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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the Quarterly Period Ended September 30, 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: 000-41286

 

VIVAKOR, INC.

(Exact name of registrant as specified in its charter)

 

Nevada   26-2178141
(State or other Jurisdiction of
Incorporation or Organization)
  (I.R.S. Employer
Identification No.)

 

5220 Spring Valley Road, Suite LL20
Dallas, TX
  75242
(Address of Principal Executive Offices)   (Zip Code)

 

(949) 281-2606

(Registrant’s telephone number, including area code)

 

4101 North Thanksgiving Way, Lehi UT 84043

(Former name, former address and former fiscal year, if changed since last report)

 

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

 

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

 

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 (§232.405 of this chapter) 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, or a small reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” a “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 7(a)(2)(B) of the Securities Act: 

 

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

 

As of November 13, 2023, there were 26,220,508 shares of the registrant’s common stock outstanding.

 

 

 

 

 

 

VIVAKOR, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023

 

TABLE OF CONTENTS

 

        Page
PART I. FINANCIAL INFORMATION   1
         
ITEM 1.   Financial Statements   1
         
    Condensed Consolidated Balance Sheets as of September 30, 2023 (unaudited) and December 31, 2022   1
         
    Condensed Consolidated Statements of Operations for the Three and Nine Months ended September 30, 2023 and 2022 (unaudited)   2
         
    Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months ended September 30, 2023 and 2022 (unaudited)   3
         
    Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2023 and 2022 (unaudited)   4
         
    Notes to Condensed Consolidated Financial Statements (unaudited)   5
         
ITEM 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations   19
         
ITEM 3.   Quantitative and Qualitative Disclosures about Market Risk   25
         
ITEM 4.   Controls and Procedures   26
         
PART II. OTHER INFORMATION   27
         
ITEM 1.   Legal Proceedings   27
         
ITEM 1A.   Risk Factors   27
         
ITEM 2.   Unregistered Sales of Equity Securities and Use of Proceeds   28
         
ITEM 3.   Defaults Upon Senior Securities   28
         
ITEM 4.   Mine Safety Disclosures   28
         
ITEM 5.   Other Information   28
         
ITEM 6.   Exhibits   29
         
SIGNATURES   30

 

i

 

 

EXPLANATORY NOTE

 

On February 14, 2022, we effected a 1-for-30 reverse split of our authorized and outstanding shares of common stock (the “Reverse Stock Split”) via the filing of a certificate of change with the Nevada Secretary of State, which was filed simultaneously with the close of an underwritten public offering of our common stock and the commencement of the trading of our common stock on the Nasdaq Capital Market, LLC. As a result of the Reverse Stock Split, all authorized and outstanding common stock, preferred stock, and per share amounts in this Quarterly Report on Form 10-Q, including, but not limited to, the consolidated financial statements and footnotes included herein, have been adjusted to reflect the Reverse Stock Split for all periods presented.

 

ii

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

VIVAKOR, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

                 
    September 30,
2023
    December 31,
2022
 
    (Unaudited)        
ASSETS                
Current assets:                
Cash and cash equivalents   $ 1,018,039     $ 3,101,186  
Cash and cash equivalents attributed to variable interest entity     181,058       81,607  
Accounts receivable     3,831,930       2,615,354  
Accounts receivable- related party     174,083       948,352  
Prepaid expenses     67,345       31,523  
Marketable securities     661,102       1,652,754  
Inventories     63,680       47,180  
Other assets     1,049,241       700,298  
Total current assets     7,046,478       9,178,254  
                 
Other investments     4,000       4,000  
Property and equipment, net     26,691,972       22,578,876  
Right of use assets- operating leases     1,622,770       1,880,056  
License agreements, net     1,675,406       1,772,153  
Intellectual property, net     24,089,856       28,251,053  
Goodwill     14,984,768       12,678,108  
Total assets   $ 76,115,250     $ 76,342,500  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Current liabilities:                
Accounts payable and accrued expenses   $ 6,093,010     $ 3,242,667  
Accounts payable and accrued expenses- related parties     3,799,730       4,142,978  
Accrued compensation     1,246,579       1,302,890  
Operating lease liabilities, current     535,960       471,991  
Finance lease liabilities, current     963,900       963,900  
Loans and notes payable, current     529,366       542,374  
Loans and notes payable, current- related parties     12,554,172       342,830  
Loans and notes payable, current attributed to variable interest entity     -       1,325,000  
Loans and notes payable, current attributed to variable interest entity- related parties     300,000       599,500  
Long-term debt (working interest royalty programs), current     7,902       9,363  
Total current liabilities     26,030,619       12,943,493  
                 
Operating lease liabilities, long term     1,181,389       1,457,483  
Finance lease liabilities, long term     1,998,967       2,298,960  
Loans and notes payable, long term     1,867,721       406,246  
Loans and notes payable, long term- related parties     15,330,729       27,977,704  
Loans and notes payable attributed to variable interest entity- related party     1,351,845       300,000  
Long-term debt (working interest royalty programs)     4,451,587       3,897,553  
Total liabilities     52,212,857       49,281,439  
                 
Stockholders’ equity:                
Convertible preferred stock, $0.001 par value; 3,400,000 shares authorized, none outstanding                
Common stock, $0.001 par value; 41,666,667 shares authorized; 18,219,582 and 18,064,838 were issued and outstanding as September 30, 2023 and December 31, 2022, respectively     18,220       18,065  
Additional paid-in capital     75,973,993       74,026,163  
Treasury stock, at cost     (20,000 )     (20,000 )
Accumulated deficit     (62,066,420 )     (55,169,781 )
Total Vivakor, Inc. stockholders’ equity     13,905,793       18,854,447  
Noncontrolling interest     9,996,600       8,206,614  
Total stockholders’ equity     23,902,393       27,061,061  
Total liabilities and stockholders’ equity   $ 76,115,250     $ 76,342,500  

 

See accompanying notes to consolidated financial statements

 

1

 

 

