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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

 

FORM 10-K

 

 

 

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

 

For the Fiscal Year Ended December 31, 2023

 

or

 

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

 

For the transition period from __________ to __________

 

Commission File Number: 001-41286

 

VIVAKOR, INC.

(Exact name of registrant as specified in its charter)

 

Nevada   26-2178141
(State or other jurisdiction of
incorporation or organization)
  (IRS Employer
Identification No.)
     
5220 Spring Valley Road, Suite LL20
Dallas, TX
  75254
(Address of principal executive office)   (Zip code)

 

Registrant’s telephone number, including area code: (949) 281-2606

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock, $0.001 par value   VIVK   The Nasdaq Stock Market LLC
(Nasdaq Capital Market)

 

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

 

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

 

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

 

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

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒   No ☐

 

 

 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
    Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

 

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). 

 

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

 

The aggregate market value of the 10,699,214 voting common stock held by non-affiliates of the registrant as of June 30, 2023 was $12,090,112 based on the closing price of $1.13 per share of the registrant’s common stock as quoted on The Nasdaq Capital Market on that date.

 

As of April 4, 2024, there were 27,710,253 shares of registrant’s common stock outstanding.

 

 

 

 

 

 

TABLE OF CONTENTS

 

      PAGE
PART I
 
Item 1. Business   1
Item1A. Risk Factors   15
Item 1B. Unresolved Staff Comments   28
Item 1C.

Cybersecurity

  29
Item 2. Properties   29
Item 3. Legal Proceedings   29
Item 4. Mine Safety Disclosures   29
 
PART II
 
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities   30
Item 6. [Reserved]    
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations   31
Item 7A. Quantitative and Qualitative Disclosures about Market Risk   37
Item 8. Financial Statements and Supplementary Data   37
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures   37
Item 9A. Controls and Procedures   37
Item 9B. Other Information   38
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections   38
 
PART III
 
Item 10. Directors, Executive Officers and Corporate Governance   39
Item 11. Executive Compensation   44
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters   48
Item 13. Certain Relationships and Related Transactions, and Director Independence   50
Item 14. Principal Accounting Fees and Services   52
 
PART IV
 
Item 15. Exhibits and Financial Statement Schedules   53
       
Signatures   57

 

i

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Annual Report on Form 10-K contains forward-looking statements that present our current expectations or forecasts of future events. These statements do not relate strictly to historical or current facts. Forward-looking statements involve risks and uncertainties and include statements regarding, among other things, our projected revenue growth and profitability, our growth strategies and opportunity, anticipated trends in our market and our anticipated needs for working capital. They are generally identifiable by use of the words “may,” “will,” “should,” “anticipate,” “estimate,” “plans,” “potential,” “projects,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend” or the negative of these words or other variations on these words or comparable terminology. These statements may be found under the sections entitled “Business,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” as well as in this Annual Report on Form 10-K generally. In particular, these include statements relating to future actions, prospective products, market acceptance, future performance or results of current and anticipated products, sales efforts, expenses, and the outcome of contingencies such as legal proceedings and financial results.

 

Examples of forward-looking statements in this Annual Report on Form 10-K include, but are not limited to, our expectations regarding our business strategy, business prospects, operating results, operating expenses, working capital, liquidity and capital expenditure requirements. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding demand for our products and services, the cost, terms and availability of components, pricing levels, the timing and cost of capital expenditures, competitive conditions and general economic conditions. These statements are based on our management’s expectations, beliefs and assumptions concerning future events affecting us, which in turn are based on currently available information. These assumptions could prove inaccurate. Although we believe that the estimates and projections reflected in the forward-looking statements are reasonable, our expectations may prove to be incorrect.

 

Important factors that could cause actual results to differ materially from the results and events anticipated or implied by such forward-looking statements include, but are not limited to:

 

  changes in the market acceptance of our products and services;
     
  increased levels of competition;
     
  changes in political, economic or regulatory conditions generally and in the markets in which we operate;
     
  our relationships with our key customers;
     
  adverse conditions in the industries in which our customers operate;
     
  our ability to retain and attract senior management and other key employees;
     
  our ability to quickly and effectively respond to new technological developments;
     
  our ability to protect our trade secrets or other proprietary rights, operate without infringing upon the proprietary rights of others and prevent others from infringing on the proprietary rights of the Company; and
     
  other risks, including those described in the “Risk Factors” discussion of this Annual Report on Form 10-K.

 

We operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for us to predict all of those risks, nor can we assess the impact of all of those risks on our business or the extent to which any factor may cause actual results to differ materially from those contained in any forward-looking statement. The forward-looking statements in this Annual Report on Form 10-K are based on assumptions management believes are reasonable. However, due to the uncertainties associated with forward-looking statements, you should not place undue reliance on any forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and unless required by law, we expressly disclaim any obligation or undertaking to publicly update any of them in light of new information, future events, or otherwise.

 

ii

 

 

In this Annual Report on Form 10-K, unless the context otherwise requires, all references to “the Company,” “we,” “our”, “us” and “Vivakor” refer to Vivakor, Inc., a Nevada corporation.

 

On February 14, 2022, we effected a 1-for-30 reverse split of our authorized and outstanding shares of preferred and 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 will be 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. Unless otherwise noted, the share and per share information in this Annual Report on Form 10-K has been adjusted to reflect the Reverse Stock Split, including the financial statements and notes thereto.

 

Following a special meeting of the Company’s shareholders in November 2023, the Company currently has 200,000,000 shares of common stock authorized and 15,000,000 shares of preferred stock authorized.

 

iii

 

 

PART I

 

Item 1 - Business

 

Vivakor, Inc. is a socially responsible operator, acquirer and developer of technologies and assets in the oil and gas industry, as well as related environmental solutions. Currently, our efforts are primarily focused on operating crude oil gathering, storage and transportation facilities, as well as contaminated soil remediation services. One of our facilities sells crude oil in amounts up to 60,000 barrels per month under agreements with a large energy company. A different facility owns a 120,000 barrel crude oil storage tank near Colorado City, Texas. The storage tank is presently connected to the Lotus pipeline system, and we plan to further connect the tank to major pipeline systems. 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. 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.

 

Recent Developments

 

Loan and Security Agreement and Issuance of a Secured Promissory Note

 

On February 5, 2024, we issued a secured promissory note (the “Note”) due as described below, to Cedarview Opportunities Master Fund LP (the “Lender”), in the principal amount of $3,000,000 (the “Principal Amount”), in relation to a Loan and Security Agreement by and between the Company, its subsidiaries, and the Lender (the “Agreement”). The Company will use the proceeds of the Note for general working capital purposes and to repay certain indebtedness. The Company received the funds on February 6, 2024, minus a 3% origination fee.

 

To secure repayment of the Note, the Company issued the Lender a security interest in the assets of the Company and its subsidiaries. The Company also issued an irrevocable letter to its transfer agent to reserve 3,000,000 shares of its common stock until the Note is repaid. If the Company defaults on the repayment of the Note, then the transfer agent will transfer the shares to the Lender for the Lender to sell until the amounts due under the Note are repaid in full and return any remaining shares.

 

The Company will repay the amounts due under the Note as follows: first three months are interest only payments, which the Company prepaid at Closing, and then twelve equal monthly installment payments of interest plus $250,000, which must be made on or before May 5, 2025 (the Maturity Date).

 

The Company paid a finder $70,000 in relation to obtaining the loan and issued the Lender 300,000 shares of its common stock, restricted in accordance with Rule 144, as additional consideration for the loan.

 

This summary is not a complete description of all of the terms of the Agreement and the Note and is qualified in its entirety by reference to the full text of the Agreement and the Note, which are filed as Exhibit 10.45 hereto, which are incorporated by reference into this 10-K.

 

Merger Agreement with Empire

 

The Merger Agreement

 

On February 26, 2024 (the “Execution Date”), we (the “Parent”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Empire Energy Acquisition Corp., a Delaware corporation and wholly owned subsidiary of the Parent (“Merger Sub”), and Empire Diversified Energy, Inc., a Delaware corporation (“Empire” and collectively with the Parent and Merger Sub, the “Parties”). Pursuant to the Merger Agreement, on the Closing Date, subject to the terms and conditions set forth in the Merger Agreement, Merger Sub will merge with and into Empire (the “Merger”), with Empire surviving the Merger as a wholly owned subsidiary of the Parent (the “Surviving Company”). Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Merger Agreement.

 

As a result of the Merger, at Closing, all shares of Empire’s common stock, par value $0.00001 per share (the “Empire Common Stock”), on a fully diluted and as converted basis, shall be converted into and exchanged for the right to receive an aggregate of 67,200,000 shares (the “Consideration Shares”) of the Parent’s common stock, par value $0.001 per share (the “Parent Common Stock”), valued at $1.00 per share of Parent Common Stock for an aggregate value equal to $67,200,000.

 

1

 

 

Representations and Warranties; Covenants

 

Pursuant to the Merger Agreement, the Parties made customary representations and warranties for transactions of this type; provided, that the Parties agreed that each of the Parent and Empire shall deliver fully completed copies of their respective disclosure schedules as soon as reasonably practicable, but in no event later than 14 days following the Execution Date. Both Parties shall have sixty (60) days from the Execution Date (the “Diligence Expiration Date”) to conduct due diligence review of the other Party, giving rise to the termination right by either Party until the Diligence Expiration Date.

 

Net Cash Minimum

 

Pursuant to the Merger Agreement, at the Closing, Empire is required to have a minimum of $2,500,000 of unrestricted net cash on its books (“Net Minimum Cash”), which Net Minimum Cash shall be available to the Parent following the Closing.

 

Registration Statement and Proxy

 

As promptly as practicable following the date the Net Minimum Cash is obtained pursuant to the Merger Agreement, but in no event after the later of the (i) 45th day following the Execution Date and (ii) 10th day following the date the Net Minimum Cash is obtained, so long as the Parent has received all necessary information from Empire, the Parent shall file with the U.S. Securities and Exchange Commission (the “SEC”) a registration statement on Form S-4 (the “Registration Statement”) relating to, among other things, the registration of the Consideration Shares issuable to the Empire Stockholders pursuant to the Merger Agreement, including the Proxy Statement portion thereof relating, among other things, to the approval of the Proposals (as defined below) to be voted on at the Parent Stockholders Meeting (as defined below).

 

Parent Stockholders Meeting

 

As promptly as practicable following the date on which the Registration Statement is declared effective by the SEC pursuant to the Securities Act of 1933, as amended (the “Securities Act”), and after reasonable consultation with Empire, the Parent shall establish the record date, and duly call, give notice of, convene and hold the a special meeting of the stockholders of the Parent (the “Parent Stockholders Meeting”) in accordance with Nevada law (and in any event within 10 Business Days after the date of effectiveness of the Registration Statement, unless otherwise required by applicable Laws). At such Parent Stockholders Meeting, the Parent’s board of directors (the “Board”) is to recommend that the Parent Stockholders approve and adopt the following proposals (the “Proposals”): (i) the Merger Agreement, the Merger, the Ancillary Agreements and the Transactions; (ii) for purposes of complying with Nasdaq listing Rule 5635(a), (b) and (d), the issuance of the Consideration Shares to the Empire Stockholders as contemplated in the Merger Agreement; (iii) the adjournment of such Parent Stockholders Meeting as permitted by Section 5.08 of the Merger Agreement; and (iv) any other proposal or proposals that the Parent reasonably deems necessary or desirable to consummate the transactions contemplated by the Merger Agreement (collectively, the “Parent Board Recommendations”).

 

Board of Directors and Officers

 

Upon the Closing, (i) the number of members of the Board shall be fixed at seven, and (ii) the members of the Board shall be (A) James Ballengee, who shall serve as Chairman, (B) three (3) members to be chosen by Empire, (C) two (2) members to be chosen by the Parent, and (D) one (1) member to be chosen by both the Parent and Empire. At least four (4) of the individuals identified in (B), (C), and (D) shall qualify as independent directors under the rules of the Nasdaq Stock Market LLC (“Nasdaq”). If any individual identified in (B) of the foregoing clause (ii) is unable or unwilling to serve in such capacity, Empire may choose a successor but not less than five (5) days in advance of the Closing or such earlier period as may be required by disclosure requirements under applicable Law. If any individual identified in (C) of the foregoing clause (ii) is unable or unwilling to serve in such capacity, the Parent may choose a successor but not less than five days in advance of the Closing or such earlier period as may be required by disclosure requirements under applicable Law.

 

From and after the Effective Time, James Ballengee shall continue to serve as the Parent’s Chief Executive Officer until the earlier of the Board’s appointment of a successor or Mr. Ballengee’s death, resignation, termination or removal.

 

2

 

 

Conditions to Each Party’s Obligations to Consummate the Transactions

 

The respective obligation of each Party to effect, or cause to be effected, the Transactions, including the Merger, is subject to the satisfaction on or before the Closing Date of each of the following conditions, unless waived in writing by each of Parent and the Parent: (a) the Parent Board Recommendations have been approved by the required Parent Stockholders at the Parent Stockholders Meeting; (b) the Merger Agreement and the Merger shall have been duly adopted by the required Empire Stockholders; (c) the Registration Statement shall have become effective; (d) the Parties shall have received all approvals with any Governmental Authority necessary to consummate the Transactions, including, but not limited to, the expiration or termination of the waiting period under the HSR Act, if applicable; (e) there shall not have been enacted, promulgated or made effective after the Execution Date any Law or Orders by a Governmental Authority of competent jurisdiction that enjoins or otherwise prohibits or makes illegal, or any Legal Action by any Governmental Authority seeking to enjoin or prohibit or make illegal, consummation of the Transactions and there shall not be in effect any injunction (whether temporary, preliminary or permanent) by any Governmental Authority of competent jurisdiction that enjoins or otherwise prohibits consummation of the Transactions; (f) the Parent shall have obtained a Fairness Opinion concluding that the Merger and the related Transactions are fair to the Parent Stockholders from a financial point of view; (g) the executed Lock-Up Agreement has been delivered to the Parent; (h) the Lock-Up Extension has been delivered to Empire; and (i) all of the Convertible Securities of Empire have been exercised, converted or exchanged for Empire Common Stock and the Parties shall have mutually agreed as to the treatment of warrants exercisable for shares of Empire Common Stock (the “Empire Warrants”) at Closing provided that if the Empire Warrants have been terminated or exercised into Empire Common Stock prior to the Closing, this condition shall have been deemed satisfied.

 

Conditions to Obligations of the Parent

 

The obligations of the Parent to effect, or cause to be effected, the Transactions, including the Merger, are subject to the satisfaction on or before the Closing Date of the following conditions, unless waived in writing by the Parent (subject to certain qualifications and exceptions as set forth in the Merger Agreement for each): (A) the representations and warranties of Empire regarding the capitalization of Empire shall be true and correct as of the Closing as though made on such date; (B) the representations and warranties of Empire set forth in Section 3.01 (Organization and Power), Section 3.04 (Corporate Authorizations), Section 3.06 (Capitalization) (other than subsections (a), and (b) and (g)), and Section 3.24 (Brokers) shall be true and correct in all material respects as of the Closing as though made on such date; (C) the remaining representations and warranties of Empire contained in Article III shall be true and correct, in each case as of the Closing as though made on such date; (D) each of the covenants of Empire to be performed as of or prior to the Closing shall have materially been performed; (E) there shall not have been a Company Material Adverse Effect (as defined in the Merger Agreement); (F) the Parent shall have received the Company Officer’s Certificate (as defined in the Merger Agreement); (G) Empire shall have the Net Cash Minimum on hand; and (H) the Parent shall have received each of the agreements, instruments and other document set forth in Section 1.11(b) of the Merger Agreement.

 

Conditions to Obligations of Empire

 

The obligations of Empire to effect, or cause to be effected, the Transactions, including the Merger, are subject to the satisfaction on or before the Closing Date of the following conditions, unless waived in writing by Empire (subject to certain qualifications and exceptions as set forth in the Merger Agreement for each): (A) the representations and warranties of the Parent regarding the capitalization of the Parent shall be true and correct as of the Closing as though made on such date; (B) the representations and warranties of the Parent set forth in in Section 4.01 (Organization and Power), Section 4.04 (Corporate Authorizations), Section 4.06 (Capitalization) (other than subsections (a) and (b) and (g)), Section 4.08 (Business Operations), Section 4.24 (Takeover Statutes), Section 5.22 (Opinion of Financial Advisor) and Section 4.28 (Brokers) shall be true and correct in all material respects as of the Closing as though made on such date; (C) the remaining representations and warranties of the Parent contained in Article IV shall be true and correct, in each case as of the Closing as though made on such date; (D) each of the covenants of the Parent to be performed as of or prior to the Closing shall have materially been performed; (E) there shall not have been a Parent Material Adverse Effect (as defined in the Merger Agreement); (F) Empire shall have received the Parent Officer’s Certificate (as defined in the Merger Agreement); (G) the Parent Common Stock (i) shall be listed on Nasdaq and (ii) shall not have been suspended, as of the Closing Date, by the SEC or Nasdaq from trading on Nasdaq nor shall (x) the Parent have received any notice or communication from Nasdaq noting noncompliance with listing requirements or threatening suspension or delisting of the Parent Common Stock or (y) the Parent fails to meet any of the continued listing requirements applicable to it in order to be in compliance with all such listing and maintenance requirements; (H) the transactions referenced in Section 6.03(f) of the Merger Agreement have been consummated or terminated; and (I) Empire shall have received each of the agreements, instruments, and other documents set forth in Section 1.11(a) of the Merger Agreement.

 

3

 

 

Indemnification; Limits

 

Pursuant to Article VIII of the Merger Agreement, and subject to the limitations set forth therein from the date that is twelve (12) months after the Closing, each Party agreed to indemnify and hold harmless the other party for any all Damages incurred or suffered as a result of (a) any inaccuracy in or breach of any representation or warranty or in any certificate or instrument delivered pursuant to the Merger Agreement and (b) any breach of any covenant or agreement of such Party as set forth in the Merger Agreement. Section 8.04(a) of the Merger Agreement (i) limits Empire’s ability to assert claims for Damages against the Parent unless and until the aggregate amount of all such Damages exceeds $250,000 (the “Parent Threshold”) and (ii) caps Parent’s liability for any indemnification payments at $500,000 (the “Parent Cap”).

 

Section 8.04(b) of the Merger Agreement limits the Parent’s ability to assert claims for Damages against Empire unless and until the aggregate amount of all such Damages exceeds $250,000 (the “Empire Threshold”). Notwithstanding anything in the Merger Agreement to the contrary, the Parent Threshold, the Parent Cap and the Empire Threshold shall not apply to Damages that arise from, relate to or are accrued, suffered or incurred as a result of claims relating to fraud or intentional misrepresentation.

 

Except for claims relating to fraud or intentional misrepresentation, the sole remedy of the Parent under the Merger Agreement shall be the Escrow Shares held pursuant to the Escrow Agreement (discussed below).

 

Termination

 

The Merger Agreement may be terminated and the transactions therein may be abandoned: (A) by mutual written consent of the Parties; (B) by the Parent or Empire (i) within sixty (60) days from the Execution Date as a result of the terminating Party’s due diligence review of the other Party, (ii) at any time before the Effective Time if the Closing has not occurred on or before the date that is nine (9) months from the Execution Date (the “Termination Date”), (iii) at any time before the Effective Time the Parent fails to obtain the vote required to pass the proposals presented at the Parent Stockholders Meeting, (iv) at any time before the Effective Time if Empire fails to obtain the vote required to pass the proposals presented at the special meeting of Empire’s stockholders as set forth in the Merger Agreement (the “Empire Stockholder Meeting”), or (v) at any time before the Effective Time if any Law or Order is enacted, issued, promulgated or entered by a Governmental Authority of competent jurisdiction (including Nasdaq) that permanently enjoins, or otherwise prohibits the consummation of the Transactions, and (in the case of any Order) such Order has become final and non-appealable; (C) by Empire if, among other things, (i) there has been a Parent Adverse Recommendation Change (as defined in the Merger Agreement), (ii) if the Board recommends a Superior Proposal (as defined in the Merger Agreement) to the Parent Stockholders or if a tender offer, exchange offer, or other transaction for any outstanding shares of the Parent’s capital stock is commenced before obtaining the required vote at the Parent Stockholders Meeting and if the Board fails to recommend against any such Superior Proposal within ten (10) Business Days after commencement; (iii) if there is a material breach of Section 5.05 of the Merger Agreement, (iv) if the Parent or any of its subsidiaries breach any of its representations, warranties, covenants or agreements in the Merger Agreement, subject to Parent’s ability to cure such breach within the timeframe set forth in the Merger Agreement, (v) if the obligations in Section 6.01 and 6.02 of the Merger Agreement have been satisfied and the Parent has failed to fulfill its respective obligations and consummate the Closing within three (3) Business Days following written notice that Empire is willing and able to consummate the Closing, (iv) the Parent fails to pass the proposals at the Parent Stockholders Meeting by the Termination Date solely due to the action or inaction of the Parent and such action or inaction constitutes a material breach of the Merger Agreement, or (vii) if Empire’s board of directors approves termination and Empire has concurrently with such termination entered into a definitive agreement, arrangement or understanding providing for the implementation of a Superior Proposal (Parent) (as defined in the Merger Agreement); or (D) by the Parent if, among other things, (i) Empire breaches any of its representations, warranties, covenants or agreements contained in the Merger Agreement, subject to Empire’s ability to cure such breach within the timeframe set forth in the Merger Agreement, (ii) if the obligations in Section 6.01 and 6.02 of the Merger Agreement have been satisfied and Empire has failed to fulfill its respective obligations and consummate the Closing within three (3) Business Days following written notice that Empire is willing and able to consummate the Closing; (iii) if Empire fails to pass the proposals presented at the Empire Stockholder Meeting by the Termination Date, or (iv) if the Board approves termination and the Parent has concurrently with such termination entered into a definitive agreement, arrangement or understanding providing for the implementation of a Superior Proposal (Parent) (as defined in the Merger Agreement).

