Stockholders’
Equity
Shares
Amount
Shares
Amount
Capital
Stock
Deficit
Interest
(Deficit)
December 31, 2021 (1)
66,667
$
67
12,330,859
$
12,331
$
58,279,590
$
( 20,000
)
$
( 35,731,359
)
$
5,012,504
$
27,553,133
Common Stock issued for a reduction of liabilities
-
-
272,156
273
1,144,719
-
-
-
1,144,992
Conversion of Series A Preferred Stock to Common Stock
( 66,667
)
( 67
)
833,333
833
( 766
)
-
-
-
-
Common Stock issued for cash
-
-
1,600,000
1,600
6,238,400
-
-
-
6,240,000
Common stock issued for fractional shares from reverse stock split
-
-
2,271
2
-
-
-
-
2
Stock options issued for services
-
-
-
-
427,500
-
-
-
427,500
Stock based compensation
-
-
-
-
111,528
-
-
-
111,528
Distributions by noncontrolling interest
-
-
-
-
-
-
-
( 135,950
)
( 135,950
)
Issuance of noncontrolling interest for a reduction of debt
-
-
-
-
-
-
-
1,920,000
1,920,000
Net loss
-
-
-
-
-
-
( 600,883
)
( 125,152
)
( 726,035
)
March 31, 2022 (unaudited)
-
$
-
15,038,619
$
15,039
$
66,200,971
$
( 20,000
)
$
( 36,332,242
)
$
6,671,402
$
36,535,170
(1)
Share and per share amounts have been retroactively adjusted to reflect the one-for-thirty reverse stock split effective February 14, 2022. See Note 1 – Organization and Basis of Presentation for additional information.
See accompanying notes to consolidated financial statements
3
VIVAKOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDTED)
Three Months Ended
March 31,
2023
2022
OPERATING ACTIVITIES:
Consolidated net loss
$
( 2,817,167
)
$
( 726,035
)
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization
784,520
375,218
Forgiveness of notes payable
( 10,000
)
-
Common stock options issued for services
-
427,500
Stock-based compensation
-
111,528
Unrealized (gain)/loss- marketable securities
495,826
( 1,239,566
)
Changes in operating assets and liabilities:
Accounts receivable
1,191,512
-
Prepaid expenses
( 59,109
)
-
Inventory
( 22,818
)
( 30,000
)
Other assets
( 70,531
)
( 2,418
)
Right of use assets- finance leases
261,939
-
Right of use assets- operating leases
84,616
( 131,816
)
Operating lease liabilities
( 41,985
)
131,816
Financing lease liabilities
( 502,914
)
-
Accounts payable and accrued expenses
( 1,775,681
)
131,389
Interest on notes receivable
-
( 6,379
)
Interest on notes payable
1,205,669
91,965
Net cash used in operating activities
( 1,276,123
)
( 866,798
)
INVESTING ACTIVITIES:
Proceeds from notes receivable
-
10,000
Purchase of equipment
( 883,819
)
( 206,298
)
Net cash used in investing activities
( 883,819
)
( 196,298
)
FINANCING ACTIVITIES:
Proceeds from loans and notes payable
1,988,797
177,496
Proceeds from loans and notes payable- related party
345,000
250,000
Proceeds from sale of common stock
-
6,240,000
Payment of notes payable
( 367,727
)
( 114,945
)
Distributions to noncontrolling interest
( 289,002
)
( 135,950
)
Net cash provided by financing activities
1,677,068
6,416,601
Net increase (decrease) in cash and cash equivalents
( 482,874
)
5,353,505
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
3,182,793
1,493,719
CASH AND CASH EQUIVALENTS, END OF PERIOD
$
2,699,919
$
6,847,224
SUPPLEMENTAL CASHFLOW INFORMATION:
Cash paid during the year for:
Interest
$
851,005
$
113,975
Income taxes
$
-
$
-
Noncash transactions :
Conversion of Series A, B, B-1, and C-1 Preferred Stock to Common Stock
$
-
$
1,200,000
Common stock issued for a reduction in liabilities
$
-
$
1,144,992
Noncontrolling interest issued for a reduction in liabilities
$
710,000
$
1,920,000
Capitalized interest on construction in process
$
237,978
$
488,014
Accounts payable on purchase of equipment
$
406,653
$
-
See accompanying notes to consolidated financial statements
4
VIVAKOR, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
On February 14, 2022, we effected a 1-for-30 reverse split of our outstanding shares of common stock (the “Reverse Stock Split”) via the filing of a certificate of change with the Nevada Secretary of State which was effective at the commencement of trading of our Common Stock. No fractional shares of the Company’s common stock were issued as a result of the Reverse Stock Split. Any fractional shares resulting from the Reverse Stock Split will be rounded up to the nearest whole share. All issued and outstanding common stock, preferred stock, and per share amounts in the consolidated financial statements and footnotes included herein have been retroactively adjusted to reflect this reverse stock split for all periods presented.
