Item 1. Financial Statements
ITEM 1. FINANCIAL STATEMENTS
VIVAKOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30,
2024
December 31,
2023
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents
$
687,172
$
744,307
Accounts receivable
691,895
2,458,730
Accounts receivable- related party
137,000
174,083
Prepaid expenses
81,484
74,876
Marketable securities
1,239,565
495,826
Inventories
184,882
44,632
Other assets
1,639,084
1,118,188
Total current assets
4,661,082
5,110,642
Other investments
4,000
4,000
Notes receivable
220,088
213,168
Property and equipment, net
28,348,642
24,299,317
Right of use assets- operating leases
1,283,378
1,534,870
License agreements, net
1,560,703
1,651,324
Intellectual property, net
21,481,049
23,437,654
Goodwill
14,984,768
14,984,768
Total assets
$
72,543,710
$
71,235,743
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses
$
19,635,178
$
16,578,642
Accounts payable and accrued expenses- related parties
778,559
1,933,817
Accrued compensation
1,046,481
1,968,063
Operating lease liabilities, current
177,249
435,906
Finance lease liabilities, current
717,828
963,900
Loans and notes payable, current
3,236,529
2,477,970
Loans and notes payable, current- related parties
21,538,331
15,626,168
Total current liabilities
47,130,154
39,984,466
Operating lease liabilities, long term
1,199,082
1,193,915
Finance lease liabilities, long term
1,734,193
1,852,178
Loans and notes payable, long term
355,812
856,034
Loans and notes payable, long term- related parties
-
5,590,008
Long-term debt (working interest royalty programs)
5,264,818
4,433,630
Deferred tax liability
120,076
88,323
Total liabilities
55,804,135
53,998,554
Stockholders’ equity:
Preferred stock, $ 0.001 par value; 15,000,000 shares authorized, none outstanding
Common stock, $ 0.001 par value; 200,000,000 shares authorized; 33,638,273 and 26,220,508 were issued and outstanding as of September 30, 2024 and December 31, 2023, respectively
33,638
26,221
Additional paid-in capital
89,576,500
83,097,553
Treasury stock, at cost
( 20,000
)
( 20,000
)
Accumulated deficit
( 72,791,791
)
( 65,908,406
)
Total Vivakor, Inc. stockholders’ equity
16,798,347
17,195,368
Noncontrolling interest
( 58,772
)
41,821
Total stockholders’ equity
16,739,575
17,237,189
Total liabilities and stockholders’ equity
$
72,543,710
$
71,235,743
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
$
4,775,771
$
12,849,613
$
30,999,451
$
35,614,821
Product revenue - related party
11,140,652
3,463,793
17,119,485
9,834,095
Total revenues
15,916,423
16,313,406
48,118,936
45,448,916
Cost of revenues
14,190,073
14,766,494
44,213,635
41,174,082
Gross profit
1,726,350
1,546,912
3,905,301
4,274,834
Operating expenses:
Sales and marketing
6,650
1,240
18,318
2,457
General and administrative
2,613,394
1,473,728
7,252,540
4,710,852
Amortization and depreciation
1,064,943
817,058
3,062,416
2,269,445
Total operating expenses
3,684,987
2,292,026
10,333,274
6,982,754
Loss from operations
( 1,958,367
)
( 745,114
)
( 6,427,973
)
( 2,707,920
)
Other income (expense):
Unrealized gain (loss) on marketable securities
826,377
( 661,101
)
743,739
( 991,652
)
Gain deconsolidation of subsidiary
-
-
177,550
-
Interest income
2,307
-
6,920
-
Interest expense
( 641,244
)
( 516,357
)
( 1,565,231
)
( 1,426,730
)
Interest expense- related parties
-
( 828,739
)
-
( 2,387,523
)
Other income
31,000
99,420
115,000
123,536
Total other income (expense)
218,440
( 1,906,777
)
( 522,022
)
( 4,682,369
)
Loss before provision for income taxes
( 1,740,197
)
( 2,651,891
)
( 6,949,995
)
( 7,390,289
)
Provision for income taxes
-
-
( 33,983
)
( 800
)
Consolidated net loss
( 1,740,197
)
( 2,651,891
)
( 6,983,978
)
( 7,391,089
)
Less: Net loss attributable to noncontrolling interests
( 52,045
)
( 134,517
)
( 100,593
)
( 494,450
)
Net loss attributable to Vivakor, Inc.