 

4

 

 

Ancillary Agreements to Merger Agreement

 

Voting and Support Agreements

 

Within 30 days of the Execution Date, the Parent agreed to deliver the written agreement of certain directors and executive officers and certain Parent Stockholders holding at least 51% of the voting power of Parent Common Stock (the “Relevant Parent Insiders”), to enter into, in their capacity as stockholders, a voting and support agreement with the Parent, Empire and Merger Sub (the “Parent Voting and Support Agreement”), pursuant to which such Relevant Parent Insiders agree to vote in favor of the adoption of the Merger Agreement and the Transactions and to take (and refrain from taking) certain other actions in connection with the Transactions, including the Merger, in each case, on the terms set forth in the Parent Voting and Support Agreement.

 

Within 30 days of the Execution Date, Empire agreed to deliver the written agreement of certain directors, executive officers and certain Empire Stockholders holding at least 51% of the voting power of shares of Empire Common Stock (the “Relevant Empire Insiders”), to enter into, in their capacity as stockholders, a voting and support agreement with Empire, the Parent and Merger Sub (the “Empire Voting and Support Agreement”), pursuant to which the Relevant Empire Insiders agree to vote in favor of the adoption of the Merger Agreement and the Transactions and to take (and refrain from taking) certain other actions in connection with the Transactions, including the Merger, in each case, on the terms set forth in the Empire Voting and Support Agreement.

 

Lock-Up Agreements

 

As a condition to the Parent’s obligations to consummate the Transactions, at Closing, one or more Empire Stockholders representing, individually or collectively, such number of shares of Empire Common Stock that represent not less than 65% of the issued and outstanding shares of Empire Common Stock, in the aggregate, on a fully diluted and as-converted basis, shall enter into a lock-up agreement (the “Lock-Up Agreement”) whereby such Empire Stockholders agree to a lock-up of their respective Consideration Shares for a period of 12 months following the Closing.

 

As a condition to Empire’s obligations to consummate the Transactions, at or prior to Closing, the Parent shall cause the lock-up period contained in the lock-up agreement dated August 1, 2022 by and between the Parent and JBAH Holdings, LLC to be amended or extended to February 1, 2025 (the “Lock-Up Extension”).

 

Escrow Agreement and Escrow Shares

 

The Parties agreed to enter into an Escrow Agreement (the “Escrow Agreement”), pursuant to which certain of the Empire Stockholders (the “Indemnifying Empire Stockholders”) are to deposit with the Escrow Agent, at Closing, an aggregate of 5,040,000 Consideration Shares otherwise issuable to such Indemnifying Empire Stockholders (the “Escrow Shares”) as security for the obligations of the Parent, its members, shareholders, partners, managers, directors, officers, employees and agents, and its and their respective Affiliates (including, after the Closing, the Surviving Company), successors and permitted assigns (each, an “Indemnified Acquiror” and together, the “Indemnified Acquirors”). The Escrow Agreement shall become effective on the Closing Date and terminate on the 12-month anniversary thereof (the “Escrow Termination Date”). On the Escrow Termination Date, any Escrow Shares not previously released or distributed to cover the obligations of the Indemnified Acquirors as set forth in the Merger Agreement shall be released to the Indemnifying Empire Stockholders.

 

The foregoing descriptions of the Merger Agreement, the Parent Voting and Support Agreement, the Empire Voting and Support Agreement, the Lock-Up Agreement and the Escrow Agreement do not purport to be complete and are qualified their entirety by reference to the Merger Agreement, the form of Parent Voting and Support Agreement, the form of Empire Voting and Support Agreement, the form of Lock-Up Agreement and the form of Escrow Agreement attached to our Current Report on Form 8-K as Exhibits 2.1, 10.1, 10.2, 10.3 and 10.4, respectively, filed with the Commission on March 1, 2024.

 

5

 

 

Promissory Note

 

On December 5, 2023, the Company received a loan from an individual lender in the principal amount of one million dollars ($1,000,000) (the “Loan”) and, in connection therewith, the Company and agreed to issue 100,000 restricted shares of the Company’s common stock. The Loan bears interest at the rate of 10% per annum, matures on December 31, 2024, has been personally guaranteed by James Ballengee, the Company’s Chief Executive Officer. The lender is not a related party or affiliate of the Company.

 

The foregoing is only a brief description of the material terms of and does not purport to be a complete description of the rights and obligations of the parties to the agreements in connection with the Loan (the “Agreements”), and such description is qualified in its entirety by reference to the full text of the Agreements, which are attached hereto as Exhibits 10.56 and 10.57.

 

Our Operations and Resulting Financial Impact

 

Crude Oil Gathering, Storage and Transportation

 

Our subsidiaries, WCCC and SFD, are engaged in the crude oil gathering, storage and transportation industry.

 

SFD operates a crude oil gathering, storage, and transportation facility located on approximately 9.3 acres near Delhi, Louisiana. Under existing agreements, a subsidiary of a large NYSE-traded energy company (the “Purchaser”) is obligated to purchase crude oil from SFD in amounts up to 60,000 barrels per month. With prior approval, SFD is eligible to sell to the Purchaser amounts greater than 60,000 barrels of crude oil per month. Additionally, for a period of 10 years, SFD is, under existing crude oil supply agreements with WC Crude, guaranteed a minimum gross margin of $5.00 per barrel on all quantities of crude oil sold thereunder. At present, SFD is gathering and selling approximately 1,400 to 2,000 barrels of crude oil on a daily basis. The facility has a daily capacity to gather and sell approximately 4,000 barrels of crude oil. For the year ended December 31, 2023, we recognized $59,123,647 in revenue from SFD’s operations.

 

WCCC operates a 120,000 barrel crude oil storage tank, in the heart of the Permian Basin, located near Colorado City, Texas. The storage tank is presently connected to the Lotus pipeline system and the Company intends to further connect the tank to major pipeline systems. Under the terms of an existing agreement, WC Crude has agreed to lease the oil storage tank for a period of 10 years. For the year ended December 31, 2023, we recognized $1,801,606 in revenue from WCCC’s operations.

 

Remediation Processing Centers and Wash Plant

 

Kuwait

 

We presently have one project at which we plan to utilize our first two manufactured RPCs, which is our project in Kuwait.

 

Our initial RPC machine (owned by VivaVentures Royalty I, LLC) was redeployed to a new phase of the project for Kuwait Oil Company (KOC) in partnership with Aldali Trading Company (DIC) for the Kuwait Environmental Remediation Project (KERP), which is a multi-billion dollar project funded by the United Nations (UN) to clean up the oil that was spilled during the Gulf Wars and still polluting the desert. DIC was a subcontractor chosen by Enshaat Al-Sayer General Trading and Contracting Co. WLL (“Enshaat”), the contractor chosen by KOC for the KERP, to do certain soil remediation and clean up for the KERP. This RPC machine also was used for trials to show the effectiveness of the RPC technology. The polluted material contained as little as 7% oil by weight and as much as 18% oil by weight. All trials were overseen by Enshaat, the main contractor with KOC for the project, DIC and KOC itself. In all of the trials, the RPC successfully reduced the oil content in the soil to as little as 0.02% which led to us receiving a Category A approval. It is our understanding that we are the only technology that has been able to process soil with 18% oil to under 1% oil (we were at 0.02% oil) and receive a Category A certification.

 

6

 

 

Because of these results, we were able to borrow USD $1.9 million from our partners in Kuwait to move the Remediation Processing Center that was located in Vernal, Utah (RPC II) to Kuwait so that both machines may work on a new phase of the project in Kuwait. RPC II has arrived in Kuwait, and we are currently working on completing the civil work necessary for us to reconstruct RPC II on the site in Kuwait. We are looking forward to showcasing the RPC technology to KOC management and beginning to meet our assignments within the region, once the RPCs are fully installed and operational. Under our agreement with DIC, the KOC project pays us $20 per ton and we are expecting the RPC’s to process as much as 40 tons per hour based on the volume of feedstock supplied. Pursuant to the agreement with DIC, we would have a stockpile of at least 444,311 tons with at least 5% oil contamination for us to remediate. Overall, we believe that the KERP project contains as much as 26 million tons of contaminated material. We plan to maximize the RPC technology with partners and capital from the Middle East for the purpose of creating a low-risk revenue and profit stream for the Company. With the successful trials, and the movement of RPCII to Kuwait, we believe the first steps have been accomplished in this endeavor.

 

In the fourth quarter of 2023, Enshaat notified us that it terminated its subcontract with DIC for the soil remediation and cleanup work for the KERP and that it desired to contract directly with us for the work on the project along the same terms as we were working under with DIC. Although DIC disputes that Enshaat had the authority to terminate the subcontract between Enshaat and DIC, we are planning to move forward with Enshaat directly for remediation services on the KERP.

 

Houston, Texas

 

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 a two year agreement, 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. Maxus has funded the entire amount it agreed to pay, approximately $2.2 million, to finance the build-out of the Houston location, which was done in the form of a finance lease for the wash plant. We will lease the wash plant facility financed by Maxus under WCCC’s supplement to the Master Agreement. During the construction phase of this agreement, the Company controls the asset with construction costs funded by Maxus. A third RPC has been manufactured and we are planning on deploying it at our new wash plant facility that is currently being constructed in the Houston, Texas area.

 

Market Opportunity

 

Crude Oil Gathering, Storage and Transportation

 

We are presently seeking additional acquisition or development opportunities within the traditional midstream oil and gas sector which are complementary to our existing facilities which provide us with an opportunity to capture more of the energy value chain.

 

Remediation Processing Centers

 

Houston

 

In April 2022, we contracted with an industrial solutions service company as independent contractor to assist us in our operations in the Gulf Coast Region, including Texas, Louisiana, Arkansas, Oklahoma, and New Mexico. As noted above, in conjunction with our contractor, we secured a site location to mobilize, commission, and operate the Company’s RPC technology, which is anticipated to be on the land lease we entered into in December 2022 for approximately 3.5 acres of land in Houston, Texas (commonly known as The San Jacinto River & Rail Park). The Land Lease is for an initial term of 126 months and may be extended for an additional 120 months. Our contractor is acquiring the required state and local permits, which are prerequisites to us being able to deliver and set up a RPC we had manufactured in 2022 and 2023. After the RPC is set up and tested in Houston, Texas we intend to contract with the independent contractor to assist us in operating the RPC and to supply us with a workforce to do so.

 

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Kuwait

 

The United Nations (UN) had allocated up to $14.7 billion for post-Iraq war reparations in order to clean up Kuwait. Kuwait suffered extensive contamination as a result of the 1991 Persian Gulf War.

 

As a result of successfully testing our technology on the contaminated material in Kuwait, including reducing the amount of contaminated material in Kuwait from 20% hydrocarbon contamination to just 0.2% hydrocarbon contamination, based on third party independent testing performed by ALS Arabia in March 2020, we were engaged by a subcontractor, DIC, which is approved by KOC for the Kuwait Environmental Remediation Program (“KERP”) project.

 

The KERP project is anticipated to involve approximately 26 million cubic meters of contaminated oil sands requiring remediation. We expect that as much as 20% of the contaminated soil will contain more than 5% hydrocarbon contamination. Our agreement with DIC is for clean-up of a portion of the KERP project.

 

The oil recovered from these projects in Kuwait is considered a sovereign asset, so the ability to reclaim this asset also creates a social value for the country. In order to remediate all of the contaminated sand exhibiting greater than 7% contamination in the timeframe required by the UN, we anticipate obtaining further agreements through KOC to expand its service contract over the next several years.

 

On December 14, 2021, we, together with our subsidiary, Vivaventures Energy Group, Inc., entered into a Services Agreement (the “Services Agreement”) with Al Dali International Co., a company organized under the laws of Kuwait (“DIC”). The Government of Kuwait and the United Nations, acting through the Kuwait Oil Company (“KOC”) has awarded to Enshaat Al Sayer rights to remediate contaminated soil under the Kuwait Remediation Program pursuant to the South Kuwait Excavation, Transportation and Remediation Project (“KOC Remediation Contract”). To fulfill its role, Enshaat Al Sayer engaged the Company, through the Company’s agreement with DIC, to perform contaminated soil treatment for the KOC Remediation Contract using the Company’s patented technology for extracting hydrocarbons, through the Company’s Remediation Processing Center (“RPC”) plants.

 

We are due to receive $50,000 upon the successful remediation of the first 100 tons ($500 per ton) of contaminated soil under its subcontractor services for the KOC Remediation Contract. In addition, we are due to receive $20 per treated ton of soil after the initial 100 tons. The treatment process using the RPC plants is anticipated to generate a bitumen sub-product. The Company and DIC agreed to sell this sub-product and share the net profits equally (50% to the Company and 50% to DIC), after allocating 30% of the net profits to DIC in the form of a sales and marketing payment, which will be invoiced on a monthly basis, in accordance with the Agreement. Pursuant to our Agreement with DIC, we will have a stockpile of at least 444,311 tons with at least 5% oil contamination for us to remediate.

 

Pursuant to a new phase of the project under the Agreement, on or about February 28, 2023, our pilot plant ran test runs on contaminated soil, which showed the pilot RPC successfully reduced the oil content in the soil to as little as 0.02%. Due to these results, we were able to borrow $1.9 million USD from our partners in Kuwait to move the Remediation Processing Center that was located in Vernal, Utah (RPC II) to Kuwait so that both machines may work on a new phase of the project in Kuwait. RPC II has arrived in Kuwait and we are currently working on completing the civil work necessary for us to reconstruct RPC II on the site in Kuwait. We are looking forward to showcasing the RPC technology to KOC management and beginning to meet our assignments within the region, once the RPCs are fully installed and operational.

 

In the fourth quarter of 2023, Enshaat notified us that it terminated its subcontract with DIC for the soil remediation and cleanup work for the KERP and that it desired to contract directly with us for the work on the project along the same terms as we were working under with DIC. Although DIC disputes that Enshaat had the authority to terminate the subcontract between Enshaat and DIC, we are planning to move forward with Enshaat directly for remediation services on the KERP.

 

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Our Technologies

 

We own and/or license a number of technologies that allow us to effectively operate our remediation and recovery business along with other technologies that provide synergies with our core business. The description of these various technologies follows.

 

Hydrocarbon Extraction Technology

 

In 2015, we acquired and improved technology aimed at remediating contaminated soil and recovering usable hydrocarbons, which is used in our remediation plants (also known as Remediation Processing Centers or RPCs). We presently have two US patents and pending foreign applications related to our RPCs. Our RPCs each have the potential to clean a minimum of 20 tons of contaminated material per hour, depending on the oil contamination percentage in the processed material. Each RPC has the capacity to process 500 tons or more of contaminated material per day on a 24-hour operation. The amount of extracted hydrocarbon recovered depends on the extent to which the material is contaminated. We estimate that for every 480 tons of contaminated material processed per day that contains at least 10% oil, we will recover approximately 250 barrels of extracted hydrocarbons.

 

We believe our RPCs are significantly more advanced than other oil remediation technologies or offerings presently available on the market. Our RPCs have successfully cleaned contaminated soil containing greater than 7% hydrocarbon content, while, to our knowledge, our competitors are limited to projects containing less than 5% hydrocarbon contamination. We believe our ability to clean soil with higher percentages of hydrocarbon contamination is a distinctive advantage that will allow us to operate on a global basis in any location that has suffered from oil spills or naturally occurring oil sands deposits.

 

Automation and Machine Learning

 

The RPC systems we build are automated and controlled by software enabling us to maximize efficiencies. We believe that these automations may ultimately allow us to operate the RPCs twenty-four hours a day, resulting in continuous feed capabilities that will allow us to manage our systems remotely world-wide. Each RPC unit is designed with a focus on automation to achieve our Key Performance Indicators (KPIs). We have deployed data analytics and machine learning, to enable operations to be predictive, reduce risk, improve safety, and reduce costs.

 

Hydrocarbon Upgrading Technologies

 

We have acquired a license described below that will enable us to upgrade the hydrocarbons recovered from our remediation process. This process has been proven in laboratory tests, but we have not yet performed this upgrading in a commercial setting.

 

In 2017, we acquired from CSS Nanotech an exclusive license to use their nano-sponge technology for $2,416,572 in Series C Preferred Stock, which has since converted to common stock. The technology essentially serves as a micro-upgrader, transforming hydrocarbon product into a more useful product, such as petroleum or gasoline, as an addition to our hydrocarbon extraction technology. The inventor of this technology subsequently joined us as our Chief Scientific Officer. This patented technology allows for hydrocarbon material to be absorbed by a specialized sponge. Low energy microwaves are then introduced into the process and the sponge, which is made of a highly thermally conductive material, absorbs this energy causing an instant thermal effect, which essentially refines the crude by cutting or cracking the carbon chains. We intend to add this system to our process of upgrading the heavy crude recovered by our RPCs.

 

We believe that this technology has the ability to upgrade the heavy crude that is recovered from our recovery and remediation process based on our needs and demand, and we intend to fully integrate this technology into our process.

 

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Competitive Strengths and Growth Strategy

 

Our two primary growth strategies for our crude oil gathering, storage and transportation services is to attempt to acquire additional barrels of oil for our services, and to seek to acquire businesses that have operations that are synergistic with our current operations.

 

Regarding our remediation services, we are focused on the remediation of contaminated soil and water resulting from either man-made spills or naturally occurring deposits of oil. Historically, our primary focus has been the remediation of oil spills resulting from the Iraqi invasion of Kuwait and naturally occurring oil sands deposits in the Uinta basin located in Eastern Utah. However, we plan to expand into other markets where we believe our technology and services will provide a distinct competitive advantage over our competition.

 

To that end, in April 2022, we contracted with an industrial solutions service company as independent contractor to assist us in placing a RPC in the Houston, Texas market for the purpose of processing hydrocarbon tank bottoms.

 

Additionally, in the future we intend to focus on placing additional RPCs in the Gulf Coast Region, including Texas, Louisiana, Arkansas, as well as in Oklahoma, and New Mexico. In order to place RPCs at these locations we will need to secure the necessary financing and manufacture additional RPCs, as well as contract with the site locations in order to install the RPCs.

 

In addition to our growth strategies set forth above, we are also focused on growth through the acquisition of synergistic businesses and are regularly reviewing potential acquisition targets.

 

Competitive Strengths

 

We believe the following strengths provide us with a distinct competitive advantage and will enable us to effectively compete on a global basis:

 

  Proprietary patented technology;
     
  Environmental advantages; and
     
  Experienced and highly skilled management, Board of Directors and Advisory Board.

 

Proprietary Patented Technology

 

In total, we, together with our subsidiaries, have intellectual property that is in the form of both proprietary knowledge and patents. Our patent portfolio consists of four issued U.S. patents, and several pending patent applications internationally. In addition, we have licensed from our partners the right to use additional patented technologies.

 

We believe, based on direct and ongoing conversations with our customers and third-party independent test results, that our technology is the only commercially available technology that can not only clean soil that contains greater than 7% hydrocarbon, but also preserves the hydrocarbons extracted from such soil for future use. We believe that this provides us with a true competitive advantage.

 

Our main technology has been tested and validated for all of its claims by separate, independent expert firms both in the United States and the Middle East, whose reports confirm that we have reclamation technology, which has been tested and reviewed, that possesses the ability to clean soil with more than 7% hydrocarbon contamination and still leave the recovered hydrocarbons in a usable state.

 

Environmental Advantages

 

Among our key corporate objectives is to be at the forefront of social responsibility for its technological impact. We strive for all of our systems to ultimately become closed loop systems, to minimize adverse impacts on air quality and reduce the need for use of clean water. Our ability to turn waste into value is in line with this core objective. Our remediation projects in Kuwait are expected to reduce emissions from vaporization of the oil spilled in the soil. The ability to clean produced water from oil production can eliminate the need for evaporation ponds, improving air quality and saving on the use of clean water.

