Vivakor, Inc S-1/A, filed Nov 4, 2021
Vivakor, Inc. (VIVK)
As filed with the Securities and Exchange Commission on November 4, 2021
Registration No. 333-260075
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_________________
VIVAKOR, INC.
(Exact name of registrant as specified in charter)
| Nevada | 8731 | 26-2178141 | ||
| (State or other jurisdiction of incorporation) |
(Primary Standard Classification Code Number) |
(IRS Employer I.D. Number) |
Vivakor, Inc.
433 Lawndale Drive
South Salt Lake City, UT 84115
(949) 281-2606
(Address and telephone number of principal executive offices)
_________________
Matthew Nicosia
Chief Executive Officer
Vivakor, Inc.
433 Lawndale Drive
South Salt Lake City, UT 84115
(949) 281-2606
(Name, address, including zip code, and telephone number including area code, of agent for service)
_________________
With copies to:
|
Joseph M. Lucosky, Esq. Scott E. Linsky, Esq. |
_________________
Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement is declared effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☒
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
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 | ☒ |
CALCULATION OF REGISTRATION FEE
| Title of Each Class of Securities to be Registered |
Amount of Shares To be |
Proposed Maximum Offering Price per Share (2) |
Proposed Maximum Aggregate Offering Price |
Amount of Registration Fee |
||||||||||||
| Common Stock, par value $0.001 per share | 1,370,290 | (3) | $ | 0.27 | $ | 269,978 | $ | 34.30 | (3) | |||||||
| ____________ |
| (1) | Pursuant to Rule 416 under the Securities Act of 1933, as amended, the shares of Common Stock (as defined below) being registered hereunder include such indeterminate number of shares of Common Stock as may be issuable with respect to the shares of Common Stock being registered hereunder as a result of stock splits, stock dividends or similar transactions. |
| (2) | Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) and Rule 457(g) under the Securities Act of 1933, as amended, using (i) the average $0.285 (high) and $0.261 (low) prices of the common stock quoted on the OTCPink on November 1, 2021. |
| (3) | Calculated by multiplying the estimated aggregate offering price of securities to be registered by 0.0000927. A fee of $36.84 was previously paid with the filing of this registration statement. |
The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The information contained in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
| PRELIMINARY PROSPECTUS | SUBJECT TO COMPLETION | DATED , 2021 |
1,370,290 Shares of
Common Stock
Vivakor, Inc.
This prospectus relates to the resale, from time to time, of up to 1,370,290 shares (the “Shares”) of our common stock, par value $0.001 per share (“Common Stock”), by the selling stockholders identified in this prospectus under “Selling Stockholder” (the “Offering”). We are not selling any shares of our Common Stock under this prospectus and will not receive any proceeds from the sale of the Shares. The Selling Stockholder will bear all commissions and discounts, if any, attributable to the sale of the Shares. We will bear all costs, expenses and fees in connection with the registration of the Shares.
The Selling Stockholders may sell the Shares from time to time on terms to be determined at the time of sale through ordinary brokerage transactions or through any other means described in this prospectus. The price at which the selling stockholders may sell the shares will be fixed at $0.40. No securities may be sold without delivery of this prospectus and the applicable prospectus supplement describing the method and terms of the offering of such securities.
INVESTING IN OUR SECURITIES INVOLVES RISKS. SEE THE “RISK FACTORS” ON PAGE 11 OF THIS PROSPECTUS AND ANY SIMILAR SECTION CONTAINED IN THE APPLICABLE PROSPECTUS SUPPLEMENT CONCERNING FACTORS YOU SHOULD CONSIDER BEFORE INVESTING IN OUR SECURITIES.
Our Common Stock is currently quoted on the OTCPink Marketplace operated by OTC Markets Group Inc. (the “OTCPink”) under the trading symbol “VIVK”. On November 1, 2021, the last reported sale price of our Common Stock on the OTCPink was $0.285 per share. Matthew Nicosia, our Chief Executive Officer and Chairman of the Board of Directors, beneficially owns 100,690,700 shares of our Common Stock and 2,000,000 shares of our Series A Preferred Stock, resulting in approximately 69% of the Company’s total shareholders’ voting power.
Investing in our securities involves a high degree of risk. See “Risk Factors” beginning on page 11 in this prospectus for a discussion of information that should be considered in connection with an investment in our securities.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
The date of this prospectus is , 2021
You may only rely on the information contained in this prospectus or that we have referred you to. We have not authorized anyone to provide you with different information. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities other than the Common Stock offered by this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any Common Stock in any circumstances in which such offer or solicitation is unlawful. Neither the delivery of this prospectus nor any sale made in connection with this prospectus shall, under any circumstances, create any implication that there has been no change in our affairs since the date of this prospectus is correct as of any time after its date.
We also use certain trademarks, trade names, and logos that have not been registered. We claim common law rights to these unregistered trademarks, trade names and logos.
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This summary highlights selected information appearing elsewhere in this prospectus. Because this is only a summary, it does not contain all of the information you should consider before investing in our securities. You should read this prospectus carefully, especially the risks and other information set forth under the heading “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus before making an investment decision. Our fiscal year end is December 31 and our fiscal years ended December 31, 2020 and December 31, 2019 are sometimes referred to herein as fiscal years 2020 and 2019, respectively. Some of the statements made in this prospectus discuss future events and developments, including our future strategy and our ability to generate revenue, income and cash flow. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those contemplated in these forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements”. Unless otherwise indicated or the context requires otherwise, the words “we,” “us,” “our,” the “Company,” or “our Company,” and “Vivakor” refer to Vivakor, Inc., a Nevada corporation, and its wholly owned subsidiaries.
Overview
Vivakor, Inc. is a socially responsible operator, acquirer and developer of clean energy technologies and environmental solutions, primarily focused on soil remediation. We 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 process allows us to successfully recover hydrocarbons from the soil, which we believe could then be used to produce asphaltic cement and/or other petroleum-based products. In 2015, we acquired and improved technology aimed at remediating contaminated soil and recovering usable hydrocarbons, which we refer to as Remediation Processing Centers (“RPCs”). We presently have two US patents and pending foreign applications related to our RPCs and two issued US patents related to our other remediation technologies. 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 extract on a 24-hour operation 500 tons or more of contaminated material per day. The amount of extracted hydrocarbon recovered depends on the extent to which the material is contaminated. For example, we estimate that for every 480 tons of contaminated material recovered per day that contains at least 10% oil, we will recover approximately 250 barrels of extracted hydrocarbons, calculated as follows: contaminated material that is 10% oil is comprised of 200 pounds of oil per ton; one gallon of oil weighs 8.44 pounds, resulting in 23.69 gallons of oil per ton of contaminated material (200/8.44); there are 42 gallons per barrel, resulting in 0.56 barrels of oil per ton of contaminated material (23.69/42); 20 tons of contaminated material can typically be processed per hour, resulting in 11.2 barrels of oil per hour (0.56*20); and operations continue 24 hours per day, resulting in 268.8 barrels per day (11.2*24).
We have designed our RPCs to provide an environmentally friendly solution to the remediation of hydrocarbon-contaminated soil, as they do not utilize water. Our RPCs operate by loading contaminated soil onto a feeder and conveyor system that effectively delivers the material into a fully contained, closed-loop system. Physical separation of the hydrocarbons from the contaminated soil does not utilize water or steam and is instead accomplished using a proprietary extraction fluid to dissolve the hydrocarbon components.
The entire extraction process is completed in a series of sealed chambers. The reclaimed extraction fluid is then recycled back into the process, which ensures that no toxic chemicals are released into the soil or the environment. Upon completion of our remediation and separation process, the extracted hydrocarbons are placed into holding tanks to be picked up by our customers, while clean soil is returned to the environment.
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 more highly concentrated hydrocarbon contamination gives us a distinct 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. While our primary focus and mandate will be on the manufacture and deployment of our RPCs, we intend to continue to develop, acquire or license additional clean energy technologies and environmental solutions that will directly enhance and expand our current technologies and service offerings.
Our current focus is on the clean-up of greater than 7% hydrocarbon contaminated soil located in Kuwait as a result of the Iraqi invasion in 1991 and naturally occurring oil sands deposits in Utah. We have deployed two RPC units to date, including one unit to Kuwait (for which operations have been temporarily suspended due to COVID-19) and another to Vernal, Utah (which is presently operating). We believe that there may be an opportunity to deploy additional RPCs in Utah, Texas, as well as to Kuwait and the Middle East.
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In April 2020, we entered into a project charter agreement with solvAQUA Inc. (“solvAQUA”), a Canadian-based clean water technology company, pursuant to which we may purchase certain wastewater removal equipment from solvAQUA. The solvAQUA Wastewater Management System (“WMS”) is a compact solution that continually processes and separates large volumes of wastewater (4,000+ m3/day for each WMS) with an ability to scale to remove any volume of oil, grease and suspended solids from wastewater, in most cases removing 99.99% of waste. The processed water stream can in some cases be discharged or reused without further treatment. In 2021, we took possession of our first order with solvAQUA for WMS equipment and anticipate installation of the equipment in conjunction with the manufacturing and deployment of its third RPC in 2022, with operations to commence shortly thereafter. On July 15, 2020, solvAQUA granted us an exclusive license to either incorporate solvAQUA’s technology platform into our RPCs or to use it independently. This will allow us to service remediation projects that have a combination of wet and dry opportunities. The exclusive license has an initial term of one year, which may be extended to five years upon our successful installation and deployment of the first two WMSs.
Our proprietary metallic separation technology uses a thermal vapor process to extract and process micro particles of precious metals and rare earth minerals, including gold, silver, platinum, palladium and rhodium from soils. After we complete our soil remediation services, we evaluate the post-remediated soil and, if we find that the soil contains more than 1% concentration of these metals, we process it through this technology to extract and concentrate these micro particles of precious metals and rare earth minerals into a concentrated, unrefined flake form.
We have also acquired and/or licensed two separate technologies described below that will enable us to upgrade the hydrocarbons recovered from our remediation process. These processes have been proven in laboratory tests, but we have not yet performed this upgrading in a commercial setting.
We have been granted a worldwide, exclusive, non-transferable license to the intellectual property embodied in cavitation technology developed by B Green, Inc. (“B Green”) to develop, manufacture, have manufactured, use market, import, have imported, offer for sale and sell cavitation devices built from the licensed intellectual property. Third party, independent testing conducted by the University of Utah has shown that this proprietary technology increases the API gravity of hydrocarbons by elongating the hydrocarbon chains without cutting or cracking these chains. API gravity is the measure of how heavy or light petroleum liquid is compared to water and is used in the industry as the standard measure for viscosity. The API of the recovered crude is increased, allowing such crude to have additional uses and usually at higher unit prices.
We have also been granted an exclusive right to use the nano-sponge technology developed by CSS Nanotech, which 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.
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Corporate Structure
Revenue
Our RPC situated in Vernal, Utah has the capacity to process 480 tons or more of naturally occurring oil sands deposits per day. We estimate that if the extracted material is composed of at least 10% oil, we will recover approximately 250 barrels of extracted hydrocarbons each day, which could then be sold for energy or converted to asphaltic cement and sold for use in roads at higher prices. The above example has been calculated as follows: contaminated material that is 10% oil is comprised of 200 pounds of oil per ton; one gallon of oil weighs 8.44 pounds, resulting in 23.69 gallons of oil per ton of contaminated material (200/8.44); there are 42 gallons per barrel, resulting in 0.56 barrels of oil per ton of contaminated material (23.69/42); 20 tons of contaminated material can typically be processed per hour, resulting in 11.2 barrels of oil per hour (0.56*20); and operations continue 24 hours per day, resulting in 268.8 barrels per day (11.2*24).
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In Kuwait, where we do not have ownership of the recovered oil, we will generate revenues by charging per cubic meter of soil remediated. For our current project we will generate revenues of $72 per cubic meter of contaminated material processed.
We market and sell the precious metals we extract from our remediated and waste soils. As we continue our efforts, we anticipate increased opportunities to monetize our precious metals end product. Additionally, we had recently engaged in open market precious metals transactions, utilizing our knowledge and contacts related to this industry, during a time when we could not operate in Kuwait due to COVID-19 restrictions. Although engaging in such open market precious metals transactions is not part of our current plans for business operation, we expect to have the ability to revisit this business in the future should extenuating circumstances occur that adversely impact our remediation business.
Market Opportunity
We believe that the market for remediating oil from both soil and water is significant. According to Grandview Research, the market for environmental clean-up of oil spills will reach $177 billion by 2025. We believe that a large portion of that market will originate from contamination of more than 7% hydrocarbon content and that our technology is currently the only one that can economically remediate these environmental disasters, while allowing for the capture and reuse of the crude.
In addition, we believe that the heavy crude that we have been recovering in Utah is ideal for producing asphaltic cement. The demand for asphaltic cement in the United States is presently estimated to be $116 billion this year according to Global Market Insights. We have provided our material to asphalt companies for testing to determine what modifications, if any, needed to be made to meet general asphalt specifications. We recently received notification that our asphaltic cement now meets the general classification of AC20 asphaltic cement and that it has passed the specifications of several potential clients. We are expecting several orders in the near term and we believe that we will be able to offer our product at very competitive prices and in an environmentally friendly manner.
Competitive Strengths and Growth Strategy
We are focused on the remediation of contaminated soil and water resulting from either man-made spills or naturally occurring deposits of oil. Our primary focus has been the remediation of oil spills resulting from the Iraqi invasion of Kuwait in 1991 and naturally occurring oil sands deposits in the Uinta basin located in Eastern Utah. We plan to expand into other markets, both in Utah and globally, where we believe our technology and services will provide a distinct competitive advantage over our competition.
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 and patent-pending technology; |
| · | Strong relationships with customers and regulatory agencies; and |
| · | Experienced and highly-skilled management, Board of Directors and Advisory Board. |
Proprietary Patented Technology
We presently have two US patents and pending foreign applications related to our RPCs and two issued US patents related to our other remediation 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 preserve the hydrocarbons extracted from such soil for future use. We believe that this provides us with a true competitive advantage.
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.
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Strong Relationships with Customers and Regulatory Agencies
We have developed close relationships with customers and government agencies, including the Utah School and Institutional Trust Lands Administration (“SITLA”) and the Kuwait Oil Company (“KOC”). Based on our existing relationship with SITLA, arising out of our having successfully completed a clean-up project for SITLA in the past, which the original provider was unable to complete, as well as further conversations with SITLA, we expect that SITLA will award additional projects to us in the future related to oil sands deposits located in Utah from SITLA. We also anticipate receiving additional contracts from KOC to remediate contaminated properties in Kuwait, based on our existing relationship with KOC and conversations with them.
Experienced and Highly Skilled Management, Board of Directors and Advisory Board
Our management team has started and successfully grown numerous technology-based companies and has utilized this experience to develop a strategic vision for the Company. The implementation of this plan has resulted in the acquisition and in-house development of numerous technologies, which are currently in operation. We have demonstrated the effectiveness of our technologies in both Vernal, Utah and Kuwait, accomplishing the clean-up of contaminated areas while also recovering precious metals through our metallic separation technology.
Our Board of Directors is comprised of accomplished professionals who bring decades of experience to the Company. Our Board of Directors includes a director who has served as a member of the Executive Committee of one of the largest global accounting firms and has served on the Board of Directors of two multi-billion dollar publicly traded companies, a former director of technology investment banking at Goldman Sachs, a successful investor and entrepreneur who has founded and provided initial financing for numerous life science companies, several of which have grown to become multi-billion dollar publicly traded companies, and the mayor of a city in Utah.
In addition, we have an Advisory Board comprised of Dr. Khalid Bin Jabor Al Thani and Ron Chevalier, former senior members of oil and gas companies, both in the United States and in the Middle East. Dr. Khalid Bin Jabor Al Thani, is an accomplished business professional and a member of a royal family based in the Middle East Mr. Chevalier 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 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. Presently, we do not pay compensation to the members of the Advisory Board.
Growth Strategies
We will strive to grow our business by pursuing the following strategies:
| · | Expansion of our oil recovery projects in Utah; |
| · | Expansion of our remediation projects in Kuwait; |
| · | Expansion into new and complementary markets; |
| · | Increase of revenue via new service and product offerings; |
| · | Strategic acquisitions and licenses targeting complementary technologies; and |
| · | Redeployment of our metallic separation technology. |
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Expansion of our Oil Recovery Projects in Utah
The State of Utah has, according to the U.S. Geological Survey, approximately 14 billion barrels of measured oil in place with an additional estimated 23 to 28 billion barrels of oil contained in contaminated oil sands that are deposited near the ground surface. The majority of these oil sands deposits are located on land owned by SITLA. We believe, based on the number of estimated barrels of oil contained in oil sands deposits located on SITLA property, that there may be an opportunity to deploy as many as 100 RPCs to properties containing oil sands deposits owned by the State of Utah. We will seek to acquire additional properties and mineral rights in the vicinity of Vernal, Utah from individual land owners and the State of Utah with a goal of increasing our hydrocarbon holdings to as much as one billion barrels of contingent resources containing a minimum of 10% hydrocarbon saturation.
Expansion of our Remediation Projects 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 less than 0.5%, 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 as a result of the Iraqi invasion of Kuwait. We intend to seek additional contracts directly from KOC to deploy our RPCs for the remediation of this contaminated soil. Under our current contract, we will charge $72 per cubic meter of soil remediated. We are currently working with KOC and other government-controlled entities to expand our remediation projects in Kuwait. We are in active negotiations to provide the technology and operations as a subcontractor to large, multinational remediation companies within the region where our technology could be used on all of the sands with contamination levels greater than 7%. Other technologies may also be used for the less contaminated soils.
Expansion into New and Complementary Markets
We intend to explore expansion opportunities on a global basis, including in places with extreme contamination such as the Ogoni Lands region of Nigeria, oil spill lakes located in Saudi Arabia and Turkmenistan, and naturally occurring oil sands deposits in Kazakhstan, 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) in Saudi Arabia, Qatar and Texas. Saudi Arabia has the objective to create a circular carbon economy that will ultimately have zero wasted hydrocarbons. Our technology is able to process tank bottom sludge, drill cuttings, and soils from hydrocarbon spills, returning the sand to less than 0.5% contamination while reclaiming the oil for waste energy use.
Increase of Revenue via New Service and Product Offerings.
To date, we have focused on the remediation of soil contaminated by oil. We are in the process of expanding our services to include the remediation of water and the recovery of hydrocarbons from water through our exclusive license with solvAQUA. We also 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 at the bottom of storage tanks and contaminated water produced from the drilling of oil wells. We believe that our technologies could be used to clean these contaminated products, 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. The patented RPC technology, in conjunction with the enzymatic water remediation technology that we have licensed from solvAQUA, have the potential to eradicate all oil evaporation ponds and landfills in the United States presently utilized for disposal of tank bottom sludge and drill cutting waste. We are currently in early stage discussions relating to some of these remediation projects.
Strategic Acquisitions and Licenses Targeting Complementary Technologies
We intend to seek out opportunities to acquire or license only specific technologies that are either complementary to our existing product offerings or that will allow us to expand into the environmental infrastructure markets. In 2021 we entered into a license for smart sensor technologies for autonomous vehicles that we believe could be embedded directly into the asphaltic cement we intend to produce from the hydrocarbons we extract, providing the basis for smart roads and infrastructure. We believe that these sensors, which are self-powered, could be used to provide information about traffic, road conditions and repair needs as well as allowing the roads to communicate directly with autonomous vehicles enabling these vehicles to sense the road in all weather conditions. By complementing the asphaltic cement we expect to produce with integrated sensors for automated vehicles, we believe that we will be able to offer a smart road technology – moving this company from one of “Waste to Road” to one of “Waste to Smart Road”.
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Redeployment of our Metallic Separation Technology
Our licensed metallic separation technology has successfully recovered precious metals including, but not limited to, gold, palladium, platinum, rodium and silver. We intend to modify our existing metallic separation equipment to allow us to capture a greater amount of the precious metals, which are typically wasted. We intend to redeploy our metallic separation technology machines in conjunction with our RPC machines to locations where precious metals have been detected in the soil and to standalone locations to process mine tailings and other soils.