VIVAKOR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

                                 
    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
    2023     2022     2023     2022  
Revenues                                
Product revenue - third parties   $ 12,849,613     $ 8,882,105     $ 35,614,821     $ 8,882,105  
Product revenue - related party     3,463,793       2,883,870       9,834,095       2,883,870  
Total revenues     16,313,406       11,765,975       45,448,916       11,765,975  
Cost of revenues     14,766,494       10,553,375       41,174,082       10,553,375  
Gross profit     1,546,912       1,212,600       4,274,834       1,212,600  
Operating expenses:                                
Sales and marketing     1,240       50,174       2,457       360,765  
General and administrative     1,473,728       2,373,615       4,710,852       6,609,175  
Amortization and depreciation     817,058       1,119,737       2,269,445       2,053,550  
Total operating expenses     2,292,026       3,543,526       6,982,754       9,023,490  
Loss from operations     (745,114 )     (2,330,926 )     (2,707,920 )     (7,810,890 )
Other income (expense):                                
Unrealized gain (loss) on marketable securities     (661,101 )     1,074,290       (991,652 )     661,101  
Gain on disposition of asset     -       -       -       2,456  
Interest income     -       5,782       -       18,243  
Interest expense     (516,357 )     (85,924 )     (1,426,730 )     (191,765 )
Interest expense- related parties     (828,739 )     (426,293 )     (2,387,523 )     (435,398 )
Other income     99,420       50       123,536       40,134  
Total other income (expense)     (1,906,777 )     567,905       (4,682,369 )     94,771  
Loss before provision for income taxes     (2,651,891 )     (1,763,021 )     (7,390,289 )     (7,716,119 )
Provision for income taxes     -       -       (800 )     (800 )
Consolidated net loss     (2,651,891 )     (1,763,021 )     (7,391,089 )     (7,716,919 )
Less: Net loss attributable to noncontrolling interests     (134,517 )     (183,008 )     (494,450 )     (630,706 )
Net loss attributable to Vivakor, Inc.   $ (2,517,374 )   $ (1,580,013 )   $ (6,896,639 )   $ (7,086,213 )
                                 
Basic and diluted net loss per share   $ (0.14 )   $ (0.09 )   $ (0.38 )   $ (0.46 )
                                 
Basic weighted average common shares outstanding     18,120,344       17,047,489       18,083,543       15,284,240  

 

See accompanying notes to consolidated financial statements

 

2

 

 

VIVAKOR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

 

                                                                         
   

Series A

Preferred Stock

    Common Stock     Additional
Paid-in
    Treasury     Accumulated     Non-controlling     Total Stockholders’  
    Shares     Amount     Shares     Amount     Capital     Stock     Deficit     Interest     Equity  
June 30, 2023 (unaudited)     -     $ -       18,064,838     $ 18,065     $ 74,493,672     $ (20,000 )   $ (59,549,046 )   $ 8,575,445     $ 23,518,136  
Issuance of common stock for a reduction of liabilities     -       -       154,744       155       219,845       -       -       -       220,000  
Distributions to noncontrolling interest     -       -       -       -       -       -       -       (414,328 )     (414,328 )
Issuance of noncontrolling interest for a reduction of debt     -       -       -       -       -       -       -       1,970,000       1,970,000  
Stock based compensation     -       -       -       -       1,260,476       -       -       -       1,260,476  
Net loss     -       -       -       -       -       -       (2,517,374 )     (134,517 )     (2,651,891 )
September 30, 2023 (unaudited)     -     $ -       18,219,582     $ 18,220     $ 75,973,993     $ (20,000 )   $ (62,066,420 )   $ 9,996,600     $ 23,902,393  

 

    Series A
Preferred Stock
    Common Stock     Additional
Paid-in
    Treasury     Accumulated     Non-controlling     Total Stockholders’  
    Shares     Amount     Shares     Amount     Capital     Stock     Deficit     Interest     Equity  
December 31, 2022     -     $ -       18,064,838     $ 18,065     $ 74,026,163     $ (20,000 )   $ (55,169,781 )   $ 8,206,614     $ 27,061,061  
Issuance of common stock for a reduction of liabilities     -       -       154,744       155       219,845       -       -       -       220,000  
Distributions to noncontrolling interest     -       -       -       -       -       -       -       (1,020,564 )     (1,020,564 )
Issuance of noncontrolling interest for a reduction of debt     -       -       -       -       -       -       -       3,305,000       3,305,000  
Non-qualified stock options issued to third party     -       -       -       -       467,509       -       -       -       467,509  
Stock based compensation     -       -       -       -       1,260,476       -       -       -       1,260,476  
Net loss     -       -       -       -       -       -       (6,896,639 )     (494,450 )     (7,391,089 )
September 30, 2023 (unaudited)     -     $ -       18,219,582     $ 18,220     $ 75,973,993     $ (20,000 )   $ (62,066,420 )   $ 9,996,600     $ 23,902,393  

 

    Series A
Preferred Stock
    Common Stock     Additional
Paid-in
    Treasury     Accumulated     Non-controlling     Total Stockholders’  
    Shares     Amount     Shares     Amount     Capital     Stock     Deficit     Interest     Equity  
June 30, 2022 (unaudited)     -     $ -       15,038,619     $ 15,039     $ 67,857,646     $ (20,000 )   $ (41,237,559 )   $ 7,245,917     $ 33,861,043  
Common Stock issued for stock awards     0       0       16,667       16       (16 )     -       -       -       -  
Common stock issued as part consideration for the purchase of Silver Fuels Delhi, LLC and White Claw Colorado City, LLC     0       0       3,009,552       3,010       4,284,645       -       -       -       4,287,655  
Stock options issued for services     -       -       -       -       317,500       -       -       -       317,500  
Stock based compensation     -       -       -       -       844,912       -       -       -       844,912  
Distributions to noncontrolling interest     -       -       -       -       -       -       -       (249,198 )     (249,198 )
Issuance of noncontrolling interest for a reduction of debt     -       -       -       -       -       -       -       375,000       375,000  
Net loss     -       -       -       -       -       -       (1,580,013 )     (183,008 )     (1,763,021 )
September 30, 2022 (unaudited)     -     $ -       18,064,838     $ 18,065     $ 73,304,687     $ (20,000 )   $ (42,817,572 )   $ 7,188,711     $ 37,673,891  

 