$
( 1,688,152
)
$
( 2,517,374
)
$
( 6,883,385
)
$
( 6,896,639
)
Basic and diluted net loss per share
$
( 0.06
)
$
( 0.14
)
$
( 0.24
)
$
( 0.38
)
Basic weighted average common shares outstanding
30,625,756
18,120,344
28,282,472
18,083,543
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)
-
$
-
29,135,547
$
29,136
$
86,134,795
$
( 20,000
)
$
( 71,103,639
)
$
( 6,727
)
$
15,033,565
Issuance of common stock for services
-
-
150,000
150
353,700
-
-
-
353,850
Issuance of common stock for cash
-
-
2,667,568
2,667
1,422,333
-
-
-
1,425,000
Issuance of common stock on conversion of debt
1,000,000
1,000
1,178,000
-
-
-
1,179,000
Stock based compensation
-
-
685,158
685
487,672
-
-
-
488,357
Net loss
-
-
-
-
-
-
( 1,688,152
)
( 52,045
)
( 1,740,197
)
September 30, 2024 (unaudited)
-
$
-
33,638,273
$
33,638
$
89,576,500
$
( 20,000
)
$
( 72,791,791
)
$
( 58,772
)
$
16,739,575
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
-
$
-
26,220,508
$
26,221
$
83,097,553
$
( 20,000
)
$
( 65,908,406
)
$
41,821
$
17,237,189
Issuance of common stock for services
-
-
633,292
633
735,017
-
-
-
735,650
Issuance of common stock for cash
-
-
2,667,568
2,667
1,422,333
-
-
-
1,425,000
Issuance of common stock for a reduction of liabilities
-
-
400,000
400
378,890
-
-
-
379,290
Issuance of common stock on conversion of debt
1,903,095
1903
2,225,590
-
-
-
2,227,493
Issuance of warrants for services
-
-
-
-
92,522
-
-
-
92,522
Stock based compensation
-
-
1,813,810
1,814
1,624,595
-
-
-
1,626,409
Net loss
-
-
-
-
-
-
( 6,883,385
)
( 100,593
)
( 6,983,978
)
September 30, 2024 (unaudited)
-
$
-
33,638,273
$
33,638
$
89,576,500
$
( 20,000
)
$
( 72,791,791
)
$
( 58,772
)
$
16,739,575
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)
-
$
-
18,064,838
$
18,065
$
74,493,672
$
( 20,000
)
$
( 59,549,046
)
$
8,575,445
$
23,518,136
Issuance of common stock for a reduction of liabilities
-
-
154,744
155
219,845
-
-
-
220,000
Distributions to noncontrolling interest
-
-
-
-
-
-
-
( 414,328
)
( 414,328
)
Issuance of noncontrolling interest for a reduction of debt
-
-
-
-
-
-
-
1,970,000
1,970,000
Stock based compensation
-
-
-
-
1,260,476
-
-
-
1,260,476
Net loss
-
-
-
-
-
-
( 2,517,374
)
( 134,517
)
( 2,651,891
)
September 30, 2023 (unaudited)
-
$
-
18,219,582
$
18,220
$
75,973,993
$
( 20,000
)
$
( 62,066,420
)
$
9,996,600
$
23,902,393
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
-
$
-
18,064,838
$
18,065
$
74,026,163
$
( 20,000
)
$
( 55,169,781
)
$
8,206,614
$
27,061,061
Issuance of common stock for a reduction of liabilities
-
-
154,744
155
219,845
-
-
-
220,000
Distributions to noncontrolling interest
-
-
-
-
-
-
-
( 1,020,564
)
( 1,020,564
)
Issuance of noncontrolling interest for a reduction of debt
-
-
-
-
-
-
-
3,305,000
3,305,000
Non-qualified stock options issued to third party
-
-
-
-
467,509
-
-
-
467,509
Stock based compensation
-
-
-
-
1,260,476
-
-
-
1,260,476
Net loss
-
-
-
-
-
-
( 6,896,639
)
( 494,450
)
( 7,391,089
)
September 30, 2023 (unaudited)
-
$
-
18,219,582
$
18,220
$
75,973,993
$
( 20,000
)
$
( 62,066,420
)
$
9,996,600
$
23,902,393
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
$
( 6,983,978
)
$
( 7,391,089
)
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization
3,062,416
2,269,445
Forgiveness of liabilities
-
( 40,584
)
Stock-based compensation
1,626,409
1,260,476
Unrealized (gain) loss- marketable securities
( 743,739
)
991,652
Gain on deconsolidation of variable interest entity
( 177,550
)
-
Deferred income taxes
31,753
-
Changes in operating assets and liabilities:
Accounts receivable
1,753,918
( 442,307
)
Prepaid expenses
( 6,608
)
( 35,822
)
Inventory
( 140,250
)
( 16,500
)
Other assets
( 520,896
)
( 348,943
)