Risks Associated with Our Business
Our business is subject to a number of risks of which you should be aware before making a decision to invest in our common shares. The following, and other risks, are discussed more fully in the “Risk Factors” section of this prospectus:
| · | We are an early stage operating company and we are subject to substantial risks inherent in the establishment of a new business venture; | |
| · | We have historically suffered net losses and we may not be able to achieve or sustain future profitability; | |
| · | We will require additional funding beyond this contemplated offering to fund our operations generally and such funding may not be available on acceptable terms or at all; | |
| · | The COVID-19 pandemic has had and may continue to have a negative impact on our business and operations; | |
| · | We rely on the experience and knowledge of our management team, Board of Directors and Advisory Board, and the loss of one or more members of our management team, Board of Directors and/or Advisory Board would adversely impact our business; |
| · | Our business is subject to extensive legal regulation and unexpected changes to law or increases to fees could have a significant adverse impact on our business; | |
| · | Our primary business is impacted by the oil industry and manufacturing industry, which are subject to uncertain economic conditions; | |
| · | We currently depend and are likely to continue to depend on a limited number of customers for a significant portion of our revenues; and | |
| · | We may not be able to adequately protect our proprietary rights. |
Implications of Being an Emerging Growth Company and a Smaller Reporting Company
We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. See “Risk Factors — Risks Relating to Our Common Stock and the Offering — We are an ‘emerging growth company’ and will be able to avail ourselves of reduced disclosure requirements applicable to emerging growth companies, which could make our common stock less attractive to investors.” These provisions include:
| · | being permitted to provide only two years of audited financial statements in addition to any required unaudited interim financial statements with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure; |
| · | reduced disclosure obligations regarding executive compensation arrangements; |
| · | not being required to hold a non-binding advisory vote on executive compensation or golden parachute arrangements; and |
| · | exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting. |
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We have irrevocably elected to opt-out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act. As a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non- emerging growth companies.
We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeded $700.0 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. We may choose to take advantage of some but not all of these exemptions. We have taken advantage of reduced reporting requirements in this prospectus. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.
Notwithstanding the above, we are also currently qualified as a “smaller reporting company” under SEC rules. In the event that we are still considered a smaller reporting company at such time as we cease to be an emerging growth company, the disclosure we will be required to provide in our filings with the SEC will increase, but will still be less than it would be if we were not considered either an emerging growth company or a smaller reporting company. Specifically, similar to emerging growth companies, smaller reporting companies are able to provide simplified executive compensation disclosures in their filings; are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) requiring that independent registered public accounting firms provide an attestation report on the effectiveness of their internal control over financial reporting; and have certain other decreased disclosure obligations in their SEC filings, including, among other things, only being required to provide two years of audited financial statements in their annual reports.
Corporate History and Information
The Company was originally organized on November 1, 2006 as a limited liability company in the State of Nevada as Genecular Holdings, LLC. Our name was changed to NGI Holdings, LLC on November 3, 2006. On April 30, 2008, we converted to a Nevada corporation and changed our 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: VivaVentures Management Company, Inc., a Nevada corporation, VivaSphere, Inc., a Nevada corporation, VivaVentures Oil Sands, Inc., a Utah corporation, and RPC Design and Manufacturing LLC, a Utah limited liability company. 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% interest in Vivakor Middle East Limited Liability Company, a Qatar limited liability company.
Our address is 433 Lawndale Drive South Salt Lake City, UT 84115. Our phone number is (949) 281-2606. Our website is: www.vivakor.com. The information on, or that can be accessed through, this website is not part of this prospectus, and you should not rely on any such information in making the decision whether to purchase our common stock.
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| Common stock offered by the Selling Stockholders | 1,370,290 shares of common stock, par value $0.001 | |
| Common Stock Outstanding before the Offering | 369,337,713 | |
| Common Stock Outstanding after the Offering: | 369,337,713 | |
| Terms of the Offering | The selling security holders will determine when and how they will sell the common stock offered in this prospectus. | |
| Termination of the Offering | The offering will conclude upon such time as all of the common stock has been sold pursuant to the registration statement. | |
| Use of proceeds: | We will not receive any of the proceeds from any sale of the shares of common stock by selling security holders. See “Use of Proceeds.” | |
| Risk factors: | The common stock offered hereby involves a high degree of risk and should not be purchased by investors who cannot afford the loss of their entire investment. See “Risk Factors” beginning on page 11. | |
| OTCPink Trading symbol: | Our common stock is currently quoted on the OTCPink under the trading symbol “VIVK”. |
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| 9 |
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following summary consolidated statements of operations data for the three months ended June 30, 2021 and 2020 have been derived from our consolidated financial statements included elsewhere in this prospectus. The historical financial data presented below is not necessarily indicative of our financial results in future periods. You should read the summary consolidated financial data in conjunction with those financial statements and the accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our consolidated financial statements are prepared and presented in accordance with United States generally accepted accounting principles, or U.S. GAAP. Our unaudited condensed interim consolidated financial statements have been prepared on a basis consistent with our audited financial statements and include all adjustments, consisting only of normal and recurring adjustments that we consider necessary for a fair presentation of the financial position and results of operations as of and for such periods.
| Six Months Ended | Year Ended | |||||||||||||||
| June 30, | December 31, | |||||||||||||||
| 2021 | 2020 | 2020 | 2019 | |||||||||||||
| (unaudited) | (audited) | |||||||||||||||
| Consolidated Statements of Operations Data: | ||||||||||||||||
| Revenues | $ | 117,000 | $ | 1,023,344 | $ | 1,457,781 | $ | – | ||||||||
| Cost of revenues | 112,450 | 984,941 | 1,356,378 | – | ||||||||||||
| Gross profit | 4,550 | 38,403 | 101,403 | – | ||||||||||||
| Total operating expenses | 3,865,748 | 1,693,277 | 4,949,795 | 2,303,181 | ||||||||||||
| Loss from operations | (3,861,198 | ) | (1,654,874 | ) | (4,848,392 | ) | (2,303,181 | ) | ||||||||
| Total other income | 3,435,175 | 2,117,545 | 2,443,987 | 618,177 | ||||||||||||
| Income (loss) before provision for income taxes | (426,023 | ) | 462,671 | (2,404,405 | ) | (1,685,004 | ) | |||||||||
| Benefit (provision) for income taxes | (723,911 | ) | 8,171 | (466,964 | ) | (589,203 | ) | |||||||||
| Consolidated net income (loss) | $ | (1,149,934 | ) | $ | 470,842 | $ | (2,871,369 | ) | $ | (2,274,207 | ) | |||||
| Net income (loss) attributable to Vivakor, Inc. | $ | 105,910 | $ | 897,958 | $ | (2,183,697 | ) | $ | (2,159,242 | ) | ||||||
| Basic net income per share | $ | 0.00 | $ | 0.02 | $ | (0.01 | ) | $ | (0.01 | ) | ||||||
| Diluted net income per share | $ | 0.00 | $ | 0.02 | $ | (0.01 | ) | $ | (0.01 | ) | ||||||
| As of June 30, 2021 | ||||
| Actual | ||||
| Selected Balance Sheet Data (end of period): | ||||
| Cash and marketable securities | $ | 11,368,663 | ||
| Total assets | 50,839,449 | |||
| Total debt | 14,655,926 | |||
| Total liabilities | 23,259,552 | |||
| Total stockholders’ equity | 50,839,449 | |||
| 10 |
Investing in our common stock involves a great deal of risk. Careful consideration should be made of the following factors as well as other information included in this prospectus before deciding to purchase our common stock. There are many risks that affect our business and results of operations, some of which are beyond our control. Our business, financial condition or operating results could be materially harmed by any of these risks. This could cause the trading price of our common stock to decline, and you may lose all or part of your investment. Additional risks that we do not yet know of or that we currently think are immaterial may also affect our business and results of operations.
Risks Relating to our Business
We are at an early operational stage, and our success is subject to the substantial risks inherent in the establishment of a new business venture.
Our business and operations are in an early stage and subject to all of the risks inherent with new business ventures. Our initial operations have been 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, selling the asphaltic cement and/or other petroleum-based products we are able to produce from the hydrocarbons we recover.
Our business and operations may not prove to be successful. We have deployed only two RPC units to date, including one unit to Kuwait (for which operations have been temporarily suspended due to COVID-19) and another to Vernal, Utah (which is presently operating). We will need to scale our 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 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 only 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.
We have historically suffered net losses, and we may not be able to sustain profitability.
We had an accumulated deficit of $30,141,278 as of June 30, 2021, 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 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.
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 Matthew Nicosia, our Chief Executive Officer, Tyler Nelson, our Chief Financial Officer, and Daniel Hashim, our Chief Scientific Officer. 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.
| 11 |
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. 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.
We expect to obtain additional capital during 2021 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 November 1, 2021 the maximum potential dilution is 45,095,944 (or 50,095,944 in the event of a public offering of the Company’s common stock), and includes convertible notes payable convertible into approximately 5,595,944 shares of common stock, convertible Series A preferred stock convertible into 20,000,000 shares of common stock (in the event of a public offering of the Company’s common stock this will convert to 25,000,000 shares), stock options granted to employees of 5,500,000 shares of common stock. Stock options granted to Board members or consultants of 14,000,000 shares of common stock were granted as of November 1, 2021.
The COVID-19 pandemic has had and may continue to have a negative impact on our business and operations.
Our Kuwait operations have been suspended to comply with the social distancing measures implemented in Kuwait. Our Utah operations were temporarily suspended from March through May 2020, but have since resumed in full. These suspensions have had a negative impact on our business and there can be no guaranty that we will not need to suspend operations again in the future as a result of the pandemic. We are closely monitoring the COVID-19 pandemic and the directives from federal and local authorities in the United States and in Kuwait affecting not only our workforce, but those of companies with whom we work.
Economic conditions in the current period of disruption and instability could adversely affect our ability to access the capital markets, in both the near and long term, and thus adversely affect our business and liquidity.
The current economic conditions related to the COVID-19 pandemic have had, and likely will continue to have for the foreseeable future a negative impact on the capital markets. Even if we are able to raise capital, it may not be at a price or on terms that are favorable to us. We cannot predict the occurrence of future disruptions or how long the current conditions may continue.
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.
| 12 |
We will need to achieve commercial acceptance of our products to continue to generate revenues and sustain profitability.
Our goal is to ultimately 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, 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 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 our products, then we may not be able to generate revenues from the commercial application of our technologies. Our revenue growth and profitability will depend substantially on our ability to manufacture and deploy additional RPCs and produce asphaltic cement to the specifications required by each of our potential customers.
The ownership by our chief executive officer and chairman of Series A Preferred Stock will likely limit your ability to influence corporate matters.
Mr. Matthew Nicosia, our chief executive officer, is the beneficial owner of 2,000,000 shares of the outstanding shares of the Company’s Series A Preferred Stock, which carries the right to vote on an as-converted basis, with 25 votes for each share of common stock into which such Series A Preferred Stock is convertible. As a result, our chief executive officer would have significant influence over most matters that require approval by our stockholders, including the election of directors and approval of significant corporate transactions, even if other stockholders oppose them. In addition, Mr. Nicosia beneficially owns approximately 27.26% of our issued and outstanding common stock. In total, Mr. Nicosia presently controls voting power in the amount of approximately 69.1%. This concentration of ownership might also have the effect of delaying or preventing a change of control of our company that other stockholders may view as beneficial.
We have identified a material weakness 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 a material weakness in our internal controls related to management not yet having completed a formal assessment of internal controls. Management anticipates completing the formal assessment in 2021.We believe that we will have substantially resolved our previously identified material weakness in our internal controls as a result of implementation of new policies and procedures. There can be no assurances that weakness in our internal controls will not occur in the future.
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.
| 13 |
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.
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 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.
Based on the nature of our business we currently depend and are likely to continue to depend on a limited number of customers for a significant portion of our revenues.
We currently have two customers in Utah and a single customer in Kuwait. 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.
| 14 |
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 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. |
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.
| 15 |
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 primary business 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 the business. Transportation logistics play an important role in the sale of our products and 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 operates must comply with applicable zoning regulations. Any unknown or future violations could limit or require us to cease operations.
| 16 |
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 business depends 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 business involves 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 business also requires 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 the 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 manufacturing facilities could subject us to substantial liability.
The manufacturing and operation of the equipment 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.
| 17 |
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 our equipment is crucial to our ability to manufacture 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 the 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.
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 not 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.”
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 and Odyssey Group International, 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 investments in Scepter Holdings and Odyssey Group International arise from loan agreements that were settled in the form of equity because cash was not available for the borrowers. 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.
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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 and Odyssey Group International, as well as certain entities described in our corporate structure, comprise approximately 35% 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.
Risks Relating to our Common Stock and the Offering
Future sales or potential sales of our common stock in the public market could cause our share price to decline.
If the existing holders of our common stock, particularly our directors and officers, sell a large number of shares, they could adversely affect the market price for our common stock. Sales of substantial amounts of our common stock in the public market, or the perception that these sales could occur, could cause the market price of our common stock to decline.
Because we will not pay dividends on our common stock in the foreseeable future, stockholders will only benefit from owning common stock if it appreciates.
We have never paid cash dividends on our common stock, and we do not intend to do so in the foreseeable future. We intend to retain any future earnings to finance our growth. Accordingly, any potential investor who anticipates the need for current dividends from his investment should not purchase our common stock.
Our share price has been, and will likely continue to be, volatile, and you may be unable to resell your shares at or above the price at which you acquired them.
The trading price of our common stock has been, and is likely to continue to be, highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control.
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The market price for our securities may be influenced by many factors that are beyond our control, including, but not limited to:
| · | variations in our revenue and operating expenses; |
| · | market conditions in our industry and the economy as a whole; |
| · | actual or expected changes in our growth rates or our competitors’ growth rates; |
| · | developments or disputes concerning patent applications, issued patents or other proprietary rights; |
| · | developments in the financial markets and worldwide or regional economies; |
| · | variations in our financial results or those of companies that are perceived to be similar to us; |
| · | announcements by the government relating to regulations that govern our industry; |
| · | sales of our common stock or other securities by us or in the open market; |
| · | changes in the market valuations of other comparable companies; |
| · | general economic, industry and market conditions; and |
| · | the other factors described in this “Risk Factors” section. |
The trading price of our shares might also decline in reaction to events that affect other companies in our industry, even if these events do not directly affect us. Each of these factors, among others, could harm the value of your investment in our securities. In the past, following periods of volatility in the market, securities class-action litigation has often been instituted against companies. Such litigation, if instituted against us, could result in substantial costs and diversion of management’s attention and resources, which could materially and adversely affect our business, operating results and financial condition.
Because our shares of common stock are subject to the penny stock rules, it is more difficult to trade our shares.
The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or authorized for quotation on certain automated quotation systems, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document containing specified information. In addition, the penny stock rules require that before effecting any transaction in a penny stock not otherwise exempt from those rules, a broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive (i) the purchaser’s written acknowledgment of the receipt of a risk disclosure statement; (ii) a written agreement to transactions involving penny stocks; and (iii) a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our common stock, and therefore stockholders may have difficulty selling their shares.
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Anti-takeover provisions in our charter documents and Nevada law could discourage, delay or prevent a change in control of our company and may affect the trading price of our common stock.
We are a Nevada corporation and the anti-takeover provisions of the Nevada Revised Statutes may discourage, delay or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder, even if a change in control would be beneficial to our existing stockholders. In addition, our articles of incorporation and bylaws may discourage, delay or prevent a change in our management or control over us that stockholders may consider favorable. Our articles of incorporation and bylaws:
| · | authorize the issuance of “blank check” preferred stock that could be issued by our Board of Directors to thwart a takeover attempt; |
| · | provide that vacancies on our Board of Directors, including newly created directorships, may be filled by a majority vote of directors then in office; |
| · | place restrictive requirements (including advance notification of stockholder nominations and proposals) on how special meetings of stockholders may be called by our stockholders; |
| · | do not provide stockholders with the ability to cumulate their votes; and |
| · | provide that our Board of Directors or a majority of our stockholders may amend our bylaws. |
Forum selection provisions in our charter documents may be unenforceable, resulting in federal court jurisdiction over claims arising under the Securities Act or the Exchange Act.
Provisions in our Amended and Restated Articles of Incorporation that purport to provide exclusive Nevada District Courts as the exclusive forum for certain actions, including derivative actions, may be determined to be unenforceable in certain instances, including with respect to claims arising under the Securities Act or Exchange Act, which would result in federal courts instead having jurisdiction over such claims.
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We are an “emerging growth company” and will be able to avail ourselves of reduced disclosure requirements applicable to emerging growth companies, which could make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
We may take advantage of these reporting exemptions until we are no longer an “emerging growth company.” We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of this offering; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus 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 “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” as well as in this prospectus 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 prospectus 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 prospectus. |
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 prospectus 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.
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All proceeds from the resale of the shares of our Common Stock offered by this prospectus will belong to the Selling Stockholders. We will not receive any proceeds from the resale of the shares of our Common Stock by the Selling Stockholders.
DETERMINATION OF OFFERING PRICE
Our common stock currently trades on the OTCPink under the symbol “VIVK”. The fixed offering price of the shares of common stock is $0.40 , as has been determined based on the value delivered for such shares by the Selling Security Holders and the recent trading price of our common stock. The Selling Security Holders may sell shares in any manner at the fixed price of $0.40.
The shares of our Common Stock being offered by the Selling Stockholders were issued pursuant to the conversion pursuant to those certain Convertible Promissory Notes (the “Selling Stockholder Notes”) made by the Company in favor of the Selling Stockholders. We are registering the shares of our Common Stock in order to permit the Selling Stockholders to offer the shares for resale from time to time. Except as otherwise described in the footnotes to the table below and for the ownership of the registered shares issued pursuant to the Selling Stockholder Notes, the Selling Stockholders have not had any material relationship with us within the past three years.
The table below lists the Selling Stockholders and other information regarding the beneficial ownership (as determined under Section 13(d) of the Securities Exchange Act of 1934, as amended (and the rules and regulations thereunder) of the shares of our Common Stock by each of the Selling Stockholders.
The second column lists the number of shares of our Common Stock beneficially owned by each Selling Stockholder before this Offering (including shares which the Selling Stockholder has the right to acquire within 60 days, including upon conversion of any convertible securities).
The third column lists the shares of our Common Stock being offered by this prospectus by the Selling Stockholders.
The fourth and fifth columns list the number of shares of Common Stock beneficially owned by the Selling Stockholders and their percentage ownership after the Offering shares of Common Stock (including shares which the Selling Stockholder has the right to acquire within 60 days, including upon conversion of any convertible securities), assuming the sale of all of the shares offered by the Selling Stockholders pursuant to this prospectus.
The amounts and information set forth below are based upon information provided to us by the Selling Stockholders as of November 1, 2021, except as otherwise noted below. The Selling Stockholders may sell all or some of the shares of Common Stock it is offering, and may sell, unless indicated otherwise in the footnotes below, shares of our common stock otherwise than pursuant to this prospectus. The tables below assume the Selling Stockholders sell all of the shares offered by them in offerings pursuant to this prospectus, and not acquire any additional shares. We are unable to determine the exact number of shares that will actually be sold or when or if these sales will occur.
| Selling Stockholder | Number of Shares Owned Before Offering (1) | Shares Offered Hereby | Number of Shares Owned After Offering(2) | Percentage of Shares Beneficially Owned After Offering (1)(2) |
|||||||||||
| Eric Jorgensen (3) | 29,570 | 29,570 | – | * | |||||||||||
| Everett Monroe (4) | 11,970,477 | 595,238 | 11,375,239 | 3.08% | |||||||||||
| Daniel O. Ritt IRA (5) | 885,512 | 745,482 | 140,030 | * | |||||||||||
_______________________________
* less than 1%
| (1) | Percentages are calculated based on an aggregate of 369,337,713 shares of Common Stock outstanding as of November 1, 2021. As applicable, such percentages have been further adjusted to account for outstanding convertible securities of such Selling Stockholder. |
| (2) | Assumes that the selling stockholder will set all of the shares of our Common Stock listed in the table above and will not acquire nor dispose of any other shares of our Common Stock before the completion of this offering. |
| (3) | Eric Jorgensen’s address is 1034 North 1560 East, Orem, Utah 84097. Eric Jorgensen purchased a Convertible Promissory Note in for $10,000 on May 18, 2020. Principal and interest were converted at the price of $0.372 on May 21, 2021. |
| (4) | Everett Monroe’s address is 5813 114th Street, Lubbock TX 79424. Everett Monroe purchased a Convertible Promissory Note in for $100,000 on June 8, 2020. Principal and interest were converted at the price of $0.185 on August 2, 2021. |
| (5) |
Daniel O. Ritt Trust’s address is 168 Dover Pkwy, Stewart Manor, NY 11530. Daniel O. Ritt IRA purchased a Convertible Promissory Note in for $198,000 on April 8, 2020. Principal and interest were converted at the price of $0.292 on April 16, 2021. |
Relationships with the Selling Stockholders
Neither the selling stockholders nor any of the persons that control them has had any material relationships with us or our affiliates within the past three (3) years, except as described herein or disclosed in our filings with the SEC.