COVID-19
On March 11, 2020, the World Health Organization (“WHO”) declared the COVID-19 outbreak to be a global pandemic. In addition to the devastating effects on human life, the pandemic had a negative ripple effect on the global economy, leading to disruptions and volatility in the global financial markets. Most U.S. states and many countries issued policies intended to stop or slow the spread of the disease.
In March 2020 we temporarily suspended operations
in Kuwait and Utah due to COVID-19 government restrictions. Utah and Kuwait have since resumed site preparations for operations. Additionally,
we continue to experience supply chain disruptions related to building our Remediation Processing Centers (“RPC”), completing
certain refurbishment, and in relation to our other operations.
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, 2022. 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 months ended March 31, 2023 are not necessarily indicative of the results expected for the full year ending December 31, 2023.
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. During the three months
ended March 31, 2023, the operations were limited due to supply and personnel limitations. Subsequent to March 31, 2023, the
Company entered into an agreement to move the Vernal plant to Kuwait to service the contract with DIC for a scaled up RPC, as the Vernal
plant was not producing product toward the off-take agreement, which has further delayed scaled operations. The Company evaluated these
events and determined that there is no trigger event, and therefore there was no impairment incurred during the three months ended March 31,
2023. 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.
5
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 three months ended March 31, 2023.
Revenue Recognition
In August 2022, we acquired Silver Fuels Delhi, LLC and White Claw Colorado City, LLC, from which approximately 99 % of the Company’s revenue is derived. For the three months ended March 31, 2023, our sales consist of storage services and the sale of crude oil or like products. For the three months ended March 31, 2023, disaggregated revenue by customer type was as follows: $ 11,123,530 in crude oil sales and $ 3,580,601 in product related to natural gas liquids sales.
Related Party Revenues
We sell sale of 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. These contracts were entered into in the normal course of our business. Our revenue from related parties for the three months ended March 31, 2023 was $ 4,350,405 .
Major Customers and Concentration of Credit Risk
The Company has two major customers, which account for approximately 98 % and 100 % of the balance of accounts receivable as of March 31, 2023 and December 31, 2022.
Advertising Expense
Advertising costs are expensed as incurred. The Company did no t incur advertising expense for the three months ended March 31, 2023 and 2022.
Net Income/Loss Per Share
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 as of March 31, 2023 and December 31, 2022 include the following: convertible notes payable convertible into approximately 14,560 shares of common stock, stock options granted to current or previous employees of 1,421,760 shares of common stock, stock options granted to Board members or consultants of 395,139 shares of common stock. The Company also has a warrant outstanding to purchase 80,000 shares of common stock as of March 31, 2023.
6
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, revenue recognition, stock-based compensation, income taxes, effective interest rates related to long-term debt, marketable securities, cost basis investments, lease assets and liabilities, valuation of stock used to acquire assets, derivatives, and fair values of the intangible assets and goodwill related to business combinations.
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. Liquidity
We
have historically suffered net losses and cumulative negative cash flows from operations, and as of March 31, 2023, we had an
accumulated deficit of approximately 57,704,373 $57.7 million. As of March 31, 2023 and December 31, 2022, we had a
working capital deficit of approximately $ 6.4 million and $ 3.7 million, respectively. As of March 31, 2023 we had cash of
approximately $ 2.7 million. In addition, we have obligations to pay approximately $14.1 million (of which approximately $13.2
million can be satisfied through the issuance of our common stock under the terms of the debt and $410,200 is related to PPP loans
that are anticipated to be forgiven with the remainder) of debt in cash within one year of the issuance of these financial
statements. Our CEO has also committed to provide credit support through December 2024, as necessary, for an amount up to $8
million to provide the Company sufficient cash resources, if required, to execute its plans for the next twelve months. These conditions raise substantial doubt about the Company's ability to continue as a going concern. We believe
the liquid assets and CEO commitment give it adequate working capital to finance our day-to-day operations for at least twelve
months through July 2024.
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 raise additional capital if needed.
Note 3. Accounts Receivable
Accounts receivable primarily relates to sales to trade accounts receivable of customers for crude oil and natural gas liquid products. Accounts receivable is presented as amounts due from customers less an estimated allowance for doubtful accounts. An allowance for doubtful accounts, if deemed necessary by management, is based on a review of all outstanding amounts by customer on a monthly basis. Management determines the allowance for doubtful accounts, if any, by identifying troubled accounts and by using historical experience applied to an aging of accounts, as well as the current and projected financial condition of the specific customer. As of March 31, 2023 and December 31, 2022 no allowance for doubtful accounts was deemed necessary. Trade accounts receivable are zero interest bearing. Trade accounts receivable of $ 1,381,436 are with a vendor of which our CEO is a beneficiary.
Note 4. Prepaid Expenses
As of March 31, 2023 and December 31, 2022, our prepaid expenses of $ 90,632 and $ 31,523 mainly consist of prepaid insurances.