 

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We believe our technology and service offerings will position us well to conduct our business in any geographical region in which soil or water has been contaminated by hydrocarbons.

 

Experienced and Highly Skilled Management, Board of Directors and Advisory Board

 

Our management team has started and successfully grown numerous companies and has utilized this experience to develop a strategic vision for the Company. We have demonstrated the effectiveness of our technologies in Kuwait, accomplishing the clean-up of contaminated areas.

 

Our Board of Directors is comprised of accomplished professionals who bring decades of experience to the Company. Our Board of Directors includes our Chief Executive Officer, who brings more than two decades of experience in midstream oil and gas senior management roles, our Chief Financial Officer, who is a CPA and previously worked at Deloitte LLP (USA) and later at KSJG, LLP (later acquired by Withum+Brown, PC), where he worked with clients with assets of more than $100 billion and annual revenues of more than $15 billion, a director with over 35 years of experience in Board of Directors, CEO and Senior Management positions in a variety of industries including technology services, telecommunications, healthcare, and business process outsourcing, and a director who brings over 25 years of experience in operations and senior management in the midstream and downstream sectors of the oil and gas industry.

 

In addition, we have an Advisory Board comprised of former senior members of oil and gas companies, both in the United States and in the Middle East. Our Advisory Board is led by one member who is an accomplished business professional and a member of a royal family based in the Middle East and another member who is an experienced health and safety expert operating in the oil and gas industries.

 

We rely on our Board of Directors and Advisory Board to provide it with both high level advice and guidance along with using their contacts to help open various markets. Additionally, the Advisory Board acts as a preliminary informal sounding board for the Board and management for these particular areas in which the Advisory Board members have expertise. We believe the combination of our management team, Board of Directors and Advisory Board provides us with a significant competitive advantage over our competitors due to their breadth of experiences and relationships.

 

Growth Strategies

 

Crude Oil Gathering, Storage and Transportation

 

We plan to grow our crude oil gathering, storage and transportation business by pursuing the following strategies:

 

  Increasing the number of barrels of oil gathered, stored, and transported pursuant to our existing long-term contracts;

 

  Construction of wash plant facilities for oil transportation trucks to gather, store and transport reclaimed oil from these facilities;

 

  Acquisition of additional gathering, storage, and transportation assets or companies; and

 

  The development or acquisition of complementary midstream oil and gas companies or projects.

 

WCCC operates a 120,000 barrel crude oil storage tank, in the heart of the Permian Basin, located near Colorado City, Texas. We intend to further connect the tank to major pipeline systems.

 

SFD operates a crude oil gathering, storage, and transportation facility, which is presently gathering and selling approximately 1,400 to 2,000 barrels of crude oil on a daily basis. We plan to increase operations at the SFD facility. This facility has the capacity to gather and sell up to 4,000 barrels of crude oil per day.

 

In April 2022, we contracted with an industrial solutions service company as an independent contractor to assist us in constructing an oil truck wash and remediation facility to be used in conjunction with operating a RPC in Houston, Texas for the purpose of processing hydrocarbon tank bottoms from the wash plant operations. Once the oil truck wash and remediation facility is completed it will allow us to charge tipping fees for our service to take in tank bottoms for our plant to remediate. Our independent contractor is working to secure feed stock contractors through their industry relationships.

 

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Remediation Processing Centers

 

We will strive to grow our RPC business by pursuing the following strategies:

 

  Expansion into new and complementary markets;
     
  Operating our Remediation Project in Kuwait;
     
  Increase of revenue via new service and product offerings; and
     
  Strategic acquisitions and licenses targeting complementary technologies.
     

 

Expansion into New and Complementary Markets

 

We intend to explore expansion opportunities on a global basis, including in places with extreme contamination and naturally occurring oil sands deposits, where we believe our technology and service offerings may provide a distinct competitive advantage. We are currently in discussions with several groups for deploying our RPCs for remediation projects (primarily for oil spills, tank bottom sludge and drill cuttings) domestically in Corpus Christ, TX, Midland, TX Cushing OK, Lake Charles, LA. Our technology is able to process tank bottom sludge, drill cuttings, and soils form hydrocarbon spills, returning the sand to less than 0.5% contamination while reclaiming the oil for waste energy use. In furtherance of that strategy, as noted above, in April 2022, we contracted with an industrial solutions service company as independent contractor to assist us in placing a RPC in the Houston, Texas market where we have leased property (the San Jacinto River & Rail Park) for the purpose of processing hydrocarbon tank bottoms. Once our contractor has acquired the required state and local permits, which are prerequisites to us being able to deliver and set up a RPC on the site, and after the RPC is set up and tested, we intend to contract with the independent contractor to provide us with the workforce to begin operating the plant. Once the oil truck wash and remediation facility is completed it will allow us to charge tipping fees for our service to take in tank bottoms for our plant to remediate. Our independent contractor is working to secure feed stock contractors through their industry relationships.

 

Additionally, in the future we intend to focus on placing additional RPCs in the Gulf Coast Region, including Texas, Louisiana, Arkansas, as well as in Oklahoma, and New Mexico. In order to place RPCs at these locations we will need to secure the necessary financing and manufacture additional RPCs, as well as contract with the site locations in order to install the RPCs.

 

Operating our Remediation Project in Kuwait

 

Our RPC technology was successfully used in our initial project for KOC in Kuwait, where we removed hydrocarbons from soil with more than 7% contamination and, following the process, the hydrocarbon contamination level of the soil was reduced to as little as 0.02%, which was lower than the level needed to meet the project specifications. There is still approximately 26 million cubic meters of soil contaminated by oil from the Iraqi invasion of Kuwait. Pursuant to our Services Agreement with DIC, we will receive $50,000 for the successful remediation of the first 100 tons ($500 per ton) under its subcontractor services for the KOC Remediation Contract. In addition, we will receive $20 per treated ton of soil after the initial 100 tons. The treatment process using the RPC plants is anticipated to generate a bitumen sub-product. We have agreed with DIC to sell this sub-product and share the net profits equally (50% to us and 50% to DIC), after allocating 30% of the net profits to DIC in the form of a sales and marketing payment, which will be invoiced on a monthly basis, in accordance with the Agreement. Pursuant to the Agreement, we will have a stockpile of at least 444,311 tons with at least 5% oil contamination for us to remediate. Other technologies may also be used for the less contaminated soils.

 

In the fourth quarter of 2023, Enshaat notified us that it terminated its subcontract with DIC for the soil remediation and cleanup work for the KERP and that it desired to contract directly with us for the work on the project along the same terms as we were working under with DIC. Although DIC disputes that Enshaat had the authority to terminate the subcontract between Enshaat and DIC, we are planning to move forward with Enshaat directly for remediation services on the KERP.

 

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Increase of Revenue via New Service and Product Offerings

 

To date, we have focused on the remediation of soil contaminated by oil. We intend to target other hydrocarbon remediation businesses that focus on, among other things, the cleaning of tank bottom sludge, and the cleaning of the water used from drilling oil wells. Oil producers generally pay to dispose of sludge that has accumulated at the bottom of storage tanks. We believe that our technologies could be used to separate the contaminated water from heavy crude produced from drilling, while simultaneously recovering the heavy crude. We believe we will be able to offer these services at a cost that is very competitive with current methods and that our ability to recover the heavy crude for resale will give us a competitive advantage. We are currently in early stage discussions relating to some of these remediation projects.

 

Other Holdings

 

Historically, as part of our strategy to find and invest in technologies that might develop synergies with our existing businesses, we have invested in other companies and/or entities. Not all of our investments to date have developed into complementary technologies and/or businesses, but with our management’s assistance, many of them have still become successful and accretive to our Company’s value. Over time, we intend to divest our ownership of companies that are not synergistic with our business.

 

Scepter Holdings

 

We currently hold 826,376,882 (approximately 17.5% of the outstanding common) shares of Scepter Holdings, Inc. (OTC Markets: BRZL), a company that manages the sales and development of consumer-packaged goods. Our holdings of 826,376,882 common shares have a market value of approximately $495,826 as of April 3, 2024.

 

Future Products; Research and Acquisition

 

We intend to identify, develop or acquire products and/or services with a primary focus on the petroleum, mining and minerals, and alternative energy industries. Our general approach is to select products or services that are at or near commercial viability, or that we believe can be substantially developed for commercialization. We then negotiate agreements to either acquire or to provide secured loan financing to these companies to complete their development, testing and product launches in exchange for control of, or a significant ownership interest in, the products or companies.

 

History

 

The Company was originally organized on November 1, 2006 as a limited liability company in the State of Nevada as Genecular Holdings, LLC. The Company’s name was changed to NGI Holdings, LLC on November 3, 2006. On April 30, 2008, the Company was converted to a Nevada corporation and changed its name to Vivakor, Inc. pursuant to Articles of Conversion filed with the Nevada Secretary of State.

 

We have the following direct and indirect wholly-owned active subsidiaries: Silver Fuels Delhi, LLC, a Louisiana limited liability company, White Claw Colorado City, LLC, a Texas limited liability company, RPC Design and Manufacturing LLC (“RDM”), a Utah limited liability company, Vivaventures Remediation Corp., a Texas corporation, Vivaventures Management Company, Inc., a Nevada corporation, Vivaventures Oil Sands, Inc., a Utah corporation. We have a 99.95% ownership interest in Vivaventures Energy Group, Inc., a Nevada Corporation; the 0.05% minority interest in Vivaventures Energy Group, Inc. is held by a private investor unaffiliated with the Company. We also have an approximate 49% ownership interest in Vivakor Middle East Limited Liability Company, a Qatar limited liability company.

 

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Regulations Affecting our Business

 

Our business is subject to federal, state and local laws, regulations and policies, including laws regulating the removal of natural resources from the ground and the discharge of materials into the environment. These regulations mandate, among other things, the maintenance of air and water quality standards and land reclamation. They also set forth limitations on the generation, transportation, storage and disposal of solid and hazardous waste. Exploration and exploitation activities are also subject to federal, state and local laws and regulations which seek to maintain health and safety standards by regulating the design and use of exploration methods and equipment. Environmental and other legal standards imposed by federal, state or local authorities are constantly evolving, and typically in a manner which will require stricter standards and enforcement, and increased fines and penalties for noncompliance. Such changes may prevent us from conducting planned activities or increase our costs of doing so, which would have material adverse effects on our business. Moreover, compliance with such laws may cause substantial delays or require capital outlays in excess of those anticipated, thus causing an adverse effect on us. Additionally, we may be subject to liability for pollution or other environmental damages that we may not be able to or elect not to insure against due to prohibitive premium costs and other reasons. Unknown environmental hazards may exist on our mining claims, or we may acquire properties in the future that have unknown environmental issues caused by previous owners or operators, or that may have occurred naturally.

 

Failure to comply with applicable federal, state, local or foreign laws or regulations could subject our company to enforcement action, including product seizures, recalls, withdrawal of marketing clearances and civil and criminal penalties, any one or more of which could have a material adverse effect on our company’s businesses. We believe that our company is in substantial compliance with such governmental regulations. However, federal, state, local and foreign laws and regulations regarding the manufacture and sale of medical devices are subject to future changes. There can be no assurance that such changes would not have a material adverse effect on our company.

 

Intellectual Property

 

We own four issued US patents and two pending international PCT patent application covering our propriety technology, specifically:

 

  US Patent 7,282,167 for methods for producing nano-scale particles by vaporizing raw material and then cooling the vaporized raw material using a cooling gas, granted October 16, 2007 and expiring July 23, 2025;
     
  US Patent 9,272,920 for methods for producing ammonia by mixing a first catalyst including a millimeter-sized, granular, ferrous material and a promoter and a second catalyst including discrete nano-sized ferrous catalyst particles that comprise a metallic core with an oxide shell and then reacting hydrogen and nitrogen in the presence of the mixture, granted March 1, 2016 and expiring November 7, 2028;
     
  US Patent 10,913,903 for SYSTEM AND METHOD FOR USING A FLASH EVAPORATOR TO SEPARATE BITUMEN AND HYDROCARBON CONDENSATE granted February 9, 2021 and expiring August 28, 2039;
     
  US Patent 7,282,167 for US Patent 10,947,456 for SYSTEMS FOR THE EXTRACTION OF BITUMEN FROM OIL SAND MATERIAL granted on March 16, 2021 to expire on December 3, 2038; and
     
  Pending Kuwait application KW/P/2020/000111 relating to systems and processes for extracting bitumen from oil sands material which employ a centrifuge and a flash evaporator, pending Kuwait application KW/P/2021/00060 and pending Saudi Arabia patent application 521421341, both relating to systems and processes for recycling condensate that is used to extract bitumen from oil sands material by employing a flash distillation drum and a throttle valve that causes the pressure of a mixture of bitumen and condensate to drop as the mixture is sprayed into the flash distillation drum to thereby vaporize the condensate to separate the condensate from the bitumen.

 

Employees

 

As of the date of this Annual Report on 10-K, we have 5 full-time employees, consisting of our CEO, CFO, and additional administrative and direct operations personnel, as well as numerous independent contractors. None of these employees are represented by a labor union or subject to a collective bargaining agreement. We have never experienced a work stoppage and our management believes that our relations with employees are satisfactory.

 

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Properties

 

We own approximately 9 acres of land near Delhi, Louisiana where we operate a crude oil gathering, storage, and transportation facility.

 

We currently lease executive office space in Lehi, Utah, Las Vegas, Nevada, Houston, Texas, Dallas, Texas, and Laguna Hills, California. The Company also leases warehouses in Las Vegas, Nevada and Houston, Texas, and have paid to be on a land site in Houston, Texas. We believe these facilities are in good condition but that we may need to expand our leased space and warehouses as business increases.

 

Legal Proceedings

 

From time to time, we may become involved in various legal actions that arise in the normal course of business. We are not currently involved in any material disputes and do not have any material litigation matters pending.

 

Item 1A - Risk Factors

 

Risks Related to Our Company

 

Our RPC services are at an early operational stage, and the success of these services is subject to the substantial risks inherent in the establishment of a new business venture.

 

Our RPC services are in an early stage, and our initial operations focused on the remediation of soil and the extraction of hydrocarbons, such as oil, from properties contaminated by or laden with heavy crude oil and hydrocarbon-based substances. We intend to, but have not yet, completed the second stage of our operational strategy related to our RPCs, which involves the selling the asphaltic cement and/or other petroleum-based products we are able to produce from the hydrocarbons we recover. Our business and operations related to SFD and WCCC, the gathering, storage and transportation, are also in their early stages.

 

Our services related to our RPCs may not prove to be successful. We have deployed only two RPC units to date to Kuwait. We will need to scale our remediation business beyond these two RPCs and demonstrate that our scaled-up recovery and remediation business can be profitable. Any future success that we may enjoy related to our RPC business will depend on many factors, some of which may be beyond our control, and others which cannot be predicted at this time. Although we began operations in 2008 as a technology acquisition company primarily focused on medical technologies, we have been operating under our current business plan focused on soil remediation since 2011, and we have not yet proven to be profitable. We have not yet sold any substantial amount of products or services commercially and have not proven that our business model will allow us to identify and develop commercially feasible products or technologies. Likewise, SFD and WCCC have limited operating histories and subject to similar risks as new business ventures.

 

We have historically suffered net losses, and we may not be able to sustain profitability.

 

We had an accumulated deficit of $65,908,406 as of December 31, 2023, and we expect to continue to incur significant development expenses in the foreseeable future related to the completion of the development and commercialization of our RPC products. As a result, we are incurring operating and net losses, and it is possible that we may never be able to sustain the revenue levels necessary to achieve and sustain profitability. If we fail to generate sufficient revenues to operate profitably on a consistent basis, or if we are unable to fund our continuing losses, you could lose all or part of your investment.

 

Our financial condition casts doubts about our ability to continue as a going concern.

 

As a result of our financial condition, there is uncertainty regarding our ability to continue as a going concern. To that end, our independent registered public accounting firm for our financial statements for the year ended December 31, 2023 has included an explanatory paragraph describing the uncertainty as to our ability to continue as a going concern. In order to continue as a going concern, we must effectively balance many factors and increase our revenues to a point where we can fund our operations from our sales and revenues. If we are not able to do this, we may not be able to continue as an operating company.

 

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We rely upon a few, select key employees who are instrumental in our ability to conduct and grow our business. In the event any of those key employees would no longer be affiliated with the Company, it may have a material detrimental impact as to our ability to successfully operate our business.

 

Our future success will depend in large part on our ability to attract and retain high-quality management, operations, and other personnel who are in high demand, are often subject to competing employment offers, and are attractive recruiting targets for our competitors. The loss of qualified executives and key employees, or our inability to attract, retain, and motivate high-quality executives and employees required for the planned expansion of our business, may harm our operating results and impair our ability to grow.

 

We depend on the continued services of our key personnel, including James Ballengee, our Chief Executive Officer, Tyler Nelson, our Chief Financial Officer, and Leslie D. Patterson, our Executive Vice President, Operations and Construction. Our work with each of these key personnel are subject to changes and/or termination, and our inability to effectively retain the services of our key management personnel, could materially and adversely affect our operating results and future prospects.

 

A majority of the members of our Board of Directors are not currently independent, in violation of Nasdaq Listing Rules.

 

On December 6, 2023, we received notice from David Natan of his resignation, effective immediately, from our Board of Directors (the “Board”) and from his positions as Chairman of the Audit Committee and as a member of the Compensation Committee and the Nominating and Governance Committee. We informed The Nasdaq Stock Market LLC (“Nasdaq”) of Mr. Natan’s resignation on December 7, 2023. On December 12, 2023, we received notice (the “Notice”) from the Listing Qualifications Department of Nasdaq notifying us, based upon the resignation of David Natan from the Board, we are not currently in compliance with the board of directors independence requirements set forth in Nasdaq Listing Rule 5605(b)(1) and the requirement in Nasdaq Listing Rule 5605(c)(2)(A) to have an audit committee comprised of at least three independent directors. As a result of Mr. Natan’s resignation, the Board, as currently constituted, does not have a majority of directors who would be considered “independent directors,” as that term is defined in Nasdaq Listing Rule 5605(a)(2). Consistent with Nasdaq Listing Rules 5605(b)(1)(A) and Rule 5605(c)(4), Nasdaq provided us a cure period until June 3, 2024 to evidence compliance with the Listing Rules. If we are not able to appoint additional independent members to our Board of Directors prior to June 3, 2024 our common stock could be delisted from Nasdaq.

 

We do not currently have three independent directors on our audit committee and do not have a member that qualifies as an “audit committee financial expert” in violation of Nasdaq Listing Rules.

 

As indicated above, on December 6, 2023, David Natan, our Audit Committee chairman, resigned from the Board and from all Board committees, including the Audit Committee. As a result, the Audit Committee of the Board currently consists of only two independent directors, in violation of Nasdaq Listing Rule 5605(c)(2)(A), which requires the Audit Committee to have three independent directors. We also do not currently have a member on our Audit Committee that qualifies as an “audit committee financial expert,” as such term is defined in Item 407(d)(5) of Regulation S-K. Consistent with Nasdaq Listing Rules 5605(b)(1)(A) and Rule 5605(c)(4), Nasdaq provided us a cure period until June 3, 2024 to evidence compliance with the Listing Rules. If we are not able to appoint at least one independent director to our Audit Committee and/or appoint at least one independent director that qualifies as an “audit committee financial expert” prior to June 3, 2024 our common stock could be delisted from Nasdaq.

 

We may have difficulty raising additional capital, which could deprive us of necessary resources, and you may experience dilution or subordinate stockholder rights, preferences and privileges as a result of our financing efforts.

 

We expect to continue to devote significant capital resources to fund the continued development of our RPCs and related technologies, as well as for potential acquisitions. In order to support the initiatives envisioned in our business plan, we will need to raise additional funds through the sale of public or private debt or equity financing or other arrangements. Our ability to raise additional financing depends on many factors beyond our control, including the state of capital markets, the market price of our common stock and the development or prospects for development of competitive technologies by others. Sufficient additional financing may not be available to us or may be available only on terms that would result in further dilution to the current owners of our common stock.

 

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We expect to obtain additional capital during 2024 through financing lease structures for our RPCs or other financing structures related to our RPCs. Unless we can achieve and sustain profitability, we anticipate that we will need to raise additional capital to fund our operations while we implement and execute our business plan.

 

Any future equity financing may involve substantial dilution to our then existing shareholders. Any future debt financing could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities. There can be no assurance that such additional capital will be available, on a timely basis, or on terms acceptable to us. If we are unsuccessful in raising additional capital or the terms of raising such capital are unacceptable, then we may have to modify our business plan and/or curtail our planned activities and other operations.