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The selling stockholder may, from time to time, sell any or all of shares of our common stock covered hereby on the OTC Markets Group market, or any other stock exchange, market or trading facility on which the shares are traded or in private transactions. The selling stockholder may sell all or a portion of the shares being offered pursuant to this prospectus at the fixed price of $0.40 per share. A selling stockholder may use any one or more of the following methods when selling securities:
| · | ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; | |
| · | block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; | |
| · | purchases by a broker-dealer as principal and resale by the broker-dealer for its account; | |
| · | an exchange distribution in accordance with the rules of the applicable exchange; | |
| · | privately negotiated transactions; | |
| · | in transactions through broker-dealers that agree with the selling stockholder to sell a specified number of such securities at a stipulated price per security; | |
| · | through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; | |
| · | a combination of any such methods of sale; or | |
| · | any other method permitted pursuant to applicable law. |
The selling stockholder may also sell securities under Rule 144 under the Securities Act of 1933, if available, rather than under this prospectus.
Broker-dealers engaged by the selling stockholder may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholder (or, if any broker-dealer acts as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA IM-2440.
The selling stockholder will be subject to the prospectus delivery requirements of the Securities Act of 1933 including Rule 172 thereunder.
The resale securities will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.
Under applicable rules and regulations under the Securities Exchange Act of 1934, any person engaged in the distribution of the resale securities may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the selling stockholder will be subject to applicable provisions of the Securities Exchange Act of 1934 and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of securities of the common stock by a selling stockholder or any other person. We will make copies of this prospectus available to the selling stockholder and will inform it of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act of 1933).
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MARKET FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Market and Other Information
The following table sets forth the quarterly high and low sales price of our common stock on the OTCPink for the two most recent fiscal years. These prices are based on inter-dealer bid and asked prices, without markup, markdown, commissions, or adjustments and may not represent actual transactions.
| Period | High | Low | ||||||
| Fiscal Year 2021: | ||||||||
| First Quarter | $ | 0.57 | $ | 0.30 | ||||
| Second Quarter | 0.50 | 0.30 | ||||||
| Third Quarter | 0.37 | 0.23 | ||||||
| Fourth Quarter (through November 1, 2021) | 0.30 | 0.24 | ||||||
| Fiscal Year 2020: | ||||||||
| First Quarter | $ | 0.24 | $ | 0.12 | ||||
| Second Quarter | 0.33 | 0.21 | ||||||
| Third Quarter | 0.65 | 0.30 | ||||||
| Fourth Quarter | 0.52 | 0.38 | ||||||
| Fiscal Year 2019: | ||||||||
| First Quarter | $ | 0.72 | $ | 0.25 | ||||
| Second Quarter | 0.68 | 0.30 | ||||||
| Third Quarter | 0.48 | 0.23 | ||||||
| Fourth Quarter | 0.33 | 0.18 | ||||||
Listing
Our common stock is currently quoted on the OTCPink Marketplace operated by OTC Markets Group Inc. (the “OTCPink”) under the trading symbol “VIVK”.
As of November 1, 2021, there were approximately 557 registered holders of record of our common stock, and the last reported sale price of our common stock on the OTCPink was $0.285 per share on November 1, 2021. OTCPink does not constitute an established public trading market. Over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
Dividend Policy
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. We currently expect to use all available funds to finance the future development and expansion of our business and do not anticipate paying dividends on our common stock in the foreseeable future.
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Penny Stock
Our common stock is considered “penny stock” under the rules the SEC under the Securities Exchange Act of 1934. The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ Stock Market System, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or quotation system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the Commission, that:
| • | contains a description of the nature and level of risks in the market for penny stocks in both public offerings and secondary trading; | |
| • | contains a description of the broker’s or dealer’s duties to the customer and of the rights and remedies available to the customer with respect to a violation to such duties or other requirements of Securities’ laws; contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; | |
| • | contains a toll-free telephone number for inquiries on disciplinary actions; | |
| • | defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and | |
| • | contains such other information and is in such form, including language, type, size and format, as the Commission shall require by rule or regulation. |
The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with:
| • | bid and offer quotations for the penny stock; | |
| • | the compensation of the broker-dealer and its salesperson in the transaction; | |
| • | the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the marker for such stock; and | |
| • | monthly account statements showing the market value of each penny stock held in the customer’s account. |
In addition, the penny stock rules that require that prior to a transaction in a penny stock not otherwise exempt from those rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written acknowledgement of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitably statement.
These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our stock.
The transfer agent and registrar for our common stock is Empire Stock Transfer with an address at 1859 Whitney Mesa Drive, Henderson, Nevada 89014.
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MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and results of our operations should be read in conjunction with the “Summary Statements of Operations Data” and our consolidated financial statements and the notes to those statements appearing elsewhere in this prospectus. This discussion and analysis contains forward-looking statements reflecting our management’s current expectations that involve risks, uncertainties and assumptions. Our actual results and the timing of events may differ materially from those described in or implied by these forward-looking statements due to a number of factors, including those discussed below and elsewhere in this prospectus particularly on page 11 entitled “Risk Factors”.
Overview
Vivakor, Inc. is a socially responsible operator, acquirer and developer of clean energy technologies and environmental solutions, primarily focused on soil remediation. We 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.
Plan of Operation
We are focused on the remediation of contaminated soil and water resulting from either man-made spills or naturally occurring deposits of oil. 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. We plan to expand into other markets, both in Utah and globally, where we believe our technology and services will provide a distinct competitive advantage over our competition.
We have historically suffered net losses, including net losses of approximately $2,183,697 and $2,159,242 for the years ended December 31, 2020 and 2019, respectively, although for the six months ended June 30, 2021 and 2020 we had net income attributed to the Company of $105,910 and $897,958. We had an accumulated deficit of $30,141,278 and $30,204,992 as of June 30, 2021 and December 31, 2020.
We will need to raise additional capital in order to scale up production and deployment of our RPCs. We may continue to sell our equity investments that are traded in an active market to raise capital, as well as our precious metal concentrate, assuming there is demand and we are able to negotiate acceptable contract terms. We may need to raise additional capital through loans from current stockholders, public or private equity or debt offerings, grants, or strategic arrangements with third parties. There can be no assurance that additional capital will be available to us on acceptable terms, or at all. If we are not able to obtain additional financing on a timely basis, we may be required to scale down or perhaps even cease the operation of our business. The issuance of additional equity securities could result in a significant dilution in the equity interests of our stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments. If we are unable to raise additional capital, we will need to adjust our current business plan.
We have no material commitments or contractual purchase obligations for the next twelve months.
Working Interest Agreements
To assist in the funding for the manufacture of our first two RPCs, between 2015 and 2017, we entered into working interest agreements with Vivaventures UTSI LLC (“VV UTSI”) and Vivaventures Royalty II LLC (“VV RII”), respectively, pursuant to which VV UTSI and VV RII purchased revenue participation rights and working interest payables in exchange for payments to us of $5 million and $8 million, respectively. VV UTSI and VV RII are investment limited liability companies that are pass through entities to individual investors that have purchased Class B Units in these entities. The working interest agreements require us to make quarterly payments to VV UTSI and VV RII equal to 25% of the gross revenues that we generate from our RPCs for such quarter for 20 years after operations commence. The investors in these entities are entitled to receive their pro rata portion of these payments. These agreements also require us to make working interest budget payments to VV UTSI and VV RII, which are accounted for as a working interest payable. The working interest payable is paid down through pass-through expenses or cash according to the contract. The agreements give each of VV UTSI and VV RII a security interest in all of our collateral, including a security interest in 20 million shares of our common stock; the security interest in VV UTS1 has been released. Holders of VV RII Class B Units have the right to exchange their Class B Units for our common stock any time after the one year anniversary of their date of purchase and before the date that is 10 years and six months after the date they purchased their Class B Units. The number of shares of our common stock to be issued upon exchange will be determined by the fair market value of the LLC units and the discount to market ranging from between 5% and 20% depending on the year of exchange. The working interest agreements with VV UTSI and VV RII are accounted for as debt. For further information on these working interest agreements, see Note 16 in the Notes to the Audited Consolidated Financial Statements. In 2016 and 2017, the VV UTSI investors were issued an aggregate of 3,390,000 shares of our Series B-1 Preferred Stock, with a relative fair value of $0.25 per share at the time of issuance as additional consideration for their original investment. The Company also issued 3,185,000 common stock purchase warrants to these investors. The relative fair value of the warrants and the Series B-1 preferred stock in aggregate was $1,488,550, and was recorded as a debt discount, which is amortized to interest expense over the term of the working interest agreements using the effective interest method. The Company issued an additional 768,160 shares of Series C-1 Preferred Stock to these investors in order to compensate them for our first RPC unit having been taken offline in May 2018 to be shipped to Kuwait for remediation services. All Series C-1 Preferred Stock were converted to common stock on May 4, 2021. The Company made its first payment of $7,735 of its estimated annual payments of $1,769,000 in the second quarter of 2021. The Company estimates future payments based on revenue projections for the RPCs.
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VV UTSI is a Nevada limited liability company, managed by Vivaventures Management Company, Inc., a Nevada corporation, a wholly owned subsidiary of Vivakor, Inc. (“VVMCI”). VV UTSI is authorized to issue 1,001,000 units, of which 1,000 Units are designated Class A Units, and 1,000,000 Units are designated Class B Units, subject to increase and/or designation of new classes pursuant to the authority of the Manager, as approved by a majority in interest of the holders of Class A Units. VVMCI is the holder of all 1,000 Class A Units. Class B Units have the same economic rights as the Class A Units, but Class B Units do not have voting rights, except as is required pursuant to the Nevada Revised Statutes. Capital accounts are maintained for the members and, subject to certain adjustment provisions VV UTSI’s LLC Agreement, net income, net loss and nonrecourse deductions attributable to operations of VV UTSI will be allocated among members in accordance with their percentage interests. VV UTSI cannot require members to make additional capital contributions. Except as may be provided in VV UTSI’s LLC agreement, no member may withdraw any portion of the capital of the VV UTSI, and no member will be entitled to the return of its contribution to the capital of the VV UTSI except upon dissolution of the VV UTSI in accordance with the dissolution provisions of VV UTSI’s LLC agreement. Subject to certain special allocation provisions of VV UTSI’s LLC agreement, all income, gains, losses, deductions and credits of VV UTSI will be allocated for federal, state and local income tax purposes in accordance with the allocations of net income and net loss, and cash will be distributed by the VV UTSI Manager in accordance with VV UTSI’s LLC agreement to the Members, including for payment of accrued taxes. Assignment or transfer of VV UTSI membership interests is prohibited, except as expressly permitted in VV UTSI’s LLC agreement, including in connection with estate planning. Rights of first refusal are available, first to VV UTSI, and then to VV UTSI’s other membership interests, in the event a VV UTSI member desires to sell VV UTSI Units.
VV RII is a Nevada limited liability company, managed by VVMCI. VV RII is authorized to issue 1,001,000 units, of which 1,000 Units are designated Class A Units, and 1,000,000 Units are designated Class B Units, subject to increase and/or designation of new classes pursuant to the authority of the Manager, as approved by a majority in interest of the holders of Class A Units. VVMCI is the holder of all 1,000 Class A Units. Class B Units have the same economic rights as the Class A Units, but Class B Units do not have voting rights, except as is required pursuant to the Nevada Revised Statutes.
Upon purchasing Class B Units, such VV RII member was issued a conversion option to purchase shares of Vivakor common stock (the “VV RII Conversion Option”). The VV RII Conversion Option is exercisable at any time during the period beginning on the first anniversary of the date of purchase of the VV RII Class B Units until the date that is five years and six months from the date of purchase of the VV RII Class B Units. Upon exercise of the VV RII Conversion Option, such member will convert all of his remaining value of the revenue participation rights into Vivakor Common Stock, and such member would cancel all of his remaining VV RIII Class B Units. The purchase price of the VV RII Conversion Option shall be the original purchase price of the Class B Units adjusted for the number of years it was held by such member. The twenty-year term of the revenue participation right begins on the date an extraction machine funded by VV RII is placed into production. The amortization of member participation rights will be on a straight-line basis. Pursuant to the VV RII Conversion Option, the exercise price will be based on a discount to market for Vivakor Common Stock based on a minimum conversion price that will not be lower than 200% of the per share price of the Company common stock sold in an underwritten offering pursuant to the Company becoming listed on a senior stock exchange (i.e., The Nasdaq Capital Market or New York Stock Exchange).
Capital accounts are maintained for the members and, subject to certain adjustment provisions VV RII’s LLC Agreement, net income, net loss and nonrecourse deductions attributable to operations of VV RII will be allocated among members in accordance with their percentage interests. VV RII cannot require members to make additional capital contributions. Except as may be provided in VV RII’s LLC agreement, no member may withdraw any portion of the capital of the VV RII, and no member will be entitled to the return of its contribution to the capital of the VV RII except upon dissolution of the VV RII in accordance with the dissolution provisions of VV RII’s LLC agreement. Subject to certain special allocation provisions of VV RII’s LLC agreement, all income, gains, losses, deductions and credits of VV RII will be allocated for federal, state and local income tax purposes in accordance with the allocations of net income and net loss, and cash will be distributed by the VV RII Manager in accordance with VV RII’s LLC agreement to the Members, including for payment of accrued taxes. Assignment or transfer of VV RII membership interests is prohibited, except as expressly permitted in VV RII’s LLC agreement, including in connection with estate planning. Rights of first refusal are available, first to VV RII, and then to VV RII’s other membership interests, in the event a VV RII member desires to sell VV RII Units.
In 2018 we formed RPC Design and Manufacturing LLC (“RDM”) which assisted in the manufacture of our second RPC and will continue to assist in the manufacture of our RPCs going forward. A majority of the LLC units of RDM are owned by Vivaopportunity Fund LLC (“VOF”). VOF is an investment limited liability company that is a pass through entity to individual investors that have purchased Class B Units in this entity. VOF is allocated its portion of cash distributions, net income, and net loss based on its ownership percentage in RDM, which it then passes on to its investors. Holders of Class B Units of VOF have the right to exchange their Class B Units for our common stock following the 10 year anniversary of the date they purchased their Class B Units. The number of shares of our common stock to be issued upon exchange will be determined by the fair market value of the LLC units, and a 20% discount to market. RDM is considered a variable interest entity and is consolidated in our Consolidated Financial Statements.
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VOF is a Utah limited liability company, managed by VVMCI. Members have the right to vote on the removal of the VOF Manager as provided in the operating agreement and admission of the Manager or election to continue the business of the Company after the Manager ceases to be the Manager when there is no remaining Manager. Capital accounts are maintained for the members and, subject to certain adjustment provisions VOF’s operating agreement, net income, net loss and nonrecourse deductions attributable to operations of VOF will be allocated among members in accordance with their percentage interests. VOF cannot require members to make additional capital contributions. Except as may be provided in VOF’s LLC agreement, no member may withdraw any portion of the capital of the VOF, and no member will be entitled to the return of its contribution to the capital of the VOF except upon dissolution of the VOF in accordance with the dissolution provisions of VOF’s LLC agreement. Subject to certain special allocation provisions of VOF’s LLC agreement, all income, gains, losses, deductions and credits of VOF will be allocated for federal, state and local income tax purposes in accordance with the allocations of net income and net loss, and cash will be distributed by the VOF Manager in accordance with VOF’s LLC agreement to the Members, including for payment of accrued taxes. Assignment or transfer of VOF membership interests is prohibited, except as expressly permitted in VOF’s LLC agreement, including in connection with estate planning. Rights of first refusal are available, first to VOF, and then to VOF’s other membership interests, in the event a VOF member desires to sell VOF Units.
In 2029, VOF Members will have the right to convert their Units into shares of common stock of Vivakor, at the price of the Units determined by the VOF Manager to be the fair market value based on the amount that the VOF Members would have received if VOF’s assets were sold on the Conversion Determination Date, all VOF liabilities paid and the remaining amount distributed to the VOF Members and Manager in accordance with the terms of the VOF Operating Agreement. Each VOF Member will have 30 days from receipt of the such conversion fair market value to provide written notice to VOF of the Member’s election to exercise the such conversion right. Within 15 days after the expiration of the 30-day period described above (the “Conversion Closing Date”), Members who delivered a conversion notice will have their Units converted into shares of Vivakor Common Stock. The number of shares of Vivakor Common Stock to be issued upon conversion of the Units will be based on the 30-day average share price of Vivakor’s Common Stock for the 30-day period immediately preceding the Conversion Closing Date, discounted by 10%. All conversions must comply with all state and federal securities laws and requirements. As of the day following the Conversion Closing Date, Vivakor will have the right to purchase any Units owned by Members who did not exercise their Conversion Right. Within 15 days of the Conversion Closing Date, Vivakor will provide the Members with written notice of its election to exercise the Call Option. The fair market value for the Units will be equal to the Conversion FMV. The purchase of Units to be acquired pursuant to the Call Option must be made within 30 days of the Conversion Closing Date (the “Call Option Closing Date”). At any time following 10 years after December 31, 2021, the Manager will have the right (the “Call Right”), in its sole discretion, to require all of the Members to sell their Units to a third-party purchaser pursuant to a sale, transfer, assignment, exchange or other disposition (a “Call Right Transfer”), which the Manager believes is in the best interest of VOF or to provide or increase certain tax benefits. If the Manager elects to exercise the Call Right, the Manager will send a written notice to each Member specifying the terms of the Call Right Transfer and the date on which the closing is anticipated to occur (the “Call Right Closing”), which date will not be earlier than 10 business days nor later than 60 business days from the date that such notice is delivered to the Members. At the Call Right Closing, upon payment of the purchase price to the Members, each Member will transfer and assign to the purchaser all of its Units free and clear of any encumbrances and execute and deliver any and all documentation reasonably required in order to effectuate the Call Right Transfer of the Units. Each of the Members must grant to the Manager a special power of attorney to take all action as may be necessary or appropriate to transfer or sell such Member’s Units in accordance with the terms of the Operating Agreement.
RDM and Vivakor are party to that certain Venture Agreement (the “Venture Agreement”), pursuant to which it is anticipated that RDM will contribute $7,000,000, the gross proceeds from the offering of equity interests (the “Venture Offering”) in the entity established pursuant to the Venture Agreement (the “Venture”), in exchange for ownership interest in the Venture based on the units of equipment funded by the Venture Offering and the divided by the total number of units of equipment being leased or financed for sale by the Venture, if the maximum Venture Offering amount is raised. The manager of the Venture will be Vivakor or one of its subsidiaries or affiliates as it shall designate in writing, and has the authority to manage and control all aspects of the business of the Venture. Cash from operations from the Venture will be distributed at 25% of gross revenue from the lease or sale of the unit of equipment funded by the Venture Offering and 75% to the Venture’s Manager. The Venture’s Manager and its Affiliates will be reimbursed for all reasonable expenses advanced by the Venture’s Manager or its Affiliates in connection with the Venture Offering and operation of the Venture’s business. A Venture member may not sell, mortgage, hypothecate or assign its membership interest without the prior written consent of the Venture’s Manager. The Venture Agreement may be amended or modified with the written consent of both the Manager of the Venture and RDM. To raise additional capital in the future to expand the Venture’s business and manufacture additional equipment, the Venture intends to issue and sell additional membership interests to other Qualified Opportunity Funds or other investors. In the event additional membership interests are sold to raise additional capital, the book value of the Venture’s assets will be adjusted to their fair market value, and the additional membership interests will be priced correspondingly. As a result, an investor’s ownership interest in the Venture will be diluted. In addition, it is possible that the future investors will become co-managers of the Venture and may have a right to co-manage the Venture.
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In November 2020, the Company assisted in forming a special purpose entity, Viva Wealth Fund I, LLC (“VWFI”), for the purpose of manufacturing, leasing and selling custom equipment to the Company. Wealth Space, LLC, an unaffiliated entity, will manage VWFI and the Company will assist in the day-to-day operations. In November 2020, VWFI commenced a $25,000,000 private placement offering to sell convertible promissory notes, which convert to VWFI LLC units, to accredited investors to raise funds to manufacture equipment that will expand the Company’s second RPC. VWFI has contracted with RDM to assist it in its manufacturing needs for the Company. In the event that VWFI does not raise at least $6,250,000 for an RPC series of equipment by the offering termination date, then the convertible notes and/or units would convert into Vivakor common stock at a minimum conversion price that will not be lower than 200% of the per share price of the Company common stock sold in an underwritten offering pursuant to the Company becoming listed on a senior stock exchange (i.e. The Nasdaq Capital Market or New York Stock Exchange). VWFI unit holders may also sell their units to the Company for their principal investment amount on the 3rd, 4th, and 5th anniversary of the offering termination date. The Company has the option to use cash or common stock to purchase the LLC units if this option is exercised. If the Company chooses to pay in common stock, the number of shares the LLC unit holder will receive will be based on the price that is the greater of $0.45 per share or the 30-day average share price of the Company’s common stock (determined on the 30 days prior to the conversion determination date) discounted by 10%. The Company also has the option to purchase any LLC units where the members did not exercise their conversion option under the same terms and pricing. Any of the Company’s common stock received in any manner related to this offering will carry a trade restriction for a period of two years after the date of sale, in which the holder of the common stock will not, in any 90-day period, sell a greater number of shares than 10% of the 10-day average trading volume at the time of the proposed sale. If the Company undertakes an underwritten public offering of stock, each holder of this restriction will be required to comply with a six-month market stand-off agreement. VWFI has cumulatively raised $8,125,000 as of November 1, 2021 and has released funds to manufacture RPC Series A. VWFI has commenced raising funds for RPC Series B and C.