Note 5. Marketable Securities
The Company owns 826,376,882 shares of common stock of Scepter Holdings, Inc. (“Scepter”), ticker: BRZL, OTC Markets., for a diluted 17% equity holding in the company. The Company accounted for such securities based on the quoted price from the OTC Markets where the stock is traded which resulted in the Company recording an unrealized gain (loss) on marketable securities of $ ( 495,826 ) and $ 1,239,566 for the three months ended March 31, 2023 and 2022. The Company’s previous Chief Executive Officer, who resigned on October 6, 2022, had an immediate family member who sits on the board of directors of Scepter Holdings, Inc. As of March 31, 2023 and December 31, 2022 our marketable securities were valued at $ 1,156,928 and $ 1,652,754 .
Note 6. Inventories
As of March 31, 2023 and December 31, 2022, inventories of $ 69,998 and $ 47,180 consist of crude oil. The crude oil is related to our oil gathering facility in Delhi, Louisiana.
8
Note 7. Property and Equipment
The following table sets forth the components of the Company’s property and equipment at March 31, 2023 and December 31, 2022:
Schedule of property and equipment, net
March 31,
2023
December 31,
2022
Gross Carrying
Amount
Accumulated
Depreciation
Net Book
Value
Gross Carrying
Amount
Accumulated
Depreciation
Net Book
Value
Office furniture
$
14,998
$
6,390
$
8,608
$
14,998
$
5,912
$
9,086
Vehicles
36,432
27,931
8,501
36,432
26,110
10,322
Equipment
942,880
330,706
612,174
942,880
295,855
647,025
Property
17,000
-
17,000
17,000
-
17,000
Finance lease- Right of use assets
3,579,544
611,192
2,968,352
3,579,544
349,253
3,230,291
Construction in process:
Wash Plant Facilities
1,087,376
-
1,087,376
199,800
-
199,800
Cavitation device
44,603
-
44,603
44,603
-
44,603
Remediation Processing Unit 1
4,438,006
-
4,438,006
4,396,753
-
4,396,753
Remediation Processing Unit 2
6,591,144
-
6,591,144
6,285,547
-
6,285,547
Remediation Processing Unit System A
4,019,475
-
4,019,475
3,893,051
-
3,893,051
Remediation Processing Unit System B
4,012,997
-
4,012,997
3,845,398
-
3,845,398
Total fixed assets
$
24,784,455
$
976,219
$
23,808,236
$
23,256,006
$
677,130
$
22,578,876
For the three months ended March 31, 2023 and 2022 depreciation expense was $ 37,151 and $ 2,890 . For the three months ended March 31, 2023 and 2022 capitalized interest to equipment from debt financing was $ 237,978 and $ 488,014 . Equipment that is currently being manufactured is considered construction in process and is not depreciated until the equipment is placed into service. Equipment that is temporarily not in service is not depreciated until placed into service.
The operations surrounding our precious metals extraction services were temporarily suspended until recently, although due to these suspended activities and a shift in 2022 of the Company’s focus to the oil and gas industry, we have realized an impairment loss of $ 6,269,998 surrounding the extraction machinery for the year ended December 31, 2022.
As of December 31, 2022 we continued to pursue a test facility or third party reactor for our nano catalyst technology that facilitates chemical manufacturing, with a focus on the production of ammonia, which includes our bioreactor equipment . The Company received recent quotes for testing or building our own test facilities with new partners for this venture. After taking into consideration this new information, we noted that the newly requested capital expenditure to test and scale the business triggered an impairment loss of assets related to our ammonia synthesis assets, including our bioreactors. The impairment loss related to our bioreactors was $ 1,440,000 for the year ended December 31, 2022. There was no impairment loss during the three months ended March 31, 2023
9
Note 8. Intellectual Property, Net and Goodwill
The following table sets forth the components of the Company’s intellectual property at March 31, 2023 and December 31, 2022:
Schedule of components of intellectual property
March 31,
2023
December 31,
2022
Gross Carrying
Amount
Accumulated
Amortization
Net Book
Value
Gross Carrying
Amount
Accumulated
Amortization
Net Book
Value
Extraction Technology patents
$
113,430
$
13,901
$
99,529
$
113,430
$
12,233
$
101,197
Extraction Technology
16,385,157
6,690,606
9,694,551
16,385,157
6,485,791
9,899,366
Acquired crude oil contracts
19,095,420
1,351,888
17,743,532
19,095,420
844,930
18,250,490
Total Intellectual property
$
35,594,007
$
8,056,395
$
27,537,612
$
35,594,007
$
7,342,954
$
28,251,053
The changes in the carrying amount of goodwill are as follows:
Schedule of goodwill
Goodwill
January 1, 2021
$
-
Acquisition
12,678,108
December 31, 2022
$
12,678,108
There were no changes in goodwill for the three months ended March 31, 2023.