    Series A
Preferred Stock
    Common Stock     Additional
Paid-in
    Treasury     Accumulated     Non-controlling     Total Stockholders’  
    Shares     Amount     Shares     Amount     Capital     Stock     Deficit     Interest     Equity  
December 31, 2021(1)      66,667     $ 67       12,330,859     $ 12,331     $ 58,279,590     $ (20,000 )   $ (35,731,359 )   $ 5,012,504     $ 27,553,133  
Common Stock issued for stock awards     -       -       16,667       16       (16 )     -       -       -       -  
Common Stock issued for a reduction of liabilities     -       -       272,156       273       1,144,719       -       -       -       1,144,992  
Conversion of Series A Preferred Stock to Common Stock     (66,667 )     (67 )     833,333       833       (766 )     -       -       -       -  
Common Stock issued for cash     -       -       1,600,000       1,600       6,238,400       -       -       -       6,240,000  
Common stock issued for fractional shares from reverse stock split     -       -       2,271       2       -       -       -       -       2  
Common stock issued as part consideration for the purchase of Silver Fuels Delhi, LLC and White Claw Colorado City, LLC     -       -       3,009,552       3,010       4,284,645       -       -       -       4,287,655  
Stock options issued for services     -       -       -       -       1,172,500       -       -       -       1,172,500  
Stock based compensation     -       -       -       -       2,185,615       -       -       -       2,185,615  
Distributions to noncontrolling interest     -       -       -       -       -       -       -       (593,087 )     (593,087 )
Issuance of noncontrolling interest for a reduction of debt     -       -       -       -       -       -       -       3,400,000       3,400,000  
Net loss     -       -       -       -       -       -       (7,086,213 )     (630,706 )     (7,716,919 )
September 30, 2022 (unaudited)     -     $ -       18,064,838     $ 18,065     $ 73,304,687     $ (20,000 )   $ (42,817,572 )   $ 7,188,711     $ 37,673,891  

 

 
(1) Share and per share amounts have been retroactively adjusted to reflect the one-for-thirty reverse stock split effective February 14, 2022. See Note 1 – Organization and Basis of Presentation for additional information.

 

See accompanying notes to consolidated financial statements

 

3

 

 

VIVAKOR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

                 
    Nine Months Ended
September 30,
 
    2023     2022  
OPERATING ACTIVITIES:                
Consolidated net loss   $ (7,391,089 )   $ (7,716,919 )
Adjustments to reconcile net income to net cash used in operating activities:                
Depreciation and amortization     2,269,445       2,053,550  
Forgiveness of liabilties     (40,584 )     -  
Common stock options issued for services     -       1,172,500  
Stock-based compensation     1,260,476       2,185,615  
Unrealized (gain)/loss- marketable securities     991,652       (661,101 )
Gain on disposal of asset     -       (2,456 )
Changes in operating assets and liabilities:                
Accounts receivable     (442,307 )     652,851  
Prepaid expenses     (35,822 )     23,960  
Inventory     (16,500 )     147,719  
Other assets     (348,943 )     (164,919 )
Right of use assets- finance leases     785,817       -  
Right of use assets- operating leases     257,286       15,090  
Operating lease liabilities     (257,286 )     (16,177 )
Accounts payable and accrued expenses     (929,360 )     (1,751,613 )
Interest on notes receivable     -       (18,243 )
Interest on notes payable     3,058,522       627,163  
Net cash used in operating activities     (838,693 )     (3,452,980 )
                 
INVESTING ACTIVITIES:                
Proceeds from notes receivable     -       55,952  
Acquisition of assets     -       96,466  
Proceeds from disposal of equipment     -       6,000  
Purchase of equipment     (3,841,589 )     (1,807,140 )
Net cash used in investing activities     (3,841,589 )     (1,648,722 )
                 
FINANCING ACTIVITIES:                
Payment on financing lease liabilities     (299,993 )     (160,650 )
Proceeds from loans and notes payable     3,723,458       3,177,622  
Proceeds from loans and notes payable- related party     776,500       -  
Proceeds from sale of common stock     -       6,240,000  
Payment of notes payable     -       (534,111 )
Payment of notes payable- related party     (482,815 )     -  
Distributions to noncontrolling interest     (1,020,564 )     (593,087 )
Net cash provided by financing activities     2,696,586       8,129,774  
                 
Net increase (decrease) in cash and cash equivalents     (1,983,696 )     3,028,072  
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD     3,182,793       1,493,719  
CASH AND CASH EQUIVALENTS, END OF PERIOD   $ 1,199,097     $ 4,521,791  
                 
SUPPLEMENTAL CASHFLOW INFORMATION:                
Cash paid during the year for:                
Interest   $ 2,485,211     $ 480,605  
Income taxes   $ -     $ -  
                 
Noncash transactions:                
Conversion of Series A, B, B-1, and C-1 Preferred Stock to Common Stock   $ -     $ 1,200,000  
Common stock issued for a reduction in liabilities   $ 220,000     $ 1,144,992  
Accounts payable on purchase of equipment   $ 432,857     $ 586,717  
Noncontrolling interest issued for a reduction in liabilities   $ 3,305,000     $ 3,400,000  
Capitalized interest on construction in process   $ 735,919     $ 499,537  
Common stock issued in the acquisition of Silver Fuels Delhi, LLC and White Claw Colorado City, LLC   $ -     $ 4,287,655  
Non-qualified stock options issued with debt   $ 467,509     $ -  

 

See accompanying notes to consolidated financial statements

 

4

 

 

VIVAKOR, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 

Note 1. Basis of Presentation

 

On February 14, 2022, we effected a 1-for-30 reverse split of our outstanding shares of common stock (the “Reverse Stock Split”) via the filing of a certificate of change with the Nevada Secretary of State which was effective at the commencement of trading of our Common Stock. No fractional shares of the Company’s common stock were issued as a result of the Reverse Stock Split. Any fractional shares resulting from the Reverse Stock Split will be rounded up to the nearest whole share. All issued and outstanding common stock, preferred stock, and per share amounts in the consolidated financial statements and footnotes included herein have been retroactively adjusted to reflect this reverse stock split for all periods presented.

 

COVID-19

 

On March 11, 2020, the World Health Organization (“WHO”) declared the COVID-19 outbreak to be a global pandemic. In addition to the devastating effects on human life, the pandemic had a negative ripple effect on the global economy, leading to disruptions and volatility in the global financial markets. Most U.S. states and many countries issued policies intended to stop or slow the spread of the disease.

 

In March 2020 we temporarily suspended operations in Kuwait and Utah due to COVID-19 government restrictions. Utah and Kuwait have since resumed site preparations for operations. Additionally, we continue to experience supply chain disruptions related to building our Remediation Processing Centers (“RPC”), completing certain refurbishment, and in relation to our other operations.

 

Interim Financial Information

 

The accompanying unaudited condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. Accordingly, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes for the year ended December 31, 2022. The unaudited condensed consolidated financial statements have been prepared on a basis consistent with that used to prepare the audited annual consolidated financial statements and include, in the opinion of management, all adjustments, consisting of normal and recurring items, necessary for the fair presentation of the condensed consolidated financial statements. The operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results expected for the full year ending December 31, 2023.