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 is having 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 have issued policies intended to stop or slow the further spread of the disease.
Our Kuwait operations have been suspended to comply with the social distancing measures implemented in Kuwait. Our Utah operations were temporarily suspended from March through May 2020, but have since resumed in full. These suspensions have had a negative impact on our business and there can be no guaranty that we will not need to suspend operations again in the future as a result of the pandemic.
COVID-19 and the U.S. response to the pandemic are significantly affecting the economy. There are no comparable events that provide guidance as to the effect the COVID-19 pandemic may have in the long-term, and, as a result, the ultimate effect of the pandemic is highly uncertain and subject to change. We do not yet know the full extent of the effects on the economy, the markets we serve, our business, or our 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 prospectus. Material changes in our Statement of Operations for the six months ended June 30, 2021 and 2020, and for the years ended December 31, 2020 and 2019 are discussed below.
Revenue
For the six months ended June 30, 2021 and 2020 we realized revenues of $117,000 and $1,023,344, respectively, representing a decrease of $906,344 or 88.57%. The decrease in revenue is primarily attributed to reopening of our vernal site for operations for the latter course of 2020 and into 2021, thereby the Company diverted its resources to its primary business of manufacturing an operating RPCs for remediation and preparing our vernal site for production. All of our revenues were realized from precious metal sales from our business plan of buying and selling precious metal commodities on the open market during the COVID-19 pandemic while our remediation operations were shut down or delayed. These precious metals having been acquired for immediate resale, with the Company acting as intermediary and never keeping an inventory of precious metals.
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For the years ended December 31, 2020 and 2019 we realized revenues of $1,457,781 and none, respectively. We realized precious metal sales from our business plan of buying and selling precious metal commodities on the open market of $1,406,316 for the year ended December 31, 2020. These precious metals having been acquired for immediate resale, with the Company acting as intermediary and never keeping an inventory of precious metals. We also realized revenues of $54,250 for the sale to a related party of our precious metal concentrate produced from our own precious metal extraction operations. We also received a payment of $6,000 pursuant to our Kuwait contract for remediation services as described above, and we also made a sale of $7,735 of extracted test material from our RPCII located in Utah. For the year ended December 31, 2019 we had not yet completed our Kuwait or Utah RPC site infrastructure or implemented our business plan to buy and sell precious metals on the open market and as such there were no precious metal sales during this period.
Cost of Revenue
Our cost of revenues consisted primarily of costs associated with selling our precious metals on the open market and precious metal commodity broker fees.
For the six months ended June 30, 2021 and 2020 costs of revenue were $112,450 and $984,941, respectively, representing a decrease of $872,491 or 88.58%. The decrease in the cost of revenue directly relates to costs associated with selling our precious metals on the open market and precious metal commodity broker fees. The Company diverted its resources to its primary business of manufacturing an operating RPCs for remediation and preparing our vernal site for production. The Company realized costs of revenue from precious metal sales from our business plan of buying and selling precious metal commodities on the open market while our remediation operations were shut down or delayed during the COVID-19 pandemic.
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Our costs of revenue increased from none for the year ended December 31, 2019 to $1,356,378 for the year ended December 31, 2020. The increase in the cost of revenue directly relates to costs associated with selling our precious metals on the open market and precious metal commodity broker fees.
Gross Profit and Gross Margin
For the six months ended June 30, 2021 and 2020 we realized gross profit of $4,550 and $38,403, respectively. The gross profit decreased in proportion to the revenue and costs of revenue related to the purchase and sale of precious metals as described above.
For the year ended December 31, 2020 and 2019 we realized gross profit of $101,403 and $0, respectively. The gross profit increased in proportion to the revenue and costs of revenue related to the purchase and sale of precious metals as described above.
Our gross margin will continue to be affected by a variety of factors that include the market prices of precious metals, the volume hydrocarbons produced by our RPC units, the number of RPC units placed into production, and our ability to raise capital to continue to fund our operations and RPC unit manufacturing.
Operating Expenses
Our operating expenses consist primarily of marketing, general and administrative expenses, bad debt expense, and amortization and depreciation expense. Marketing expenses include marketing fees of company representatives for marketing the business and is products and services as well as investor customer service. General and administrative expenses include professional services 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. 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 six months ended June 30, 2021 and 2020, we realized operating expenses of $3,865,748 and $1,693,277, which represents an increase of $2,172,471, or 128.30%. Our operating expenses increased due to significant professional service expenses in regards to audit, tax, and legal expense in relation to our registration statement, its amendments, and in preparing this offering, including our preparations for an uplist of our common stock to a senior stock exchange. We also organized and commenced operations of VWFI in the fourth quarter of 2020, which contributed to the significant professional service expense for startup and management of that entity into 2021.
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Overall operating expenses increased by $2,646,614, or 114.91%, from the year ended December 31, 2019 to the year ended December 31, 2020. Our operating expenses increased in 2020 due to the fact that we were no longer receiving any contribution to our expenses from VV USTI or VV RII under the terms of our Working Interest Agreements as we did in the prior period, we organized and commenced operations of VWFI, and we have added significant professional service expenses in regards to audit, tax, and legal expense in relation to our registration statement, its amendments, and in preparing this offering, including our preparations for an uplist of our common stock to a senior stock exchange.
Loss from Operations
For the six months ended June 30, 2021 and 2020, we realized a loss from operations of $3,861,198 and $1,654,874, which represents an increase of $2,206,324, or 133.32%. The increase in loss is attributed to the increase in operating expenses discussed above.
Our loss from operations increased from a loss of $2,303,181 for the year ended December 31, 2019 to a loss of $4,848,392 for the year ended December 31, 2020, an increase in loss of $2,545,211, or 110.51%. The increase in loss is attributed to the increase in operating expenses discussed above.
Interest income and expense
For the six months ended June 30, 2021 and 2020, we realized interest income of $2,485 and $32,859, which represents a decrease of $30,374, or 92.44%. The decrease in interest income is mainly attributed to the conversion of the Odyssey note in September 2020, when we converted $809,578 of our note receivable with Odyssey into 809,578 shares of Odyssey common stock pursuant to the terms of the note.
For the six months ended June 30, 2021 and 2020, we realized interest expense of $395,469 and $11,295, which represents an increase of $384,174, or 3,401.27%. The increase in interest expense is mainly attributable to VWFI’s $25,000,000 private placement offering to sell convertible promissory notes, which convert to VWFI LLC units, to raise funds to manufacture equipment that will expand the Company’s second RPC. VWFI has cumulatively raised $6,520,000 as of June 30, 2021 and is in the process of releasing funds to manufacture RPC Series A. VWFI has commenced raising funds for RPC Series B.
Interest income was $73,761 for the year ended December 31, 2019 and $35,344 for the year ended December 31, 2020, a decrease of $38,417, or 52.08%. The decrease in interest income is mainly attributed to the conversion of the Odyssey note as described below.
Interest expense was $9,288 for year ended December 31, 2019 and $86,162 for the year ended December 31, 2020, an increase of $76,874, or 827.67%. The increase in interest expense is mainly attributable to our entering into loans and notes payable to cover operating expenses during the COVID-19 pandemic, which temporarily suspended our operations in Utah and continues to suspend our operations in Kuwait.
Gain on extinguished debt
For the year ended December 31, 2019, we recorded a gain on extinguishment of debt in the amount of $607,536. In March 2019 we settled outstanding debt with an aggregate principal and accrued interest balance of $632,850 in exchange for 2,531,400 shares of Odyssey common stock that we owned, and which were accounted for on a cost basis of approximately $25,000.
Unrealized gain (loss) on marketable securities
For the six months ended June 30, 2021 and 2020, unrealized gains on marketable securities were $3,734,275 and $2,215,827, which represents an increase of $1,518,448, or 68.53%. Our marketable securities in Odyssey Group International, Inc. (Ticker: ODYY, OTC Markets) and Scepter Holdings, Inc. (Ticker: BRZL, OTC Markets) were considered to be traded on an active market and were accounted for at a fair value based on the quoted prices in the active markets resulting in aggregate unrealized gains as noted above. The increase is also attributed to the fact that our marketable securities holdings in Scepter Holdings, Inc. were accounted for under the equity method of accounting until the fourth quarter of 2020 as described further below.
For the year ended December 31, 2020, we recorded an unrealized gain on marketable securities in the amount of $2,614,338. We hold an equity investment in the common stock of Odyssey Group International, Inc. (Ticker: ODYY, OTC Markets), which was accounted for at cost minus impairment for the year ended December 31, 2019 due to the securities not being traded in an active market. In January 2020, the 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 the unrealized loss of $56,198 for the year ended December 31, 2020. We also hold an equity investment in the common stock of Scepter Holdings, Inc. (Ticker: BRZL, OTC Markets), which was accounted for as an equity method investment for the year ended December 31, 2019 due to the Company owning holdings of approximately 23% of Scepter on a diluted basis. For the year ended December 31, 2020 the Company was diluted to an approximate 19% holding of Scepter on a diluted basis, and thereby these securities were accounted for at a fair value based on the quoted prices in the active markets resulting in the unrealized gain of $2,670,536 for the year ended December 31, 2020. This exclusive right expired in 2020.
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Loss on conversion of note receivable
For the six months ended June 30, 2020, we recorded a loss on a conversion of note receivable in the amount of $121,428. In June 2020 we converted $809,578 of our note receivable with Odyssey into 809,578 shares of Odyssey common stock pursuant to the terms of the note at $1.00 per share. On the date of the conversion, the Odyssey price per share on OTC Markets was $0.85 per share, which resulted in a $121,428 loss on the disposition of the note receivable.
For the year ended December 31, 2020, we recorded a loss on a conversion of note receivable in the amount of $121,428. In September 2020 we converted $809,578 of our note receivable with Odyssey into 809,578 shares of Odyssey common stock pursuant to the terms of the note at $1.00 per share. On the date of the conversion, the Odyssey price per share on OTC Markets was $0.85 per share, which resulted in a $121,428 loss on the disposition of the note receivable.
Provision for income tax
The Company recorded an income tax provision of $723,911 for the six months ended June 30, 2021, respectively. The Company is projecting a 6.51% effective tax rate for the year ending December 31, 2021, which is primarily the result of projected benefit from book losses offset by a valuation allowance increase on the projected net operating losses incurred for the year.
The Company recorded income tax provision of $466,964 and $589,203 for the years ended December 31, 2020 and 2019, respectively. The Company’s effective tax rate for 2020 and 2019 was -21.96% and -35.94%, which was the result of the benefit of book 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 three months ended June 30, 2021 and 2020 as presented below:
| June 30, | June 30, | |||||||
| 2021 | 2020 | |||||||
| Net cash used in operating activities | $ | (2,053,627 | ) | $ | (431,688 | ) | ||
| Net cash used in investing activities | (1,384,452 | ) | (846,127 | ) | ||||
| Net cash provided by financing activities | 6,656,612 | 1,150,067 | ||||||
Liquidity and Capital Resources
We have historically suffered net losses and cumulative negative cash flows from operations and, as of June 30, 2021 and December 31, 2020, we had an accumulated deficit of approximately $30.1 million and $30.2 million.
As of June 30, 2021 and December 31, 2020, we had cash and cash equivalents of $3,617,437 and $398,904, with $1,979,184 and $89,500 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.
For the six months ended June 30, 2021 and 2020, our net cash used in operating activities was mainly comprised of net effect of the consolidated net income (loss) of $(1,149,934) and 470,842, we recognized an increase (decrease) in deferred tax liabilities of $1,019,588 and ($362,804) related to our provision for income taxes as described above, our depreciation and amortization of $711,070 and $30,020, common stock options issued for services in relation to a consultant and the Board of Director of $195,000 and none, stock-based compensation employees of $223,055 and $23,057, and an accrued interest on loans and notes payable of $395,469 and $11,295. For the six months ended June 30, 2021 and 2020, we were also able to issue stock options for services of $535,000 and none in lieu of using cash. For the six months ended June 30, 2021 and 2020 we also had unrealized gains on marketable securities of $3,734,275 and $2,215,827 as described above.
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For the years ended December 31, 2020 and 2019, our net cash used in operating activities was mainly comprised of net effect of the consolidated net loss of $2,871,369 and $2,274,207, we recognized an increase in deferred tax liabilities of $466,164 and $588,403 related to our provision for income taxes as described above, our depreciation and amortization of $1,562,662 and $1,524,274, and an increase in accounts payable of $478,941 and $547,494 related to the building of our second RPC. For the years ended December 31, 2020 and 2019, we were also able to issue stock for services of $281,231 and $219,597 in lieu of using cash. For the year ended December 31, 2020 we also realized a loss of $121,428 on a conversion of a note receivable, issued stock options for services of $555,000 in lieu of using cash, and an unrealized gain on marketable securities of $2,614,338 as described above. For the year ended December 31, 2019 material transactions include a gain on extinguished debt of $607,536. For the year ended December 31, 2019 we also increased other assets by $250,590, which was mainly attributed to our payment of $200,000 for the exclusive right to purchase certain real property commonly known as Asphalt Ridge.
For the six months ended June 30, 2021 and 2020, our net cash used in investing activities was mainly attributed to our purchase of equipment of $1,334,123 and $877,173 related to the manufacturing of our RPCs.
For the years ended December 31, 2020 and 2019, our net cash used in investing activities was mainly attributed to our purchase of equipment of $1,197,922 and $1,861,667 related to the manufacturing of our RPCs.
Our net cash provided by our financing activities was mainly attributed to the net effect of the following events:
For the six months ended June 30, 2021 and 2020, we issued none and $554,907 noncontrolling units of RDM, and we also received proceeds of $6,666,811 and $694,508 related to the issuance of convertible bridge notes and other loans. For the six months ended June 30, 2021, as included in the proceeds above, we obtained Paycheck Protection Program loans for $295,745 that may be forgiven under the CARES Act, if we can demonstrate that the proceeds from the loan were used for eligible expenses.
For the years ended December 31, 2020 and 2019, we issued $624,907 and $1,464,000 noncontrolling units of RDM, we received proceeds of none and $2,418,142 from our working interest agreements with VV UTSI and VV RII, made payments on our working interest agreements with VV UTSI and RII of $116,535 and $2,123,708, and we also received proceeds of $2,231,796 and $89,960 related to the issuance of convertible bridge notes and other loans. For the year ended December 31, 2020, as included in the proceeds above, we obtained Paycheck Protection Program loans for $295,745 that may be forgiven under the CARES Act, if we can demonstrate that the proceeds from the loan were used for eligible expenses. We also obtained a loan from the Small Business Administration in the amount of $299,900 in May 2020, as included in the proceeds above. For the year ended December 31, 2019, investors exercised stock warrants in the amount of $91,982.
Capitalized interest on construction in process was $822,700 and $724,674 for the six months ended June 30, 2021 and 2020. Capitalized interest on construction in process was $1,025,852 for the year ended December 31, 2020 and $1,061,215 for the year ended December 31, 2019. There are no further existing firm obligations to make payments in connection with our construction in process; however, construction for each Nanosponge costs approximately $200,000, and we intend to manufacture for and add a Nanosponge to our current and any future RPCs.
Our ability to continue to access capital could be affected adversely by various factors, including general market and other economic conditions, interest rates, the perception of our potential future earnings and cash distributions, any unwillingness on the part of lenders to make loans to us and any deterioration in the financial position of lenders that might make them unable to meet their obligations to us. If we cannot raise capital through public or private debt financings, equity offerings, or other means, our ability to grow our business may be negatively affected. In such case, we may need to suspend machine construction or further acquisitions until market conditions improve.
Contractual Obligations
Our contractual obligations as of June 30, 2021 are for operating lease liabilities for office and warehouse space, which leases end in 2024. Operating lease obligations as of June 30, 2021 are as follows:
| 2021 | $ | 139,707 | ||
| 2022 | $ | 287,769 | ||
| 2023 | $ | 299,466 | ||
| 2024 | $ | 231,174 | ||
| Total | $ | 958,116 |
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Interest Rate and Market Risk
Our financing arrangements are not subject to variable interest rates of the prime rate or LIBOR.
Inflation
Inflation generally will cause suppliers to increase their rates. 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, revenue recognition, stock-based compensation, income taxes, effective interest rates related to long-term debt, marketable securities, lease assets and liabilities, equity method investments, valuation of stock used to acquire assets, and derivatives.
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Vivakor, Inc. is a socially responsible operator, acquirer and developer of clean energy technologies and environmental solutions, primarily focused on soil remediation. We 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.
We are focused on the remediation of contaminated soil and water resulting from either man-made spills or naturally occurring deposits of oil. 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. We plan to expand into other markets, both in Utah and globally, where we believe our technology and services will provide a distinct competitive advantage over our competition.
Our current focus is on the clean-up of greater than 7% hydrocarbon contaminated soil located in Kuwait as a result of the Iraqi invasion, and naturally occurring oil sands deposits in Utah. We have deployed two RPC units to date including one unit to Kuwait (for which operations have been temporarily suspended due to COVID-19) and another to Vernal, Utah (which is presently operating). We expect to deploy two additional RCPs to Vernal, Utah with the proceeds from this offering and believe that there may be an opportunity to deploy additional RPCs in Utah as well as to Kuwait and the Middle East.
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 we refer to as 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 extract on a 24-hour operation 500 tons or more of contaminated material per day. The amount of extracted hydrocarbon recovered depends on the extent to which the material is contaminated. For example, 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. The above example has been calculated as follows: contaminated material that is 10% oil is comprised of 200 pounds of oil per ton; one gallon of oil weighs 8.44 pounds, resulting in 23.69 gallons of oil per ton of contaminated material (200/8.44); there are 42 gallons per barrel, resulting in 0.56 barrels of oil per ton of contaminated material (23.69/42); 20 tons of contaminated material can typically be processed per hour, resulting in 11.2 barrels of oil per hour (0.56*20); and operations continue 24 hours per day, resulting in 268.8 barrels per day (11.2*24).
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. While our primary focus and mandate will be on the manufacture and deployment of our RPCs, we intend to continue to develop, acquire or license additional clean energy technologies and environmental solutions that will directly enhance and expand our current technologies and service offerings.
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We have designed our RPCs to provide an environmentally friendly solution to the remediation of hydrocarbon-contaminated soil, as they do not utilize water. Our RPCs operate by loading contaminated soil onto a feeder and conveyor system that effectively delivers the material prepares the material into a fully contained, closed-loop system. Physical separation of the hydrocarbons from the contaminated soil does not utilize water or steam and is instead accomplished using a proprietary extraction fluid to dissolve the hydrocarbon components.
In the first stage of the process, hydrocarbon contaminated soil is mixed with our proprietary solvent which forms a slurry of sand, hydrocarbon and extraction fluid. This slurry moves from the mixing chamber into a separation chamber where the sand is separated from the hydrocarbon/extraction fluid mix by gravity. The soil is then dried and transported via a conveyer to a lined pit where extensive testing is performed to ensure the hydrocarbons have been properly removed. Meanwhile, the extracted hydrocarbon and solvent travels to a separate chamber where the hydrocarbons are separated from the extraction solvent. The solvent is then reclaimed.
The entire extraction process is completed in a series of sealed chambers. The reclaimed extraction fluid is then recycled back into the process, which ensures that no toxic chemicals are released into the soil or the environment. Upon completion of our remediation and separation process, the extracted hydrocarbons are placed into holding tanks to be picked up by our customers, while clean soil is returned to the environment.
Our RPCs are manufactured in Salt Lake City, Utah. In the future, we expect to finance our RPCs through special purpose vehicles pursuant to 20-year sale/leaseback arrangements. In each instance, the special purpose vehicle will finance the RPC through third party investors, and we will act as the manager of such special purpose vehicle and hold a 1% ownership interest. Management believes that utilizing this structure provides significant benefits to our shareholders, as these financings are less dilutive in nature.
Wastewater Management System
In April 2020, we entered into a project charter agreement with solvAQUA, a Canadian-based clean water technology company, pursuant to which we may purchase certain wastewater removal equipment from solvAQUA. The solvAQUA WMS is a compact solution that continually processes and separates large volumes of wastewater (4,000+ m3/day for each WMS) with an ability to scale to remove any volume of oil, grease and suspended solids from wastewater, in most cases removing 99.99% of waste. The processed water stream can in some cases be discharged or reused without further treatment. We have placed our first order with solvAQUA for WMS equipment and anticipate receipt and installation of the equipment prior to December 31, 2020, with operations to commence shortly thereafter. On July 15, 2020, solvAQUA granted us an exclusive license to either incorporate solvAQUA’s technology platform into our RPCs or to use independently. This will allow us to service remediation projects that have a combination of wet and dry opportunities. The exclusive license has an initial term of one year, which may be extended to five years upon our successful installation and deployment of the first two WMSs.