On August 1, 2022, the Company closed a Membership Interest Purchase Agreement, (the “MIPA”), with Jorgan Development, LLC, and JBAH Holdings, LLC, as the equity holders of Silver Fuels Delhi, LLC, a Louisiana limited liability company (“SFD”) and White Claw Colorado City, LLC, a Texas limited liability company (“WCCC”) whereby, the Company acquired all of the issued and outstanding membership interests in each of SFD and WCCC making SFD and WCCC wholly owned subsidiaries of the Company. The purchase price for the Membership Interests is approximately $ 32.9 million, after post-closing adjustments.
Management hired a valuation expert who performed a valuation study to calculate the fair value of the acquired assets, assumed liabilities and goodwill. Based on the valuation study, the fair values of goodwill and the acquired contracts were $ 12,678,108 and $ 19,095,420 on August 1, 2022. Amortization expense for the three months ended March 31, 2023 and 2022 was $ 747,369 and $ 372,328 .
10
Note 9. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
Schedule of accounts payable and accrued expenses
March 31,
December 31,
2023
2022
Accounts payable
$
2,972,461
$
910,002
Office access deposits
235
235
Unearned revenue
-
20,936
Accrued interest (various notes and loans payable
99,587
349,497
Accrued interest (working interest royalty programs)
959,766
1,437,711
Accrued tax penalties and interest
525,086
524,286
Accounts payable and accrued expenses
$
4,557,135
$
3,242,667
March 31,
December 31,
2023
2022
Accounts payable- related parties
$ 1,039,829
$ 4,112,300
Accrued interest (notes payable)- related parties
239,153
30,678
Accounts payable and accrued expenses- related parties
$ 1,278,982
$ 4,142,978
Accrued compensation
$ 1,846,072
$ 1,302,890
As of March 31, 2023 and December 31, 2022, our accounts payable are primarily made up of trade payables for the purchase of for crude oil . Trade accounts payables in the amount of $ 923,028 and $ 4,000,681 is with a vendor who our CEO is a beneficiary of. As of March 31, 2023 and December 31, 2022, $ 96,388 and $ 37,685 of accounts payable related to services rendered, which are not trade payables, with a vendor of which our CEO is a beneficiary. $ 20,413 of accounts payable related to services rendered, which are not trade payables, are with a vendor where our Chief Financial Officer sits on the board of the directors and is an officer.
In March 2023, the Compensation Committee reviewed the Company’s 2022 results, including, but not limited to, the progress of the Company’s historic business and certain acquisitions completed by the Company during 2022, and approved discretionary bonuses, which have been accrued as of December 31, 2022, for the Chief Financial Officer, and an acquisition consultant, in the amounts of $ 505,467 (included in accrued compensation) and $ 421,222 (included in accounts payable), respectively.
7
Note 10. Loans and Notes Payable
Loans and notes payable and their maturities consist of the following:
Schedule of loans and notes payable
March 31,
December 31,
2023
2022
Various promissory notes and convertible notes
$
50,960
$
50,960
Novus Capital Group LLC Note (a)
171,554
171,554
Triple T Notes (b)
351,626
342,830
National Buick GMC
16,006
16,006
Blue Ridge Bank
410,200
410,200
Small Business Administration
299,900
299,900
Jorgan Development, LLC
27,609,978
27,977,704
Various variable interest promissory notes (c)
2,595,000
1,325,000
Total Notes Payable
$
31,505,224
$
30,594,154
Loans and notes payable, current
$
894,000
$
885,204
Loans and notes payable, current attributed to variable interest entity
2,595,000
1,325,000
Loans and notes payable, long term
$
28,016,224
$
28,383,950
March 31,
2023
December 31,
2022
Various variable interest promissory notes (c)- related parties
$ 1,244,500
$ 899,500
Loans and notes payable, current attributed to variable interest entity- related parties
944,500
599,500
Loans and notes payable, long term- related parties
$ 300,000
$ 300,000
Schedule of maturities of loans and notes payable
2023
$ 4,433,500
2024
13,581,928
2025
13,348,654
2026
33,640
2027
17,232
Thereafter
1,334,770
Total
$ 32,749,724
(a)
In 2017, the Company acquired assets, including patents, in the amount of $4,931,380 in which the Company also agreed to assume the encumbering debt on asset in the amount of $334,775. The debt currently accrues interest at 10% per annum. In November 2021, the lender agreed to extend the maturity of the note to April 1, 2022. On April 1, 2022, the lender agreed to extend the maturity of the note to April 1, 2023 with an initial payment of $52,448 and approximate monthly payment of $29,432 thereafter until the note is fully paid. As of the date of this report, we are currently renegotiating the terms of this debt.
(b)
The balance of this note is due to a related party, a company owned by the 51% owner of Vivakor Middle East LLC. The loan was granted to Vivakor Middle East LLC by the majority owner for operational use. On March 10, 2021, the Company entered into a master revolving note with Triple T Trading Company LLC to set forth the relationship of the parties to retain the previous terms of the note payable to Triple T Trading Company LLC, to include a note maturity of March 10, 2023, and maximum lending amount of 1,481,482 QAR or approximately $400,000, valued at an exchange rate of approximately $0.27 per QAR. In March 2023 the parties agreed to extend the maturity date of the loan to March 10, 2024.