 

Long Lived Assets

 

The Company reviews the carrying values of its long-lived assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the expected future cash flow from the use of the asset and its eventual disposition is less than the carrying amount of the asset, an impairment loss is recognized and measured using the fair value of the related asset. During the nine months ended September 30, 2023, the Company entered into an agreement to move the Vernal RPC plant to Kuwait to service the contract with DIC for a scaled up RPC, as the Vernal plant was not producing product toward the off-take agreement, which further delayed scaled operations. The Company evaluated these events, and determined that there was no trigger event, and therefore there was no impairment incurred during the nine months ended September 30, 2023. There can be no assurance that market conditions will not change or demand for the Company’s services will continue, which could result in impairment of long-lived assets in the future.

 

5

 

 

Intangible Assets and Goodwill:

 

We account for intangible assets and goodwill in accordance with ASC 350 “Intangibles-Goodwill and Other” (“ASC 350”). We assess our intangible assets in accordance with ASC 360 “Property, Plant, and Equipment” (“ASC 360”). Impairment testing is required when events occur that indicate an asset group may not be recoverable (“triggering events”). As detailed in ASC 360-10-35-21, the following are examples of such events or changes in circumstances (sometimes referred to as impairment indicators or triggers): (a) A significant decrease in the market price of a long-lived asset (asset group) (b) A significant adverse change in the extent or manner in which a long-lived asset (asset group) is being used or in its physical condition. (c) A significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset (asset group), including an adverse action or assessment by a regulator (d) An accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset (asset group) (e) A current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset (asset group) (f) A current expectation that, more likely than not, a long-lived asset (asset group) will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. The term more likely than not refers to a level of likelihood that is more than 50 percent. We performed an analysis and assessed no triggering event has occurred, and no impairment for the nine months ended September 30, 2023.

 

Revenue Recognition

 

In August 2022, we acquired Silver Fuels Delhi, LLC and White Claw Colorado City, LLC, from which approximately 99% of the Company’s revenue is derived. For the nine months ended September 30, 2023, our sales consist of storage services and the sale of crude oil or like products. For the nine months ended September 30, 2023, disaggregated revenue by customer type was as follows: $35,564,821 in crude oil sales and $8,118,549 in product related to natural gas liquids sales.

 

Related Party Revenues

 

We sell crude oil or like products and provide storage services to related parties under long-term contracts. We acquired these contracts in our August 1, 2022 acquisition of Silver Fuels Delhi, LLC and White Claw Colorado City, LLC. These contracts were entered into in the normal course of our business. Our revenue from related parties for the nine months ended September 30, 2023 and 2022 was $9,834,095 and $2,883,870.

 

Major Customers and Concentration of Credit Risk

 

The Company has two major customers, which account for approximately 97% of the balance of accounts receivable as of September 30, 2023 and December 31, 2022.

 

Advertising Expense

 

Advertising costs are expensed as incurred. The Company did not incur advertising expense for the nine months ended September 30, 2023 and 2022.

 

Net Income/Loss Per Share

 

Basic net income (loss) per share is calculated by subtracting any preferred interest distributions from net income (loss), all divided by the weighted-average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net income (loss) per common share is computed by dividing the net income (loss) by the weighted-average number of common share equivalents outstanding for the period determined using the treasury stock method if their effect is dilutive. Potential dilutive instruments as of September 30, 2023 and December 31, 2022 include the following: convertible notes payable convertible into approximately 214,560 and 14,560 shares of common stock, stock options and unissued stock awards granted to current or previous employees of 2,590,968 and 1,421,760 shares of common stock, stock options and unissued awards granted to Board members or consultants of 680,274 and 395,139 shares of common stock. The Company issued free standing stock options to purchase 1,000,000 shares of our common stock to a third party in a bundled transaction with debt during the nine months ended September 30, 2023 (see Note 9). The Company also has a warrant outstanding to purchase 80,000 shares of common stock as of September 30, 2023.

 

6

 

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates, judgments, and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We believe our critical accounting estimates relate to the following: Recoverability of current and noncurrent assets, revenue recognition, stock-based compensation, income taxes, effective interest rates related to long-term debt, marketable securities, cost basis investments, lease assets and liabilities, valuation of stock used to acquire assets, derivatives, and fair values of the intangible assets and goodwill related to business combinations.

 

While our estimates and assumptions are based on our knowledge of current events and actions we may undertake in the future, actual results may ultimately differ from these estimates and assumptions.

 

Fair Value of Financial Instruments

 

The Company follows Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures” (“ASC 820”), for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that requires the use of fair value measurements, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements. The adoption of ASC 820 did not have an impact on the Company’s financial position or operating results but did expand certain disclosures.

 

ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:

 

Level 1: Applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

 

Level 2: Applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

 

Level 3: Applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

 

The Company analyzes all financial instruments with features of both liabilities and equity under the Financial Accounting Standard Board’s (“FASB”) accounting standard for such instruments. Under this standard, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The carrying amounts reported in the consolidated balance sheets for marketable securities are classified as Level 1 assets due to observable quoted prices for identical assets in active markets. The carrying amounts reported in the consolidated balance sheets for cash, prepaid expenses and other current assets, accounts payable and accrued expenses approximate their estimated fair market values based on the short-term maturity of these instruments. The recorded values of notes payable approximate their current fair values because of their nature, rates, and respective maturity dates or durations.

 

7

 

 

Note 2. Liquidity

 

We have historically suffered net losses and cumulative negative cash flows from operations, and as of September 30, 2023, we had an accumulated deficit of approximately $62.1 million. As of September 30, 2023 and December 31, 2022, we had a working capital deficit of approximately $19 million and $3.7 million, respectively. Subsequent to September 30, 2023, $10 million of the working capital deficit was paid with an issuance of common stock for a reduction in noted payable to a related party, of which our CEO is a beneficiary (see Note 12). As of September 30, 2023, we had cash of approximately $1.2 million, and we had obligations to pay approximately $14.4 million (of which approximately $10 million was satisfied through the issuance of our common stock under the terms of the debt subsequent to September 30, 2023 (see Note 12)) of debt in cash within one year of the issuance of these financial statements. Our CEO has also committed to provide credit support through December 2024, as necessary, for an amount up to $8 million to provide the Company sufficient cash resources, if required, to execute its plans for the next twelve months. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. We believe the liquid assets and CEO commitment give us adequate working capital to finance our day-to-day operations for at least twelve months through November 2024.

 

The Company has prepared the consolidated financial statements on a going concern basis. If the Company encounters unforeseen circumstances that place constraints on its capital resources, management will be required to take various measures to conserve liquidity. Management cannot provide any assurance that the Company will raise additional capital if needed.