 

If we raise additional funds through government or other third-party funding, collaborations, strategic alliances, licensing arrangements or marketing and distribution arrangements, we may have to relinquish valuable rights to our technologies, future revenue stream or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market products that we would otherwise prefer to develop and market ourselves.

 

Additionally, we have certain potential dilutive instruments, of which the conversion of these instruments could result in dilution to shareholders: As of December 31, 2023, the maximum potential dilution is 3,793,801, and includes convertible notes payable convertible into approximately 224,560 shares of common stock, vested stock options and stock awards granted to current and previous employees of 1,821,011 shares of common stock. Vested stock options and stock awards grants granted to Board members of 668,230 shares of common stock were granted as of December 31, 2023. 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 19). There was also a warrant issued and outstanding to EF Hutton for the purchase of 80,000 shares of common stock as of December 31, 2023. These warrants were related to and granted during the close of the underwritten public offering in February 2022.

 

Our business plan includes operating internationally, which subjects us to a number of risks.

 

Our strategic plans include international operations, such as our projects in the Middle East. We intend to use our proprietary RPC technology system and develop, construct and potentially sell our RPC system in international locations. Risks inherent to international operations include the following:

 

  inability to work successfully with third parties having local expertise to co-develop international projects;

 

  multiple, conflicting and changing laws and regulations, including export and import restrictions, tax laws and regulations, environmental regulations, labor laws and other government requirements, approvals, permits and licenses;

 

  difficulties in enforcing agreements in foreign legal systems;

 

  changes in general economic and political conditions in the countries in which we operate, including changes in government incentives relating to oil remediation;

 

  political and economic instability, including wars, acts of terrorism, political unrest, boycotts, curtailments of trade and other business restrictions;

 

  difficulties and costs in recruiting and retaining individuals skilled in international business operations;

 

  international business practices that may conflict with U.S. customs or legal requirements;

 

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  financial risks, such as longer sales and payment cycles and greater difficulty collecting accounts receivable;

 

  fluctuations in currency exchange rates relative to the U.S. dollar; and

 

  inability to obtain, maintain or enforce intellectual property rights.

 

Failure to effectively manage our expected growth could place strains on our managerial, operational and financial resources and could adversely affect our business and operating results.

 

Our expected growth could place a strain on our managerial, operational and financial resources. Further, if our subsidiaries’ businesses grow, then we will be required to manage multiple relationships. Any further growth by us or our subsidiaries, or any increase in the number of our strategic relationships, will increase the strain on our managerial, operational and financial resources. This strain may inhibit our ability to achieve the rapid execution necessary to implement our business plan and could have a material adverse effect on our financial condition, business prospects and operations and the value of an investment in our company.

 

We will need to achieve commercial acceptance of our RPCs and related products in order to generate revenues from those operations and sustain profitability.

 

Our goal at many of our sites is to produce asphaltic cement and/or other petroleum-based products from the hydrocarbons we recover and sell these products to customers; however, we may not be able to successfully commercialize our products related to those operations, and even if we do, we may not be able to do so on a timely basis. Superior competitive technologies may be introduced, or customer needs may change, which will diminish or extinguish the commercial uses for our applications. We cannot predict when significant commercial market acceptance for our RPCs and related products will develop, if at all, and we cannot reliably estimate the projected size of any such potential market. If the markets fail to accept those products, then we may not be able to generate revenues from the commercial application of our technologies related to those products. Our revenue growth and profitability will partially depend on our ability to manufacture and deploy additional RPCs and produce our products to the specifications required by each of our potential customers.

 

We have identified material weaknesses in our internal control over financial reporting. Failure to maintain effective internal controls could cause our investors to lose confidence in us and adversely affect the market price of our common stock. If our internal controls are not effective, we may not be able to accurately report our financial results or prevent fraud.

 

Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”) requires that we maintain internal control over financial reporting that meets applicable standards. We may err in the design or operation of our controls, and all internal control systems, no matter how well designed and operated, can provide only reasonable assurance that the objectives of the control system are met. Because there are inherent limitations in all control systems, there can be no assurance that all control issues have been or will be detected. If we are unable, or are perceived as unable, to produce reliable financial reports due to internal control deficiencies, investors could lose confidence in our reported financial information and operating results, which could result in a negative market reaction and a decrease in our stock price.

 

We have identified material weaknesses in our internal controls related to the segregation of duties and financial reporting process within our internal controls. We did not have enough personnel in our accounting and financial reporting functions. (1) Due to insufficient personnel in our accounting department, we were not able to achieve adequate segregation of duties, and, as a result, we did not have adequate review controls surrounding: (i) our technical accounting matters in our financial reporting process, and (ii) the work of specialists involved in the estimation process. Due to new relationships with a small banking institution and consultants in the current year, we were not able to achieve adequate controls surrounding the review and dual authorization of certain treasury transactions and fixed assets. (2) We did not always follow certain review procedures related to corporate governance. Due to a vacancy of an independent audit committee chairman with financial expertise, and failing to adhere to certain corporate governance administrative procedures, we did not achieve adequate review at the independent Board of Director level over subjective and complex accounting and risk assessment. These control deficiencies, which are pervasive in nature, result in a reasonable possibility that material misstatements of the financial statements will not be prevented or detected on a timely basis. We believe we may be able to substantially resolve our identified material weakness in our internal controls in the future as we continue to hire personnel to fulfill the duties related to the financial reporting process and growth in our business. There can be no assurances that weakness in our internal controls will not occur in the future.

 

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If we identify new material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner, if we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting (if and when required), we may be late with the filing of our periodic reports, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected. As a result of such failures, we could also become subject to investigations by the stock exchange on which our securities are listed, the SEC, or other regulatory authorities, and become subject to litigation from investors and stockholders, which could harm our reputation, financial condition or divert financial and management resources from our core business, and would have a material adverse effect on our business, financial condition and results of operations.

 

A major portion of our business is dependent on the oil industry, which is subject to numerous worldwide variables.

 

Our prospective customers are concentrated in the oil industry. As a result, we will be subject to the success of the oil industry, which is subject to substantial volatility based on numerous worldwide factors. A decline in the oil industry may have a material adverse effect on our business, financial condition, results of operations and cash flows. The oil and gas industry is competitive in all its phases. Competition in the oil and gas industry is intense. We will compete with other participants in the search for oil sand properties and in the marketing of oil and other hydrocarbon products. Our customers could include competitors such as oil and gas companies that have substantially greater financial resources, staff and facilities than those of our customers and lessees. Competitive factors in the distribution and marketing of oil and other hydrocarbon products include price and methods and reliability of delivery.

 

Within the oil remediation market, demand for our services will be limited to a specific customer base and highly correlated to the oil industry. The oil industry’s demand for equipment is affected by a number of factors including the volatile nature of the oil industry’s business, increased use of alternative types of energy and technological developments in the oil extraction process. A significant reduction in the target market’s demand for oil would reduce the demand for the equipment, which would have a material adverse effect upon our business, financial condition, results of operations and cash flows.

 

Low oil prices may substantially impact our ability to generate revenues.

 

Low oil prices may negatively impact our ability to operate. The demand for our products and services depend, in part, on the price of oil and the margins oil producers receive on the sale of oil. Oil prices are volatile and can fluctuate widely based upon a number of factors beyond our control. Any decline in the prices of and demand for oil could have a material adverse effect on our business, financial condition, results of operations and cash flows.

 

Our operations are subject to unforeseen interruptions and hazards inherent in the oil industry, for which we may not be adequately insured and which could cause us to lose customers and substantial revenue.

 

Our operations are exposed to the risks inherent to our industry, such as equipment defects, vehicle accidents, fires, explosions, blowouts, pipe or pipeline failures, and various environmental hazards, such as oil spills and releases of, and exposure to, hazardous substances. For example, our operations are subject to risks associated with storage and handling of oil, including any mishandling or surface spillage. In addition, our operations are exposed to potential natural disasters, including blizzards, tornadoes, storms, floods, other adverse weather conditions and earthquakes. The occurrence of any of these events could result in substantial losses to us due to injury or loss of life, severe damage to or destruction of property, natural resources and equipment, pollution or other environmental damage, clean-up responsibilities, regulatory investigations and penalties or other damage resulting in curtailment or suspension of our operations. The cost of managing such risks may be significant. The frequency and severity of such incidents will affect operating costs, insurability and relationships with customers, employees and regulators. In particular, our customers may elect not to purchase our product if they view our environmental or safety record as unacceptable, which could cause us to lose customers and revenues.

 

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Our operations in the U.S. Gulf of Mexico region are particularly susceptible to interruption and damage from hurricanes. Any of these operating hazards could cause personal injuries, fatalities, oil spills, discharge of hazardous substances into the air and water or environmental damage, lost production and revenue, remediation and clean-up costs and liability for damages, all of which could adversely affect our business, financial condition and results of operations and may not be fully covered by our insurance.

 

Our insurance may not be adequate to cover all losses or liabilities we may suffer. Furthermore, we may be unable to maintain or obtain insurance of the type and amount we desire at reasonable rates. As a result of market conditions, premiums and deductibles for certain of our insurance policies have increased and could escalate further. In addition, sub-limits have been imposed for certain risks. In some instances, certain insurance could become unavailable or available only for reduced amounts of coverage. If we were to incur a significant liability for which we are not fully insured, it could have a material adverse effect on our business, results of operations and financial condition. In addition, we may not be able to secure additional insurance or bonding that might be required by new governmental regulations. This may cause us to restrict our operations, which might severely impact our financial position.

 

Additionally, we may not have coverage if we are unaware of the pollution event and unable to report the “occurrence” to our insurance company within the time frame required under our insurance policy. In addition, these policies do not provide coverage for all liabilities, and the insurance coverage may not be adequate to cover claims that may arise, or we may not be able to maintain adequate insurance at rates we consider reasonable. A loss not fully covered by insurance could have a material adverse effect on our financial position, results of operations and cash flows.

 

We require a variety of permits to operate our business. If we are not successful in obtaining and/or maintaining those permits it will adversely impact our operations.

 

Our business requires permits to operate. Our inability to obtain permits in a timely manner could result in substantial delays to our business. In addition, our customers may not receive permitting for our equipment’s specific use and we may be unable to adjust our equipment to meet our customer’s permitting needs. The issuance of permits is dependent on the applicable government agencies and is beyond our control and that of our customers. There can be no assurance that we and/or our customers will receive the permits necessary to operate, which could substantially and adversely affect our operations and financial condition.

 

We are required to pay permit and approval fees to operate in certain business segments and locations. If we are not able to pay those fees it would adversely impact our business.

 

We are required to pay various types of permit and approval fees to the applicable governmental and quasi-governmental agencies to operate our business. These fees are subject to change at the discretion of the various agencies. Our inability to pay these permit and approval fees could substantially and adversely affect our operations and financial condition.

 

We, and our customers and prospective customers, are subject to numerous governmental regulations, both domestically and internationally. In order to operate successfully we must be able to comply with these regulations.

 

Current and future government laws, regulations and other legal requirements may increase the costs of doing business or restrict business operations. Laws, regulations and other legal requirements, such as those relating to the protection of the environment and natural resources, health, business and tax have an effect on our cost of operation or those of our customers. Such governmental regulation may result in delays, cause us to incur substantial compliance and other costs and prohibit or severely restrict our business or that of our customers, which could have an adverse effect on our business, financial condition, results of operations and cash flows.

 

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We currently depend, and are likely to continue to depend, on a limited number of customers for a significant portion of our revenues related to our operations.

 

We currently have a limited number of customers for our crude oil gathering, transportation and storage services and our RPC services. The failure to obtain additional customers or the loss of all or a portion of the revenues attributable to any current or future customer as a result of competition, creditworthiness, inability to negotiate extensions or replacement of contracts or otherwise could have a material adverse effect on our business, financial condition, results of operations and cash flows.

 

If our customers do not enter into, extend or honor their contracts with us, our profitability could be adversely affected. Our ability to receive payment for production depends on the continued solvency and creditworthiness of our customers and prospective customers. If any of our customers’ creditworthiness suffers, we may bear an increased risk with respect to payment defaults. If customers refuse to accept our equipment or make payments for which they have a contractual obligation, our revenues could be adversely affected. In addition, if a substantial portion of our contracts are modified or terminated and we are unable to replace the contracts (or if new contracts are priced at lower levels), our results of operations will be adversely affected.

 

Our primary business is impacted by the oil industry and the manufacturing industry, which are subject to uncertain economic conditions.

 

The global economy is subject to fluctuation and it is unclear how stable the oil industry and the manufacturing industry will be in the future. As a result, there can be no assurance that the business will achieve anticipated cash flow levels. Further, recent world events evolving out of trade disputes, increased terrorist activities and political and military action, and the COVID-19 pandemic, among other events, have created an air of uncertainty concerning the stability of the global economy. Historically, such events have resulted in disturbances in financial markets, and it is impossible to determine the likelihood of future events. Any negative change in the general economic conditions in the United States and globally could adversely affect the financial condition and operating results of the business. We plan to expand our level of operations. Slower economic activity, concerns about inflation or deflation, decreased consumer confidence, reduced corporate profits and capital spending, adverse business conditions and liquidity concerns in the general economy and recent international conflicts and terrorist and military activity have resulted in a downturn in worldwide economic conditions, especially in the United States. Political and social turmoil related to international conflicts and terrorist acts may place further pressure on economic conditions in the United States and worldwide. These political, social and economic conditions make it extremely difficult for us to accurately forecast and plan future business activities. If such conditions continue or worsen, then our business, financial condition and results of operations could be materially and adversely affected.

 

We are in the process of moving an RPC from Vernal, Utah to Kuwait. If we are unable to complete this move, or unable to properly refurbish the RPC to operate in Kuwait, we could incur substantial losses.

 

In connection with our work on the Kuwait Environmental Remediation Program (KERP), we are in the process of relocating, refurbishing, and installing an RPC from Vernal, Utah to Kuwait. The installation of this RPC in Kuwait will allow us to work on the KERP with a full-sized RPC. In the event we are unable to successfully transfer the RPC to Kuwait and/or refurbish the RPC to operate in Kuwait we could incur substantial losses and in potentially moving the RPC to another location.

 

We are building a new facility near Houston, Texas to place an RPC and perform wash plant services. If we are not successful in installing our RPC and/or building out the wash plant facility we could incur substantial losses.

 

Under our agreement with Maxus Capital Group, LLC (“Maxus”), we are building out a facility on land we lease near Houston, Texas and are obligated to pay Maxus approximately $58,000 per month for four years. In the event we are not able to place on RPC at the facility and/or are unable to build out the facility to perform wash plant services, we could default on our obligation to Maxus, which could cause us substantial losses.

 

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The current Israeli/Hamas conflict could impact our ability to operate in the Middle East in the future.

 

Although the current Israeli/Hamas conflict is currently contained in Israel and the Gaza Strip, any escalation of the conflict involving additional Middle East countries could impact our ability to operate our Remediation Processing Centers located in Kuwait in the future, which could have a material impact on our Middle East projects and our ability to monetize those projects in the future.

 

We are subject to the significant influence of one of our current officers and directors, and his interests may not always coincide with those of our other stockholders.

 

James Ballengee, one of our officers and directors, and Chairperson of the Board of Directors, beneficially owns approximately 41.49% of our outstanding Common Stock. As a result, Mr. Ballengee is able to significantly influence all matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other business combination transactions. Because the interests of Mr. Ballengee may not always coincide with those of our other stockholders, such stockholder may influence or cause us to take actions with which our other stockholders disagree.

 

We will continue to be subject to competition in our business.

 

Our oil remediation equipment utilizes specific technology to extract oil from sand. Oil producers are continually investigating alternative oil production technologies with a view to reduce production costs. In addition, industries that compete with the oil industry, such as the electric power industry, also continue to innovate and create products that compete with the oil industry. There can be no assurance that superior alternative technologies will emerge, which could reduce the demand for and price of our product and services.

 

The market for our products and services is highly competitive and is becoming more so, which could hinder our ability to successfully market our products and services. We may not have the resources, expertise or other competitive factors to compete successfully in the future. We expect to face additional competition from existing competitors and new market entrants in the future. Many of our competitors have greater name recognition and more established relationships in the industry than we do. As a result, these competitors may be able to:

 

  develop and expand their product offerings more rapidly;
     
  adapt to new or emerging changes in customer requirements more quickly;
     
  take advantage of acquisition and other opportunities more readily; and
     
  devote greater resources to the marketing and sale of their products and adopt more aggressive pricing policies than we can.

 

Regarding crude oil gathering, storage and transportation, many of our competitors are large tank farm businesses and if one or more of them built storage tanks and/or facilities near our current facilities they could compete with us for business at our current location. As larger companies, they have greater resources than we do to compete for business in our area and may be able to price us out of business.

 

We carry insurance coverage against liabilities for personal injury, death and property damage, but there is no guarantee this coverage will be sufficient to cover us against all claims.

 

Although, we maintain insurance coverage against liability for personal injury, death and property damage, there can be no assurance that this insurance will be sufficient to cover any such liabilities. We may not be insured or fully insured against the losses or liabilities that could arise from a casualty in the business operations. In addition, there can be no assurance that particular risks that are currently insurable will continue to be insurable on an economical basis or that the current levels of coverage will continue to be available. If a loss occurs that is partially or completely uninsured, we may incur a significant liability.

 

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We may be unable to adequately protect our proprietary rights.

 

Our ability to compete partly depends on the superiority, uniqueness and value of our intellectual property. To protect our proprietary rights, we will rely on a combination of patents, copyrights and trade secrets, confidentiality agreements with our employees and third parties, and protective contractual provisions. Despite these efforts, any of the following occurrences may reduce the value of our intellectual property:

 

  Our applications for patents relating to our business may not be granted and, if granted, may be challenged or invalidated;
     
  Issued patents may not provide us with any competitive advantages;
     
  Our efforts to protect our intellectual property rights may not be effective in preventing misappropriation of our technology;
     
  Our efforts may not prevent the development and design by others of products or technologies similar to or competitive with, or superior to those we develop; or
     
  Another party may obtain a blocking patent and we would need to either obtain a license or design around the patent in order to continue to offer the contested feature or service in our products.

 

We may become involved in lawsuits to protect or enforce our patents that would be expensive and time consuming.

 

In order to protect or enforce our patent rights, we may initiate patent litigation against third parties. In addition, we may become subject to interference or opposition proceedings conducted in patent and trademark offices to determine the priority and patentability of inventions. The defense of intellectual property rights, including patent rights through lawsuits, interference or opposition proceedings, and other legal and administrative proceedings, would be costly and divert our technical and management personnel from their normal responsibilities. An adverse determination of any litigation or defense proceedings could put our pending patent applications at risk of not being issued.

 

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. For example, during the course of this type of litigation, confidential information may be inadvertently disclosed in the form of documents or testimony in connection with discovery requests, depositions or trial testimony. This disclosure could have a material adverse effect on our business and our financial results.

 

Our operations rely on our ability to transport our equipment to different locations. Any impact on the cost, availability and reliability of transportation could adversely affect our business.

 

The availability and reliability of transportation and fluctuation in transportation costs could negatively impact our business. Transportation logistics may play an important role in the sale of our products and related services and in the oil industry generally. Delays and interruptions of transportation services because of accidents, failure to complete construction of infrastructure, infrastructure damage, lack of capacity, weather-related problems, governmental regulation, terrorism, strikes, lock-outs, third-party actions or other events could impair the operations of our customers and may also directly impair our ability to commence or complete production or services, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

 

The lands on which we conduct our business operations must be properly zoned for our services. If they aren’t then it could impact our business.

 

The lands on which we conduct our business operations must comply with applicable zoning regulations. Any unknown or future violations could limit or require us to cease operations.

 

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Data security breaches are increasing worldwide. If we are the victim of such a breach it will materially impact our business.

 

We will collect and retain certain personal information provided by our employees and investors. We intend to implement certain protocols designed to protect the confidentiality of this information and periodically review and improve our security measures; however, these protocols may not prevent unauthorized access to this information. Technology and safeguards in this area are consistently changing and there is no assurance that we will be able to maintain sufficient protocols to protect confidential information. Any breach of our data security measures and disbursement of this information may result in legal liability and costs (including damages and penalties), as well as damage to our reputation, that could materially and adversely affect our business and financial performance.

 

We may indemnify our directors and officers against liability to us and holders of our securities, and such indemnification could increase our operating costs.

 

Our bylaws allow us to indemnify our directors and officers against claims associated with carrying out the duties of their offices. Our bylaws also allow us to reimburse them for the costs of certain legal defenses. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the “Securities Act”) may be permitted to our directors, officers or control persons, we have been advised by the SEC that such indemnification is against public policy and is therefore unenforceable. If our officers and directors file a claim against us for indemnification, the associated expenses could also increase our operating costs.

 

We may be subject to liability if our equipment does not perform as expected.