(c)
The balance of these various promissory notes are related to the special purchase vehicle, Viva Wealth Fund I, LLC (VWFI) of which the balance primarily related to an offering up to $25,000,000 in convertible notes in a private offering, which was closed on March 31, 2023. During the three months ended March 31, 2023, an additional $1,980,000 has been raised in relation this offering, and $710,000 of this debt has been converted into units of the LLC. VWFI has also entered into various master revolving notes outside of the offering: and additional $345,000, was raised from a related party as of March 31, 2023, which accrues 6% interest per annum, has a maturity date of October 11, 2023, where no payments are made prior to the maturity date unless at the option of the fund.
12
Note 11. Commitments and Contingencies
Finance Leases
We acquired Silver Fuels Delhi, LLC (SFD) and White Claw Colorado City, LLC (WCCC) in a business combination in August 2022, in which we acquired certain finance leases contracts and liabilities as described below:
On March 17, 2020, the SFD entered into two sale and leaseback transactions with Maxus Capital Group, LLC (“Maxus”). The first transaction involved the Company assigning twelve storage tanks and other equipment and the second transaction involved the Company assigning the remaining property at the oil gathering facility with the exception of land, to Maxus Future minimum lease payments for each of the next three years under the Maxus lease obligations is as follows: 2023 $ 369,108 , 2024 $ 492,144 , and 2025 $ 123,036 .
On December 28, 2021, the WCCC entered into a sale and leaseback transaction with Maxus, where WCCC assigned the crude oil, natural gas liquids, condensate, and liquid hydrocarbon receipt, throughput, processing, gathering, and delivery terminal, commonly known as the China Grove Station (the “China Grove Station”), located in Colorado City, Texas to Maxus. Future minimum lease payments for each of the next four years under the Maxus lease obligation are as follows: 2023 $ 353,817 , 2024 $ 471,756 , 2025 $ 471,756 , and 2026 $ 471,756 .
The following table reconciles the undiscounted cash flows for the finance leases as of March 31, 2023 to the finance lease liability recorded on the balance sheet:
Schedule of financing lease liability
2023
$
722,925
2024
963,900
2025
594,792
2026
471,756
Total undiscounted lease payments
2,753,373
Less: Imputed interest
1,339,078
Present value of lease payments
1,414,295
Add: carrying value of lease obligation at end of lease term
1,753,000
Total finance lease obligations
$
3,167,295
Finance lease liabilities, current
$
963,900
Finance lease liabilities, long-term
$
2,203,395
Weighted-average discount rate
18.00
%
Weighted-average remaining lease term (months)
37.49
13
Operating Leases
Commencing
on September 15, 2019, the Company entered into a five-year lease with Jamboree Center 1 & 2 LLC covering approximately
6,961 square feet of office space in Irvine, CA. Under the terms of the lease agreement, we are required to make the following
monthly lease payments: Year 1 $ 21,927 ,
Year 2 $ 22,832 , Year 3 $ 23,737 , Year 4 $ 24,712 , Year 5 $ 25,686 . As a condition of the lease, we were required to provide a $ 51,992
security deposit.
On February 1, 2022, the Company entered into a lease agreement for approximately 2,533 square feet of office and manufacturing space located in Las Vegas, Nevada. Commencing on March 1, 2022, the Company entered into a three-year lease with Speedway Commerce Center, LLC. Under the terms of the lease agreement, we are required to make the following monthly lease payments: Year 1 $ 1,950 , Year 2 $ 2,028 , Year 3 $ 2,110 . As a condition of the lease, we were required to provide a $ 2,418 security deposit.
On March 28, 2022, the Company entered into a lease agreement for approximately 1,469 square feet of office space located in Lehi, Utah. Commencing on April 1, 2022, the Company entered into a three-year lease with Victory Holdings, LLC. Under the terms of the lease agreement, we are required to make the following monthly lease payments: Year 1 is comprised of April to May 2022 $867, June 2022 to March 2023 $3,550, Year 2 $3,657, Year 3 $3,766. As a condition of the lease, we were required to provide a $ 3,766 security deposit.
On April 1, 2022, the Company entered into a lease agreement for approximately 2,000 square feet of office and warehouse space located in Houston, Texas. Commencing on April 1, 2022, the Company entered into a month-to-month lease with JVS Holdings, Inc. The lease may be terminated at any time or for any reason with a 30-day written notice to terminate. The lease requires a monthly lease payment of $ 2,000 as long as the Company remains in the space.
On December 16, 2022, our subsidiary, VivaVentures Remediation Corp. entered into a Land Lease Agreement (the “Land Lease”) with W&P Development Corporation, under which we agreed to lease approximately 3.5 acres of land in Houston, Texas. The Land Lease is for an initial term of 126 months and may be extended for an additional 120 months at our discretion. Our monthly rent is $0 for the first three months and then at month 4 it is approximately $7,000 (based on a 50% reduction) and increases to approximately $13,000 in month 7 and then increases annually up to approximately $16,000 per month by the end of the initial term. We plan to place one or more of our RPC machines on the property, as well as store certain equipment.