We believe that the combination of being able to remediate both dry and wet locations could more than double our market opportunity in the future, given the prevalence of remediation locations where oil is mixed with water. Although wastewater remediation is not required for any of our current projects, we believe that this capability will prove valuable to us in the future.
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.
Metallic Separation Technology
In 2015, we obtained two metal extraction systems and a perpetual license to use the proprietary technology and machinery for extracting precious metals from sand-based ore materials for $7.6 million from Vivaventures Precious Metals, LLC (“VV Precious Metals”), pursuant to our loan outstanding to VV Precious Metals being extinguished. We also received a 75% ownership interest in the concentrated unrefined flakes of precious metals and rare earth minerals that had already been recovered from soils by VV Precious Metals through a royalty agreement. We divested our 39% interest in VV Precious Metals in July 2020. Such divestiture has had a de minimis impact on our business.
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Our proprietary metallic separation technology uses a thermal vapor process to extract and process micro particles of precious metals and rare earth minerals, including gold, silver, platinum, palladium and rhodium from soils. After we complete our soil remediation services, we evaluate the post-remediated soil and, if we find that the soil contains more than 1% concentration of these metals, we process it through this technology to extract and concentrate these micro particles of precious metals and rare earth minerals into a concentrated, unrefined flake form.
We market and sell the precious metals we extract from contaminated soil. As we continue our efforts, we anticipate increased opportunities to monetize our precious metals end product.
Hydrocarbon Upgrading Technologies
We have acquired and/or licensed two separate technologies described below that will enable us to upgrade the hydrocarbons recovered from our remediation process. These processes have been proven in laboratory tests, but we have not yet performed this upgrading in a commercial setting.
We entered into a letter of intent with B Green, Inc. (“B Green”) in February 2020 providing us with certain rights to use on a trial basis cavitation hydrocarbon technology (CHU) from B Green, Inc. Subsequently, on September 30, 2020, we entered into an Intellectual Property License Agreement with B Green (“B Green License Agreement”), pursuant to which we have been granted a worldwide, exclusive, non-transferable license to the intellectual property embodied in B Green’s cavitation technology to develop, manufacture, have manufactured, use market, import, have imported, offer for sale and sell cavitation devices built from the licensed intellectual property. The B Green License Agreement also grants us the first right of refusal to purchase all devices and all intellectual property associated with the cavitation technology. The B Green License Agreement extends for the lifetime of the Intellectual Property. In 2021 we made an initial payment of $5,000 after delivery of the first simple cavitation device, and thereafter we will be obligated to pay $3,000 in monthly services fees, for any requested engineering support, and 50% of the net profits. Additionally, under the terms of the B Green License Agreement, at such time as we successfully improve and manufacture a cavitation device with a processing rate equal to, or greater than, 30 barrels per hour, we will be required to issue 1,000,000 shares of our common stock to B Green. Third party, independent testing conducted by the University of Utah has shown that this proprietary technology increases the API gravity of hydrocarbons by elongating the hydrocarbon chains without cutting or cracking these chains. API gravity is the measure of how heavy or light petroleum liquid is compared to water and is used in the industry as the standard measure for viscosity. The API of the recovered crude is increased, allowing such crude to have additional uses and usually at higher unit prices.
In addition, in 2017, we acquired from CSS Nanotech an exclusive right to use their nano-sponge technology, which 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 each of these technologies 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 these technologies into our process. For example, if there is a high demand for fuels we would process the extracted crude through the nano-sponge technology to refine and upgrade the product into diesel fuel. If the demand is instead for certain types of asphaltic cement, where the heavy crude is not refined but processed, we would utilize the CHU technology.
Market Opportunity
We believe that the market for remediating oil from both soil and water is significant. According to Grandview Research, the market for environmental clean-up of oil spills will reach $177 billion by 2025. We believe that a large portion of that market will originate from contamination of more than 7% hydrocarbon content and that our technology is currently the only one that can economically remediate these environmental disasters, while allowing for the capture and reuse of the crude.
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In addition, we believe that the heavy crude that we have been recovering in Utah is ideal for producing asphaltic cement. The demand for asphaltic cement in the United States is presently estimated to be $93 billion this year according to Transparency Market Research. We provided our material to asphalt companies for testing to determine what modifications, if any, needed to be made to meet general asphalt specifications. We recently received notification that our asphaltic cement now meets the general classification of AC20 asphaltic cement and that it passed the specifications of several potential clients. We are expecting several orders in the near term and we believe that we will be able to offer our product at very competitive prices and in an environmentally friendly manner.
Revenue
We presently have two projects utilizing our first two manufactured RPCs - our project in Kuwait (which has been temporarily suspended due to COVID-19) and our project in Vernal, Utah (which is currently operating).
In Kuwait, where we do not have ownership of the recovered oil, we will generate revenues by charging per cubic meter of soil remediated. For our current project we generate revenues of $72 per cubic meter of contaminated material processed.
Our RPC situated in Vernal, Utah has the capacity to process 500 tons or more of naturally occurring oil sands deposits per day. We estimate that if the extracted material is composed of at least 10% oil, we will recover approximately 250 barrels of extracted hydrocarbons each day, which could then be sold for energy or converted to asphaltic cement and sold for use in roads at higher prices.
We also market and sell the precious metals we extract from our remediated and waste soils. As we continue our efforts, we anticipate increased opportunities to monetize our precious metals end product.
Kuwait Project
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. At the close of the Gulf War, Saddam Hussein ordered Kuwaiti oil wells to be blown up, resulting in the destruction of approximately 600 oil wells. The damage resulting from such fires, which burned for seven months, included a layer of hardened “tarcrete,” caused by the sand and gravel on the land's surface combining with oil and soot, forming over almost 5% of the country's area.
We were engaged as a subcontractor by the KOC for two hydrocarbon remediation projects in the country in January 2018 and July 2019: the Sustainable Economic Environmental Development Project (“SEED”) project and the Kuwait Environmental Remediation Program (“KERP”) project. Both projects are managed by the Soils Remediation team at KOC. Both projects have a range of contaminated soils to be remediated.
Our technology has been successful in reducing the amount of contaminated material in the SEED project from 20% hydrocarbon contamination to just 0.2% hydrocarbon contamination, based on third party independent testing performed by ALS Arabia in March 2020. We believe we possess the only technology that has been successful at remediating such highly contaminated soil (defined as anything above 20% hydrocarbon contamination), while also returning usable hydrocarbons. KOC has advised us that we are the only company to have submitted third-party testing results regarding our technology that has met KOC’s specifications for remediating oil sands in excess of 7% hydrocarbons. For this reason, we believe that our technology will be selected for future KOC projects to clean contaminated soils containing in excess of 7% hydrocarbons. Our initial contract for the SEED projects was to clean 14,000 metric tons of contaminated soil and is expected to significantly grow in size and scope. The project pays us, based on the specific characteristics of the soil, a flat fee of $70 to $100 per ton of contaminated soil we clean. We then return the remediated soil and the recovered oil to the Kuwaiti government. Accordingly, for this project, the Company does not have any short-term risk relating to volatile oil prices.
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. We also believe that we will have the opportunity to act as a technology provider to the main KERP project contractors on other projects requiring remediation of sands exhibiting greater than 7% contamination, which we believe could have a market potential of up to $500 million for us.
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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, the Company expects to expand its contract and deploy 10 RPC units to Kuwait over the next several years.
Other International Projects
In addition to managing the projects in Kuwait, the UN is overseeing the funds allocated to the remediation and clean-up of the Ogoni Lands in Africa, which is estimated to contain millions of tons of both contaminated soil and water and has allocated significant funding for its cleanup. Taking into consideration this particular environmental disaster, plus other global oil contamination projects involving oversight by the UN, together with our successful performance on the UN-managed SEED Project in Kuwait, we believe we will be a contender for significant additional contracts.
Vernal, Utah Project
The State of Utah has, according to the U.S. Geological Survey, approximately 14 billion barrels of measured oil in place with an additional estimated 23 to 28 billion barrels of oil contained in contaminated oil sands that are deposited near the ground surface. We believe that the crude from these oil sands can be turned into asphaltic cement for making roads, or upgraded for polymers or fuel. In 2019, we acquired an option to acquire surface rights and the approvals to operate on an oil sands parcel of land located in Vernal, Utah, which has since expired. Vernal is the county seat, and largest city in Uintah County, located in northeastern Utah, approximately 175 miles east of Salt Lake City, and 20 miles west of the Colorado border. On June 23, 2021, we entered into an agreement with the owner of such parcel of land that permits us to continue to operate on the land for a period of 60 days, and, upon conclusion of such initial term, such license will continue on a month-to-month basis, subject to the landowner’s right to terminate in 60 days upon 14 days’ written notice. As we are continuing to operate on this land, we are engaging in discussions regarding purchase of the land and/or arrangements for an extended occupancy period. Nevertheless, we are also engaged in discussions with other landowners in the region regarding alternative sites.
The Vernal property contains approximately 300 million cubic yards of oil sand material available for processing. The property is located on approximately 600 acres. If acquired, we believe that we could ultimately recover as much as 40 million barrels of oil from this property if we are able to economically scale our operations. Each upgraded RPC unit, such as the RPC unit in Vernal, Utah, has the ability to process, at a minimum, 20 tons of contaminated material per hour depending on the oil contamination percentage in the processed material. We believe, based on the number of estimated barrels of oil contained in oil sands deposits located on SITLA property, that there may be an opportunity to deploy as many as 100 RPCs to properties containing oil sands deposits owned by the State of Utah.
Material extracted from our Vernal, Utah project can be sold for energy or converted into asphaltic cement, which we believe is less affected by daily changes in oil prices. With our one RPC unit, assuming full utilization, we anticipate producing approximately 50 tons of asphaltic cement per day. We anticipate that we will be able to sell our asphaltic cement for, referencing present pricing, approximately $350 per ton.
Competitive Strengths and Growth Strategy
We are focused on the remediation of contaminated soil and water resulting from either man-made spills or naturally occurring deposits of oil. 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. We plan to expand into other markets, both in Utah and globally, where we believe our technology and services will provide a distinct competitive advantage over our competition.
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; |
| · | Strong relationships with customers and regulatory agencies; and |
| · | Experienced and highly-skilled management, Board of Directors and Advisory Board. |
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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, one pending international patent application filed through the Paris Cooperation Treaty (PCT), and one pending patent application in Kuwait. In addition, we have licensed from our partners the right to use additional patented technologies.
We presently have two US patent and pending foreign applications related to our RPCs and two issued US patents related to our other remediation 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 multiple 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.
We are also expanding our remediation services and offerings to include the solvAQUA technology, which will enable us to remove hydrocarbons from water (as opposed to soil), while preserving the hydrocarbons for future usage. We expect delivery of our first solvAQUA WMS machine by the end of the calendar year, with operations to commence shortly thereafter. The solvAQUA WMS machines can operate either in conjunction with, or independently of, the RPCs.
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.
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.
Strong Relationships with Customers and Regulatory Agencies
We have developed close relationships with customers and government agencies, including SITLA and the KOC. We anticipate receiving access to additional oil sands deposits located in Utah from SITLA, based on our existing relationship with SITLA and our conversations with them. We also anticipate receiving additional contracts from KOC to remediate contaminated properties in Kuwait, based on our existing relationship with KOC and conversations with them.
Experienced and Highly Skilled Management, Board of Directors and Advisory Board
Our management team has started and successfully grown numerous technology-based companies and has utilized this experience to develop a strategic vision for the Company. The implementation of this plan has resulted in the acquisition and in-house development of numerous technologies, which are currently in operation. We have demonstrated the effectiveness of our technologies in both Vernal, Utah and Kuwait, accomplishing the clean-up of contaminated areas while also recovering precious metals through our metallic separation technology.
Our Board of Directors is comprised of accomplished professionals who bring decades of experience to the Company. Our Board of Directors includes a director who has served as a member of the Executive Committee of one of the largest global accounting firms and has served on the Board of Directors of two multi-billion dollar publicly traded companies, a former director of technology investment banking at Goldman Sachs, a successful investor and entrepreneur who has founded and provided initial financing for numerous life science companies, several of which have grown to multi-billion dollar publicly traded companies, and the mayor of a city in Utah.
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.
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We rely on our Board of Directors and Advisory Board to provide it 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
We will strive to grow our business by pursuing the following strategies:
| · | Expansion of our oil recovery projects in Utah; |
| · | Expansion of our remediation projects in Kuwait; |
| · | Expansion into new and complementary markets; |
| · | Increase of revenue via new service and product offerings; |
| · | Strategic acquisitions and licenses targeting complementary technologies; and |
| · | Redeployment of the metallic separation technologies. |
Expansion of our Oil Recovery Projects in Utah
The State of Utah has, according to the U.S. Geological Survey, approximately 14 billion barrels of measured oil in place with an additional estimated 23 to 28 billion barrels of oil contained in contaminated oil sands that are deposited near the ground surface. The majority of these oil sands deposits are located on land owned by SITLA. While our current project in Vernal, Utah is not located on SITLA land and we do not yet have a definitive agreement, SITLA has expressed an interest in providing us leased access to these lands in exchange for a royalty to be paid by us in an amount equal to 8% of all revenue generated from any hydrocarbon-based products produced by us from hydrocarbons extracted from these lands. All royalty payments to SITLA would result in direct funding to the State’s school system. We believe, based on the number of estimated barrels of oil contained in oil sands deposits located on SITLA property, that there may be an opportunity to deploy as many as 100 RPCs to oil sands deposits located on land owned by the State of Utah. We will seek to acquire additional properties and mineral rights in the vicinity of Vernal, Utah from individual land owners and the State of Utah with a goal of increasing our hydrocarbon holdings to as much as one billion barrels of contingent resources containing a minimum of 10% hydrocarbon saturation.
Expansion of our Remediation Projects 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 less than 0.5%, 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. Under our current contract, we will charge $72 per cubic meter of soil remediated. We are currently working with KOC and other government-controlled entities to expand our remediation projects in Kuwait. We are in active negotiations to provide the technology and operations as a subcontractor to large, multinational remediation companies within the region where our technology could be used on all of the sands with contamination levels greater than 7%. Other technologies may also be used for the less contaminated soils.
Expansion into New and Complementary Markets
We intend to explore expansion opportunities on a global basis, including in places with extreme contamination such as the Ogoni Lands region of Nigeria, oil spill lakes located in Saudi Arabia and Turkmenistan, and naturally occurring oil sands deposits in Kazakhstan, 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) in Saudi Arabia, Qatar and Texas. Saudi Arabia has the objective to create a circular carbon economy that will ultimately have zero wasted hydrocarbons. 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.
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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 are in the process of expanding our services to include the remediation of water and the recovery of hydrocarbons from water through our exclusive license with solvAQUA. We also 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 at the bottom of storage tanks and contaminated water produced from the drilling of oil wells. We believe that our technologies could be used to clean the contaminated water 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. The patented RPC technology, in conjunction with the enzymatic water remediation technology that we have licensed from solvAQUA, have the potential to eradicate all oil evaporation ponds and landfills in the United States presently utilized for disposal of tank bottom sludge and drill cutting waste. We are currently in early stage discussions relating to some of these remediation projects.
Strategic Acquisitions and Licenses Targeting Complementary Technologies
We intend to seek out opportunities to acquire or license only specific technologies that are either complementary to our existing product offerings or that will allow us to expand into the environmental infrastructure markets. We recently entered into a worldwide, exclusive license agreement with TBT Group, Inc. to license piezo electric and energy harvesting technologies for creating self-powered sensors for making smart roadways, which we believe could be embedded directly into the asphaltic cement we intend to produce from the hydrocarbons we extract, providing the basis for smart roads and infrastructure. We believe that these sensors, which are self-powered, could be used to provide information about traffic, road conditions and repair needs as well as allowing the roads to communicate directly with autonomous vehicles enabling these vehicles to sense the road in all weather conditions. By complementing the asphaltic cement we expect to produce with integrated sensors for automated vehicles, we believe that we will be able to offer a smart road – moving this company from one of “Waste to Road” to one of “Waste to Smart Road”.
Redeployment of the Metallic Separation Technology
Our licensed metallic separation technology has successfully recovered precious metals including, but not limited to, gold, palladium, platinum, rodium and silver. We intend to modify our existing metallic separation equipment to allow us to capture more precious metals. We intend to redeploy our metallic separation technology machines in conjunction with our RPC machines to locations where precious metals have been detected in the soil and to standalone locations to process mine tailings and other soils.
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
In 2012, we provided secured loan financing and assistance to Vivaceuticals, Inc. (“Vivaceuticals”) for the development and commercialization of two bioactive beverages and one weight loss beverage. In 2018, Scepter Holdings, Inc. (OTCMarkets: BRZL), a company that manages the sales and development of consumer-packaged goods, purchased certain assets of Vivaceuticals, and in 2019, we received 800,000 shares of preferred stock in Scepter Holdings, Inc. (“Scepter”) in exchange for extinguishing our loan, which had become an obligation of Scepter Holdings, Inc. The Company has since converted such shares of preferred stock into 800,000,000 shares of common stock of Scepter Holdings, Inc. In 2019 we entered into a Convertible Master Revolving Note with Scepter and over the course of approximately two years lent them $71,000, which accrued 7% interest per annum. In August 2021 we exercised our conversion rights in the note and converted the principal balance and all accrued interest in 26,376,882 shares of common stock of Scepter, which represents holdings of 826,376,882 shares of Scepter and a market value of approximately $3,883,971 as of the date of November 1, 2021.
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Odyssey Group International
In 2014, we acquired a minority interest in Odyssey Group International, Inc. (“Odyssey”) (OTCQB: ODYY), a trans-disciplinary product development enterprise involved in the discovery, development and commercialization of a broad range of products applied to targeted segments of the health care industry. We also have provided a $750,000 secured loan Odyssey, which they used to acquire a license to use and develop a new technology called CardioMap®, which is an advanced technology for early non-invasive testing for heart disease. The loan is secured by Odyssey’s assets, and we are entitled to receive a percentage of Odyssey’s total gross sales until the loan has been repaid in full. During June 2020, we converted the outstanding secured loan into 809,578 shares of Odyssey common stock. We presently own 3,309,578 shares of Odyssey common stock representing a market value of approximately $898,219 as of November 1, 2021.
Future Products; Research and Acquisition
We intend to identify, develop or acquire, and bring to market products primarily in the Clean Tech sector with a primary focus on the petroleum, mining and minerals, and alternative energy industries, as well opportunities that may arise in the natural and formulary products industry. Our general approach is to select products or processes 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: VivaVentures Management Company, Inc., a Nevada corporation, VivaSphere, Inc., a Nevada corporation, VivaVentures Oil Sands, Inc., a Utah corporation, and RPC Design and Manufacturing LLC, a Utah limited liability company. 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.
Regulations Affecting our Business
The Company’s 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.
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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; and | |
| · | 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; |
| · | Pending US Patent Series Nos. 16/177,210 and 16/554,158, International PCT Application No. PCT Application No. PCT/US2019/048587, 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. |
Employees
As of the date of this prospectus, we have 25 full-time or contracted employees, consisting of our CEO, CFO, and additional administrative and direct operations personnel. 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.
Properties
We do not own real property. We currently lease executive office space in Salt Lake City, Utah, and Irvine, California. The Company also leases warehouses in Salt Lake City, UT and have paid to be on a land site in Vernal, UT. 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.
Change in Accountants
Effective January 1, 2021, Hall & Company CPAs (“Hall”), the independent registered public accounting firm for the Company, combined with Macias Gini & O’Connell LLP (“MGO”). As a result of this transaction, on January 1, 2021, Hall resigned as the independent registered public accounting firm for the Company. Concurrent with such resignation, the Company’s Board of Directors approved the engagement of MGO as the new independent registered public accounting firm for the Company.
The audit report of Hall on the Company’s financial statements for the year ended December 31, 2019 did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles.
During the most recent fiscal year ended December 31, 2020 and through the subsequent interim period preceding Hall’s resignation, there were no disagreements between the Company and Hall on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of Hall would have caused them to make reference thereto in their report on the Company’s financial statements for such year.
During the most recent fiscal year ended December 31, 2020 and through the subsequent interim period preceding Hall’s resignation, there were no reportable events within the meaning set forth in Item 304(a)(1)(v) of Regulation S-K, except that the Company’s internal control over financial reporting was not effective due to the existence of material weaknesses in the Company’s internal control over financial reporting. We have identified a material weakness in our internal controls related to management not yet having completed a formal assessment of internal controls. Management anticipates completing the formal assessment in 2021.We believe that we will have substantially resolved our previously identified material weakness in our internal controls as a result of implementation of new policies and procedures. There can be no assurances that weakness in our internal controls will not occur in the future.