Right of use assets- finance leases
( 26,648
)
785,817
Right of use assets- operating leases
251,492
257,286
Operating lease liabilities
( 253,490
)
( 257,286
)
Accounts payable and accrued expenses
1,184,103
( 929,360
)
Interest on notes receivable
( 6,920
)
-
Interest on notes payable
1,115,347
3,058,522
Net cash provided (used) in operating activities
165,359
( 838,693
)
INVESTING ACTIVITIES:
Purchase of equipment
( 2,362,898
)
( 3,841,589
)
Net cash used in investing activities
( 2,362,898
)
( 3,841,589
)
FINANCING ACTIVITIES:
Payment on financing lease liabilities
( 364,057
)
( 299,993
)
Proceeds from loans and notes payable
3,365,309
3,723,458
Proceeds from loans and notes payable- related party
1,304,150
776,500
Proceeds from sale of common stock
1,425,000
-
Payment of notes payable
( 1,439,461
)
-
Payment of notes payable- related party
( 2,150,537
)
( 482,815
)
Distributions to noncontrolling interest
-
( 1,020,564
)
Net cash provided by financing activities
2,140,404
2,696,586
Net increase (decrease) in cash and cash equivalents
( 57,135
)
( 1,983,696
)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
744,307
3,182,793
CASH AND CASH EQUIVALENTS, END OF PERIOD
$
687,172
$
1,199,097
SUPPLEMENTAL CASHFLOW INFORMATION:
Cash paid during the year for:
Interest
$
460,343
$
2,485,211
Income taxes
$
-
$
-
Noncash transactions :
Accounts payable on purchase of equipment
1,571,608
432,857
Noncontrolling interest issued for a reduction in liabilities
$
-
$
3,305,000
Capitalized interest on construction in process
$
1,015,402
$
735,919
Common stock issued with debt
$
464,290
$
-
Non-qualified stock options issued with debt
$
-
$
467,509
Common stock issued for services
$
735,650
$
-
Common stock issued on conversion of debt
$
2,227,493
$
-
Common stock issued for a reduction in liabilities
$
379,290
$
220,000
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 $ 7.5 million consists of a promissory note payable (the “Convertible Note”) to the Company payable in full four years after the closing date. In the event the buyer does not close a transaction with a public company within one year from the close of the transaction, then the Company has the right to foreclose on and repossess the assets. The Convertible Note is convertible into common shares of a public company after the buyer closes a transaction to become a public company, which has a ceiling of 17.99% of the total number of shares outstanding of the public company. The “Conversion Price” shall equal the greater of (a) $0.75 per share or (b) the lesser of (i) 90% of the volume weighted average price for the Common Stock during the ten (10) consecutive trading days of the Common Stock immediately preceding the applicable Conversion Date on which the Company elects to convert all or part of this Note or (ii) $2.25 per share. Due to uncertainty of the collectability of the principal amount of the Convertible Note, we have established an allowance for the entire amount, and we have not accrued any interest receivable in connection with the Convertible Note.
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 in the fourth quarter of fiscal year 2023, and as of February 15, 2024 we deconsolidated 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.
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: $ 40,132,938 in crude oil sales, and $ 7,985,998 in product related to natural gas liquids sales. During the third quarter of 2024, the Company entered into a Crude Petroleum Sales Agreement with White Claw Crude (“WC Crude”). Both WC Crude Crude Petroleum Sales Agreement and the existing WC Crude Crude Petroleum Supply Agreement(s) are cash net settled at market prices.