The following table reconciles the undiscounted cash flows for the leases as of March 31, 2023 to the operating lease liability recorded on the balance sheet:
Schedule of lessee operating lease liability
2023
$
373,924
2024
435,906
2025
162,545
2026
136,975
2027
153,089
Thereafter
2,872,048
Total undiscounted lease payments
4,134,487
Less: Imputed interest
2,258,129
Present value of lease payments
$
1,876,358
Operating lease liabilities, current
$
509,327
Operating lease liabilities, long-term
$
1,367,031
Weighted-average remaining lease term
211.05
Weighted-average discount rate
10.00
%
14
Employment Agreements
On October 28, 2022 we entered into an executive employment agreement with a new Chief Executive Officer, James Ballengee, which provides for annual compensation of $ 1,000,000 payable in shares of our common stock issued in four equal quarterly installments, priced at the volume weighted average price (VWAP) for the five trading days preceding the date of the Employment Agreement and each anniversary thereof (the “CEO Compensation”). For the first twelve months of Mr. Ballengee’s employment, we will issue him a total of 923,672 shares of our common stock, issuable 230,918 per quarter. The CEO Compensation shall be subject to satisfaction of Nasdaq rules, the provisions of the Company’s equity incentive plan and other applicable requirements and shall be accrued if such issuance is due prior to satisfaction of such requirements. Additionally, Mr. Ballengee shall be eligible for a discretionary performance bonus. The Employment Agreement may be terminated by either party for any or no reason, by providing a five days’ notice of termination. In June 2022, the Company entered into employment agreements with its previous Chief Executive Officer and its current Chief Financial Officer, which provided for annual base salaries of $ 375,000 and $ 350,000 , respectively, and provided for incremental increases in their salaries upon the Company’s achievement of specific performance metrics. The Company is currently accruing substantial portions of executive base salaries (see Note 9). The employment agreements provided for the grant of stock options to the previous Chief Executive Officer and the current Chief Financial Officer to purchase up to 955,093 and 917,825 shares of the Company’s common stock, respectively, at an exercise price equal to 110% and 100% of the fair market value of the Company’s common stock on the date of grant. The previous Chief Executive Officer vested in 503,935 of these stock options before his resignation without good reason with the remainder of his stock options cancelled. The total stock options for the former Chief Executive Officer vest over two years of continuous employment, subject to acceleration if terminated without cause or resignations for good reason. The Chief Financial Officer’s agreement also provides that it is anticipated that the executive will receive bonuses for 2023 which will be determined by the Company’s Compensation Committee and Board of Directors after taking into account the general business performance of the Company, including any completed financings and/or acquisitions.
Note 12. Long-term Debt
Due to delays in achieving scaled up operations (Note 1 Long Lived Assets ) the effective interest rate of these agreements range from approximately 11% to 34% for the three months ended March 31, 2023 and for the year ended December 31, 2022.
Long-term debt consists of the following:
Schedule of long-term debt
March 31,
December 31,
2023
2022
Principal
$
2,196,233
$
2,196,233
Accrued interest
2,597,367
1,922,621
Debt discount
( 208,216
)
( 211,938
)
Total long term debt
$
4,585,384
$
3,906,916
Long term debt, current
$
13,341
$
9,363
Long term debt
$
4,572,043
$
3,897,553
The following table sets forth the estimated payment schedule of long-term debt as of March 31, 2023:
Schedule of long-term debt maturities
2023
$
-
2024
29,042
2025
35,155
2026
41,003
2027
48,102
Thereafter
2,042,931
Total
$
2,196,233
15
Note 13. Share-Based Compensation & Warrants
Options
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 the issuance of 1,872,918 employee stock options granted in June 2022 that were to vest over a period of two years, for which 451,158 of these options were cancelled with the resignation without cause in October 2022 of our prior Chief Executive Officer. For the three months ended March 31, 2023 and 2022, employee stock-based compensation was none and $ 111,528 . On October 24, 2022, the previous Compensation Committee resolved to increase their compensation including the issuance of 100,000 stock options per independent board member, exercisable at $2.50 per share, vesting immediately. Non-statutory or independent Board of Director stock-based compensation was none and $ 427,500 for the three months ended March 31, 2023 and 2022. In 2022, the Company closed on its underwritten public offering in which the Company granted the underwriter, EF Hutton, division of Benchmark Investments, LLC (“EF Hutton”), a 45-day option to purchase up to an additional 240,000 shares of Common Stock at the public offering price per share, less the underwriting discounts and commissions, to cover over-allotments, if any. These options were not exercised and expired.
There were no other options granted during the three months ended March 31, 2023 and 2022, respectively.