During the most recent fiscal year ended December 31, 2020 and through the subsequent interim period preceding MGO’s engagement, the Company did not consult with MGO on either (1) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that may be rendered on the Company’s financial statements, and MGO did not provide either a written report or oral advice to the Company that MGO concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or (2) any matter that was either the subject of a disagreement, as defined in Item 304(a)(1)(iv) of Regulation S-K, or a reportable event, as defined in Item 304(a)(1)(v) of Regulation S-K.
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As of the date of this prospectus, our directors, executive officers and significant employees are as follows:
| Name | Age | Position(s) | ||
| Matthew Nicosia | 47 | Chief Executive Officer (Principal Executive Officer) and Director | ||
| Tyler Nelson | 41 | Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | ||
| Dr. Daniel Hashim | 38 | Chief Scientific Officer | ||
| Al Ferrara | 70 | Director | ||
| Joseph Spence | 47 | Director | ||
| Matthew Balk | 61 | Director | ||
| Trent Staggs | 47 | Director |
Background of Officers and Directors
Matthew Nicosia joined Vivakor as Chief Executive Officer and Chairman of the Board in 2011. Prior to joining the Company, Mr. Nicosia co-founded Dermacia Inc. in 1999, a dermatology product development Company. From December 2012 through December 2015, concurrent with his time serving as Chairman and Chief Executive Officer of Vivakor, Mr. Nicosia served as the interim Chief Executive Officer of Vivaceuticals, d/b/a Regeneca Worldwide. In February 2019, Mr. Nicosia joined Ridepair Inc., a software development company focused on the transportation market, as Chairman of the Board. Mr. Nicosia joined the Board of Directors of NarcX Solutions Inc., a developer of onsite drug destruction technologies in June 2019. During 2018, Mr. Nicosia co-founded and has since served as co-Chairman of the Board of Prosperity Utah, a non-profit economic think tank focused on the State of Utah. From April 2018 until March 2021, Mr. Nicosia has served on the Board of Directors of CannapharmaRx Inc., a public company which trades on the OTC Markets. Mr. Nicosia received his Bachelor of Arts degree from Brigham Young University and a MBA from Pepperdine University. Mr. Nicosia is qualified to serve on our Board of Directors based on his in depth knowledge of the Company as Chief Executive Officer and because of his extensive experience with thermal vaporization technologies, business development in the Middle East and U.S. capital markets experience.
On November 16, 2015, the Consumer Protection Branch of the Department of Justice of the United States of America initiated an action, on behalf of the Food and Drug Administration, against Vivaceuticals, d/b/a Regeneca Worldwide, and Mr. Nicosia alleging various violations of the Federal Food, Drug, and Cosmetic Act in relation to the manufacturing, labeling and distribution of adulterated dietary supplements. The complaint sought a permanent injunction against Regeneca Worldwide for unlawfully distributing unapproved new drugs, and adulterated and misbranded dietary supplements. A consent decree of permanent injunction was filed on February 8, 2017. The consent decree prohibits Regeneca from marketing unapproved new drugs, and adulterated and misbranded dietary supplements. The consent decree also provides that before Regeneca can resume operations, it must, among other things, hire good manufacturing practice and labeling experts, implement procedures to comply with good manufacturing practice and labeling requirements and receive written permission from the FDA to resume operations, and Mr. Nicosia is required to notify the FDA and accept their inspections if he works in the pharmaceutical industry. Regeneca was also required to destroy all remaining products. Vivaceuticals sold its assets to Scepter Holdings, Inc. in 2018 and is no longer in operation.
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 is a CPA who worked from 2006 to 2011 in Audit and Enterprise Risk Services at Deloitte LLP (USA) and later at 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.
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Dr. Daniel Hashim joined Vivakor as Chief Scientific Officer in 2017. Dr. Hashim has extensive experience in the areas of nanoscience research, advanced materials synthesis, characterization, application, innovation and technological entrepreneurship. In addition to leading scientific efforts for Vivakor and its related companies, Dr. Hashim has served as the Founder, Chairman and CEO of CSS Nanotech, Inc. (“CSS”) since 2014. CSS is a nonmaterials research and development company that designs and commercializes useful structural nanomaterials that exhibit “safe-to-handle” nanofunctionality on a macro-scale, to include carbon filtration media, water purification, oil spill remediation, structural composite materials, electrode materials, petrochemical refining and thermal management systems. Mr. Hashim holds a Bachelor’s Degree in Materials Science Engineering from Rensselaer Polytechnic Institute, with a PhD from Rice University in the field of Materials Science and NanoEngineering.
Al Ferrara joined Vivakor as a director on September 21, 2020. Mr. Ferrara retired as the National Director of Retail & Consumer Products at BDO USA, LLP in 2016. Mr. Ferrara is a CPA, who worked at BDO USA, LLP in a variety of positions beginning in 1991, and was a member of its board of directors from 2003 to 2010. Mr. Ferrara served as the Northeast Regional Managing Partner at BDO USA, LLP from 2000 to 2003. Mr. Ferrara was also a director representative at Trenwith Capital, Inc. (now BDO Capital Advisors, LLC) from 2000 to 2015 and a member of the retail advisory board at Hilco Retail Consulting from 2013 to 2015. Mr. Ferrara was previously on the Board of Directors for Barnes & Noble, Inc., from August 2016 until the company was sold in August 2019, where he served on its audit committee and compensation committee, and in July 2019, he joined the Board of Directors of Steven Madden, Ltd., where he serves as Chairman of its audit committee and a member of its governance committee. Mr. Ferrara is qualified to serve on our Board of Directors because of his extensive experience in auditing public companies and serving as a director of large public companies.
Joseph Spence joined Vivakor as a director on September 21, 2020. Mr. Spence previously spent the past two years as an investor, advisor, executive and philanthropist specializing in catalyzing high tech and tech infused real estate to create smart, sustainable cities that work for everyone, with ASPIRE Center for Electrified Transportation, We Are Makers Social Impact Initiative and IconIQ Talks. Previously, from 2014 through 2018, he was an executive director at Goldman Sachs leading teams in the Technology, Media and Telecom; Real Estate, Gaming and Lodging; and Structured Finance sectors for the Americas and EMEA regions. From 2007 to 2014, he was an associate director at Standard & Poor’s covering approximately $144 billion in debt, and, from 2006 to 2007, he was an assistant treasurer at Bank of NY Mellon. He started his career as an engineer at the NASA Academy at Goddard Space Flight Center. Mr. Spence holds an MBA from Columbia University and BS in Electrical Engineering Howard University (Magna Cum Laude). Mr. Spence also holds a Master’s degree in Nano & Biotechnology from Harvard University. Mr. Spence is qualified to serve on our Board of Directors because of his extensive experience in raising capital and financing companies through all stages of growth.
Matthew Balk joined Vivakor as a director on September 21, 2020. Mr. Balk previously spent more than 25 years as an investment banker specializing in technology and biotechnology where he raised billions of dollars for both public and private companies and dozens of mergers and acquisitions. In 2011, he left investment banking to start his family office. He has since co-founded several companies including AzurX (Nasdaq: AZRX) and VerifyH20 and invested in a number of other technology companies. Mr. Balk also works as a consultant to a small number of companies in the areas of Biotech and technology in general. Mr. Balk received his MBA from New York University Stern School of Business. Mr. Balk is qualified to serve on our Board of Directors because of his extensive experience acting as an investment banker supporting large public companies.
Trent Staggs joined Vivakor as a director on September 21, 2020. Mr. Staggs brings a 20-year track record of developing and executing on business strategy, teams and relationships. Prior to advising the Vivakor Team, he was on the corporate leadership team of Unicity International, Inc., a global direct sales company that operates in over 35 markets, providing strategic direction and leadership of global integrated systems, software and IT infrastructure. Mr. Staggs has also been directly responsible for financial transactions in excess of 2 billion dollars as a VP at Morgan Stanley and also running his own nationwide financial company. Mr. Staggs served as a consultant for RDM from January 2019 through March 2020, advising with respect to obtaining required permitting from State agencies and other regulatory matters. Mr. Staggs received his Bachelor of Arts degree from the University of Utah and received an MBA from the Marriott School of Management at Brigham Young University. Mr. Staggs is also the Mayor of Riverton, Utah and serves on many boards, providing needed political guidance and consultation to Vivakor and its related companies. Mr. Staggs is qualified to serve on our Board of Directors because of his extensive experience in capital markets and his understanding of Utah regulatory requirements.
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Family Relationships
There are no family relationships between any of our directors and executive officers.
Board Composition and Director Independence
Our Board of Directors consists of five 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 .
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 Al Ferrara, Joseph Spence, Matthew Balk and Trent Staggs are qualified as independent and do not have any material relationships with us that might interfere with his exercise of independent judgment.
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 Al Ferrara, Matthew Balk and Trent Staggs, each of whom qualify as an independent director under applicable Nasdaq and SEC rules, and “financially literate” under applicable Nasdaq rules. Our board has determined that Al Ferrara, Matthew Balk and Trent Staggs each qualify as an “audit committee financial expert”, as such term is defined in Item 407(d)(5) of Regulation S-K. Al Ferrara serves as chairman of the Audit Committee.
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; |
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| · | 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; |
| · | 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 Trent Staggs, Al Ferrara and Matthew Balk, each of whom qualify as an independent director under applicable Nasdaq rules. Trent Staggs serves as 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.
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Nominating and Corporate Governance Committee
Our Nominating and Corporate Governance Committee is currently comprised of Trent Staggs, Matthew Balk and Al Ferrara, each of whom qualify as an independent director under applicable Nasdaq rules. Trent Staggs serves as 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.
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.
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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The following table summarizes information concerning the compensation awarded to, earned by, or paid to, our principal executive officer. No other executive officer received compensation greater than $100,000 in the last two fiscal years.
| Name and Principal Position | Year | Salary | Total | |||||||
| Matthew Nicosia, | 2020 | $ | 50,000 | $ | 50,000 | |||||
| Chief Executive Officer and Chairman | 2019 | $ | 50,000 | $ | 50,000 | |||||
| Tyler Nelson | 2020 | $ | 11,520 | $ | 11,520 | |||||
| Chief Financial Officer | ||||||||||
Employment Agreements
Matthew Nicosia
On September 24, 2020, we entered into an Employment Agreement with Matthew Nicosia to serve as our Chief Executive Officer. The agreement provides for an annual base salary of $50,000 (the “Nicosia Base Salary”). The Nicosia Base Salary will increase as follows: (i) upon the Company earning a total of at least $3,000,000 in Earnings Before Interest, Taxes, Depreciation, and Amortization (“EBITDA”) during any calendar year, the Nicosia Base Salary will increase to $100,000 for all calendar years thereafter until if and when further increased pursuant to this Section 4.1; and (ii) for every $1,500,000 increase in EBITDA earned by the Company during any calendar year, the Nicosia Base Salary will increase an additional $50,000 up to a maximum base salary of $350,000. Any increase to the Nicosia 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, 2021 the Company reaches $3,000,000 in EBITDA earned during the 2021 calendar year, the Nicosia Base Salary would increase to $100,000 commencing the Company’s first pay period after October 31, 2021; and (ii) if on November 15, 2022 the Company reaches $4,500,000 in EBITDA earned during the 2022 calendar year, the Nicosia Base Salary would increase to $150,000 commencing the Company’s first pay period after November 15, 2022.
The Employment Agreement has a term of three years and automatically extends for successive one-year periods unless terminated by the Company or Mr. Nicosia, with three months advance written notice required. The agreement provides for incremental increases upon the Company’s achievement of specific performance metrics. The Employment Agreement provides for a grant of a stock option to Mr. Nicosia to purchase up to 5,000,000 shares of the Company’s common stock at an exercise price equal to 110% of the fair market value of the Company’s common stock on the date of grant. The stock option will vest after five years of continuous employment, subject to acceleration if Mr. Nicosia is terminated without cause or resigns for good reason. The agreement also provides for an annual bonus of up to 100% of Mr. Nicosia’s then base salary based upon the achievement of certain performance goals established and approved by the Board of Directors; provided, that at any time Mr. Nicosia’s base salary is $200,000 or more, the Company will pay Mr. Nicosia a minimum annual bonus of $200,000 within ninety days after the end of each calendar year. The agreement entitles Mr. Nicosia to receive various employee benefits generally made available to other officers and senior managers of the Company.
Upon termination of Mr. Nicosia’s employment by Mr. Nicosia for good reason, by the Company without cause, by the Company because of disability, or upon the Company’s or Mr. Nicosia’s decision not to renew Mr. Nicosia’s employment in accordance with the automatic successive one-year extensions, the Company will pay or provide Mr. Nicosia (i) any unpaid base salary and any accrued vacation through the date of termination; (ii) amounts payable under any Company bonus plans in which Mr. Nicosia 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. Nicosia’s then current monthly base salary multiplied by 2 (but not to exceed $150,000); (iv) outplacement services for Mr. Nicosia for a period of 12 months with an outplacement firm selected by Mr. Nicosia; (v) at Mr. Nicosia’s election to continue health insurance coverage under COBRA, Mr. Nicosia’s monthly premium until (a) the close of the severance period, as defined therein, (b) the expiration of Mr. Nicosia’s continuation of coverage under COBRA, or (c) the date when Mr. Nicosia becomes eligible for substantially equivalent health insurance coverage in connection with new employment; and (vi) the Company will amend each option agreement then in effect by and between the Company and Mr. Nicosia (a) to make 100% of the then unvested shares subject to each option agreement fully vested and fully exercisable, (b) to terminate any rights the Company may have to repurchase unvested shares and (c) to permit Mr. Nicosia to exercise the options provided by each option agreement for a period of ten (10) years following the termination of Mr. Nicosia’s employment. Upon the termination of Mr. Nicosia’s employment because of death, Mr. Nicosia’s estate will be entitled to receive (i) Mr. Nicosia’s then current base salary through the end of the month in which his death occurs, (ii) all accrued and unpaid compensation (including any accrued and unused vacation time) and earned but unpaid bonus payments. Upon the termination of Mr. Nicosia’s employment by the Company for cause or by Mr. Nicosia without good reason, the Company will pay Mr. Nicosia (i) a pro rata amount of Mr. Nicosia’s then current base salary through the date his employment is terminated and (ii) all unpaid bonuses and accrued and unpaid compensation (including any accrued and unused vacation).
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Tyler Nelson
On September 24, 2020, we entered into an Employment Agreement with Tyler Nelson to serve as our Chief Financial Officer. The agreement provides for an annual salary of $50,000 (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 as follows: (i) upon the Company earning a total of at least $3,000,000 in Earnings Before Interest, Taxes, Depreciation, and Amortization (“EBITDA”) during any calendar year, the Nelson Base Salary will increase to $100,000 for all calendar years thereafter until if and when further increased pursuant to this Section 4.1; and (ii) for every $1,500,000 increase in EBITDA earned by the Company during any calendar year, the Nelson Base Salary will increase an additional $50,000 up to a maximum base salary of $350,000. 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, 2021 the Company reaches $3,000,000 in EBITDA earned during the 2021 calendar year, the Nelson Base Salary would increase to $100,000 commencing the Company’s first pay period after October 31, 2021; and (ii) if on November 15, 2022 the Company reaches $4,500,000 in EBITDA earned during the 2022 calendar year, the Nelson Base Salary would increase to $150,000 commencing the Company’s first pay period after November 15, 2022.
The Employment Agreement has a term of three years and automatically extends for successive one-year periods unless terminated by the Company or Mr. Nelson, with three months written notice required. The agreement provides for incremental increases upon the Company’s achievement of specific performance metrics. The agreement also provides for an annual bonus of up to 100% of Mr. Nelson’s then base salary upon the achievement of certain performance goals established and approved by the Board of Directors; provided, that at any time Mr. Nelson’s base salary is $200,000 or more, the Company will pay Mr. Nelson a minimum annual bonus of $200,000 within ninety days after the end of each calendar year. The agreement entitles Mr. Nelson to receive various employee benefits generally made available to other officers and senior managers of the Company.
Upon termination Mr. Nelson’s employment by Mr. Nelson for good reason, by the Company without cause, by the Company because of disability, or upon the Company’s or Mr. Nelson’s decision not to renew Mr. Nelson’s employment in accordance with the automatic successive one-year extensions, the Company will pay or provide Mr. Nelson (i) any unpaid base salary and any accrued vacation 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 multiplied by 2 (but not to exceed $150,000); (iv) outplacement services for Mr. Nelson for a period of 12 months with an outplacement firm selected by Mr. Nelson; and (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. Upon the termination of Mr. Nelson’s employment because of death, Mr. Nelson’s estate will be entitled to receive (i) Mr. Nelson’s then current base salary through the end of the month in which his death occurs, (ii) all accrued and unpaid compensation (including any accrued and unused vacation time) and earned but unpaid bonus payments. Upon the termination Mr. Nelson’s employment by the Company for cause or by Mr. Nelson without good reason, the Company will pay Mr. Nelson (i) a pro rata amount of Mr. Nelson’s then current base salary through the date his employment is terminated and (ii) all unpaid bonuses and accrued and unpaid compensations (including any accrued and unused vacation).
Stock Incentive Plan
2021 Equity Incentive Plan
We intend to adopt a new equity incentive plan prior to the offering, which will authorize the issuance of up to 60,000,000 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 June 30, 2021
As of June 30, 2021, Matthew Nicosia was granted non-qualified options to purchase up to 5,000,000 shares of the Company’s common stock at an exercise price equal to 110% of the fair market value of the Company’s Common Stock on the date of grant. There are no other outstanding equity awards held by our executive officers.
As of June 30, 2021, the Company has granted stock-based non-qualified compensation to employees, including a 500,000 share stock award, which vests at the end of four years and a 5,000,000 stock options that cliff vests at the end of five years (as discussed above). For the six months ended June 30, 2021, stock-based compensation was $223,056. For the year ended December 31, 2020, stock-based compensation was $146,114.
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For the year ended December 31, 2020, the Company also granted non-statutory stock options, including 4,000,000 stock options to members of the Board of Directors, which vest over one year, and a 10,000,000 stock option to a consultant, which vests over four years. Non-statutory stock-based compensation was $730,000 for the three months ended June 30, 2021. Non-statutory stock-based compensation was $555,000 for the year ended December 31, 2020.
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.
Director Compensation
The table below shows the compensation paid to our directors during the years ended December 31, 2020 and 2019. Matthew Nicosia was not compensated for acting as a director during fiscal year 2020 or 2019. Each of Al Ferrarra, Trent Staggs, Matthew Balk and Joseph Spence were appointed to the Board of Directors after January 1, 2020.
| Name | Year | Fees Earned or Paid in Cash |
Stock Compensation | Total | ||||||||||
| Pablo Peneloza(1) | 2020 | |||||||||||||
| 2019 | $ | 16,615 | $ | 16,615 | ||||||||||
| Trent Staggs(2) | 2020 | $ | 3,333 | $ | 40,000 | $ | 43,333 | |||||||
| 2019 | $ | 84,704 | $ | 84,704 | ||||||||||
| Al Ferraro | 2020 | $ | 3,333 | $ | 40,000 | $ | 43,333 | |||||||
| Joseph Spence | 2020 | $ | 3,333 | $ | 40,000 | $ | 43,333 | |||||||
| Matthew Balk | 2020 | $ | 3,333 | $ | 40,000 | $ | 43,333 | |||||||
_________________
| (1) | Pablo Peneloza resigned from the Company’s Board of Directors on September 21, 2020. |
| (2) | Trent Staggs received $84,704 from the Company as payment for consulting services rendered in 2019. |
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The following table sets forth certain information regarding our voting shares beneficially owned as of September 30, 2021 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 November 1, 2021 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 before this offering is based on an aggregate of 369,337,713 shares outstanding. The percentage of beneficial ownership of our common stock after the offering is based on shares of common stock outstanding after the offering, which includes the common stock to be sold by us in the offering, assuming no exercise of the over-allotment option by the underwriter.