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 $ 17,119,485 and $ 9,834,095 . During the third quarter of 2024, the Company entered into a Crude Petroleum Sales Agreement with 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.
Major Customers and Concentration of Credit Risk
The Company has two major customers, which account for approximately 99 % of the balance of accounts receivable as of September 30, 2024 and 2023. Our two major customers (one of which is a related party) accounted for 99 % of the Company’s revenues for the nine months ended September 30, 2024 and 2023.
Advertising Expense
Advertising costs are expensed as incurred. The Company did no t incur advertising expense for the nine months ended September 30, 2024 and 2023.
6
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 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 773,269 and 214,560 shares of common stock, stock options and vesting or unissued stock awards granted to previous and current employees of 2,003,252 and 2,590,968 shares of common stock, stock options and vesting or unissued stock awards granted to board members or consultants of 572,948 and 680,274 shares of common stock. The Company issued free standing stock options to purchase 1,000,000 shares of our common stock to a third party in a bundled transaction with debt during 2023 (see Note 6), which such stock option was exercised in September 2024 for a reduction in debt. The Company also has warrants outstanding to purchase 399,040 shares of common stock as of September 30, 2024 and 2023.
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 72,791,791 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.
During the nine months ended September 30, 2024, subject to available cash flows, the Company continued to develop its technologies, its strategy to monetize its intellectual properties and execute its 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.
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:
Schedule of property and equipment, net
September 30, 2024
December 31, 2023
Gross
Carrying
Amount
Accumulated
Depreciation
Net Book
Value
Gross
Carrying
Amount
Accumulated
Depreciation
Net Book
Value
Office furniture
$
14,998
$
14,998
$
0
$
14,998
$
7,823
$
7,175
Vehicles
36,432
36,432
0
36,432
33,396
3,036
Equipment
942,880
539,814
403,066
942,880
435,260
507,620
Property
17,000
-
17,000
17,000
0
17,000
Finance lease- Right of use assets
3,579,544
2,270,142
1,309,402
3,579,544
1,484,324
2,095,220
Construction in process:
Wash Plant Facilities
5,722,632
-
5,722,632
3,344,968
-
3,344,968
Cavitation device
72,201
-
72,201
72,201
-
72,201
Remediation Processing Unit 1
4,594,325
-
4,594,325
4,464,513
-
4,464,513
Remediation Processing Unit 2
9,101,198
-
9,101,198
8,187,425
-
8,187,425
Remediation Processing Unit System A
2,936,167
-
2,936,167
2,795,391
-
2,795,391
Remediation Processing Unit System B
2,936,167
-
2,936,167
2,795,391
-
2,795,391
WCCC Tank Expansion
1,256,484
-
1,256,484
9,377
-
9,377
Total fixed assets
$
31,210,028
$
2,861,386
$
28,348,642
$
26,260,120
$
1,960,803
$
24,299,317
For the nine months ending September 30, 2024 and 2023, depreciation expense was $ 114,765 and $ 111,452 . 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.
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:
Schedule of components of intellectual property
September 30, 2024
December 31, 2023
Gross
Carrying
Amount
Accumulated
Amortization
Net Book
Value
Gross
Carrying
Amount
Accumulated
Amortization
Net Book
Value
Extraction Technology patents
$
113,430
$
23,909
$
89,521
$
113,430
$
18,905
$
94,525
Extraction Technology
16,385,157
7,919,493
8,465,664
16,385,157
7,305,049
9,080,108
Acquired crude oil contracts
16,788,760
3,862,896
12,925,864
16,788,760
2,525,739
14,263,021
Total intangible assets
$
33,287,347
$
11,806,298
$
21,481,049
$
33,287,347
$
9,849,693
$
23,437,654
The changes in the carrying amount of goodwill are as follows:
Schedule of goodwill
Goodwill
January 1, 2023
$
12,678,108
Business combination acquisition (1)
2,306,660
December 31, 2023
$
14,984,768
September 30, 2024
$
14,984,768
(1)
The measurement of assets acquired and liabilities assumed in the business combination is based on preliminary estimates made by management and subject to adjustment within twelve months. Management hired a valuation expert who performed a valuation study to calculate the fair value of the acquired assets, assumed liabilities and goodwill within twelve months. Based on the valuation study, we increased the fair value of goodwill and decreased the value of the acquired contracts by $2.3 million in 2023.