 

Note 3. Accounts Receivable

 

As of September 30, 2023 and December 31, 2022, accounts receivable with related parties was $174,083 and $948,352 and is made up of the following:

 

As of September 30, 2023 and December 31, 2022, trade accounts receivable of $112,083 and $948,352 are with a vendor of which our CEO is a beneficiary. In 2023 we began subleasing office space to a tenant where the officers of WealthSpace, LLC, Fund Manager of Viva Wealth Fund I, LLC, also manage the tenant of our sublease. The tenant owes rent of $62,000 to the Company as of September 30, 2023.

 

Note 4. Property and Equipment

 

The following table sets forth the components of the Company’s property and equipment at September 30, 2023 and December 31, 2022:

 

                                               
    September 30,
2023
    December 31,
2022
 
    Gross
Carrying
Amount
    Accumulated
Depreciation
    Net Book
Value
    Gross
Carrying
Amount
    Accumulated
Depreciation
    Net Book
Value
 
Office furniture   $ 14,998     $ 7,345     $ 7,653     $ 14,998     $ 5,912     $ 9,086  
Vehicles     36,432       31,575       4,857       36,432       26,110       10,322  
Equipment     942,880       400,409       542,471       942,880       295,855       647,025  
Property     17,000       -       17,000       17,000       -       17,000  
Finance lease- Right of use assets     3,579,544       1,135,070       2,444,474       3,579,544       349,253       3,230,291  
                                                 
Construction in process:                                                
Wash Plant Facilities     2,337,477       -       2,337,477       199,800       -       199,800  
Cavitation device     72,201       -       72,201       44,603       -       44,603  
Remediation Processing Unit 1     4,483,971       -       4,483,971       4,396,753       -       4,396,753  
Remediation Processing Unit 2     8,285,744       -       8,285,744       6,285,547       -       6,285,547  
Remediation Processing Unit System A     4,209,947       -       4,209,947       3,893,051       -       3,893,051  
Remediation Processing Unit System B     4,286,177       -       4,286,177       3,845,398       -       3,845,398  
Total fixed assets   $ 28,266,371     $ 1,574,399     $ 26,691,972     $ 23,256,006     $ 677,130     $ 22,578,876  

 

8

 

 

For the nine months ended September 30, 2023 and 2022 depreciation expense was $111,452 and $500,352. For the nine months ended September 30, 2023 and 2022 capitalized interest to equipment from debt financing was $735,919 and $499,537. Equipment that is currently being manufactured is considered construction in process and is not depreciated until the equipment is placed into service. Equipment that is temporarily not in service is not depreciated until placed into service.

 

The operations surrounding our precious metals extraction services were temporarily suspended until 2022, although due to these suspended activities and a shift in 2022 of the Company’s focus to the oil and gas industry, we realized an impairment loss of $6,269,998 surrounding the extraction machinery for the year ended December 31, 2022.

 

As of December 31, 2022 we continued to pursue a test facility or third party reactor for our nano catalyst technology that facilitates chemical manufacturing, with a focus on the production of ammonia, which includes our bioreactor equipment. The Company received quotes for testing or building our own test facilities with new partners for this venture. After taking into consideration this new information, we noted that the newly requested capital expenditure to test and scale the business triggered an impairment loss of assets related to our ammonia synthesis assets, including our bioreactors. The impairment loss related to our bioreactors was $1,440,000 for the year ended December 31, 2022.

 

There was no impairment loss during the nine months ended September 30, 2023.

 

Note 5. Intellectual Property, Net and Goodwill

 

The following table sets forth the components of the Company’s intellectual property at September 30, 2023 and December 31, 2022:

 

                                               
    September 30,
2023
    December 31,
2022
 
    Gross
Carrying
Amount
    Accumulated
Amortization
    Net Book
Value
    Gross
Carrying
Amount
    Accumulated
Amortization
    Net Book
Value
 
Extraction Technology patents   $ 113,430     $ 17,237     $ 96,193     $ 113,430     $ 12,233     $ 101,197  
Extraction Technology     16,385,157       7,100,235       9,284,922       16,385,157       6,485,791       9,899,366  
Acquired crude oil contracts     16,788,760       2,080,019       14,708,741       19,095,420       844,930       18,250,490  
Total Intellectual property   $ 33,287,347     $ 9,197,491     $ 24,089,856     $ 35,594,007     $ 7,342,954     $ 28,251,053  

 

The changes in the carrying amount of goodwill are as follows:

 

       
    Goodwill  
January 1, 2021   $ -  
Acquisition     14,984,768  
September 30, 2023   $ 14,984,768  

 

There were no changes in goodwill for the nine months ended September 30, 2023.

 

On August 1, 2022, the Company closed a Membership Interest Purchase Agreement, (the “MIPA”), with Jorgan Development, LLC, and JBAH Holdings, LLC, as the equity holders of Silver Fuels Delhi, LLC, a Louisiana limited liability company (“SFD”) and White Claw Colorado City, LLC, a Texas limited liability company (“WCCC”) whereby, the Company acquired all of the issued and outstanding membership interests in each of SFD and WCCC making SFD and WCCC wholly owned subsidiaries of the Company. The purchase price for the Membership Interests is approximately $32.9 million, after post-closing adjustments.

 

Management hired a valuation expert who performed a valuation study to calculate the fair value of the acquired assets, assumed liabilities and goodwill. Based on the valuation study, the fair values of goodwill and the acquired contracts were $14,984,768 and $16,788,760 on August 1, 2022.

 

Amortization expense for the nine months ended September 30, 2023 and 2022 was $2,157,993 and $1,553,198.

 

9

 

 

Note 6. Accounts Payable and Accrued Expenses

 

Accounts payable and accrued expenses consist of the following:

 

               
    September 30,     December 31,  
    2023     2022  
Accounts payable   $ 3,749,916     $ 910,002  
Office access deposits     -       235  
Unearned revenue     -       20,936  
Accrued interest (various notes and loans payable)     241,585       349,497  
Accrued interest (working interest royalty programs)     1,546,673       1,437,711  
Accrued tax penalties and interest     554,836       524,286  
Accounts payable and accrued expenses   $ 6,093,010     $ 3,242,667  

 

    September 30,     December 31,  
    2023     2022  
Accounts payable- related parties   $ 3,507,834     $ 4,112,300  
Accrued interest (notes payable)- related parties     291,896       30,678  
Accounts payable and accrued expenses   $ 3,799,730     $ 4,142,978  
Accrued compensation   $ 1,246,579     $ 1,302,890  

 

As of September 30, 2023 and December 31, 2022, our accounts payable are primarily made up of trade payables for the purchase of crude oil. As of September 30, 2023 and December 31, 2022, trade accounts payables in the amount of $2,842,979 and $4,000,681 is with a vendor who our CEO is a beneficiary of. As of September 30, 2023 and December 31, 2022, $250,526 and $37,685 of accounts payable is related to services rendered, which are not trade payables, with a vendor of which our CEO is a beneficiary.