 

We may be exposed to liability in the event our equipment does not perform as expected. We intend to enter into contracts with customers, which will grant certain rights with respect to the condition and use of our products. Certain contractual and legal claims could arise in the event the equipment does not perform as expected and in the event of personal injury, death or property damage as a result of the use of our equipment. There can be no assurance that particular risks are insured or, if insured, will continue to be insurable on an economical basis or that current levels of coverage will continue to be available. We may be liable for any defects in the equipment or its products and services and uninsured or underinsured personal injury, death or property damage claims.

 

Our RPCs depend on our ability to manufacture various pieces of equipment, many of which are quite large. Any disruption in our manufacturing ability will adversely affect our business and operations.

 

Our RPCs involve manufacturing and plant operation risks of delay that may be outside of our control. Production or services may be delayed or prevented by factors such as adverse weather, strikes, energy shortages, shortages or increased costs of materials, inflation, environmental conditions, legal matters and other unknown contingencies. Our RPCs also require certain manufacturing apparatus to manufacture the equipment. If the manufacturing apparatus were to suffer major damage or are destroyed by fire, abnormal wear, flooding, incorrect operation or otherwise, we may be unable to replace or repair such apparatus in a timely manner or at a reasonable cost, which would impact our ability to stay in production or service. Any significant downtime of the equipment manufacturing could impair our ability to produce for or serve customers and materially and adversely affect our results of operations. In addition, changes in the equipment plans and specifications, delays due to compliance with governmental requirements or impositions of fees or other delays could increase production costs beyond those budgeted for the business. If any cost overruns exceed the funds budgeted for operations, the business would be negatively impacted.

 

Any accident at our facilities could subject us to substantial liability.

 

The manufacturing and operation of our equipment and assets involves hazards and risks which could disrupt operations, decrease production and increase costs. The occurrence of a significant accident or other event that is not fully insured could adversely affect our business, financial condition, results of operations and cash flows.

 

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If critical components become unavailable or our suppliers delay their production of our key components, our business will be negatively impacted.

 

Our ability to get key components to build or repair our equipment is crucial to our ability to manufacture our plants and produce our products. These components are supplied by certain third-party manufacturers, and we may be unable to acquire necessary amounts of key components at competitive prices.

 

If we are successful in our growth, outsourcing the production of certain parts and components would be one way to reduce manufacturing costs. We plan to select these particular manufacturers based on their ability to consistently produce these products according to our requirements in an effort to obtain the best quality product at the most cost-effective price. However, the loss of all or any one of these suppliers or delays in obtaining shipments would have an adverse effect on our operations until an alternative supplier could be found, if one may be located at all. If we get to that stage of growth, such loss of manufacturers could cause us to breach any contracts we have in place at that time and would likely cause us to lose sales.

 

Any shortage of skilled labor would have a detrimental impact on our ability to provide our products and services.

 

The manufacturing and operating of our facilities and equipment requires skilled laborers. In the event there is a shortage of labor, including skilled labor, it could have an adverse impact on our productivity and costs and our ability to expand production in the event there is an increase in demand for our product or services.

 

We rely on third party contractors for some of our operations. If we are unable to find quality contractors, it would severely impact our business.

 

We outsource certain aspects of our business to third party contractors. We are subject to the risks associated with such contractors’ ability to successfully provide the necessary services to meet the needs of our business. If the contractors are unable to adequately provide the contracted services, and we are unable to find alternative service providers in a timely manner, our ability to operate the business may be disrupted, which may adversely affect our business, financial condition, results of operations and cash flows.

 

Union activities could adversely impact our business.

 

While none of our employees are currently members of unions, we may become adversely effected by union activities. We are not subject to any collective bargaining or union agreement; however, it is possible that future employees may join or seek recognition to form a labor union or may be required to become a labor agreement signatory. If some or all of our employees become unionized, it could adversely affect productivity, increase labor costs and increase the risk of work stoppages. If a work stoppage were to occur, it could interfere with the business operations and have a material adverse effect on our business, financial condition, results of operations and cash flows.

 

If we fail to make the Threshold Payment, or otherwise breach the terms of the MIPA entered into on August 1, 2022, the transaction consummated by the MIPA may be unwound.

 

Under the terms of the MIPA entered into on August 1, 2022, as amended subsequent to December 31, 2023, we agreed with the Sellers that, in the event of a breach of the terms of the MIPA, the Notes, or the Pledge Agreement, the sole and exclusive remedy of the parties will be to unwind the MIPA transaction (the “Unwinding”). Under the MIPA documents, as amended, the Threshold Payment, and corresponding Unwinding right held by the Sellers, will expire upon the earliest to occur of (i) payment of the Threshold Payment on or before the extended Threshold Payment Date (February 1, 2025), (ii) the closing of the proposed merger transaction with Empire Diversified Energy, Inc., or (iii) the proposed acquisition of Endeavor Crude, LLC and affiliated entities. In the event the Threshold Payment is not extinguished by the occurrence of (i) – (iii) above, then the Sellers could force the Unwinding. In any such Unwinding, the Membership Interest (as defined in the MIPA) will be transferred to Sellers and Sellers will assign and transfer to us, the number of shares of our common stock constituting the Purchaser Stock Consideration and any other amounts (the “Pre-Payment Amounts”) paid to Sellers by us above and beyond the monthly amounts required to be paid to Sellers under the Notes. If the MIPA transaction were to be unwound we would no longer own SFD and WCCC, which would substantially impact our operations and revenues.

 

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Although our shares of Common Stock are listed on The Nasdaq Capital Market, our shares of Common Stock may be subject to potential delisting if we do not meet or continue to maintain the listing requirements of The Nasdaq Capital Market.

 

Our common stock is listed on Nasdaq; however, to keep our listing on Nasdaq, we are required to maintain: (i) a minimum bid price of $1.00 per share, (ii) a certain public float, (iii) a certain number of round lot shareholders and (iv) one of the following: a net income from continuing operations (in the latest fiscal year or two of the three last fiscal years) of at least $500,000, a market value of listed securities of at least $35 million or a stockholders’ equity of at least $2.5 million.

 

If our securities are ever delisted from Nasdaq, trading will most likely take place on the OTC Marketplace operated by OTC Markets Group Inc. An investor is likely to find it less convenient to sell, or to obtain accurate quotations in seeking to buy, our Common Stock on an over-the-counter market, and many investors may not buy or sell our Common Stock due to difficulty in accessing over-the-counter markets, or due to policies preventing them from trading in securities not listed on a national exchange or other reasons, and our ability to issue additional securities for financing or other purposes, or otherwise to arrange for any financing we may need in the future, may also be materially and adversely affected if our Common Stock is not traded on a national securities exchange. For these reasons and others, delisting would adversely affect the liquidity, trading volume and price of our Common Stock, causing the value of an investment in us to decrease and having an adverse effect on our business, financial condition and results of operations, including our ability to attract and retain qualified executives and employees and to raise capital.

 

We may not be able to identify, negotiate, finance or close future acquisitions.

 

One component of our growth strategy focuses on acquiring additional technologies, companies and/or assets. We may not, however, be able to identify, audit, or acquire technologies, companies and/or assets on acceptable terms, if at all. Additionally, we may need to finance all or a portion of the purchase price for an acquisition by incurring indebtedness. There can be no assurance that we will be able to obtain financing on terms that are favorable, if at all, which will limit our ability to acquire additional companies or assets in the future. Failure to acquire additional companies or assets on acceptable terms, if at all, would have a material adverse effect on our ability to increase assets, revenues and net income and on the trading price of our common stock.

 

We may not be able to properly manage multiple businesses.

 

We may not be able to properly manage multiple businesses. Managing multiple businesses would be more complicated than managing one or two of business, even if the additional businesses were synergistic with our existing businesses, and would require that we hire and manage executives with experience and expertise in different fields. We can provide no assurance that we will be able to do so successfully. A failure to properly manage multiple businesses could materially adversely affect our company and the trading price of our stock.

 

We may not be able to successfully integrate new acquisitions.

 

Even if we are able to acquire additional technologies, companies and/or assets, we may not be able to successfully integrate those companies or assets. For example, we may need to integrate widely dispersed operations with different corporate cultures, operating margins, competitive environments, computer systems, compensation schemes, business plans and growth potential requiring significant management time and attention. In addition, the successful integration of any companies we acquire will depend in large part on the retention of personnel critical to our combined business operations due to, for example, unique technical skills or management expertise. We may be unable to retain existing management, finance, engineering, sales, customer support, and operations personnel that are critical to the success of the integrated company, resulting in disruption of operations, loss of key information, expertise or know-how, unanticipated additional recruitment and training costs, and otherwise diminishing anticipated benefits of these acquisitions, including loss of revenue and profitability. Failure to successfully integrate acquired businesses could have a material adverse effect on our company and the trading price of our stock.

 

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Our acquisitions of businesses may be extremely risky, and we could lose all of our investments.

 

We may invest in seemingly synergistic businesses that are in other risky industries. An investment in these companies may be extremely risky because, among other things, the companies we are likely to focus on: (1) typically have limited operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors’ actions and market conditions, as well as general economic downturns; (2) tend to be privately-owned and generally have little publicly available information and, as a result, we may not learn all of the material information we need to know regarding these businesses; (3) are more likely to depend on the management talents and efforts of a small group of people; and, as a result, the death, disability, resignation or termination of one or more of these people could have an adverse impact on the operations of any business that we may acquire; (4) may have less predictable operating results; (5) may from time to time be parties to litigation; (6) may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence; and (7) may require substantial additional capital to support their operations, finance expansion or maintain their competitive position. Our failure to make acquisitions efficiently and profitably could have a material adverse effect on our business, results of operations, financial condition and the trading price of our stock.

 

Future acquisitions may fail to perform as expected.

 

Future acquisitions may fail to perform as expected. We may overestimate cash flow, underestimate costs, or fail to understand risks. This could materially adversely affect our company and the trading price of our Stock.

 

Competition may result in overpaying for acquisitions.

 

Other investors with significant capital may compete with us for attractive investment opportunities. These competitors may include publicly traded companies, private equity firms, privately held buyers, individual investors, and other types of investors. Such competition may increase the price of acquisitions, or otherwise adversely affect the terms and conditions of acquisitions. This could materially adversely affect our company and the trading price of our stock.

 

The Merger Agreement we entered into with Empire is subject to numerous closing conditions and may not close as structured, or at all.

 

On February 26, 2024, we entered into the aforementioned Merger Agreement with Empire Diversified Energy, Inc., pursuant to which Empire will become a wholly-owned subsidiary at the closing of the transaction. The Merger Agreement is subject to numerous closing conditions that must be met by both parties and in the event those conditions are not satisfied the structure of the transaction may change prior to closing or the transaction may not close at all.

 

The Membership Interest Purchase Agreement we entered into regarding Endeavor is subject to numerous closing conditions and may not close as structured, or at all.

 

Effective March 21, 2024, we entered into the aforementioned Membership Interest Purchase Agreement with Jorgan Development, LLC and JBAH Holdings, LLC (the “Endeavor MIPA”), pursuant to which we would acquire 100% of the outstanding membership units of Endeavor Crude, LLC (f/k/a Meridian Transport, LLC), Equipment Transport, LLC, Meridian Equipment Leasing, LLC, and Silver Fuels Processing, LLC (the “Endeavor Entities”) from Jorgan and JBAH and the Endeavor Entities will become a wholly-owned subsidiaries of ours at the closing of the transaction. The Endeavor MIPA is subject to numerous closing conditions that must be met by both parties and in the event those conditions are not satisfied the structure of the transaction may change prior to closing or the transaction may not close at all.

 

We may have insufficient resources to cover our operating expenses and the expenses of raising money and consummating acquisitions.

 

We have limited cash to cover our operating expenses and to cover the expenses incurred in connection with money raising and a business combination. It is possible that we could incur substantial costs in connection with money raising or a business combination. If we do not have sufficient proceeds available to cover our expenses, we may be forced to obtain additional financing, either from our management or third parties. We may not be able to obtain additional financing on acceptable terms, if at all, and neither our management nor any third party is obligated to provide any financing. This could have a negative impact on our company and our stock price.

 

Although we do not believe that we are, or will be, an investment company covered by the Investment Company Act of 1940, if we are deemed to be an investment company, we may be required to institute burdensome compliance requirements and our activities may be restricted, which may make it difficult for us to engage in strategic transactions.

 

A company that, among other things, is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, owning, trading or holding certain types of securities would be deemed an investment company under the Investment Company Act of 1940, as amended, (the “Investment Company Act”). Additionally, a company that is not and does hold itself out as being engaged primarily in the business of investing, reinvesting, owning, trading or holding certain types of securities may nevertheless be deemed an investment company under the Investment Company Act if more than 40% of such company’s assets are deemed to be “investment securities.”

 

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We are not in the business of buying and selling securities of other companies. As our strategy had involved the Company investing in other companies, including Scepter Holdings, it is possible that we could be deemed an investment company, although, given the nature and extent of our business operations, we do not believe that we are or will be subject us to the Investment Company Act. Our investment in Scepter Holdings arose from loan agreements that were settled in the form of equity because cash was not available for the borrowers to pay the loans in cash. The Company has not traded or sold any securities of other companies that it has acquired. For those LLCs for which the Company serves as manager, it has been disclosed in the business plan of these LLCs that their primary business is manufacturing heavy machinery or to provide the Company with cash to specifically manufacture or purchase heavy machinery in exchange for a royalty from the production of the heavy machinery. These entities do not engage in activities such as investing, reinvesting, owning, holding or trading “investment securities,” and neither the units of ownership for these entities, nor rights to royalties, have any market and are not traded, and such interests are accounted for at cost.

 

In order not to be regulated as an investment company under the Investment Company Act, unless we can qualify for an exclusion, we must ensure that we are engaged primarily in a business other than investing, reinvesting or trading in securities and that our activities do not include investing, reinvesting, owning, holding or trading “investment securities” constituting more than 40% of our total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. Presently, our “investment securities,” which include our holdings in Scepter Holdings, as well as certain entities described in our corporate structure, comprise approximately 7% of our total assets, which is below such 40% threshold. As our business continues to develop and production increases, the percentage of our total assets comprised of investment securities is expected to decline substantially; however, in the event that the percentage of our holdings in investment securities increases, we risk exceeding such 40% threshold and being deemed an investment company. We do not plan to buy businesses or assets with a view to resale or profit from their resale. We do not plan to buy unrelated businesses or assets or to be a passive investor.

 

If we are nevertheless deemed to be an investment company under the Investment Company Act, we may be subject to certain restrictions that may make it more difficult for us to complete a business combination, including:

 

  restrictions on the nature of our investments; and
     
  restrictions on the issuance of securities.

 

In addition, we may have imposed upon us certain burdensome requirements, including:

 

  registration as an investment company;
     
  adoption of a specific form of corporate structure; and
     
  reporting, record keeping, voting, proxy, compliance policies and procedures and disclosure requirements and other rules and regulations.

 

Compliance with these additional regulatory burdens would require additional expense for which we have not allotted.

 

Item 1B - Unresolved Staff Comments

 

Not applicable.

 

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Item 1C - Cybersecurity

 

We have certain processes for assessing, identifying, and managing cybersecurity risks, which are built into our overall information technology function and are designed to help protect our information assets and operations from internal and external cyber threats, protect information from unauthorized access or attack, as well as secure our network and systems. Such processes include physical, procedural, and technical safeguards, tests on our systems, and routine review of our policies and procedures to identify risks and improve our practices. We engage certain external parties, including an information technology consultant, to enhance our cybersecurity oversight.

 

The Audit Committee of our Board of Directors provides direct oversight over cybersecurity risk and provides periodic updates to the Board of Directors regarding such oversight. The Audit Committee receives periodic updates from management regarding cybersecurity matters and is notified between such updates regarding significant new cybersecurity threats or incidents.

 

Our informational technology consultant leads the operational oversight of company-wide cybersecurity strategy, policy, standards, and processes and works across relevant departments to assess and help prepare us and our employees to address cybersecurity risks. Our informational technology consultant has over 34 years of experience working with companies in the information technology field.

 

We are working with our information technology consultant to help improve our overall cybersecurity and plan to take any necessary steps to protect our information assets and operations from internal and external cyber threats in the event any such steps are recommended.

 

We do not believe that there are currently any known risks from cybersecurity threats that are reasonably likely to materially affect us or our business strategy, results of operations, or financial condition. 

 

Item 2 - Properties

 

We own approximately 9 acres of land near Delhi, Louisiana where we operate a crude oil gathering, storage, and transportation facility.

 

We currently lease executive office space in Lehi, Utah, Las Vegas, Nevada, Houston, Texas, Irvine, California, and Laguna Hills, California. The Company also leases warehouses in Las Vegas, Nevada and Houston, Texas, and have paid to be on a land site in Vernal, UT and Houston, Texas. We believe these facilities are in good condition but that we may need to expand our leased space and warehouses as business increases.

 

Item 3 - Legal Proceedings

 

From time to time, we may become involved in various legal actions that arise in the normal course of business. We intend to defend vigorously against any future claims and litigation. We are not currently involved in any material disputes and do not have any material litigation matters pending.

 

Item 4 - Mine Safety Disclosures

 

Not applicable.

 

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PART II

 

Item 5 - Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

Market Information

 

Our Common Stock is listed on the Nasdaq Capital Market under the symbol “VIVK.”

 

Holders

 

As of April 4, 2024, there were 27,710,253 shares of Common Stock outstanding held by approximately 534 holders of record (not including an indeterminate number of beneficial holders of stock held in street name).

 

Warrants

 

There is a warrant to purchase 80,000 shares of common stock issued and outstanding as of April 4, 2024.

 

Dividends

 

To date, we have not paid any dividends on our common stock and do not anticipate paying any dividends in the foreseeable future. The declaration and payment of dividends on the common stock is at the discretion of our Board of Directors and will depend on, among other things, our operating results, financial condition, capital requirements, contractual restrictions or such other factors as our Board of Directors may deem relevant.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

On November 10, 2023, our 2023 Equity and Incentive Plan went effective. The plan was approved by our Board of Directors and by the holders of a majority of our common stock. The Plan’s number of authorized shares is 40,000,000. As of April 4, 2024, no options had been granted or exercised under the Plan. As of April 4, 2024, there were stock awards granted of 3,584,340 shares of common stock at a weighted exercise price of $0.83 per share under the plan. As of April 4, 2024, the Plan had 2,394,882 vested shares and 1,189,458 non-vested shares underlying the stock awards. We have not issued any other type of equity awards under the Plan.

 

On February 14, 2022, our 2021 Equity and Incentive Plan went effective. The plan was approved by our Board of Directors. The Plan’s number of authorized shares is 2,000,000. As of April 4, 2024, there were stock options and awards granted to acquire 1,816,900 shares of common stock at a weighted exercise price of $2.50 per share under the plan. As of April 4, 2024, the Plan had 1,720,221vested shares and 96,679 non-vested shares underlying the stock options. As of April 4, 2024, no options had been exercised under the Plan. We have not issued any other type of equity awards under the Plan. The stock options issued under the Plan are held by certain of our current and former executive officers.

 

Recent Issuance of Unregistered Securities

 

The following sets forth information regarding all unregistered securities sold by us in transactions that were exempt from the requirements of the Securities Act in the last fiscal year. Except where noted, all of the securities discussed in this Item 5 were all issued in reliance on the exemption under Section 4(a)(2) of the Securities Act.

 

2023

 

On June 20, 2023, we issued a 15% secured promissory note (the “Note”) due as described below, to DIC, in the principal amount of up to $1,950,000 (the “Principal Amount”), in relation to the Services Agreement. The Company will use the proceeds of the Note in refurbishing, relocating and fully installing the Company’s RPC currently located in Vernal, Utah to DIC’s location in Kuwait. As security interest to secure repayment of the Note, the Company issued DIC an option to purchase 1,000,000 shares of the Company’s 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 then outstanding 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.

 

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On August 29, 2023, we issued 154,744 shares of common stock at approximately $1.42 per share for a $220,000 reduction of liabilities.

 

On October 6, 2023, we issued 35,000 shares of common stock at approximately $1.00 per share for a $35,000 reduction of liabilities.

 

On October 28, 2022, we agreed to issue 7,042,254 restricted shares of our common stock in exchange for the forgiveness and cancellation of $10,000,000 of principal under certain promissory notes held by entities controlled by James Ballengee, our Chief Executive Officer, on a pro rata basis, reflecting a conversion price of $1.42 per share. These shares were issued on November 10, 2023.

 

On October 28, 2022, we entered into an executive employment agreement with James Ballengee (the “Employment Agreement”) with respect to the Company’s appointment of Mr. Ballengee as Chief Executive Officer and Chairman of the Board. Pursuant to the Employment Agreement, Mr. Ballengee will receive annual compensation of $1,000,000 payable in shares of the Company’s Common Stock, 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 Shares”). 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 (the “CEO Compensation Shares Issuance”). We issued 923,672 shares of our common stock for the CEO Compensation Shares Issuance on November 10, 2023.