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., 433 Lawndale Drive, South Salt Lake City, UT 84115.
| Name and Address of Beneficial Owner | Shares of Common Stock Beneficially Owned | Percentage of Common Stock Beneficially Owned | Shares of Series A Preferred Stock Beneficially Owned | Percentage of Series A Preferred Stock Beneficially Owned | Shares of Series A Preferred Stock Beneficially Owned After the Offering | Percentage of Series A Preferred Stock Beneficially Owned After the Offering | ||||||||||||||||||
| Matt Nicosia, Chief Executive Officer and Director (1)(2)(3) | 100,690,700 | 27.26% | 2,000,000 | 100.00% | 2,000,000 | 100.00% | ||||||||||||||||||
| Tyler Nelson, Chief Financial Officer | 0 | * | ||||||||||||||||||||||
| Daniel Hashim, Chief Scientific Officer (3) | 5,000,000 | 1.35% | ||||||||||||||||||||||
| Al Ferrara, Director | 100,000 | * | ||||||||||||||||||||||
| Trent Staggs, Director (4) | 10,100,000 | 2.73% | ||||||||||||||||||||||
| Matthew Balk, Director | 100,000 | * | ||||||||||||||||||||||
| Joseph Spence, Director | 100,000 | * | ||||||||||||||||||||||
| All Officers and Directors as a group (seven persons) | 116,090,700 | 31.43% | 2,000,000 | 100.00% | 2,000,000 | 100.00% | ||||||||||||||||||
| 5% Beneficial Stockholders | ||||||||||||||||||||||||
| AKMN Irrevocable Trust (2) | 100,690,700 | 27.26% | 2,000,000 | 100.00% | 2,000,000 | 100.00% | ||||||||||||||||||
| Sustainable Fuels, Inc. (5) | 20,000,000 | 5.42% | ||||||||||||||||||||||
| Everett Monroe (6) | ||||||||||||||||||||||||
| Daniel O. Ritt Trust (7) | ||||||||||||||||||||||||
| Peter D'Arruda (8) | ||||||||||||||||||||||||
| STRATA Trust Company, Custodian FBO: Donna Hansen IRA (9) | ||||||||||||||||||||||||
| STRATA Trust Company, Custodian FBO: Bella Manansala IRA (10) | ||||||||||||||||||||||||
| Provident Trust Group, Custodian FBO: Wilfredo E. Rivera IRA (11) | ||||||||||||||||||||||||
| STRATA Trust Company, Custodian FBO: Susan J. Lim(12) | ||||||||||||||||||||||||
| Thumai T. Tran(13) | ||||||||||||||||||||||||
(continued)
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| 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 | Percentage of VV RII Class B Units Beneficially Owned After the Offering | Value of Units of VWFI Beneficially Owned | Percentage of VWFI Units Beneficially Owned | Percentage of VWFI Units Beneficially Owned After the Offering | Shares of Common Stock Beneficially Owned After the Offering | Percentage of Common Stock Beneficially Owned After the Offering | Shares of Series A Preferred Stock Beneficially Owned After the Offering | Percentage of Series A Preferred Stock Beneficially Owned After the Offering | ||||||||||||||||||||||||||||||
| Matt Nicosia, Chief Executive Officer and Director (1)(2)(3) | – | – | – | – | – | – | 100,690,700 | – | 2,000,000 | 100.00% | ||||||||||||||||||||||||||||||
| Tyler Nelson, Chief Financial Officer | ||||||||||||||||||||||||||||||||||||||||
| Daniel Hashim, Chief Scientific Officer (3) | 5,000,000 | |||||||||||||||||||||||||||||||||||||||
| Al Ferrara, Director | 100,000 | |||||||||||||||||||||||||||||||||||||||
| Trent Staggs, Director (4) | 10,100,000 | |||||||||||||||||||||||||||||||||||||||
| Matthew Balk, Director | 100,000 | |||||||||||||||||||||||||||||||||||||||
| Joseph Spence, Director | 100,000 | |||||||||||||||||||||||||||||||||||||||
| All Officers and Directors as a group (seven persons) | 116,090,700 | 2,000,000 | 100.00% | |||||||||||||||||||||||||||||||||||||
| 5% Beneficial Stockholders | ||||||||||||||||||||||||||||||||||||||||
| AKMN Irrevocable Trust (2) | 2,000,000 | 100.00% | ||||||||||||||||||||||||||||||||||||||
| Sustainable Fuels, Inc. (5) | ||||||||||||||||||||||||||||||||||||||||
| Everett Monroe (6) | $ | 90,000 | 7.88% | 7.88% | ||||||||||||||||||||||||||||||||||||
| Daniel O. Ritt Trust (7) | $ | 65,000 | 5.69% | 5.69% | ||||||||||||||||||||||||||||||||||||
| Peter D'Arruda (8) | $ | 60,000 | 5.25% | 5.25% | ||||||||||||||||||||||||||||||||||||
| STRATA Trust Company, Custodian FBO: Donna Hansen IRA (9) | $ | 525,000 | 6.47% | |||||||||||||||||||||||||||||||||||||
| STRATA Trust Company, Custodian FBO: Bella Manansala IRA (10) | $ | 525,000 | 6.47% | |||||||||||||||||||||||||||||||||||||
| Provident Trust Group, Custodian FBO: Wilfredo E. Rivera IRA (11) | $ | 515,000 | 6.35% | |||||||||||||||||||||||||||||||||||||
| STRATA Trust Company, Custodian FBO: Susan J. Lim(12) | $ | 500,000 | 6.16% | |||||||||||||||||||||||||||||||||||||
| Thumai T. Tran(13) | $ | 480,000 | 5.91% | |||||||||||||||||||||||||||||||||||||
______________________
| * | Less than 1% | |
| (1) | The address for these stockholders is: c/o Vivakor, Inc., 433 Lawndale Drive, South Salt Lake City, Utah 84115. | |
| (2) | The shares of common stock beneficially owned by Matthew Nicosia includes 100,682,850 shares of common stock held by AKMN Irrevocable Trust and 7,850 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. Matthew Nicosia is the trustee of the Nicosia Family Trust, of which Jonathan Nicosia, Matthew Nicosia’s son, a minor, is the beneficiary. AKMN Irrevocable Trust also holds 2,000,000 shares of Series A preferred stock, which may be converted into 20,000,000 shares of our common stock (or, in the event of a Qualified Offering, 25,000,000 shares).Does not include options to purchase 5,000,000 shares of common stock. | |
| (3) | The 5,000,000 shares of common stock beneficially owned by Dr. Hashim are directly held by CSS Nanotech Ltd. Dr. Hashim is the Chief Executive Officer of CSS Nanotech Ltd. | |
| (4) | The 10,100,000 shares of common stock beneficially owned by Trent Staggs are held by TABBS Irrevocable Trust. Trent Staggs is the trustee of TABBS Irrevocable Trust, of which Brennan Trent Staggs and Brecklyn Staggs, Trent Staggs’s children, are the beneficiaries. | |
| (5) | Sustainable Fuels, Inc. is owned by Debbie Carpenter, who may be deemed the beneficial owner of these shares. The address for Sustainable Fuels, Inc. is 10124 Marchant Avenue Tustin, CA 92872. | |
| (6) | Everett Monroe’s address is 5813 114th Street, Lubbock TX 79424. | |
| (7) | Daniel O. Ritt Trust’s address is 168 Dover Pkwy, Stewart Manor, NY 11530. | |
| (8) | Peter D’Arruda’s address is 124 Poppleford Place, Cary, NC 27518. | |
| (9) | Strata Trust Company’s address is 7901 Woodway Dr., Ste 200, Waco, TX, 76712. | |
| (10) | Strata Trust Company’s address is 7901 Woodway Dr., Ste 200, Waco, TX, 76712. | |
| (11) | Provident Trust Group’s address is 8880 W. Sunset Rd., Las Vegas, NV, 89148. | |
| (12) | Strata Trust Company’s address is 7901 Woodway Dr., Ste 200, Waco, TX, 76712. | |
| (13) | Thumai T. Tran’s address is 6540 Stockton Blvd, Ste 1C, Sacramento, CA, 95823. |
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Related Party Transactions
The following is a description of each transaction since January 1, 2019 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.
We provided secured loan financing and assistance to Vivaceuticals for the development and commercialization of two bioactive beverages and one weight loss beverage. Our Chief Executive Officer, at the time we made the loan, Matthew Nicosia was an officer and director of Vivaceuticals. Vivaceuticals sold its assets to Scepter Holdings, Inc. in 2018. In 2019, we received 800,000 shares of preferred stock in Scepter Holdings, Inc. to extinguish the loan encumbering the assets. We have converted these preferred shares into 800,000,000 shares of Common Stock of Scepter Holdings, Inc., which is traded on the OTC Markets (ticker: BRZL). In 2019 we entered into a Convertible Master Revolving Note with Scepter and over the course of approximately two years lent Scepter $71,000, which accrued 7% interest per annum.
In September 2020, we entered into a consulting contract with LBL Professional Consulting, Inc. (“LBL”), of which Tyler Nelson is a common officer, which remains in effect. For the years ended December 31, 2020 and 2019, we paid LBL $191,295 and $231,199, respectively, for a team of consultants serving us. For the six months ended June 30, 2021 and 2020, LBL provided services in the amount of $131,560 and $120,228. On December 17, 2020, the Company granted non-statutory stock options to LBL to purchase 10,000,000 shares of common stock. The stock options vest over four years. The stock option is exercisable up to ten years from the grant date. Mr. Nelson is not the beneficiary of the Company and is not be permitted to participate in any discussion, including LBL’s board meetings, regarding any Company stock that LBL may own at any time.
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 June 30, 2021 the balance owed was $369,188, respectively.
In July 2020, the Company entered into an agreement with International Metals Exchange, LLC (“IME”), giving IME the option to purchase approximately 1,331 ounces of our precious metal concentrate for approximately $2,800,000. VVMCI, a wholly-owned subsidiary of Vivakor, Inc. owns all of the Class A Units of IME, which have sole voting power for all material matters except for removal of the manager, and VVMCI serves as a manager of IME. As of December 31, 2020, the Company has sold $54,250 of the precious metal concentrate through this option. As of June 30, 2021 this option to purchase precious metals as expired and is being renegotiated.
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On January 20, 2021, the Company entered into a worldwide, exclusive license agreement with TBT Group, Inc. (of which an independent Vivakor Board member is a 7% shareholder) to license piezo electric and energy harvesting technologies for creating self-powered sensors for making smart roadways. The Company is required to pay $25,000 and 500,000 shares of restricted common stock within upon signing. Upon the earlier of (i) 120 days or (ii) the effectiveness of the Company's Registration Statement and receipt of public offering proceeds, the Company will pay licensor $225,000 and 500,000 shares of restricted common stock. When the licensor delivers to the Company data showing that the sensor performs based on mutually defined specifications and all designs for the sensor are completed, Company shall pay an additional $250,000 and 500,000 shares of restricted common stock. Upon the delivery of a mutually agreed working prototype, Company will pay licensor $250,000 and 500,000 shares of restricted common stock. Upon commercialization of the product, the Company will pay licensor $250,000 and 1,000,000 shares of restricted common stock. TBT shall have the option, at its sole discretion, to convert the license to a non-exclusive license if the Company fails to pay $500,000 to TBT for sensor inventory per year, which will commence after the second anniversary of product commercialization. The Company shall share in the development costs of the sensor technology to the time of commercialization. Total costs attributed to the Company are estimated to be $125,000. On May 10, 2021, the parties amended the license agreement to extend the terms of the first milestone payment at 120 days to 180 days with a prepayment of $15,000 of the $225,000 to be paid in 180 days.
Policy on Future Related-Party Transactions
Following this offering, 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.
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Introduction
In the discussion that follows, we have summarized selected provisions of our articles of incorporation, bylaws and the Nevada Revised Statutes relating to our capital stock. This summary is not complete. This discussion is subject to the relevant provisions of Nevada law and is qualified by reference to our articles of incorporation and our bylaws. You should read the provisions of our articles of incorporation and our bylaws as currently in effect for provisions that may be important to you.
Current Amended and Restated Articles of Incorporation
Authorized Capital Stock
We are currently authorized to issue up to 1,700,000,000 shares of capital stock consisting of: 1,250,000,000 shares of common stock, par value $0.001 per share, and 450,000,000 shares of preferred stock, par value of $0.001 per share. As of June 30, 2021, there were 368,742,475 shares of common stock that were issued and outstanding and held of record by 548 stockholders. As of June 30, 2021, there were 2,000,000 shares of preferred stock outstanding.
Common Stock
Holders of our common stock are each entitled to cast one vote for each share held of record on all matters presented to the shareholders. Cumulative voting is not allowed.
Holders of our common stock are entitled to receive such dividends as may be declared by our Board of Directors out of funds legally available (subject to the rights of holders of all classes of stock at the time outstanding having prior rights as to dividends) and, in the event of liquidation, to share pro rata in any distribution of our assets after payment of liabilities (subject to the rights of holders of all classes of stock at the time outstanding having prior rights as to distributions). Our Board of Directors is not obligated to declare a dividend. It is not anticipated that dividends will be paid in the foreseeable future.
Holders of our common stock do not have preemptive rights to subscribe to additional shares if issued. There is no conversion, redemption, sinking fund or similar provisions regarding the common stock. All outstanding shares of common stock are fully paid and non-assessable.
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Preferred Stock
We are authorized to issue 450,000,000 shares of preferred stock, of which 350,000,000 shares have been designated as follows: (i) 2,000,000 shares of Series A preferred stock, of which all 2,000,000 are outstanding as of June 30, 2021; (ii) 98,000,000 shares of Series B preferred stock, of which zero are outstanding as of June 30, 2021; (iii) 50,000,000 shares of Series B-1 preferred stock, of which zero are outstanding as of June 30, 2021; (iv) 100,000,000 shares of Series C preferred stock, of which zero are outstanding as of June 30, 2021; and (v) 100,000,000 shares of Series C-1 preferred stock, of which zero shares are outstanding as of June 30, 2021.
An additional 100,000,000 shares may be designated from time to time in one or more series as may be determined by our Board of Directors, subject to the protective rights of any classes of preferred stock then outstanding, with the voting powers and preferences, the relative rights of each such series and the qualifications, limitations and restrictions of each such series of undesignated shares to be established by the Board of Directors. Our directors may issue preferred stock with multiple votes per share and dividend rights which would have priority over any dividends paid with respect to the holders of our common stock. The issuance of preferred stock with these rights may make the removal of management difficult even if the removal would be considered beneficial to shareholders generally, and will have the effect of limiting shareholder participation in transactions such as mergers or tender offers if these transactions are not favored by our management.
The Series A Preferred Stock provides holders the right to convert each share into shares of common stock at a conversion price of $0.02 per share, subject to adjustment. Holders of the Series A preferred stock are not entitled to receive dividends. Holders of Series A preferred stock have the right to 25 votes for each share of common stock into which such shares of Series A Preferred Stock may then be converted. Holders of Series A preferred stock are entitled to receive liquidation preference, prior to and in preference to any distribution of any of the assets of the Company to the holders of common stock, or any other series of preferred stock.
There are currently no shares of Series B preferred stock outstanding. The Series B Preferred Stock provides holders the right to convert, at any time on or after the date that is one (1) year after the date of issuance of such share, at a conversion price that is the lesser of (i) the Original Series B Issue Price and (ii) ninety percent (90%) of the Market Price (as defined in the Company’s Articles of Incorporation, as amended). Automatic 1-for-1 conversion of all outstanding shares of Series B Preferred Stock into shares of Common Stock occurred on May 1, 2021. No other shares have been issued since the conversion of all of the outstanding shares of this class of stock. Holders of Series B preferred stock are entitled to receive dividends at the rate of $0.025 per share per annum. Each Holder of Series B is entitled to vote upon matters presented to the Company’s shareholders on an as converted basis. Holders of Series B preferred stock are entitled to receive liquidation preference, prior to and in preference to any distribution of any of the assets of the Company to the holders of common stock, Series A preferred stock or any other series of preferred stock.
There are currently no shares of Series B-1 preferred stock outstanding. The Series B-1 Preferred Stock provides holders the right to convert at any time on or after the date that is one (1) year after the date of issuance of such share, at a conversion price that is the lesser of (i) the Original Series B-1 Issue Price and (ii) ninety percent (90%) of the Market Price. Automatic 1-for-1 conversion of all outstanding shares of Series B-1 Preferred Stock into shares of Common Stock occurred on May 1, 2021. No other shares have been issued since the conversion of all of the outstanding shares of this class of stock. Holders of Series B-1 preferred stock are not entitled to receive dividends. Holders of Series B-1 preferred stock are not entitled to vote on matters presented to the shareholders of the Company. Holders of Series B-1 preferred stock are entitled to receive liquidation preference, pari passu with the holders of Series B preferred stock and prior to and in preference to any distribution of any of the assets of the Company to holders of common stock, Series A preferred stock, Series C preferred stock, Series C-1 preferred stock, or any other class of preferred stock.
There are currently no shares of Series C preferred stock outstanding. Holders of the Series C preferred stock would have the right to convert each share into common stock in the number of fully paid and nonassessable shares of common stock at a conversion price of the lesser of (i) $0.35 per share and (ii) ninety percent (90%) Market Price (as defined in the Company’s Articles of Incorporation, as amended). Holders of Series C preferred stock would be entitled to receive dividends at the rate of $0.4375 per share per annum. Holders of Series C preferred stock would be entitled to vote upon matter presented to the Company’s shareholders on an as converted basis. Holders of Series C preferred stock are entitled to receive liquidation preference, prior to and in preference to any distribution of any of the assets of the Company to the holders of common stock, Series A Preferred Stock or any other series of preferred stock.
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There are currently no shares of Series C-1 preferred stock outstanding, as shares of Series C-1 Preferred Stock were converted to common stock on May 4, 2021. The Series C-1 Preferred Stock provides holders the right to convert each share into one share of common stock. All Series C-1 Preferred Stock is auto converted to common stock on May 4, 2021. Holders of Series C-1 preferred stock are not entitled to receive dividends. Holders of Series C-1 preferred stock shall be entitled to vote on all matters submitted to the shareholders of the Company on an as-converted basis. Holders of Series C-1 Preferred Stock are entitled to receive liquidation preference, pari passu with the holders of Series C Preferred Stock and prior to and in preference to any distribution of any of the assets of the Company to the holders of common stock, Series A preferred stock or any other series of preferred stock.
Limitation on Directors’ Liability
The Nevada Revised Statutes limits or eliminates the personal liability of directors to corporations and their stockholders for monetary damages for breaches of directors’ fiduciary duties as directors. Our Amended and Restated Bylaws include provisions that require the company to indemnify our directors or officers against monetary damages for actions taken as a director or officer of our Company. We are also expressly authorized to carry directors’ and officers’ insurance to protect our directors, officers, employees and agents for certain liabilities. Our Amended and Restated Articles of Incorporation do not contain any limiting language regarding director immunity from liability.
The limitation of liability and indemnification provisions under the Nevada Revised Statutes and our Amended and Restated Bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duties. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. However, these provisions do not limit or eliminate our rights, or those of any stockholder, to seek non-monetary relief such as injunction or rescission in the event of a breach of a director’s fiduciary duties. Moreover, the provisions do not alter the liability of directors under the federal securities laws. In addition, your investment may be adversely affected to the extent that, in a class action or direct suit, we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.
Nevada Anti-Takeover Statute
We may be subject to Nevada’s Combination with Interested Stockholders Statute (Nevada Corporation Law Sections 78.411-78.444) which prohibits an “interested stockholder” from entering into a “combination” with the corporation, unless certain conditions are met. An “interested stockholder” is a person who, together with affiliates and associates, beneficially owns (or within the prior two years, did beneficially own) 10% or more of the corporation’s capital stock entitled to vote.
Forum for Litigation
We note that Article IX of our Amended and Restated Articles of Incorporation identifies the District Courts of the State of Nevada as the exclusive forum for certain litigation, including any derivative action, and is also intended to include State Courts. To the extent that the applicability such provision may be sought in connection with actions arising under the Securities Act or Exchange Act, pursuant to Section 27 of the Exchange Act, exclusive federal jurisdiction is created over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder, and pursuant to Section 22 of the Securities Act, concurrent jurisdiction is created for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Accordingly, there is uncertainty as to whether a court would enforce such provision in an action arising under the Securities Act or Exchange Act.
The transfer agent and registrar for our common stock is Empire Stock Transfer with an address at 1859 Whitney Mesa Drive, Henderson, Nevada 89014.
Listing
Our common stock is currently quoted on the OTCPink under the trading symbol “VIVK”.
Offer restrictions outside the United States
Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus and the accompanying prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.
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The validity of the securities being offered by this prospectus has been passed upon for us by Lucosky Brookman LLP, Woodbridge, New Jersey.
The consolidated balance sheets of Vivakor, Inc. for the years ended December 31, 2020 and December 31, 2019, and the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for the years then ended, have been audited by Macias Gini & O’Connell, LLP and Hall & Company CPAs and Consultants, Inc., independent registered public accounting firms, as set forth in its report appearing herein and are included in reliance upon such report given on the authority of said firms as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares offered hereby. This prospectus, which constitutes a part of the registration statement, does not contain all of the information in the registration statement and the exhibits of the registration statement. For further information with respect to us and the securities being offered under this prospectus, we refer you to the registration statement, including the exhibits and schedules thereto.
The SEC maintains a website, which is located at www.sec.gov, which contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. You may access the registration statement of which this prospectus is a part at the SEC’s website. We are subject to the information reporting requirements of the Exchange Act, and we will file reports, proxy statements and other information with the SEC.
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VIVAKOR, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| F-1 |
VIVAKOR, INC.