Note 5. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
Schedule of accounts payable and accrued expenses
September 30,
December 31,
2024
2023
Accounts payable
$
8,070,842
$
5,226,071
Office access deposits
-
-
Unearned revenue
9,107,297
9,107,297
Accrued interest (various notes and loans payable)
122,331
178,999
Accrued interest (working interest royalty programs)
1,591,907
1,396,528
Accrued tax penalties and interest
742,801
669,747
Accounts payable and accrued expenses
$
19,635,178
$
16,578,642
Schedule of accounts payable and accrued expenses related parties
September 30,
December 31,
2024
2023
Accounts payable- related parties
$
738,633
$
1,933,817
Accrued interest (notes payable)- related parties
39,926
0
Accounts payable and accrued expenses- related parties
$
778,559
$
1,933,817
Accrued compensation
$
1,046,481
$
1,968,063
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 $ 371,075 , of which the Company is in the process of reviewing and may dispute in the near future.
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 $ 109,129 and $ 1,933,817 is with a vendor who our CEO is a beneficiary of. As of September 30, 2024 and December 31, 2023, accounts payable related to consulting services rendered of $ 596,341 and $ 178,325 , are with a vendor who our CEO is a beneficiary of.
As of September 30, 2024, accrued compensation to current employees includes $ 147,982 in accrued vacation pay due to our Chief Executive Officer, which may be payable in cash or stock if unused, and $ 315,627 due to our Chief Financial Officer, which includes $ 90,002 in accrued sick and vacation pay is payable in cash if unused and $ 168,443 in accrued bonuses. Accrued compensation includes prorated year end accrued cash bonuses that are considered probable.
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 is 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.
Note 6. Loans and Notes Payable
Loans and notes payable and their maturities consist of the following:
Third party debt:
Schedule of loans and notes payable
September 30,
2024
December 31,
2023
Various promissory notes and convertible notes
$
50,960
$
50,960
Novus Capital Group LLC Note
-
171,554
National Buick GMC
13,556
13,556
Blue Ridge Bank
410,200
410,200
Small Business Administration
349,579
299,900
Al Dali International for Gen. Trading & Cont. Co. (a)
173,167
974,594
RSF, LLC
500,000
500,000
Keke Mingo
-
913,240
Justin Ellis (b)
322,000
-
Cedarview Opportunities Master Fund LP
1,772,879
-
Total notes payable
$
3,592,341
$
3,334,004
Loans and notes payable, current
$
3,236,529
$
2,477,970
Loans and notes payable, long term
$
355,812
$
856,034
10
Related party debt:
Schedule of loans and notes payable related parties
September 30,
2024
December 31,
2023
Jorgan Development, LLC
$
18,763,296
20,841,052
Ballengee Holdings, LLC (c)
1,264,150
-
Tyler Nelson
1,115,849
-
Triple T Trading Company LLC
395,036
375,124
Total notes payable- related parties
$
21,538,331
$
21,216,176
Loans and notes payable, current- related parties
$
21,538,331
$
15,626,168
Loans and notes payable, long term- related parties
$
-
$
5,590,008
Schedule of maturities of loans and notes payable
2024
$
17,313,784
2025
7,519,146
2026
35,552
2027
17,232
2028
17,232
Thereafter
227,726
Total
$
25,130,672
(a)
On September 9, 2024, Al Dali International for Gen. Trading & Cont. Co. (DIC) submitted a Notice of Exercise directly to our transfer agent to exercise its non-qualified 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 the note payable. 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 the remaining portion of note payable is anticipated to be paid out of operations of the RPC per the terms of the note agreement as previously disclosed.
(b)
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 in accounts payable until 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.
(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.
(c)
As previously disclosed, on May 23, 2024, we issued a promissory note (the “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.
11
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 $ 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 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.
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.
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, 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.
12
Note 8. Share-Based Compensation & Warrants
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 450,244 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 1,657,016 common shares that vest quarterly, and the continued vesting of two stock incentive awards issued to our Executive Vice President, Operations quarterly of 245,536 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 $ 1,626,409 . Non-statutory stock-based compensation was $ 92,522 for the nine months ended September 30, 2024.