The assumptions used in the Black-Scholes option pricing model to determine the fair value of the options on the date of issuance are as follows:
Schedule of warrant assumptions
December 31,
2021
through
December 31,
2022
Risk-free interest rate
0.24 – 4.57 %
Expected dividend yield
None
Expected life of warrants
3.33 - 10 years
Expected volatility rate
156 - 273 %
The following table summarizes all stock option activity of the Company for the three months ended March 31, 2023 and 2022:
Schedule of option activity
Number of
Shares
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life (Years)
Outstanding, December 31, 2022
1,833,566
$
2.59
6.47
Granted
-
-
-
Exercised
-
-
-
Forfeited
( 16,667
)
12.00
-
Outstanding, March 31, 2023
1,816,899
$
2.50
6.26
Outstanding, December 31, 2021
650,000
$
12.00
8.53
Granted
240,000
5.00
0.12
Exercised
-
-
-
Forfeited
( 240,000
)
5.00
0.12
Outstanding, March 31, 2022
650,000
$
12.00
7.28
Exercisable, December 31, 2022
1,526,869
$
2.65
5.94
Exercisable, March 31, 2023
1,526,869
$
2.65
5.69
Exercisable, December 31, 2021
180,000
$
12.00
7.01
Exercisable, March 31, 2022
215,833
$
12.00
6.68
As of March 31, 2023 and 2022, the aggregate intrinsic value of the Company’s outstanding options was approximately none. The aggregate intrinsic value will change based on the fair market value of the Company’s common stock.
16
Warrants
As of March 31, 2023 and 2022, the Company had 80,000 warrants outstanding. On February 14, 2022, the Company closed on its underwritten public offering of 1,600,000 shares of common stock, at a public offering price of $5.00 per share. In addition, the Company has issued the underwriter, EF Hutton, a 5-year warrant to purchase 80,000 shares of common stock at an exercise price equal $ 5.75 and were valued with a fair market value of $374,000. The impact of these warrants has no effect on stockholder’s equity, as they are considered equity-like instruments, and are considered a direct expense of the offering.
Note 14. 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 $ 800 for the three months ended March 31, 2023 and 2022, respectively. The Company is projecting a 0.01 % effective tax rate for the year ending December 31, 2023, which is primarily the result of projected provision from book loss incurred for the year offset by additional valuation allowance on the net operating losses. The Company’s effective tax rate for 2022 was 18.69 % which was the result of the benefit of book income for the year.
As of December 31, 2022, the Company had estimated federal and state net operating loss (NOL) carryforwards of approximately $ 23.7 million. Federal NOL carryforwards begin to expire in 2028.
Note 15. Related Party Transactions
Viva Wealth Fund I, LLC (VWFI), which is managed by Wealth Space LLC, continued its private offering of up to $ 25,000,000 in convertible notes for the manufacture of one or more RPC machines. As of March 31, 2023, VWFI has raised $ 13,730,000 and the private offering has been closed. As of March 31, 2023, VWFI has paid $ 2,266,964 to Dzign Pro Enterprises, LLC (Dzign Pro) for engineering services related to our RPCs, site planning, and infrastructure, which entity shares a common executive with VWFI. As of March 31, 2023, VWFI also entered into a master revolving note payable to Dzign Pro in the amount of $ 300,000 , which accrues 5% interest per annum, has a maturity date of July 14, 2024, where no payments are made prior to the maturity date unless at the option of the fund. VWFI also entered into a master revolving note payable to Van Tran Family LP, which is an affiliate of WealthSpace, LLC, the VWFI Fund Manager, in the amount of $944,500, which accrues 6% interest per annum, has a maturity date of October 11, 2023, where no payments are made prior to the maturity date unless at the option of the fund.
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 in each of SFD and WCCC (the “Membership Interests”), making SFD and WCCC our wholly-owned subsidiaries. The purchase price for the Membership Interests was approximately $32.9 million paid for by us with a combination of shares of our common stock, amount equal to 19.99% of the number of issued and outstanding shares of our common stock immediately prior to issuance, and secured three-year promissory notes issued by us in favor of the Sellers (the “Notes”). As of March 31, 2023 we have accrued interest of approximately $ 190,609 and for the three months ended March 31, 2023, we made cash payments of $ 1,161,540 on the Notes.
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 three months ended March 31, 2023 we have received tank storage revenue related to this contract of approximately $450,000.
17
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 three months ended March 31, 2023, we have made crude oil purchases from WC Crude of $ 11,123,530 . In addition, SFD entered into a sales agreement on April 1, 2022 with WC Crude to sell a natural gas liquid product to WC Crude. SFD sells the NGL stream at cost to WC Crude. We produced and sold natural gas liquids to WC Crude in the amount of $ 3,580,601 for the three months ended March 31, 2023.
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 (the Company’s CEO), with Jorgan and JBAH. Under this agreement, we have the right, but not the obligation to use Endeavor for consulting services. For the three months ended March 31, 2023, Endeavor rendered services in the amount of $74,644.
We have an existing note payable issued to Triple T, which is owned by Dr. Khalid Bin Jabor Al Thani, 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 March 31, 2023 the balance owed was $ 351,626 . In March 2023 the parties agreed to extend the maturity date of the loan to March 10, 2024.