 

In March 2023, the Compensation Committee reviewed the Company’s 2022 results, including, but not limited to, the progress of the Company’s historic business and certain acquisitions completed by the Company during 2022, and approved discretionary bonuses, which have been accrued as of December 31, 2022, for the Chief Financial Officer, and an acquisition consultant, in the amounts of $505,467 (included in accrued compensation) and $421,222 (included in accounts payable), respectively.

 

As of September 30, 2023, accrued compensation to current employees includes $71,005 in accrued vacation pay due to our Chief Executive Officer, which may be payable in cash or stock if unused, and $720,145 due to our Chief Financial Officer, with $54,183 in accrued sick and vacation pay that may be payable in cash if unused, and the remainder paid in cash.

 

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. We expect Maxus to fund approximately $2.2 million to finance the build-out of the Houston location in the form of a finance lease (see Note 8) for the wash plant, and 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 recorded as a liability. As of September 30, 2023 the Company has recorded a $1,564,771 liability in accounts payable related to the construction related to this agreement that has been funded by Maxus.

 

In July 2023, the Fund Manager, WealthSpace, LLC, of Viva Wealth Fund I, LLC (VWF), paid distributions to LLC unit holders in the amount of $414,329. The Company recorded this payment in behalf of VWF in accounts payable as of September 30, 2023. Subsequent to September 30, 2023, the $414,329 payable to WealthSpace, LLC was reimbursed by VWF and the payable was eliminated.

 

10

 

 

Note 7. Loans and Notes Payable

 

Loans and notes payable and their maturities consist of the following:

 

               
    September 30,     December 31,  
    2023     2022  
Various promissory notes and convertible notes   $ 50,960     $ 50,960  
Novus Capital Group LLC Note (a)     171,554       171,554  
National Buick GMC     15,786       16,006  
Blue Ridge Bank     410,200       410,200  
Small Business Administration     299,900       299,900  
Al Dali International for Gen. Trading & Cont. Co.(b)     948,687       -  
RSF, LLC (c)     500,000       -  
Various variable interest promissory notes (d)     -       1,325,000  
Total Notes Payable   $ 2,397,087     $ 2,273,620  
                 
Loans and notes payable, current   $ 529,366     $ 542,374  
Loans and notes payable, current attributed to variable interest entity     -       1,325,000  
Loans and notes payable, long term   $ 1,867,721     $ 406,246  

 

               
    September 30,     December 31,  
    2023     2022  
Various variable interest promissory notes- related parties (c)   $ 1,651,845     $ 899,500  
Jorgan Development, LLC     27,519,044       27,977,704  
Triple T Notes     365,857       342,830  
Total Notes Payable- related parties   $ 29,536,746     $ 29,220,034  
                 
Loans and notes payable, current- related parties   $ 12,554,172     $ 342,830  
Loans and notes payable, current attributed to variable interest entity- related parties     300,000       599,500  
Loans and notes payable attributed to variable interest entity- related parties     1,351,845       300,000  
Loans and notes payable, long term- related parties   $ 15,330,729     $ 27,977,704  

 

The following table sets forth the estimated payment schedule of long-term debt (net of debt discount) as of September 30, 2023:

 

       
2023   $ 529,366  
2024     13,872,226  
2025     17,260,449  
2026     33,640  
2027     17,232  
Thereafter     220,920  
Total   $ 31,933,833  

 

 
(a) In 2017, the Company acquired assets, including patents, in the amount of $4,931,380 in which the Company also agreed to assume the encumbering debt in the amount of $334,775. The debt currently accrues interest at 10% per annum. In November 2021, the lender agreed to extend the maturity of the note to April 1, 2022. On April 1, 2022, the lender agreed to extend the maturity of the note to April 1, 2023 with an initial payment of $52,448 and approximate monthly payment of $29,432 thereafter until the note is fully paid. As of the date of this report, we are currently renegotiating the terms of this debt.
(b) On June 20, 2023, we issued a 15% secured promissory note due to Al Dali International for Gen. Trading & Cont. Co., a company organized under the laws of Kuwait (“DIC”), in the principal amount of up to $1,950,000. As security to secure repayment of the Note, we issued DIC an option to purchase 1,000,000 shares of our common stock at an exercise price of $1.179 per share, which was recorded as a debt discount in the amount of $467,509, which is amortized to interest expense over the term of the agreement using the effective interest method. We also granted DIC a security interest in our Trial Remediation Processing Center (“RPC”) that is currently on-site at the DIC facility in Kuwait. We will repay the amounts due under the note from the operations of the RPC. In order to repay the amounts due under the note, DIC will deduct $12 per ton of material we process from the amounts due to us until all amounts due under the note have been repaid.
(c) On July 25, 2023, RSF, LLC loaned the Company $500,000 under the terms of a 10% Convertible Promissory Note. Under the terms of the note, interest accrues at 10% per annum, and matures two years from the date of issuance. The note is convertible into shares of our common stock at $2.50 per share, unless such conversion would cause the investor to own more than 4.9% of our outstanding common stock.
(d) The balance of these various promissory notes are related to the special purchase vehicle, Viva Wealth Fund I, LLC (VWFI) of which the balance primarily related to an offering up to $25,000,000 in convertible notes in a private offering, which was closed on March 31, 2023. During the nine months ended September 30, 2023, an additional $1,980,000 has been raised in relation this offering, and $3,305,000 of this debt has been converted into units of the LLC. VWFI has also entered into various master revolving notes outside of the offering: an additional $765,000, was raised from a related party as of September 30, 2023, which accrues 6% interest per annum, has a maturity date of October 11, 2024, where no payments are made prior to the maturity date unless at the option of the fund. For the nine months ended September 30, 2023, we made a cash payment of $12,655 on the principal of the revolving note.

 

11

 

 

Note 8. Commitments and Contingencies

 

Finance Leases

 

We acquired Silver Fuels Delhi, LLC (SFD) and White Claw Colorado City, LLC (WCCC) in a business combination in August 2022, in which we acquired certain finance lease contracts and liabilities as described below:

 

On March 17, 2020, SFD entered into two sale and leaseback transactions with Maxus Capital Group, LLC (“Maxus”). The first transaction involved the Company assigning twelve storage tanks and other equipment and the second transaction involved the Company assigning the remaining property at the oil gathering facility with the exception of land, to Maxus Future minimum lease payments for each of the next three years under the Maxus lease obligations is as follows: 2023 $123,036, 2024 $492,144, and 2025 $123,036.