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:
Schedule of option activity
Number of
Shares
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life (Years)
Outstanding, December 31, 2023
2,816,900
$
2.03
4.08
Granted
-
-
-
Exercised
( 1,000,000
)
$
1.179
-
Forfeited
-
-
-
Outstanding, September 30, 2024
1,816,900
$
2.50
4.76
Outstanding, December 31, 2022
1,833,566
$
2.59
6.47
Granted
1,000,000
1.18
2.00
Exercised
-
-
-
Forfeited
( 16,667
)
12.00
-
Outstanding, September 30, 2023
2,816,899
$
2.03
4.58
Exercisable, December 31, 2023
2,720,221
$
2.05
3.93
Exercisable, September 30, 2024
1,816,900
$
2.50
4.76
Exercisable, December 31, 2022
1,526,869
$
2.65
5.94
Exercisable, September 30, 2023
2,671,883
$
2.05
4.10
As of September 30, 2024 and 2023, 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.
13
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 $ 33,983 and $ 800 for the nine months ended September 30, 2024 and 2023, respectively. The Company is projecting a ( - 0.73 % ) effective tax rate for the year ending December 31, 2024, which is primarily the result of permanent book to tax differences, increase in the valuation allowance, and the change in the naked credit deferred tax liability. The Company’s effective tax rate for the year ending December 31, 2023 was ( - 0.87 % ), which was primarily the result of prior year true-ups and permanent adjustments.
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 $ 115,000 in office sublease lease revenue from Spectra. As of September 30, 2024, the Company is carrying accounts receivable of $ 137,000 related to this sublease.
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 none and $ 232,745 owed on the note. For the nine months ended September 30, 2024 and 2023, we made cash payments of $ 2,077,755 and $ 2,807,032 on the note.
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 $ 1,350,000 and $ 1,351,237 .
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 $ 33,236,475 and $ 26,373,647 , respectively, and received deficiency payments of $ 661,186 and $ 364,309 , respectively. In addition, SFD entered into a sales agreement on April 1, 2022 with WC Crude to sell a natural gas liquid product. During the third quarter of 2024, the Company entered into a Crude Petroleum Sales Agreement with 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. We produced and sold crude and natural gas liquids to WC Crude in the amount of $ 17,119,485 and $ 9,599,740 , respectively, for the nine months ended September 30, 2024 and 2023.
14
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 $ 596,341 and $ 254,946 , respectively.
On May 14, 2024, we issued a promissory note, to James Ballengee, 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 balance and accrued interest of this note was $ 804,150 and $ 21,274 .
On June 13, 2024, we owed our Chief Financial Officer $ 1,167,750 in accrued salary and bonuses, plus interest (together, the “Accrued Compensation”), for serving as the Company’s Chief Financial Officer, and executed a Settlement Agreement where the Accrued Compensation would be paid under the terms of a straight promissory note in the principal amount of the Accrued Compensation. Under the terms of the note, the amounts due will accrue interest at 8% per annum and will be paid by paying 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 on such date. As of September 30, 2024 the balance of principal and accrued interest was $ 1,115,849 and $ 6,695 .
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. As of September 30, 2024 the balance of principal and accrued interest was $ 500,000 and $ 11,957 .
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 $ 395,036 and $ 365,857 , respectively.
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.
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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 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 ($1.00) 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.
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 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.
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 $ 325,000 and provides for annual incentive cash and equity compensation of up to $780,000, based on certain performance goals as further set forth therein. As an inducement to enter into the Gamboa Agreement, Mr. Gamboa shall receive a one-time signing grant of Vivakor common stock equivalent in value to $150,000, which is priced per share based on the volume-weighted average price for the preceding five (5) trading days prior to the execution date of the Gamboa 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 Gamboa Agreement, Mr. Gamboa’s employment is at-will under Texas law, except as modified therein.
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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 $ 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.
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 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 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 from a specific lender, 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 two amended secured promissory notes that extends the maturity dates 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”).
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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 $ 530,000 under our May 14, 2024 promissory note between Vivakor, Inc. and Ballengee Holdings, LLC, of which our Chief Executive Officer is the beneficial owner. The Company also made payments of $ 530,000 on this promissory note in October 2024. See Note 6 for further information regarding the promissory note between Ballengee Holdings, LLC and Vivakor, Inc.
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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