Note 16. Subsequent Events
On July 25, 2023, a non-affiliated investor loaned
us $ 500,000 under the terms of a 10% Convertible Promissory Note dated July 6, 2023 (the “Investor Note”). Under the terms
of the Investor Note, the loan is at a 10 % per annum interest rate, matures two years from the date of issuance , and is convertible into
shares of our common stock at $2.50 per share, unless such conversion would cause the investor to own more than 4.9% of our outstanding
common stock.
On
July 1, 2023, we hired Leslie D. Patterson to be our Vice President, Operations & Construction. In this position, Mr. Patterson
is in charge of managing the development and operations for our facilities. In connection with his hiring we signed an Executive Employment
Agreement with Mr. Patterson. Under the terms of the Agreement, Mr. Patterson will receive $ 150,000 in annual salary, shares of our common
stock equal to $ 25,000 annually, and a one-time bonus of shares of our common stock equal to $ 125,000 , payable on the one year anniversary
of his employment. Mr. Patterson is entitled to other bonuses and benefits on par with our general employment policies.
On
June 26, 2023, our subsidiary VivaVentures Remediation Corp., entered into an RPC Equipment Lease Agreement with Viva Wealth Fund I,
LLC (“VWF”), under which VivaVentures Remediation Corp. agreed to lease the Remediation Processing Center (“RPC”)
owned by VWF. VWF previously raised approximately $13.7 million and used the funds to have our subsidiary, RPC Design and Manufacturing,
LLC, build an RPC, which we are now leasing from VWF in exchange for 25% of the gross proceeds from the RPC’s oil extraction production
services, with a minimum $400,000 annual payment beginning nine months after the RPC is fully-operational as defined in the RPC Equipment
Lease Agreement.
On June 20, 2023, we issued a 15% secured promissory note (the “Note”) due as described below, to Al Dali International for Gen. Trading & Cont. Co., a company organized under the laws of Kuwait (“DIC”), in the principal amount of up to $ 1,950,000 (the “Principal Amount”). We are using the proceeds of the Note to relocate, refurbish, and fully install our RPC currently located in Vernal, Utah to DIC’s location in Kuwait. The installation of this RPC in Kuwait will allow us to perform under the Services Agreement we signed with DIC on December 14, 2021.
As security to secure repayment of the Note, we issued DIC an option to purchase 1,000,000 shares of our common stock at an exercise price of $1.179 per share (the “Option”). At any time there are amounts due to DIC under the Note, DIC may use the amounts to purchase some or all of the shares under the Option by using the outstanding amounts as payment of the exercise price under the Option. We also granted DIC a security interest in our Trial Remediation Processing Center that is currently on-site at the DIC facility in Kuwait. Additionally, we granted DIC a security interest in the RPC.
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We will repay the amounts due under the Note from the operations of the RPC. Under the terms of the Services Agreement, we are entitled to $20 per ton of material processed through the RPC from DIC. In order to repay the amounts due under the Note, DIC will deduct $12 per ton of material processed from the amounts due to us until all amounts due under the Note have been repaid.
Following an event of default, as defined in the Note, we will be subject to a penalty of $5,000 per day. Any penalties incurred under the Note will be added to the Principal Amount due and owing under the Note.
On
May 25, 2023, we
entered into a Consulting Agreement with Matthew Nicosia, our former Chief Executive Officer, Under the terms of the agreement, Mr.
Nicosia is assisting our current Chief Executive Officer regarding transitioning certain projects Mr. Nicosia was working on to our
new Chief Executive Officer, primarily those operations related to our business in Kuwait and our attempt to sell certain assets
that were impaired as of December 31, 2022. The agreement is for an initial term of three-months and we are paying Mr. Nicosia
a total of $ 25,000
in cash and $ 30,000
worth of our common stock.
In May 2023, we entered into a Consulting Agreement with Trent Staggs, one of our former directors. Under the terms of the agreement, Mr. Staggs is assisting us with certain permitting and reporting services related to our RPC in Utah. The agreement is for a term of four months and we are paying Mr. Staggs a total of $ 48,000 in cash under the terms of the agreement.
On
May 23, 2023, our subsidiary White Claw Colorado City, LLC (“WCCC”), supplemented an existing Master Agreement (the “Master
Agreement”) with Maxus Capital Group, LLC (“Maxus”), under which Maxus agreed to finance the build-out of our new facility
located on the land leased by our subsidiary, VivaVentures Remediation Corp., in Houston, Texas. Once the facility is built-out we plan
to put the RPC we lease from VWF at the location and perform oil remediation and wash plant cleaning services. We expect Maxus to fund
approximately $2.2 million to finance the build-out of the Houston location in the form of a finance lease for the wash plant, and we
will lease the wash plant facility financed by Maxus under the WCCC lease supplement. We expect our lease payments to Maxus under the
supplement to be approximately $ 57,962 per month over 4 years, with an early buyout option of approximately $ 685,000 or lease-end option
to purchase the facilities for the fair market value.
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