 

On December 28, 2021, WCCC entered into a sale and leaseback transaction with Maxus, where WCCC assigned the crude oil, natural gas liquids, condensate, and liquid hydrocarbon receipt, throughput, processing, gathering, and delivery terminal, commonly known as the China Grove Station (the “China Grove Station”), located in Colorado City, Texas to Maxus. Future minimum lease payments for each of the next four years under the Maxus lease obligation are as follows: 2023 $117,939, 2024 $471,756, 2025 $471,756, and 2026 $471,756.

 

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. We expect Maxus to fund approximately $2.2 million to finance the build-out of the Houston location in the form of a finance lease for the wash plant, and we will lease the wash plant facility financed by Maxus under WCCC’s supplement to the Master Agreement. We expect our lease payments to Maxus under the supplement to be approximately $57,962 per month over 4 years, with an early buyout option of approximately $685,000 or lease-end option to purchase the facilities for the fair market value. We anticipate that the lease will commence in the fourth quarter of 2023 at which time the final amount funded and lease payments will be determined. During the construction phase the Company controls the asset with construction costs funded by Maxus recorded as a liability (see Note 6).

 

The following table reconciles the undiscounted cash flows for the finance leases as of September 30, 2023 to the finance lease liability recorded on the balance sheet:

 

       
2023   $ 240,975  
2024     963,900  
2025     594,792  
2026     471,756  
Total undiscounted lease payments     2,271,423  
Less: Imputed interest     1,061,556  
Present value of lease payments     1,209,867  
Add: carrying value of lease obligation at end of lease term     1,753,000  
Total finance lease obligations   $ 2,962,867  
         
Finance lease liabilities, current   $ 963,900  
Finance lease liabilities, long-term   $ 1,998,967  
         
Weighted-average discount rate     18.00 %
Weighted-average remaining lease term (months)     32.17  

 

12

 

 

Operating Leases

 

Commencing on September 15, 2019, the Company entered into a five-year lease with Jamboree Center 1 & 2 LLC covering approximately 6,961 square feet of office space in Irvine, CA. Under the terms of the lease agreement, we are required to make the following monthly lease payments: Year 1 $21,927, Year 2 $22,832, Year 3 $23,737, Year 4 $24,712, Year 5 $25,686. As a condition of the lease, we were required to provide a $51,992 security deposit.

 

On February 1, 2022, the Company entered into a lease agreement for approximately 2,533 square feet of office and manufacturing space located in Las Vegas, Nevada. Commencing on March 1, 2022, the Company entered into a three-year lease with Speedway Commerce Center, LLC. Under the terms of the lease agreement, we are required to make the following monthly lease payments: Year 1 $2,258, Year 2 $2,336, Year 3 $2,418. As a condition of the lease, we were required to provide a $2,418 security deposit.

 

On March 28, 2022, the Company entered into a lease agreement for approximately 1,469 square feet of office space located in Lehi, Utah. Commencing on April 1, 2022, the Company entered into a three-year lease with Victory Holdings, LLC. Under the terms of the lease agreement, we are required to make the following monthly lease payments: Year 1 is comprised of April to May 2022 $857, June 2022 to March 2023 $3,550, Year 2 $3,657, Year 3 $3,766. As a condition of the lease, we were required to provide a $3,766 security deposit.

 

On December 16, 2022, our subsidiary, VivaVentures Remediation Corp. entered into a Land Lease Agreement (the “Land Lease”) with W&P Development Corporation, under which we agreed to lease approximately 3.5 acres of land in Houston, Texas. The Land Lease is for an initial term of 126 months and may be extended for an additional 120 months at our discretion. Our monthly rent is $0 for the first three months and then at month 4 it is approximately $7,000 (based on a 50% reduction) and increases to approximately $13,000 in month 7 and then increases annually up to approximately $16,000 per month by the end of the initial term. We plan to place one or more of our RPC machines on the property, as well as store certain equipment.

 

On June 26, 2023, our subsidiary VivaVentures Remediation Corp., entered into a five year RPC Equipment Lease Agreement with Viva Wealth Fund I, LLC (“VWF”), under which VivaVentures Remediation Corp. agreed to lease the Remediation Processing Center (“RPC”) owned by VWF. VWF previously raised approximately $13.7 million and used the funds to have our subsidiary, RPC Design and Manufacturing, LLC, build an RPC, which we are now leasing from VWF in exchange for 25% of the gross proceeds from the RPC’s oil extraction production services, with a minimum $400,000 annual payment beginning nine months after the RPC is fully operational as defined in the RPC Equipment Lease Agreement. We anticipate that the RPC will be fully operational in the fourth quarter of 2023 at which time the minimum annual lease payment of $400,000 and could increase to an amount equal to 25% of the gross proceeds from the RPC’s oil extraction production services.

 

In July and August 2023, the Company entered into two six month lease agreements with Regus Management Group, LLC for individual offices and shared amenities located in Laguna Hills, California. The leases require an aggregate monthly lease payment of $3,080.

 

13

 

 

The following table reconciles the undiscounted cash flows for the leases as of September 30, 2023 to the operating lease liability recorded on the balance sheet:

 

       
2023   $ 130,245  
2024     435,906  
2025     162,545  
2026     136,975  
2027     153,089  
Thereafter     2,931,500  
Total undiscounted lease payments     3,950,260  
Less: Imputed interest     2,232,911  
Present value of lease payments   $ 1,717,349  
         
Operating lease liabilities, current   $ 535,960  
Operating lease liabilities, long-term   $ 1,181,389  
         
Weighted-average remaining lease term     213.47  
Weighted-average discount rate     10.13 %

 

Employment Agreement

 

On July 1, 2023, we hired a 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.

 

Note 9. Share-Based Compensation & Warrants

 

Options

 

Generally accepted accounting principles require share-based payments to employees, including grants of employee stock options, warrants, and common stock to be recognized in the income statement based on their fair values at the date of grant, net of estimated forfeitures.