 

Item 7 - Managements Discussion and Analysis of Financial Condition and Results of Operations

 

RESULTS OF OPERATIONS

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this Annual Report on 10-K.

 

Overview

 

Vivakor, Inc. is a socially responsible operator, acquirer and developer of technologies and assets in the oil and gas industry, as well as related environmental solutions. Currently, our efforts are primarily focused on operating crude oil gathering, storage and transportation facilities, as well as contaminated soil remediation services.

 

One of our facilities sells crude oil in amounts up to 60,000 barrels per month under agreements with a large energy company. A different facility owns a 120,000 barrel crude oil storage tank near Colorado City, Texas. The storage tank is presently connected to the Lotus pipeline system and we plan to further connect the tank to major pipeline systems.

 

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. 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.

 

Reclassifications

 

Certain reclassifications may have been made to prior years’ amounts to conform to the 2023 presentation.

 

Revenue

 

For the years ended December 31, 2023 and 2022, we realized revenues of $59,321,752 and $28,107,223, respectively, representing an increase of $31,214,529 or 111.06%. The increase in revenue is primarily attributed to our oil and natural gas liquid sales which have been realized through the operations from our newly acquired businesses in SFD and WCCC, which were acquired through our business combination, which closed on August 1, 2022.

 

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Cost of Revenue

 

For the year ended December 31, 2023 and 2022, our cost of revenues consisted primarily of costs associated with selling oil and natural gas liquid through the operations from our newly acquired businesses in SFD and WCCC, which were acquired through our business combination which closed on August 1, 2022.

 

For the years ended December 31, 2023 and 2022, costs of revenue were $54,300,788 and $25,239,962, respectively, representing an increase of $29,060,826 or 115.14%. The increase in the cost of revenue is primarily attributed to the cost of goods sold for our oil and natural gas liquid products realized through the operations from our newly acquired businesses in SFD and WCCC, which were acquired through our business combination, which closed on August 1, 2022.

 

Gross Profit and Gross Margin

 

For the years ended December 31, 2023 and 2022, we realized gross profit of $5,020,964 and $2,867,261, respectively, representing an increase of $2,153,703 or 75.11%. For the year ended December 31, 2023 and 2022, the gross profit increased in proportion to the revenue and costs of revenue related to the purchase and sale of our oil and natural gas liquid products.

 

Our gross margin will continue to be affected by a variety of factors that include the market prices of our oil products, the volume produced by our facilities, and our ability to raise capital to continue to fund our operations or other ancillary agreements outside of the oil gathering, transportation, and storage activities.

 

Operating Expenses

 

Our operating expenses consist primarily of marketing, general and administrative expenses, bad debt expense, impairment loss, and amortization and depreciation expense. Marketing expenses include marketing fees of company representatives for marketing the business and its products and services as well as investor customer service. General and administrative expenses include professional services, including audit, tax, and legal fees associated with the costs for services in finance, accounting, administrative activities and the formation and compliance of a public company. Bad debt expense includes the expense associated with assets that management analyses and estimates may be uncollectible. Impairment loss includes the expense associated with events or changes in circumstances that indicate the carrying amount of an asset 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. Amortization and depreciation expense uses the useful life of the asset to calculate the amortization or depreciation expense in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and management’s judgment.

 

For the years ended December 31, 2023 and 2022, we realized operating expenses of $11,352,624 and $25,611,216, which represents a decrease of $14,258,592, or 55.67%. Our operating expenses decreased due to multiple substantial events and their associated expenses throughout 2022, including approximately $12,300,837 in impairment loss and bad debt expense, as discussed below.

 

For the years ended December 31, 2023 and 2022, we realized an impairment loss of none and $11,138,830, which represents a decrease of $11,138,830 or 100%. Our impairment loss directly related to multiple events throughout 2022, including disruptions at our Vernal, Utah plant due to supply and personnel limitations, in which we realized an impairment loss of $447,124 on a license agreement with TBT Group and the possibilities of embedding self-powered sensors directly into the asphaltic cement we may generate from the Vernal, Utah RPC; After taking into consideration new information in 2022 related to the costs of building our own test facility or using new partners to test our ammonia synthesis catalyst, we realized an impairment loss of $3,254,999 to our ammonia synthesis assets; The operations surrounding our precious metals extraction services were suspended until 2022, 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 $6,269,998 surrounding the extraction machinery, and we reserved further against our work-in-process precious metal concentrate in the amount of $1,166,709 as it had not been sold as anticipated in its concentrate form during 2022. In 2023 we agreed with TBT Group, Inc. to cancel the license agreement and both parties agreed to fully release and discharge any and all known and unknown claims they may have against the other party, with neither party owing the other party any money and TBT retaining the ownership of the piezo electric and energy harvesting technology that was the subject of the license agreement.

 

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For the years ended December 31, 2023 and 2022, we realized bad debt expense of none and $1,162,007, which represents a decrease of $1,162,007 or 100%. The decrease in bad debt expense is directly related to two note receivables. The first note receivable relates to the sale of 3,309,578 shares of marketable securities in December 2021 in a private transaction for a purchase price of $860,491, reflecting the market price as of such time. Such purchase price was paid in the form of $10,000 cash delivered at signing and a note issued in favor of Vivakor in the amount of $850,491 with payments due quarterly over a five-year term. The purchaser made their initial payment in the first quarter of 2022 but has not made further payments. The second note receivable is a $333,744 note receivable with TMC Capital, LLC, an affiliate of MCW Energy Group Limited. The parties amended their agreement in December 2021 to have the note paid on or before October 1, 2022, but we have not received payment. In 2022 we reserved against these notes in the amount of $828,263 and $333,744.

 

Throughout 2022 we recognized increased professional services and compensation expenses, which relate to our registration statement, its amendments, preparing for and completing an underwritten public offering of our common stock, including our preparations and completion of an uplist of our common stock to a senior stock exchange, and two substantial acquisitions of SFD and WCCC. For example, for the years ended December 31, 2023 and 2022, we realized stock option expense of $2,064,466 and $4,079,591, which represents an decrease of $2,015,125, or 49.40% decrease.

 

For the years ended December 31, 2023 and 2022, we realized amortization and depreciation expense of $3,932,744 and $2,953,629, which represents an increase of $979,115 or 33.15%. The increase in amortization and depreciation expense is primarily attributed to the amortization of our newly acquired contracts (see Note 13) and depreciation from our newly acquired property, plant and equipment held by SFD and WCCC, which were acquired through our business combination, which closed on August 1, 2022.

 

Loss from Operations

 

For the years ended December 31, 2023 and 2022, we realized a loss from operations of $6,331,660 and $22,743,955, which represents a decrease of $16,412,295, or 72.16%. The decrease in loss is attributed to the net effect of the increase in gross profit and decrease in operating expenses discussed above.

 

Interest expense

 

For the years ended December 31, 2023 and 2022, we realized interest expense of $4,025,077 and $1,519,281, which represents an increase of $2,505,796, or 164.93%. The increase in interest expense is mainly attributable to the $28,664,284 in notes payable issued as consideration for our newly acquired entities, SFD and WCCC, which were acquired through our business combination, which closed on August 1, 2022. The notes accrue interest of prime plus 3% on the outstanding balance of the notes. For the years ended December 31, 2023 and 2022, the Company accrued $2,993,121 and $1,126,429 in interest on these notes payable.

 

Unrealized loss on marketable securities

 

For the years ended December 31, 2023 and 2022, we reported an unrealized loss of $1,156,928 and $578,464 on marketable securities, which represents an increase in the unrealized loss of $578,464, or 100%. Our marketable securities were considered to be traded on an active market and were accounted for at a fair value based on the quoted prices in the active markets resulting in aggregate unrealized losses as noted above.

 

Gain on deconsolidation of variable interest entity

 

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. The assets ($10.2 million), liabilities ($551,950) and equity ($10.1 million) related to VWFI were removed from our financial statements (Note 3 Principles of Consolidation), resulting in the gain on deconsolidation.

 

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Provision for income tax

 

The Company recorded an income tax benefit (provision) of (92,703) and $4,436,691 for the years ended December 31, 2023 and 2022, respectively. The Company’s effective tax rate for 2023 and 2022 was -0.88% and 18.69%, which was the result of the (provision) or benefit of book income/losses offset by an additional valuation allowance on the net operating losses.

 

Cash flows

 

The following table sets forth the primary sources and uses of cash and cash equivalents for the years ended December 31, 2023 and 2022 as presented below:

 

   December 31, 
   2023   2022 
Net cash used in operating activities  $(764,902)  $(4,143,297)
Net cash used in investing activities   (3,712,839)   (2,332,754)
Net cash provided by financing activities   2,039,255    8,165,125 

 

Liquidity and Capital Resources

 

We have historically suffered net losses and cumulative negative cash flows from operations and, as of December 31, 2023 and 2022, we had an accumulated deficit of approximately $65.9 million and $55.2 million. As of December 31, 2023 and 2022, we had a working capital deficit of approximately $34.9 million and $3.77 million, respectively.

 

As of December 31, 2023 and 2022, we had cash and cash equivalents of $744,307 and $3,182,793, with none and $81,607 attributed to variable interest entities, respectively.

 

To date we have financed our operations primarily through debt financing, private equity offerings and our working interest agreements, although on February 14, 2022, the Company closed an underwritten public offering of 1,600,000 shares of common stock, at a public offering price of $5.00 per share, for aggregate net proceeds of $6.2 million, after deducting underwriting discounts, commissions, and other offering expenses. The Company’s Common Stock began trading on the Nasdaq Capital Market under the symbol “VIVK”.

 

For the years ended December 31, 2023 and 2022, our net cash used in operating activities was mainly comprised of net effect of the consolidated net loss of $10,835,275 and $20,247,621, a $88,323 and $(4,437,492) related to our provision for income taxes and the net effect on deferred tax liabilities (deferred tax assets), our depreciation and amortization of $3,932,744 and $2,953,629, an impairment loss of none and $11,138,830, a bad debt expense of none and $1,162,007, a gain on the deconsolidation of a variable interest entity of $438,099 and none, a decrease in accounts receivable of $930,893 and $2,613,278, a decrease in accounts payable of $366,592 and $3,408,157, an increase in other assets of $417,890 and $80,220. For the years ended December 31, 2023 and 2022, we were also able to issue stock for services of none and $1,472,888, and stock-based compensation of $1,597,881 and $2,606,703 in lieu of using cash. We also realized interest expense on loans and notes payable of $3,476,577 and $1,454,752 related to the original $28,664,284 in notes payable issued as consideration for our newly acquired entities, SFD and WCCC, which were acquired through our business combination, which closed on August 1, 2022. For the years ended December 31, 2023 and 2022, we also realized an unrealized loss of $1,156,928 and $578,464 on marketable securities as described above.

 

For the years ended December 31, 2023 and 2022, our net cash used in investing activities was mainly attributed to our purchase of equipment of $3,320,918 and $2,491,175 related to the manufacturing of our RPCs and wash plant facilities. The Company also reported $210, 862 of notes receivable assumed and a decrease in $181,509 of cash and cash equivalents in the deconsolidation of a variable interest entity and as of December 31, 2023.

 

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Our net cash provided by our financing activities was mainly attributed to the net effect of the following events:

 

For the years ended December 31, 2023 and 2022, we received proceeds of $2,944,697 and $3,640,046 related to the issuance of notes and other loans. We also received proceeds of $6,240,000 from our February 14, 2022 underwritten public offering of 1,600,000 shares of common stock. For the years ended December 31, 2023 and 2022, we paid down notes payable and related party notes payable by $470,160 and $853,230 and made distributions to Viva Wealth Fund I, LLC unit holders of none and $861,691. For the years ended December 31, 2023 and 2022, we paid down finance lease liabilities by $446,782 and $429,578.

 

There are no further existing firm obligations; however, we anticipate construction for each Nanosponge costs approximately $200,000, and we intend to manufacture and add a Nanosponge to our current RPCs.

 

We have historically suffered net losses and cumulative negative cash flows from operations, and as of December 31, 2023, we had an accumulated deficit of approximately $65.9 million. As of December 31, 2023 and 2022, we had a working capital deficit of approximately $34.9 million and $3.77 million, respectively. As of December 31, 2023, we had cash of approximately $744,000. In addition, we have obligations to pay approximately $18.1 million of debt within one year of the issuance of these financial statements. Of the $18.1 million, $15.3 million can be satisfied through the issuance of registered common stock under the terms of the debt. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

 

During the year ended December 31, 2023, 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, $2.2M through a sale lease back agreement, and subsequent to year end we raised an additional $3 million through additional debt financing (Note 22). The Company entered into merger and acquisition agreements with anticipated closing dates in 2024 (Note 22). Even though these merger and acquisition transactions are projected to close in 2024 and yield substantial cash flow that may provide adequate working capital to finance its day-to-day operations and current obligations, these events were not considered probable as of December 31, 2023 because they have not closed as of the date of our filing.

 

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.

 

Our ability to continue to access capital could be affected adversely by various factors, including general market and other economic conditions, interest rates, the perception of our potential future earnings and cash distributions, any unwillingness on the part of lenders to make loans to us and any deterioration in the financial position of lenders that might make them unable to meet their obligations to us. If we cannot raise capital through public or private debt financings, equity offerings, or other means, our ability to grow our business may be negatively affected. In such a case, we may need to suspend site and plant construction or further acquisitions until market conditions improve.

 

Contractual Obligations

 

Our contractual obligations as of December 31, 2023 for finance lease liabilities are for the sale and leaseback of certain land, property, plant, and equipment that were acquired in the closing of our business combination, which acquired SFD and WCCC on August 1, 2022, which leases end in 2025 and 2026. Finance lease obligations as of December 31, 2023 are as follows:

 

2024  $963,900 
2025   594,792 
2026   471,756 
Total  $2,030,448 

 

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Our contractual obligations as of December 31, 2023 for operating lease liabilities are for office and warehouse space, which leases end in 2024 and 2025, and a land lease which ends in 2042. Operating lease obligations as of December 31, 2023 are as follows:

 

2024  $435,906 
2025   162,545 
2026   136,975 
2027   153,089 
2028   143,237 
Thereafter   2,823,472 
Total  $3,855,244 

 

Interest Rate and Market Risk

 

Interest Rate Risk

 

Interest rate risk is the potential for reduced net interest income and other rate-sensitive income resulting from adverse changes in the level of interest rates. We do not have variable interest rate-sensitive income agreements. We do have financing arrangements that were issued on August 1, 2022 as consideration for the business combination and acquisition of SFD and WCCC, in which the three-year notes have variable interest rates based on the prime rate, which exposes us to further interest expense if the prime rate increases. We believe that the LIBOR is being phased out globally and do not have any financings with variable interest rates based on the LIBOR.

 

Market Risk — Equity Investments

 

Market risk is the potential for loss arising from adverse changes in the fair value of fixed-income securities, equity securities, other earning assets, and derivative financial instruments as a result of changes in interest rates or other factors. We own equity securities that are publicly traded. Because the fair value of these securities may fall below the cost at which we acquired them, we are exposed to the possibility of loss. Equity investments are approved, monitored, and evaluated by members of management.

 

Inflation

 

Prolonged periods of slow growth, significant inflationary pressures, volatility and disruption in financial markets, could lead to increased costs of doing business. Inflation generally will cause suppliers to increase their rates, and inflation may also increase employee salaries and benefits. In connection with such rate increases, we may or may not be able to increase our pricing to consumers. Inflation could cause both our investment and cost of revenue to increase, thereby lowering our return on investment and depressing our gross margins.

 

Off Balance Sheet Arrangements

 

None.

 

Critical Accounting Policies & Use of Estimates

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our consolidated financial statements included in this report, which have been prepared in accordance with GAAP. For further information on the critical accounting policies see Note 3 of the Notes to the Consolidated Financial Statements. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, sales and expenses, and related disclosure of contingent assets and liabilities. Estimates by their nature are based on judgments and available information. Our estimates are made based upon historical factors, current circumstances and the experience and judgment of management. Assumptions and estimates are evaluated on an ongoing basis, and we may employ outside experts to assist in evaluations. Therefore, actual results could materially differ from those estimates under different assumptions and conditions. 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, marketable securities, lease assets and liabilities, valuation of stock used to acquire assets, and derivatives.

 

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Item 7A - Quantitative and Qualitative Disclosures About Market Risk

 

Not applicable.

 

Item 8 - Financial Statements and Supplementary Data

 

The consolidated financial statements required by this item begin on page F-1 of this Annual Report on Form 10-K and are incorporated herein by reference.

 

Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

 

None.

 

Item 9A - Controls and Procedures

 

Our management, with the participation of our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer), evaluated the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

 

Based on management’s evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as a result of the material weaknesses described below, as of December 31, 2023, our disclosure controls and procedures are not designed at a reasonable assurance level and are ineffective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer, as appropriate, to allow timely decisions regarding required disclosure. The material weaknesses, which relate to internal control over financial reporting, that were identified include the following: (1) We did not have enough personnel in our accounting and financial reporting functions. Due to insufficient personnel in our accounting department, we were not able to achieve adequate segregation of duties, and, as a result, we did not have adequate review controls surrounding: (i) our technical accounting matters in our financial reporting process, and (ii) the work of specialists involved in the estimation process. Due to new relationships with a small banking institution and consultants in 2023, we were not able to achieve adequate controls surrounding the review and dual authorization of certain treasury transactions and fixed assets. (2) We did not always follow certain review procedures related to corporate governance. Due to a vacancy of an independent audit committee chairman with financial expertise, and failing to adhere to certain corporate governance administrative procedures, we did not achieve adequate review at the independent Board of Director level over subjective and complex accounting and risk assessment. These control deficiencies, which are pervasive in nature, result in a reasonable possibility that material misstatements of the financial statements will not be prevented or detected on a timely basis. Management believes that the hiring of additional personnel who have the technical expertise and knowledge with the non-routine or technical issues we have encountered in the past will result in both proper recording of these transactions and a much more knowledgeable finance department as a whole. Since our assessment as of December 31, 2023, we have hired additional external accounting staff, whom are consultants with expertise in research and technical guidance, and we are working to retain additional qualified valuation experts that report on their internal controls. We believe that these additions may provide for the remediation of these material weaknesses in 2024.

 

We will continue to monitor and evaluate the effectiveness of our disclosure controls and procedures and our internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.

 

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Changes in internal control over financial reporting.

 

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 under the Exchange Act that occurred during the fourth quarter ended December 31, 2023 that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

Since our assessment as of December 31, 2023, we anticipate nominating an Audit Committee Chairperson with a financial expertise, and hiring additional accounting staff. We believe that these additions may provide for the remediation of our material weaknesses in 2024.

 

Management’s report on internal control over financial reporting.

 

Our Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was not effective as of December 31, 2023 for the reasons discussed above.

 

Item 9B - Other Information

 

None.

 

Item 9C - Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

 

Not applicable.

 

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PART III

 

Item 10 - Directors, Executive Officers and Corporate Governance

 

Directors and Executive Officers

 

The following table sets forth information about our directors, executive officers and significant employees.

 

Name   Age   Position(s)
James Ballengee   58   Chief Executive Officer (Principal Executive Officer) and Director
Tyler Nelson   43   Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) and Director
Leslie D. Patterson   39   Executive Vice President, Operations & Construction
John Harris   75   Director
Albert Johnson   49   Director

 

Executive Officers

 

James H. Ballengee joined Vivakor as Chief Executive Officer and Chairman of the Board in 2022. Prior to joining the Company, Mr. Ballengee had more than two decades of experience in midstream oil and gas senior management roles. Previously, he had been involved in two major private equity portfolio companies holding positions including Chief Commercial Officer, Chief Financial Officer, Chief Executive Officer, and Chairman of the Board. From 1997 through 2010, Mr. Ballengee served first as Chief Financial Officer, then Chief Executive Officer, then Chief Commercial Officer of Taylor Logistics, LLC, a Halifax Group-backed private equity portfolio company focused on crude oil marketing and logistics, which he led through a successful sale to Gibson Energy, Inc. (TSX: GEI). From 2010 to 2013, he was Chief Executive Officer and Chairman of the Board of Bridger Group, LLC, a private crude oil marketing firm. From 2013 to 2015, he was a board member and Chief Commercial Officer of Bridger, LLC, a Riverstone Holdings-backed private equity portfolio company focused on crude oil marketing and logistics, which he led through a successful sale to Ferrellgas Partners, LP (NYSE: FGP). Mr. Ballengee currently manages an exempt family office, which in turn holds and manages investments principally in the oil and gas, sports and entertainment, and real estate sectors. He has an undergraduate degree in accounting from Louisiana State University—Shreveport.

 

Tyler Nelson joined Vivakor on a part-time basis as Chief Financial Officer in 2014 and has served as full-time Chief Financial Officer since September 2020. Mr. Nelson joined the Board of Directors of Vivakor in January 2023. Mr. Nelson is a CPA who worked from 2006 to 2011 in Audit and Enterprise Risk Services at Deloitte LLP (USA) and later at KSJG, LLP (later acquired by Withum+Brown, PC). He worked with clients with assets of more than $100 billion and annual revenues of more than $15 billion, which are considered some of the most respected financial institutions in the world. In 2011, Mr. Nelson began working for LBL Professional Consulting, Inc. where he provided merger and acquisition, initial public offering, and interim chief financial officer services to clients. Mr. Nelson continues to sit on the Board of Directors and remains an officer of LBL Professional Consulting, Inc. Mr. Nelson earned a Master’s Degree in Accountancy from the University of Illinois- Urbana-Champaign, and a Bachelor’s Degree in Economics with a minor in Business Management from Brigham Young University.

 

Leslie D Patterson joined Vivakor as the Vice President of Operations & Construction in 2023. Mr. Patterson has over three decades of construction and management experience in the domestic and international oil and gas industries. His experience spans operations, construction, business development, corporate strategy, and health, safety, and environmental concerns in onshore and offshore projects. Units under his management have recorded near zero reportable health, safety and environmental incidents. Mr. Patterson has managed the development, construction, and commencement of operations of major capital projects for BP, ExxonMobil, Chevron, Shell, Tesoro, Sinclair, Kennecott, and Williams Gas, among others. He previously worked as Senior Vice President of Pipelines & Terminals for Bridger Logistics (from 2012 to 2017, the midstream division of Ferrellgas Partners, LP (NYSE: FGP), where he independently led, developed and managed three of the company’s seven business units (pipelines, terminals, and saltwater disposal) to consistent profitability through multiple management teams and large-scale M&A transactions. Prior to Bridger, Mr. Patterson was a division operations manager at EMS, an oilfield services firm, from 2008 to 2012. Prior to EMS, he worked as the head of business development for STARCON International, an industrial projects and turn around, and as a division business development manager for TEPSCO and Vice president of business development for Centry Constructors.

 

39

 

 

Directors

 

James Ballengee - See “Executive Officers”

 

Tyler Nelson - See “Executive Officers”

 

John R. Harris, age 75, combines over 35 years of experience in Board of Directors, CEO and Senior Management positions in a variety of industries including technology services, telecommunications, healthcare, and business process outsourcing. He currently serves on the board of directors for the Hackett Group, Hifu Prostate Services, GenHemp, and Everservice. Since 2009 Mr. Harris has primarily been a private investor, advisor, and board member for both public and privately held companies. From 2006 to 2009 he was CEO of Etelecare Global solutions a leading provider of offshore teleservices to Fortune 1,000 companies. From 2003 to 2005 he served as the CEO of Seven Worldwide, a digital content management company where he was previously a member of the board of directors of the company. From 2001 to 2003, Mr. Harris consulted with a variety of venture-backed early-stage companies. Previously Mr. Harris spent 25 years with Electronic Data Systems in a variety of senior executive positions to include President of the 4 strategic business units serving the telecommunications and media industries world-wide. He was elected as a Corporate Vice-President and Officer of the company. During his tenure with EDS, he gained extensive international experience working and living in the Middle East, Europe and Asia. Mr. Harris has extensive public company board experience through prior services on the boards of Premier Global Services, Cap Rock Communications, Genuity, Ventiv Health, Startek, Sizmek, Mobivity and Applied Graphic Technologies and served in a variety of positions to include board member, committee chairman, lead director and chairman. Mr. Harris received his BBA and MBA from the University of West Georgia where he serves on the Board of Advisors to the Richards School of Business.

 

Albert Johnson, age 49, brings over 25 years of experience in operations and senior management in the midstream and downstream sectors of the oil and gas industry. Previously, Mr. Johnson had been involved in public and privately held companies holding various positions in senior management and serving as a member of boards of directors. From 2014 to 2015, he was Director of Business Development for Sunoco Logistics, LP., a publicly traded master limited partnership involved in the marketing, trading, transportation and terminalling of crude oil, products and NGLS. From July 2015 through May 2017, Mr. Johnson was the Vice President of Business Development for Navigator Energy Services, LLC., a private equity backed company involved in the gathering, transportation and terminalling of crude oil. From March 2018 to November 2022, Mr. Johnson served as Executive Vice President Business Development for ARX Energy, LLC. Since November 2022, Mr. Johnson has served as Chief Commercial Officer for ARX Energy, LLC., a privately held company involved in building a world class clean fuels facility in the Port of Brownsville, Texas. Mr. Johnson served on the Board of Directors for West Texas Gulf Pipe Line Company and on the Management Committee of SunVit Pipeline, LLC. He has an undergraduate degree in History from the University of Texas at Austin and an MBA finance concentration from Jones Graduate School of Business at Rice University.

 

Family Relationships

 

There are no family relationships between any of our directors and executive officers.

 

Corporate Governance Overview

 

Board Composition and Director Independence

 

Our Board of Directors consists of four members. The directors are elected at each annual meeting to hold office until the next annual meeting and until their successors are duly elected and qualified. The Company defines “independent” as that term is defined in the Nasdaq rules.

 

In making the determination of whether a member of the board is independent, our board considers, in addition to Nasdaq rules, among other things, and transactions and relationships between each director and his immediate family and the Company, including those reported under the caption “Related Party Transactions.” The purpose of this review is to determine whether any such relationships or transactions are material and, therefore, inconsistent with a determination that the directors are independent. On the basis of such review and its understanding of such relationships and transactions, our Board of Directors affirmatively determined that John Harris and Albert Johnson are qualified as independent and do not have any material relationships with us that might interfere with his exercise of independent judgment.

 

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On December 6, 2023, we received notice from David Natan of his resignation, effective immediately, from our Board of Directors (the “Board”) and from his positions as Chairman of the Audit Committee and as a member of the Compensation Committee and the Nominating and Governance Committee. We informed The Nasdaq Stock Market LLC (“Nasdaq”) of Mr. Natan’s resignation on December 7, 2023.

 

On December 12, 2023, we received notice (the “Notice”) from the Listing Qualifications Department of Nasdaq notifying us, based upon the resignation of David Natan from the Board, we are not currently in compliance with the board of directors independence requirements set forth in Nasdaq Listing Rule 5605(b)(1) and the requirement in Nasdaq Listing Rule 5605(c)(2)(A) to have an audit committee comprised of at least three independent directors.

 

As a result of Mr. Natan’s resignation, the Board, as currently constituted, does not have a majority of directors who would be considered “independent directors,” as that term is defined in Nasdaq Listing Rule 5605(a)(2). Consistent with Nasdaq Listing Rules 5605(b)(1)(A) and Rule 5605(c)(4), Nasdaq provided us a cure period until June 3, 2024 to evidence compliance with the Listing Rules.

 

Board Committees

 

Our Board of Directors has established an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee. Each committee has its own charter, which is available on our website at www.vivakor.com. Each of the board committees has the composition and responsibilities described below.

 

Members will serve on these committees until their resignation or until otherwise determined by our Board of Directors.

 

Audit Committee

 

Our Audit Committee is currently comprised of Albert Johnson and John Harris, each of whom qualify as an independent director under applicable Nasdaq and SEC rules, and “financially literate” under applicable Nasdaq rules. As indicated above, on December 6, 2023, David Natan, our Audit Committee chairman, resigned from the Board and from all Board committees, including the Audit Committee. As a result, the Audit Committee of the Board currently consists of only two independent directors, in violation of Nasdaq Listing Rule 5605(c)(2)(A), which requires the Audit Committee to have three independent directors. Consistent with Nasdaq Listing Rules 5605(b)(1)(A) and Rule 5605(c)(4), Nasdaq provided us a cure period until June 3, 2024 to evidence compliance with the Listing Rules. We do not currently have a member on our Audit Committee that qualifies as an “audit committee financial expert”, as such term is defined in Item 407(d)(5) of Regulation S-K.

 

The Audit Committee oversees our accounting and financial reporting processes and oversee the audit of our consolidated financial statements and the effectiveness of our internal control over financial reporting. The responsibilities of this committee include, but are not limited to:

 

  selecting and recommending to our Board of Directors the appointment of an independent registered public accounting firm and overseeing the engagement of such firm;
     
  approving the fees to be paid to the independent registered public accounting firm;
     
  helping to ensure the independence of the independent registered public accounting firm;
     
  overseeing the integrity of our financial statements;
     
  preparing an audit committee report as required by the SEC to be included in our annual proxy statement;
     
  resolving any disagreements between management and the auditors regarding financial reporting;
     
  reviewing with management and the independent auditors any correspondence with regulators and any published reports that raise material issues regarding the Company’s accounting policies;

41

 

 

  reviewing and approving all related-party transactions; and
     
  overseeing compliance with legal and regulatory requirements.

 

The Audit Committee is authorized to retain independent legal and other advisors and conduct or authorize investigations into any matter within the scope of its duties.

 

Compensation Committee

 

Our Compensation Committee is currently comprised of Albert Johnson and John Harris, each of whom qualify as an independent director under applicable Nasdaq rules. John Harris serves as the chairman of the Compensation Committee.

 

Our Compensation Committee assists the board of directors in the discharge of its responsibilities relating to the compensation of the board of directors and our executive officers.

 

The responsibilities of this committee include, but are not limited to:

 

  reviewing and approving on an annual basis the corporate goals and objectives with respect to compensation for our Chief Executive Officer;
     
  reviewing, approving and recommending to our board of directors on an annual basis the evaluation process and compensation structure for our other executive officers;
     
  determining the need for and the appropriateness of employment agreements and change in control agreements for each of our executive officers and any other officers recommended by the Chief Executive Officer or Board of Directors;
     
  providing oversight of management’s decisions concerning the performance and compensation of other company officers, employees, consultants and advisors;
     
  reviewing our incentive compensation and other equity-based plans and recommending changes in such plans to our Board of Directors as needed, and exercising all the authority of our Board of Directors with respect to the administration of such plans;
     
  reviewing and recommending to our Board of Directors the compensation of independent directors, including incentive and equity-based compensation; and
     
  selecting, retaining and terminating such compensation consultants, outside counsel or other advisors as it deems necessary or appropriate.

 

The Compensation Committee may delegate any of its responsibilities to subcommittees as it deems appropriate. The Compensation Committee is authorized to retain independent legal and other advisors, and conduct or authorize investigations into any matter within the scope of its duties.

 

Nominating and Corporate Governance Committee

 

Our Nominating and Corporate Governance Committee is currently comprised of Albert Johnson, and John Harris, each of whom qualify as an independent director under applicable Nasdaq rules. Albert Johnson serves as the chairman of the Nominating and Corporate Governance Committee.

 

The purpose of the Nominating and Corporate Governance Committee is to recommend to the Board of Directors nominees for election as directors and persons to be elected to fill any vacancies on the Board of Directors, develop and recommend a set of corporate governance principles and oversee the performance of the Board of Directors.

 

42

 

 

The responsibilities of this committee include, but are not limited to:

 

  recommending to the Board of Directors nominees for election as directors at any meeting of stockholders and nominees to fill vacancies on the board;
     
  considering candidates proposed by stockholders in accordance with the requirements in the Committee charter;
     
  overseeing the administration of the Company’s code of business conduct and ethics;
     
  reviewing with the entire Board of Directors, on an annual basis, the requisite skills and criteria for board candidates and the composition of the board as a whole;
     
  the authority to retain search firms to assist in identifying board candidates, approve the terms of the search firm’s engagement, and cause the Company to pay the engaged search firm’s engagement fee;
     
  recommending to the Board of Directors on an annual basis the directors to be appointed to each committee of the Board of Directors;
     
  overseeing an annual self-evaluation of the Board of Directors and its committees to determine whether it and its committees are functioning effectively; and
     
  developing and recommending to the board a set of corporate governance guidelines applicable to the Company.

 

The Nominating and Corporate Governance Committee may delegate any of its responsibilities to subcommittees as it deems appropriate. The Nominating and Corporate Governance Committee is authorized to retain independent legal and other advisors and conduct or authorize investigations into any matter within the scope of its duties.

 

Board Leadership Structure

 

Currently, Mr. Ballengee is our principal executive officer and chairman of the board.

 

Risk Oversight

 

Our Board will oversee a company-wide approach to risk management. Our Board will determine the appropriate risk level for us generally, assess the specific risks faced by us and review the steps taken by management to manage those risks. While our Board will have ultimate oversight responsibility for the risk management process, its committees will oversee risk in certain specified areas.

 

Specifically, our compensation committee will be responsible for overseeing the management of risks relating to our executive compensation plans and arrangements, and the incentives created by the compensation awards it administers. Our audit committee will oversee management of enterprise risks and financial risks, as well as potential conflicts of interests. Our board of directors will be responsible for overseeing the management of risks associated with the independence of our Board.

 

Code of Business Conduct and Ethics

 

We have adopted a code of business conduct and ethics applicable to our principal executive, financial and accounting officers and all persons performing similar functions. A copy of that code is available on our corporate website at www.vivakor.com. We expect that any amendments to such code, or any waivers of its requirements, will be disclosed on our website.

 

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Item 11 - Executive Compensation

 

Summary Compensation Table

 

The particulars of compensation paid to the following persons:

 

  (a) all individuals serving as our principal executive officer during the year ended December 31, 2023;
     
  (b) each of our two most highly compensated executive officers other than our principal executive officer who were serving as executive officers at December 31, 2023 who had total compensation exceeding $100,000 (if applicable); and
     
  (c) up to two additional individuals for whom disclosure would have been provided under (b) but for the fact that the individual was not serving as our executive officer at December 31, 2023 (if applicable),

 

who we will collectively refer to as the named executive officers, for the years ended December 31, 2023 and 2022, are set out in the following summary compensation table:

 

Executive Officers and Directors

 

The Summary Compensation Table shows certain compensation information for services rendered in all capacities for the fiscal years ended December 31, 2023 and 2022. Other than as set forth herein, no executive officer’s salary and bonus exceeded $100,000 in any of the applicable years. The following information includes the dollar value of base salaries, bonus awards, the estimated fair value of stock options granted and certain other compensation, if any, whether paid or deferred.

 

SUMMARY COMPENSATION TABLE

 

Name and Principal Position  Year  

Salary

($)

  

Bonus

($)

  

Stock

Awards

($)

  

Option Awards

($)

  

Non-Equity

Incentive

Plan

Compensation

($)

  

Nonqualified

Deferred

Compensation

Earnings

($)

  

All Other

Compensation

($)

  

Total

($)

 
James Ballengee  2023    1,000,000(2)    -0-    -0-    -0-    -0-    -0-    76,923(6)    1,076,923 
CEO and Chairman(1)   2022    178,082(2)    -0-    -0-    -0-    -0-    -0-    13,313(6)    191,395 
                                             
Tyler Nelson  2023    350,000    700,000(4)    -0-    -0-    -0-    -0-    57,631(6)    1,107,631 
CFO and Secretary  2022    219,315(3)    605,467(4)    -0-    1,652,085(5)    -0-    -0-    35,220(6)    2,512,087 
                                                                       
Leslie D. Patterson   2023       75,000       -0-       175,000 (11)      -0-       -0-       -0-       -0-       250,000  
Executive Vice President, Operations & Construction   2022       -0-       -0-       -0-       -0-       -0-       -0-       -0-       -0-  
                                             
Matthew Nicosia  2022    138,904(8)    125,000(9)    -0-    1,053,224(10)    -0-    -0-    11,044(6)    1,328,172 
Former CEO and Former Chairman(7)                                             

 

 
(1) Mr. Ballengee was hired as our Chief Executive Officer on October 28, 2022.
(2) Pursuant to Mr. Ballengee’s Employment Agreement, his salary is paid in shares of our common stock, priced based on the volume-weighted average price for the preceding five (5) NASDAQ trading days prior to the Effective Date or annual anniversary of his Employment Agreement, as applicable. The five (5) day volume-weighted average price of our common stock for shares issued for $178,082 of his 2022 salary and $821,978 of his 2023 salary was approximately $1.08 (covering October 28, 2022 through October 28, 2023). As a result, we issued Mr. Ballengee 923,672 shares of our common stock as payment for his salary for 2022 and 2023 (through October 28, 2023). As of December 31, 2023, $178,082 of his 2023 salary (October 28, 2023 through December 31, 2023) or 295,085 shares of our common stock are payable to Mr. Ballengee on January 28, 2024. The five (5) day volume-weighted average price of our common stock for these shares is approximately $0.60 per share.
(3) Of this total amount, $51,662 was paid in cash and the remaining $167,653 was accrued as of December 31, 2022 and 2023.
(4) Of the 2022 bonus amount, $605,467 and $580,194 was accrued as of December 31, 2022 and 2023. In 2023, $25,273 of the 2022 bonus was paid in cash. Of the 2023 bonus amount, $700,000 was accrued as of December 31, 2023.

 

44

 

 

(5) Includes the aggregate grant date fair value of the stock option to acquire 917,825 shares of our common stock issued to Mr. Nelson under the Nelson Employment Agreement. Such stock options were priced using the Black-Scholes option pricing model to determine the fair value of the options on the date of grant, using the following assumptions:

 

  June 9, 2022      
  Risk-free interest rate   3.04%  
  Expected dividend yield   None  
  Expected life of warrants   10 years  
  Expected volatility rate   254%  

 

(6) Includes amounts for accrued employee benefits, including sick and vacation benefits.
(7) Mr. Nicosia resigned as an executive officer, Chairman of the Board and as a Director, effective October 6, 2022. Such resignations were not the result of any disagreement with the Company on any matter relating to the Company’s operations, policies or practices.
(8) Of this total amount, $50,000 was paid in cash and the remaining $88,904 was accrued as of December 31, 2022 and 2023.
(9) Accrued as of December 31, 2022 and 2023.
(10) Includes the aggregate grant date fair value of the stock option to acquire 503,935 shares of our common stock issued to Mr. Nicosia under the Nicosia Employment Agreement. Stock options to acquire the remaining 451,158 shares of our common stock under the Nicosia Employment Agreement were forfeited when Mr. Nicosia resigned as our Chief Executive Officer and, as a result, have not been valued in the table. The 503,935 stock options were priced using guidance from ASC 718 and the Black-Scholes option pricing model to determine the fair value of the options on the date of grant, using the following assumptions:

 

  June 9, 2022      
  Risk-free interest rate   3.07%  
  Expected dividend yield   None  
  Expected life of warrants   5 years  
  Expected volatility rate   169%  

 

(11)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 two one-time bonuses of shares of our common stock equal to $125,000 each, with the first bonus payable on the one year anniversary of his employment, and the second bonus payable on the eighteen month anniversary of his employment agreement.

 

Employment Agreements

 

James Ballengee

 

On October 28, 2022, we entered into an executive employment agreement with James Ballengee (the “Ballengee Employment Agreement”) with respect to our appointment of Mr. Ballengee as Chief Executive Officer and Chairman of the Board of Directors. Pursuant to the Ballengee Employment Agreement, Mr. Ballengee will receive annual compensation of $1,000,000 payable in shares of our common stock, priced at the volume weighted average price (VWAP) for the five trading days preceding the date of the Ballengee Employment Agreement and each anniversary thereof (the “CEO Compensation”). The CEO Compensation is subject to satisfaction of Nasdaq rules, the provisions of our 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 Ballengee Employment Agreement may be terminated by either party for any or no reason, by providing a five days’ notice of termination.

 

Pursuant to the Ballengee Employment Agreement, Mr. Ballengee was granted the right to nominate two additional directors for appointment to the Board in his sole discretion, as well as a third additional director upon issuance of the Note Payment Shares (defined below), subject to such directors passing a background check. Pursuant to the Ballengee Employment Agreement, Mr. Ballengee nominated John Harris and Albert Johnson as Board of Director appointees and both were appointed in January 2023.

 

45

 

 

Tyler Nelson

 

On June 9, 2022, we entered into an Executive Employment Agreement with Tyler Nelson (the “Nelson Employment Agreement”) to serve as our Chief Financial Officer. The agreement provides for an annual salary of $350,000 (the “Nelson Base Salary”). The Nelson Base Salary is payable in equal installments and will be paid every two weeks. The Nelson Base Salary will increase by $100,000 upon the Company earning a total of at least $2,000,000 in Adjusted EBITDA during any calendar year, and the Nelson Base Salary will continue to increase in $100,000 increments for each additional $1,000,000 increase in EBITDA over $2,000,000 during the term of the Nelson Employment Agreement up to $650,000 at which time the Nelson Base Salary will continue to increase in $13,500 increments for each additional $1,000,000 increase in Adjusted EBITDA over $4,000,000. Any increase to the Nelson Base Salary will be effective the first pay period of the Company after the Company reaches a particular EBITDA amount is achieved that triggers the increase. For example, purposes only and not by way of limitation: (i) if on October 31, 2023 the Company reaches $3,000,000 in EBITDA earned during the 2023 calendar year, the Nelson Base Salary would increase to $550,000 commencing the Company’s first pay period after October 31, 2023. Under the Nelson Employment Agreement Mr. Nelson will also receive a $100,000 cash bonus in recognition of the fact Mr. Nelson was undercompensated for his past services to the Company and as an inducement for him to continue providing services as our Chief Financial Officer.