 

The Company has granted stock-based compensation to employees, including the issuance of 1,872,918 employee stock options granted in June 2022 that were to vest over a period of two years, for which 451,158 of these options were cancelled with the resignation without cause in October 2022 of our prior Chief Executive Officer. For the nine months ended September 30, 2023 and 2022, employee stock-based compensation was $1,260,476 and $1,340,703. On October 24, 2022, the Compensation Committee resolved to increase their compensation including the issuance of 100,000 stock options per independent board member, exercisable at $2.50 per share, vesting immediately. Non-statutory or independent Board of Director stock-based compensation was none and $855,000 for the nine months ended September 30, 2023 and 2022. In 2022, the Company closed on its underwritten public offering in which the Company granted the underwriter, EF Hutton, division of Benchmark Investments, LLC (“EF Hutton”), a 45-day option to purchase up to an additional 240,000 shares of Common Stock at the public offering price per share, less the underwriting discounts and commissions, to cover over-allotments, if any. These options were not exercised and expired. On June 20, 2023, we issued a 15% secured promissory note due to Al Dali International for Gen. Trading & Cont. Co., a company organized under the laws of Kuwait (“DIC”). As security to secure repayment of the Note, we issued DIC an option to purchase 1,000,000 shares of our common stock at an exercise price of $1.179 per share, which was recorded as a debt discount in the amount of $467,509, which is amortized to interest expense over the term of the agreement using the effective interest method.

 

There were no other options granted during the nine months ended September 30, 2023 and 2022, respectively.

 

14

 

 

The assumptions used in the Black-Scholes option pricing model to determine the fair value of the options on the date of issuance are as follows:

 

     
    December 31, 2021
through

September 30,
2023
 
Risk-free interest rate   0.24 - 5.23%  
Expected dividend yield   None  
Expected life   2.1 - 10 years  
Expected volatility rate   142 - 273%  

 

The following table summarizes all stock option activity of the Company for the nine months ended September 30, 2023 and 2022:

 

                       
    Number
of Shares
    Weighted
Average
Exercise
Price
    Weighted
Average
Remaining
Contractual
Life (Years)
 
Outstanding, December 31, 2022     1,833,566     $ 2.59       6.47  
Granted     1,000,000       1.18       1.75  
Exercised     -       -       -  
Forfeited     (16,667 )     12.00       -  
Outstanding, September 30, 2023     2,816,899     $ 2.03       4.33  
                         
Outstanding, December 31, 2021     650,000     $ 12.00       7.53  
Granted     2,112,919       2.24       6.60  
Exercised     (16,667 )     11.1       -  
Forfeited     (740,000 )     10.00       -  
Outstanding, September 30, 2022     2,006,252     $ 2.56       6.93  
                         
Exercisable, December 31, 2022     1,526,869     $ 2.65       5.94  
Exercisable, September 30, 2023     2,671,883     $ 2.05       4.10  
                         
Exercisable, December 31, 2021     180,000     $ 12.00       7.01  
Exercisable, September 30, 2022     1,175,059     $ 2.67       7.09  

 

As of September 30, 2023 and 2022, the aggregate intrinsic value of the Company’s outstanding options was approximately none. The aggregate intrinsic value will change based on the fair market value of the Company’s common stock.

 

Warrants

 

As of September 30, 2023 and 2022, the Company had 80,000 warrants outstanding. On February 14, 2022, the Company closed on its underwritten public offering of 1,600,000 shares of common stock, at a public offering price of $5.00 per share. In addition, the Company has issued the underwriter, EF Hutton, a 5-year warrant to purchase 80,000 shares of common stock at an exercise price equal $5.75 and were valued with a fair market value of $374,000. The impact of these warrants has no effect on stockholder’s equity, as they are considered equity-like instruments, and are considered a direct expense of the offering.

 

15

 

 

Note 10. Income Tax

 

The Company calculates its quarterly tax provision pursuant to the guidelines in ASC 740 Income Taxes. ASC 740 requires companies to estimate the annual effective tax rate for current year ordinary income. In calculating the effective tax rate, permanent differences between financial reporting and taxable income are factored into the calculation, and temporary differences are not. The estimated annual effective tax rate represents the Company’s estimate of the tax provision in relation to the best estimate of pre-tax ordinary income or loss. The estimated annual effective tax rate is then applied to year-to-date ordinary income or loss to calculate the year-to-date interim tax provision.

 

The Company recorded a provision for income taxes of $800 for the nine months ended September 30, 2023 and 2022, respectively. The Company is projecting a 0.01% effective tax rate for the year ending December 31, 2023, which is primarily the result of projected provision from book loss incurred for the year offset by additional valuation allowance on the net operating losses. The Company’s effective tax rate for 2022 was 18.69% which was, which was primarily the result of a change in the Company's valuation allowance on deferred tax assets.

 

As of December 31, 2022, the Company had estimated federal and state net operating loss (NOL) carryforwards of approximately $23.7 million. Federal NOL carryforwards begin to expire in 2028.

 

Note 11. Related Party Transactions

 

As of September 30, 2023, VWFI has paid $2,266,964 to Dzign Pro Enterprises, LLC (Dzign Pro) for engineering services related to our RPCs, site planning, and infrastructure, which Dzign Pro shares a common executive with VWFI. As of September 30, 2023, VWFI also entered into a master revolving note payable to Dzign Pro in the amount of $300,000, which accrues 5% interest per annum, has a maturity date of July 14, 2024, where no payments are made prior to the maturity date unless at the option of the fund. VWFI also entered into a master revolving note payable to Van Tran Family LP, which is an affiliate of WealthSpace, LLC, the VWFI Fund Manager, in the amount of $1,351,845, which accrues 6% interest per annum, has a maturity that has been amended to October 11, 2024, where no payments are made prior to the maturity date unless at the option of the fund. For the nine months ended September 30, 2023, we made cash payments of $50,000 on the Van Tran Family LP revolving note.

 

As of September, 2023 we are subleasing office space to Spectra Global Cuisine, LLC (Spectra), which shares officers with WealthSpace, LLC (the Fund Manager of VWFI). For the nine months ended September 30, 2023 we realized $62,000 in office sublease lease revenue from Spectra. As of September 30, 2023, the Company is carrying accounts receivable of $62,000 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 nine months ended September 30, 2023, we paid Mr. Staggs a total of $48,000 in cash under the terms of the agreement.

 

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On June 15, 2022, we entered into a Membership Interest Purchase Agreement (the “MIPA”), with Jorgan Development, LLC, (“Jorgan”) and JBAH Holdings, LLC, (“JBAH” and, together with Jorgan, the “Sellers”), as the equity holders of Silver Fuels Delhi, LLC (“SFD”) and White Claw Colorado City, LLC (“WCCC”) whereby, at closing, which occurred on August 1, 2022, we acquired all of the issued and outstanding membership interests in each of SFD and WCCC (the “Membership Interests”), making SFD and WCCC our wholly-owned subsidiaries. The purchase price for the Membership Interests was approximately $32.9 million paid for by us with a combination of shares of our common stock, amount equal to 19.99% of the number of issued and outstanding shares of our common stock immediately prior to issuance, and secured three-year promissory notes issued by us in favor of the Sellers (the “Notes”). As of September 30, 2023 we have accrued interest of approximately $