 

The Nelson Employment Agreement has an initial term of two years and automatically extends for successive one-year periods unless terminated in writing by the Company or Mr. Nelson at least three months prior to the end of the applicable term. Mr. Nelson received a bonus for 2022 in the amount of $505,467, of which $25,273 has been paid to him as of December 31, 2023, with the remaining amount accrued. For 2023 forward it is anticipated that our Compensation Committee and Board of Directors will approve an annual executive incentive bonus plan, which shall be updated annually by the Compensation Committee of the Company’s Board of Directors, and possibly a growth metrics or acquisition transaction bonus plan. Once established, Mr. Nelson will be eligible to participate in such plans during the term of the Nelson Employment Agreement.

 

Under the Nelson Employment Agreement, Mr. Nelson was granted a stock option to acquire 917,825 shares of our common stock (the “Stock Option”) under our 2022 Equity Incentive Plan (each an “Equity Award”). Any Equity Awards granted to Mr. Nelson will be documented by issuing him a grant document (i.e. a stock option agreement). The Stock Option will vest over two years with 360,145 of the shares vesting immediately, 219,312 of the shares vesting three (3) months after issuance, and the remaining 338,368 of the shares vesting in equal quarterly installments over the remaining seven (7) quarters (48,338 for 6 quarters and 48,340 for the last quarter), with an exercise price equal to 100% of the fair market value on the date grant, and which expires ten (10) years after the date of grant. In the event Mr. Nelson is terminated without Cause (as defined in the Nelson Employment Agreement) or resigns for Good Reason (as defined in Nelson Employment Agreement), one hundred percent (100%) of the then unvested shares subject to each Option Agreement will fully vest and become fully exercisable. The Option Agreement will allow Mr. Nelson to exercise the vested options provided by the Option Agreement for a period of three (3) years following any termination of Mr. Nelson’s employment.

 

In conjunction with the Company entering into the Agreement and Plan of Merger with Empire Energy Acquisition Corp. (Empire) on February 26, 2024, Empire will be issued a majority of our common stock, and the right to appoint certain Board members and executives if the transaction closes. As a result, on March 8, 2024, we gave Mr. Nelson formal notice that while we hope to retain his services as the Chief Financial Officer before and after the close of the merger with Empire we have elected not to renew the Nelson Employment Agreement in order to provide us with the flexibility to renegotiate the terms of his employment. As a result of this notice, the Nelson Employment Agreement is set to terminate on June 8, 2024. The non-renewal constitutes a termination for good reason of the Nelson Employment Agreement, and unless we negotiate different terms with Mr. Nelson we will be required to pay or provide Mr. Nelson (i) any unpaid base salary and any accrued benefits through the date of termination; (ii) amounts payable under any Company bonus plans in which Mr. Nelson is eligible to participate as of the date of the termination of his employment on a pro-rated basis; (iii) for a period of 12 months, Mr. Nelson’s then current monthly base salary; (iv) outplacement services for Mr. Nelson for a period of 12 months with an outplacement firm selected by Mr. Nelson; (v) at Mr. Nelson’s election to continue health insurance coverage under COBRA, Mr. Nelson’s monthly premium until (a) the close of the severance period, as defined therein, (b) the expiration of Mr. Nelson’s continuation of coverage under COBRA, or (c) the date when Mr. Nelson becomes eligible for substantially equivalent health insurance coverage in connection with new employment, and (vi) 100% of any unvested stock options will fully vest and become exercisable. Mr. Nelson will have three (3) years after termination to exercise any vested stock options.

 

Leslie D. Patterson

 

On July 1, 2023, we hired Leslie, D. Patterson as our Executive Vice President of 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 two one-time bonuses of shares of our common stock equal to $125,000 each, with the first bonus payable on the one year anniversary of his employment, and the second bonus payable on the eighteen month anniversary of his employment agreement. Mr. Patterson is entitled to other bonuses and benefits on par with our general employment policies.

 

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Stock Incentive Plan

 

Equity Incentive Plans

 

Our Board of Directors and the holders of a majority of our common stock approved a new equity incentive plan in November 2023, which authorizes the issuance of up to 40,000,000 shares of common stock through the grant of stock options (including incentive stock options qualifying under section 422 of the Code and nonstatutory stock options), restricted stock awards, stock appreciation rights, restricted stock units, performance awards, other stock-based awards or any combination of the foregoing.

 

Our Board of directors approved an equity incentive plan in February 2022, which authorizes the issuance of up to 2,000,000 shares of common stock through the grant of stock options (including incentive stock options qualifying under section 422 of the Code and nonstatutory stock options), restricted stock awards, stock appreciation rights, restricted stock units, performance awards, other stock-based awards or any combination of the foregoing.

 

Outstanding Equity Awards at December 31, 2023

 

The following table sets forth certain information concerning outstanding stock awards held by the Named Executive Officers on December 31, 2023:

 

   Option Awards    Stock Awards 
Name 

Number of Securities Underlying Unexercised Options

(#)

Exercisable

  

Number of Securities Underlying Unexercised Options

(#)

Unexercisable

  

Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options

(#)

  

Option Exercise Price

($)

   Option
Expiration Date
  

Number of Shares or Units of Stock That Have Not Vested

(#)

  

Market Value of Shares or Units of Stock That Have Not Vested

($)

  

Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested

(#)

  

Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested

($)

 
James Ballengee   -0-    -0-    -0-    N/A   N/A     -0-    -0-    -0-    -0- 
                                              
Tyler Nelson   821,147    96,678    -0-    1.80   June 8, 2032     -0-    -0-    -0-    -0- 

 

Aggregated Option Exercises

 

There were no options exercised by any officer or director of our company during our twelve-month period ended December 31, 2023.

 

Employee Pension, Profit Sharing or other Retirement Plan

 

We do not have a defined benefit, pension plan, profit sharing or other retirement plan, although we may adopt one or more of such plans in the future.

 

47

 

 

Director Compensation

 

The table below shows the compensation paid to our directors during the year ended December 31, 2023.

 

Name  Fees
Earned or
Paid in Cash
($)
  

Stock Awards

($)

  

Option Awards

($)

  

Non-Equity
Incentive Plan Compensation

($)

  

Nonqualified
Deferred
Compensation
Earnings

($)

  

All Other
Compensation

($)

  

Total

($)

 
James Ballengee   -    -    -    -    -    -    - 
                                    
Tyler Nelson(1)   -    -    -    -    -    -    - 
                                    
John Harris(2)   58,846    104,539    -    -    -    -    163,385 
                                    
Albert Johnson(3)   62,308    104,539    -    -    -    -    166,847 
                                    
David Natan(4)   56,947    94,055    -    -    -    -    151,002 
                                    
Matthew Balk(5)   12,500    -    -    -    -    -    12,500 
                                    
Trent Staggs(6)   12,500    -    -    -    -    -    12,500 

 

 
(1) Tyler Nelson, our Chief Financial Officer, was appointed to the Board of Directors on January 16, 2023.
(2) John Harris was appointed to the Board of Directors on January 16, 2023. He qualifies as an independent director and serves on the Board’s Audit Committee, Compensation Committee and Nominating Committee, serving as the chairman of the Compensation Committee.
(3) Albert Johnson was appointed to the Board of Directors on January 16, 2023. He qualifies as an independent director and serves on the Board’s Audit Committee, Compensation Committee and Nominating Committee, serving as the chairman of the Nominating Committee.
(4) David Natan resigned from the Board of Directors on December 6, 2023.
(5) Matthew Balk resigned from the Board of Directors on January 16, 2023.
(6) Trent Staggs resigned from the Board of Directors on January 4, 2023.

 

Item 12 - Security Ownership of Certain Beneficial Owners and Management and Related Stockholder

 

The following table sets forth certain information regarding our voting shares beneficially owned as of April 4, 2024 by (i) each stockholder known to be the beneficial owner of 5% or more of the outstanding shares of the particular class of voting stock, (ii) each executive officer, (iii) each director, and (iv) all executive officers and directors as a group. A person is considered to beneficially own any shares: (i) over which such person, directly or indirectly, exercises sole or shared voting or investment power, or (ii) of which such person has the right to acquire beneficial ownership at any time within 60 days through an exercise of stock options, warrants and/or other convertible securities. Unless otherwise indicated, voting and investment power relating to the shares shown in the tables for each beneficial owner is exercised solely by the beneficial owner.

 

For purposes of computing the percentage of outstanding shares of our common stock held by each person or group of persons, any shares that such person or persons has the right to acquire within 60 days of April 4, 2024 is deemed to be outstanding, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person.

 

The percentage of beneficial ownership of our common stock is based on an aggregate of 27,710,253 shares outstanding.

 

48

 

 

Except as indicated in footnotes to this table, we believe that the stockholders named in this table have sole voting and investment power with respect to all shares of common stock shown to be beneficially owned by them, based on information provided to us by such stockholders. Unless otherwise indicated, the address for each director and executive officer listed is: c/o Vivakor, Inc., 5220 Spring Valley Road, Suite LL20, Dallas, Texas 75242.

 

 

Name and Address of Beneficial Owner  Shares of
Common
Stock
Beneficially
Owned
  

Percentage
of Common
Stock
Beneficially
Owned

 
James H. Ballengee, Chief Executive Officer and Director(1)   11,497,677    41.49%
Tyler Nelson, Chief Financial Officer and Director(2)   -    * 
Leslie D. Patterson Executive Officer   11,162    * 
John R. Harris, Director   94,179    * 
Albert Johnson, Director   94,179    * 
All Officers and Directors as a group (five persons)   11,697,197    42.21%
           
5% Beneficial Stockholders          
Matthew Nicosia(3)   4,189,405    15.12%
Peter D’Arruda(4)   -    - 

 

Name and Address of Beneficial Owner  Value of
Class B
Units of
VV RII
Beneficially
Owned
   Percentage
of VV RII
Class B
Units
Beneficially
Owned
 
James H. Ballengee, Chief Executive Officer and Director(1)   -    - 
Tyler Nelson, Chief Financial Officer(2)   -      
Daniel Hashim, Chief Scientific Officer(3)   -    - 
John R. Harris, Director   -    - 
Albert Johnson, Director   -    - 
All Officers and Directors as a group (six persons)          
           
5% Beneficial Stockholders          
Matthew Nicosia(3)   -    - 
Peter D’Arruda(4)  $300,000    8.31%

 

 
* Less than 1%
(1) James H. Ballengee’s address is 5151 Beltline Road, Suite 715 Dallas, Texas 75234. Includes 10,021,710 shares of common stock held in the name of Jorgan Development, LLC and 30,096 shares of common stock held in the name of JBAH Holdings, LLC. James Ballengee, in his capacity as sole manager, has sole voting and investment power over both Jorgan Development, LLC and JBAH Holdings, LLC.
(2) Does not include options to purchase 917,825 shares of common stock.
(3) The shares of common stock beneficially owned by Matthew Nicosia includes 4,189,405 shares of common stock held by AKMN Irrevocable Trust and 262 shares of common stock held by Nicosia Family Trust. Matthew Nicosia is the trustee of the AKMN Irrevocable Trust, of which Jonathan Nicosia, Matthew Nicosia’s son, a minor, is the beneficiary. Does not include options to purchase 503,935 shares of common stock.
(4) Peter D’Arruda’s address is 124 Poppleford Place, Cary, NC 27518.

 

49

 

 

Item 13 - Certain Relationships and Related Transactions and Director Independence

 

Related Party Transactions

 

The following is a description of each transaction from January 1, 2023 to December 31, 2023, and any material, publicly disclosed transaction through the date of this filing and each currently proposed transaction in which:

 

  we have been or are to be a participant;

 

  the amount involved exceeded the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two completed fiscal years; and

 

  any of our directors, executive officers or holders of more than 5% of our outstanding capital stock, or any immediate family member of, or person sharing the household with, any of these individuals or entities, had or will have a direct or indirect material interest.

 

Our current policy with regard to related party transactions is for the Board as a whole to approve any material transactions involving our directors, executive officers or holders of more than 5% of our outstanding capital stock.

 

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. The assets, liabilities and equity related to VWFI were removed from our financial statements (Note 3 Principles of Consolidation), resulting in the gain on deconsolidation. In 2022, VWFI 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 December 31, 2022, 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 $599,500, 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.

 

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 year ended December 31, 2023, we realized $98,000 in office sublease lease revenue from Spectra. As of December 31, 2023, the Company is carrying accounts receivable of $22,000 related to this sublease.

 

On May 25, 2023, we entered into a Consulting Agreement with Matthew Nicosia, a shareholder, affiliate via beneficial ownership, and 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 some operations that we have impaired. The agreement is for an initial term of three months, and we have paid Mr. Nicosia a total of $25,000 in cash and accrued $30,000, to be paid in common stock. We also advanced Mr. Nicosia $21,000 for a business expenses related to a trip to Kuwait for the Company and have requested evidence of his business expenses. We have received evidence of business expenses of approximately $16,254 to date and are awaiting documents and evidence for the remaining expense amount.

 

In May 2023, we entered into a Consulting Agreement with Trent Staggs, who is a current shareholder of the Company and one of our former directors. The agreement was for a term of four months and has been terminated as of September 30, 2023. For the year ended December 31, 2023, we paid Mr. Staggs a total of $48,000 in cash under the terms of the agreement.

 

50

 

 

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”). The principal amount of the Notes, together with any and all accrued and unpaid interest thereon, will be paid to the Sellers on a monthly basis in an amount equal to the Monthly Free Cash Flow beginning on August 20, 2022, and continuing thereafter on the twentieth (20th) calendar day of each calendar month thereafter, as set forth in the MIPA. 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.

 

The consideration for the membership interests included the Notes in the amount of $286,643 to JBAH and $28,377,641 to Jorgan, which accrue interest of prime plus 3% on the outstanding balance of the notes. Under the MIPA, we have committed to make a payment to Jorgan and JBAH on or before February 1, 2024 in the amounts of $16,306,754 to Jorgan and $164,715 to JBAH, whether in cash or unrestricted common stock. In the event of a breach of the terms of the Notes, the sole and exclusive remedy of the holder of the notes will be to unwind the MIPA transaction. The principal amount of the Notes, together with any and all accrued and unpaid interest thereon, will be paid to on a monthly basis in an amount equal to the Monthly Free Cash Flow continuing thereafter on the twentieth (20th) calendar day of each calendar month thereafter. Monthly Free Cash Flow means cash proceeds received by SFD and WCCC from its operations minus any capital expenditures (including, but not limited to, maintenance capital expenditures and expenditures for personal protective equipment, additions to the land/current facilities and pipeline connections) and any payments on the lease obligations of SFD and WCCC. In October 2022, we entered into an agreement amending the Notes, whereby, after the approval of our shareholders was given in November 2023, we issued 7,042,254 restricted shares of our common stock as a payment of $10,000,000 toward the principal of the Notes on a pro rata basis (the “Note Payment”), reflecting a conversion price of $1.42 per share. Once a registration statement registering the shares for the Note Payment is declared effective by the SEC, the Note Payment will count against the threshold payment amount, as defined in the notes and the MIPA. As of December 31, 2023, we have accrued interest of approximately none and made cash payments of $3,587,986.

 

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. Since acquiring this contract on August 1, 2022 we have received tank storage revenue of approximately $1,800,000 and $750,000 for the years ended December 31, 2023 and 2022.

 

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 years ended December 31, 2023 and 2022, we have made crude oil purchases from WC Crude of $36,740,922 and $25,239,962. 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 in 2022 and at a profit in 2023 to WC Crude. We produced and sold natural gas liquids to WC Crude in the amount of $11,268,005 and $5,890,910 for the years ended December 31, 2023 and 2022.

 

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 consulting services. For the years ended December 31, 2023 and 2022, Endeavor rendered services in the amount of $295,811 and $37,993.

 

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In September 2020, we entered into a consulting contract with LBL Professional Consulting, Inc. (“LBL”), of which our Chief Financial Officer is also an officer, which remains in effect. For the twelve months ended December 31, 2022, LBL invoiced the Company for $340,484. On December 17, 2020 the Company granted non-statutory stock options to LBL to purchase 333,334 shares of common stock, which was cancelled on September 1, 2022 by the parties. Our Chief Financial Officer is not the beneficiary of the Company and is not permitted to participate in any discussion, including LBL’s board meetings, regarding any Company stock that LBL may own at any time. For the year ended December 31, 2023, the Company paid off its remaining $20,413 of accounts payable to LBL.

 

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 December 31, 2023 and 2022, the balance owed was $375,124 and $342,830.

 

On January 20, 2021, we entered into a worldwide, exclusive license agreement with TBT Group, Inc. (of which an independent Vivakor Board member at the time was a 7% shareholder of TBT Group, Inc.) to license piezo electric and energy harvesting technologies for creating self-powered sensors for making smart roadways. We paid $25,000 and 16,667 shares of restricted common stock upon signing and $225,000 as of April 5, 2022. In 2023 we agreed with TBT Group, Inc. to cancel the license agreement and both parties agreed to fully release and discharge any and all known and unknown claims they may have against the other party, with neither party owing the other party any money and TBT retaining the ownership of the piezo electric and energy harvesting technology that was the subject of the license agreement.

 

Policy on Future Related-Party Transactions

 

All future transactions between us and our officers, directors, principal stockholders and their affiliates will be approved by the audit committee, or a similar committee consisting of entirely independent directors, according to the terms of our Code of Business Conduct and Ethics and our Related-Party Transaction Policies and Procedures.

 

Item 14 - Principal Accounting Fees and Services

 

The aggregate fees billed for the two most recently completed fiscal periods ended December 31, 2023 and December 31, 2022 for professional services rendered by our independent registered public accounting firm auditors for the audit of our annual consolidated financial statements, quarterly reviews of our interim consolidated financial statements and services normally provided by independent accountants in connection with statutory and regulatory filings or engagements for these fiscal periods were as follows:

 

   Year Ended
December 31,
 
   2023   2022 
Audit Fees  $722,881   $383,535 
Audit Related Fees   30,873    158,108 
Tax Fees   -    33,149 
Total  $753,754   $574,792 

 

In the above table, Audit Fees are fees billed by our company’s external auditor for services provided in auditing our company’s annual financial statements for the subject year. “Tax fees” are fees billed for professional services rendered for tax compliance, tax advice and tax planning. The audit fees include review of our interim financial statements and year-end audit.

 

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PART IV

 

Item 15 - Exhibits and Financial Statement Schedules

 

The following documents are filed as part of this Annual Report on Form 10-K:

 

  a) Financial Statements:

 

Our financial statements and the Report of Independent Registered Public Accounting Firm are included herein on page F-2.

 

  b) Financial Statement Schedules:

 

The financial statement schedules are omitted as they are either not applicable or the information required is presented in the financial statements and notes thereto on page F-1.

 

  c) Exhibits:

 

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EXHIBIT INDEX

 

        Incorporated by Reference   Filed or
Furnished

Exhibit No.

 

Exhibit Description

  Form   Date   Number   Herewith
1.1   Underwriting Agreement   S-1/A   2/10/22   1.1    
2.1   Membership Interest Purchase Agreement dated as of June 15, 2022, by and among the Registrant, Jorgan Development, LLC and JBAH Holdings LLC re SFD and WCCC   8-K   6/22/22   2.1    
2.2   Agreement and Plan of Merger dated February 26, 2024 by and among Vivakor, Inc., Empire Energy Acquisition Corp., and Empire Diversified Energy, Inc.   8-K   3/1/24   2.1    
2.3   Membership Interest Purchase Agreement dated as of March 21, 2024, by and among the Registrant, Jorgan Development, LLC and JBAH Holdings LLC re Endeavor Entities   8-K   3/25/24   2.1    
3.1   Amended and Restated Articles of Incorporation   S-1   11/10/20   3.1    
3.2   Bylaws   S-1   11/10/20   3.2    
3.3   Amendments to Amended and Restated Articles of Incorporation   S-1   11/10/20   3.3    
3.4   Form of Certificate of Change   S-1/A   2/4/22   3.4    
3.5   Certificate of Amendment to Amended and Restated Articles of Incorporation, filed with the Secretary of State of the State of Nevada on January 5, 2024   8-K   1/11/24   3.1    
3.6   Form of Certificate of Designation-Series A Preferred Stock   8-K   3/25/24   3.1