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 1,638,253 | $ | 309,404 | ||||
| Cash and cash equivalents attributed to variable interest entity | 1,979,184 | 89,500 | ||||||
| Accounts Receivable, less allowances of $33,000 and $33,000, respectively | 1,220 | 7,735 | ||||||
| Marketable securities, trading | 7,751,226 | 4,016,951 | ||||||
| Inventories | 525,744 | 525,744 | ||||||
| Precious metal concentrate | 1,166,709 | 1,166,709 | ||||||
| Other assets | 73,245 | 87,052 | ||||||
| Total current assets | 13,135,581 | 6,203,095 | ||||||
| Other investments | 4,000 | 4,000 | ||||||
| Notes receivable | 80,940 | 78,455 | ||||||
| Property and equipment, net | 20,311,183 | 18,152,699 | ||||||
| Rights of use assets- operating leases | 774,112 | 881,804 | ||||||
| License agreement, net | 2,212,875 | 2,013,810 | ||||||
| Intellectual property, net | 14,320,758 | 14,966,627 | ||||||
| Total assets | $ | 50,839,449 | $ | 42,300,490 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY AND TEMPORARY EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 873,093 | $ | 1,350,808 | ||||
| Operating lease liabilities, current | 139,707 | 276,699 | ||||||
| Loans and notes payable, current | 1,744,813 | 1,196,037 | ||||||
| Loans and notes payable, current attributed to variable interest entity | 5,939,542 | 735,000 | ||||||
| Long-term debt, current | 2,123 | 1,020 | ||||||
| Total current liabilities | 8,699,278 | 3,559,564 | ||||||
| Operating lease liabilities, long term | 671,851 | 618,696 | ||||||
| Loans and notes payable, long term | 1,197,504 | 914,661 | ||||||
| Long-term debt | 5,771,944 | 4,950,640 | ||||||
| Deferred income tax liabilities | 6,918,975 | 6,207,905 | ||||||
| Total liabilities | 23,259,552 | 16,251,466 | ||||||
| Redeemable, convertible preferred stock, $.001 par value; 348,000,000 shares authorized; | ||||||||
| Series B- 12.5%, cumulative, none and 6,507,492 issued and outstanding as of June 30, 2021 and December 31,2020 | – | 1,301,500 | ||||||
| Series B-1- none and 14,031,834 issued and outstanding as of June 30, 2021 and December 31, 2020 | – | 3,507,981 | ||||||
| Series C-1- none and 7,658,680 issued and outstanding as of June 30, 2021 and December 31, 2020 | – | 4,550,977 | ||||||
| Total temporary equity | – | 9,360,458 | ||||||
| Stockholders' equity: | ||||||||
| Convertible, preferred stock, $.001 par value; 102,000,000 shares authorized; Series A- 2,000,000 issued and outstanding | 2,000 | 2,000 | ||||||
| Common stock, $.001 par value; 1,250,000,000 shares authorized; 368,742,475 and 337,679,020 were issued and outstanding as of June 30, 2021 and December 31, 2020 | 368,742 | 337,679 | ||||||
| Additional paid-in capital | 56,612,188 | 45,294,790 | ||||||
| Treasury stock, at cost | (20,000 | ) | (20,000 | ) | ||||
| Accumulated deficit | (30,141,278 | ) | (30,204,992 | ) | ||||
| Total Vivakor, Inc. stockholders' equity | 26,821,652 | 15,409,477 | ||||||
| Noncontrolling interest | 758,245 | 1,279,089 | ||||||
| Total stockholders' equity | 27,579,897 | 16,688,566 | ||||||
| Total liabilities and stockholders’ equity and temporary equity | $ | 50,839,449 | $ | 42,300,490 | ||||
See accompanying notes to consolidated financial statements
| F-2 |
VIVAKOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenues | $ | 22,000 | $ | 38,990 | $ | 117,000 | $ | 1,023,344 | ||||||||
| Cost of revenues | 20,530 | 26,364 | 112,450 | 984,941 | ||||||||||||
| Gross profit | 1,470 | 12,626 | 4,550 | 38,403 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Sales and marketing | 125,912 | 132,620 | 828,440 | 249,089 | ||||||||||||
| General and administrative | 1,235,549 | 346,407 | 2,309,394 | 613,188 | ||||||||||||
| Bad debt expense | – | 4,645 | – | 7,645 | ||||||||||||
| Amortization and depreciation | 364,635 | 411,696 | 727,914 | 823,355 | ||||||||||||
| Total operating expenses | 1,726,096 | 895,368 | 3,865,748 | 1,693,277 | ||||||||||||
| Loss from operations | (1,724,626 | ) | (882,742 | ) | (3,861,198 | ) | (1,654,874 | ) | ||||||||
| Other income: | ||||||||||||||||
| Equity investment loss | – | (21,219 | ) | – | (38,428 | ) | ||||||||||
| Loss on disposition of asset | – | (121,428 | ) | – | (121,428 | ) | ||||||||||
| Unrealized gain (loss) on marketable securities | (8,949,169 | ) | (834,164 | ) | 3,734,275 | 2,215,827 | ||||||||||
| Interest income | 1,242 | 13,525 | 2,485 | 32,859 | ||||||||||||
| Interest expense | (241,448 | ) | (7,573 | ) | (395,469 | ) | (11,295 | ) | ||||||||
| Other income | 92,590 | 44,850 | 93,884 | 40,010 | ||||||||||||
| Total other income | (9,096,785 | ) | (926,009 | ) | 3,435,175 | 2,117,545 | ||||||||||
| Income (loss) before provision for income taxes | (10,821,411 | ) | (1,808,751 | ) | (426,023 | ) | 462,671 | |||||||||
| Benefit (provision) for income taxes | 296,477 | (353,834 | ) | (723,911 | ) | 8,171 | ||||||||||
| Consolidated net income (loss) | (10,524,934 | ) | (2,162,585 | ) | (1,149,934 | ) | 470,842 | |||||||||
| Less: Net loss attributable to noncontrolling interests | (1,114,003 | ) | (189,268 | ) | (1,255,844 | ) | (427,116 | ) | ||||||||
| Net income (loss) attributable to Vivakor, Inc. | $ | (9,410,931 | ) | $ | (1,973,317 | ) | $ | 105,910 | $ | 897,958 | ||||||
| Net loss attributable to common shareholders | $ | (9,410,931 | ) | $ | (1,973,317 | ) | $ | 105,910 | $ | 897,958 | ||||||
| Dividend on preferred stock | 42,196 | 64,748 | 42,196 | 64,748 | ||||||||||||
| $ | (9,453,127 | ) | $ | (2,038,065 | ) | $ | 63,714 | $ | 833,210 | |||||||
| Basic net income per share | $ | (0.03 | ) | $ | (0.01 | ) | $ | 0.00 | $ | 0.02 | ||||||
| Diluted net income per share | $ | (0.03 | ) | $ | (0.01 | ) | $ | 0.00 | $ | 0.02 | ||||||
| Basic weighted average common shares outstanding | 359,005,190 | 250,520,156 | 349,209,179 | 296,844,496 | ||||||||||||
| Effect of dilutive securities | – | – | 27,314,497 | 51,177,175 | ||||||||||||
| Diluted weighted average common shares outstanding | 359,005,190 | 250,520,156 | 376,523,676 | 348,021,671 | ||||||||||||
See accompanying notes to consolidated financial statements
| F-3 |
VIVAKOR, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY(DEFICIT)
| 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, 2020 | 2,000,000 | $ | 2,000 | 337,679,020 | $ | 337,679 | $ | 45,294,790 | $ | (20,000 | ) | $ | (30,204,992 | ) | $ | 1,279,089 | $ | 16,688,566 | ||||||||||||||||||
| Common Stock issued for services | – | – | 1,010,000 | 1,010 | 436,991 | – | – | – | 438,001 | |||||||||||||||||||||||||||
| Common Stock issued for a reduction of liabilities | – | – | 875,052 | 875 | 263,925 | – | – | – | 264,800 | |||||||||||||||||||||||||||
| Common Stock issued for the purchase of a license | 500,000 | 500 | 224,500 | – | – | – | 225,000 | |||||||||||||||||||||||||||||
| Conversion of temporary equity Series B, B-1, and C-1 Preferred Stock to Common Stock | – | – | 28,678,403 | 28,678 | 9,438,926 | – | – | – | 9,467,604 | |||||||||||||||||||||||||||
| Stock options issued for services | – | – | – | – | 730,000 | – | – | – | 730,000 | |||||||||||||||||||||||||||
| Stock based compensation | – | – | – | – | 223,056 | – | – | – | 223,056 | |||||||||||||||||||||||||||
| Issuance of noncontrolling interest for a reduction of debt | – | – | – | – | – | – | – | 735,000 | 735,000 | |||||||||||||||||||||||||||
| Dividend paid in Series B-1 Preferred Stock | – | – | – | – | – | – | (42,196 | ) | – | (42,196 | ) | |||||||||||||||||||||||||
| Net income (loss) | – | – | – | – | – | – | 105,910 | (1,255,844 | ) | (1,149,934 | ) | |||||||||||||||||||||||||
| June 30, 2021 (unaudited) | 2,000,000 | $ | 2,000 | 368,742,475 | $ | 368,742 | $ | 56,612,188 | $ | (20,000 | ) | $ | (30,141,278 | ) | $ | 758,245 | $ | 27,579,897 | ||||||||||||||||||
| F-4 |
| Series A Preferred Stock | Common Stock | Additional Paid-in | Treasury | Accumulated | Non-controlling | Total Stockholders' Equity | ||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Stock | Deficit | Interest | (Deficit) | ||||||||||||||||||||||||||||
| December 31, 2019 | 2,000,000 | $ | 2,000 | 285,343,964 | $ | 285,344 | $ | 24,793,943 | $ | (20,000 | ) | $ | (27,848,500 | ) | $ | 1,341,854 | $ | (1,445,359 | ) | |||||||||||||||||
| Common Stock issued for reduction in stock payable | 20,000,000 | 20,000 | 11,780,000 | – | – | – | 11,800,000 | |||||||||||||||||||||||||||||
| Common Stock issued for cash | – | – | 228,000 | 228 | 40,800 | – | – | – | 41,028 | |||||||||||||||||||||||||||
| Conversion of temporary equity Series B, B-1, and C-1 Preferred Stock to Common Stock | – | – | 9,891,226 | 9,891 | 1,764,038 | – | – | – | 1,773,929 | |||||||||||||||||||||||||||
| Stock based compensation | – | – | – | – | 23,057 | – | – | – | 23,057 | |||||||||||||||||||||||||||
| Issuance of noncontrolling interest | – | – | – | – | – | – | – | 554,907 | 554,907 | |||||||||||||||||||||||||||
| Dividend paid in Series B-1 Preferred Stock | – | – | – | – | – | – | (64,748 | ) | – | (64,748 | ) | |||||||||||||||||||||||||
| Net income (loss) | – | – | – | – | – | – | 897,958 | (427,116 | ) | 470,842 | ||||||||||||||||||||||||||
| June 30, 2020 (unaudited) | 2,000,000 | $ | 2,000 | 315,463,190 | $ | 315,463 | $ | 38,401,838 | $ | (20,000 | ) | $ | (27,015,290 | ) | $ | 1,469,645 | $ | 13,153,656 | ||||||||||||||||||
See accompanying notes to consolidated financial statements
| F-5 |
VIVAKOR, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
| Six Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| OPERATING ACTIVITIES: | ||||||||
| Consolidated net income (loss) | $ | (1,149,934 | ) | $ | 470,842 | |||
| Adjustments to reconcile net income to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 727,914 | 823,355 | ||||||
| Bad debt expense | – | 7,645 | ||||||
| Equity investment loss | – | 38,428 | ||||||
| Loss on disposition of asset | – | 121,428 | ||||||
| Common stock options issued for services | 730,000 | – | ||||||
| Common stock issued for services | 438,001 | – | ||||||
| Unrealized gain- marketable securities | (3,734,275 | ) | (2,215,827 | ) | ||||
| Deferred income taxes | 711,070 | 30,020 | ||||||
| Stock-based compensation | 223,055 | 23,057 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 6,515 | (6,000 | ) | |||||
| Other assets | 13,807 | (37,549 | ) | |||||
| Right of use assets | 107,692 | 140,974 | ||||||
| Operating lease activities | (107,692 | ) | (140,974 | ) | ||||
| Accounts payable | (412,764 | ) | 334,477 | |||||
| Accrued interest on notes receivable | (2,485 | ) | (32,859 | ) | ||||
| Accrued interest on notes payable | 395,469 | 11,295 | ||||||
| Net cash used in operating activities | (2,053,627 | ) | (431,688 | ) | ||||
| INVESTING ACTIVITIES: | ||||||||
| Issuance of notes receivable | – | 31,586 | ||||||
| Payment on costs of patents | (10,329 | ) | – | |||||
| Purchase of a technology license | (40,000 | ) | – | |||||
| Purchase of equipment | (1,334,123 | ) | (877,713 | ) | ||||
| Net cash used in investing activities | (1,384,452 | ) | (846,127 | ) | ||||
| FINANCING ACTIVITIES: | ||||||||
| Proceeds from long-term debt | – | – | ||||||
| Payment of long-term debt | (7,735 | ) | (96,429 | ) | ||||
| Proceeds from loans and notes payable | 6,666,811 | 694,508 | ||||||
| Payment of notes payable | (2,464 | ) | (2,919 | ) | ||||
| Issuance of noncontrolling interest | – | 554,907 | ||||||
| Net cash provided by financing activities | 6,656,612 | 1,150,067 | ||||||
| Net increase (decrease) in cash and cash equivalents | 3,218,533 | (127,748 | ) | |||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 398,904 | 604,903 | ||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 3,617,437 | $ | 477,155 | ||||
| SUPPLEMENTAL CASHFLOW INFORMATION: | ||||||||
| Cash paid during the year for: | ||||||||
| Interest | 46,936 | – | ||||||
| Income taxes | – | – | ||||||
| Noncash transactions: | ||||||||
| Conversion of Series B, B-1, and C-1 Preferred Stock to Common Stock | $ | 9,467,604 | $ | 1,773,929 | ||||
| Common stock issued for a reduction in liabilities | $ | 264,800 | $ | 11,800,000 | ||||
| Noncontrolling interest issued for a reduction in liabilities | $ | 735,000 | $ | – | ||||
| Preferred stock Series C-1 issued for a reduction in liabilities | $ | 64,950 | $ | – | ||||
| Common stock issued for the purchase of a license | $ | 225,000 | $ | – | ||||
| Capitalized interest on construction in process | $ | 822,700 | $ | 724,674 | ||||
| Dividend paid in Series B-1 Preferred Stock | $ | 42,196 | $ | 64,748 | ||||
See accompanying notes to consolidated financial statements
| F-6 |
VIVAKOR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Organization and Basis of Presentation
Vivakor, Inc. (collectively “we”, “us,” “our,” “Vivakor” or the “Company”) is a socially responsible operator, acquirer and developer of clean energy technologies and environmental solutions, which is currently focused on soil remediation in the United States and Kuwait, and we have corporate offices in Utah, California, and in Qatar. We specialize in the remediation of soil from properties contaminated by or laden with heavy crude oil and other substances. 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 C-corporation and changed its name to Vivakor, Inc. pursuant to Articles of Conversion filed with the Nevada Secretary of State.
On December 18, 2020, our Board of Directors and stockholders holding a majority of our outstanding voting shares, authorized a reverse stock split of each of the outstanding shares of the Corporation’s common stock, $0.001 par value per share, as well as each of the outstanding shares of the Corporation’s preferred stock, at a ratio to be determined by the Board of within a range of a minimum of a one-for-twelve (1-for-12) to a maximum of one-for-forty (1-for-40) (the “Reverse Stock Split Ratio”), with the exact ratio to be set at a number within this range as determined by the Board in its sole discretion, with no change in par value. The Board of Directors has not approved a stock split ratio as of the date of this report.
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 is having 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 have issued policies intended to stop or slow the further spread of the disease.
COVID-19 and the U.S. response to the pandemic are significantly affecting the economy. There are no comparable events that provide guidance as to the effect the COVID-19 pandemic may have, and, as a result, the ultimate effect of the pandemic is highly uncertain and subject to change. We do not yet know the full extent of the effects on the economy, the markets we serve, our business, or our operations. In March 2020 we temporarily suspended operations in Kuwait and Utah due to COVID-19 government restrictions and as of the date of this report we have not resumed operations in Kuwait.
Note 2. Liquidity
We have historically suffered net losses and cumulative negative cash flows from operations, and as of June 30, 2021, we had an accumulated deficit of approximately $30.1 million. As of June 30, 2021 we had cash of $3,617,437. To date we have financed our operations primarily through debt financing, private equity offerings and our working interest agreements. For the six months ended June 30, 2021 and the year ended December 31, 2020, we issued none and $624,907 noncontrolling units of RDM, respectively, made payments on our working interest agreement with RII of $7,735 and $116,535, respectively, and we also received proceeds of $6,666,811 and $2,231,796 related to the issuance of convertible bridge notes and other loans. For the six months ended June 30, 2021 and for the year ended December 31, 2020, as included in the proceeds above, we obtained Paycheck Protection Program loans for $295,745 and $295,745 that may be forgiven under the CARES Act, if we can demonstrate that the proceeds from the loan were used for eligible expenses. We also obtained a loan from the Small Business Administration in the amount of $299,900 in May 2020, as included in the proceeds above. In addition, for the six months ended June 30, 2021 and for the year ended December 31, 2021, the Company received debt financing of $5,785,000 and $735,000 through the operations of Viva Wealth Fund I, LLC, which debt converts into Viva Wealth Fund I units at the earlier of 6 months or the minimum raise of $6,250,000 to build a RPC system. As of June 30, 2021, $735,000 of this debt financing has converted to noncontrolling units in Viva Wealth Fund I, LLC. We believe we have other liquid assets that may be used to assist in financing the operations of the Company if needed, including marketable securities in Odyssey and Scepter, which hold a fair value of $7,751,226 and $4,016,951 as of June 30, 2021 and December 31, 2020 and have been deposited for trading. Subsequent to June 30, 2021, the Company has also obtained further financing of approximately $1,210,000 through the operations of Viva Wealth Fund I, LLC. We believe the liquid assets from the Company’s available for sale investments and funding provided from subsequent fundraising activities of the Company give it adequate working capital to finance our day-to-day operations for at least twelve months through August 2022.
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Note 3. Summary of Significant Accounting Policies
Interim Financial Information
The accompanying 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. Certain information and disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. Accordingly, these consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes for the year ended December 31, 2020. The accompanying interim consolidated balance sheet as of June 30, 2021, the consolidated interim statements of operations for the three and six months ended June 30, 2021 and 2020, the consolidated interim statements of changes in stockholders’ equity for the six months ended June 30, 2021 and 2020, and the consolidated statements of cash flows for the six months ended June 30, 2021 and 2020, are unaudited. The unaudited interim 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 consolidated financial statements. The operating results for the three and six months ended June 30, 2021 are not necessarily indicative of the results expected for the full year ending December 31, 2021.
Principles of Consolidation
The consolidated financial statements include the accounts of Vivakor, Inc., its wholly owned and majority-owned active subsidiaries, or joint ventures (collectively, the “Company”). Intercompany balances and transactions between consolidated entities are eliminated. Inactive entities have no value, assets or liabilities. Vivakor has the following wholly and majority-owned subsidiaries: Vivaventures Management Company, Inc., Vivaventures Energy Group, Inc. (99%), Vivaventures Oil Sands, Inc., Vivasphere, Inc., Vivasight, Inc. (inactive), and Vivathermic, Inc. (inactive). Vivakor maintains an interest in the following entities: Health America, Inc. (39%, inactive), VVPM 100, LLC (inactive), which is managed by Vivakor, VPM VII, LLC (inactive), which is managed by Vivakor, Vivakor Middle East, LLC (49%, consolidated), VivaRRT, LLC (50%, inactive). The Company withdrew from VivaVentures Precious Metal, LLC (39%, equity method investment) in July 2020. Vivakor manages and consolidates RPC Design and Manufacturing LLC, which includes a noncontrolling interest investment from Vivaopportunity Fund, LLC, which is also managed by Vivaventures Management Company, Inc. Vivakor has common officers with and consolidates Viva Wealth Fund I, LLC.
The Company follows ASC 810-10-15 guidance with respect to accounting for Variable Interest Entities (“VIE”). A VIE is an entity that does not have sufficient equity at risk to finance its activities without additional subordinated financial support from other parties, or whose equity investors lack any of the characteristics of a controlling financial interest. A variable interest is an investment or other interest that will absorb portions of a VIE’s expected losses or receive portions of the entity’s expected residual returns. Variable interests are contractual, ownership, or other pecuniary interests that change with changes in the fair value of the entity’s net assets. A party is the primary beneficiary of a VIE and must consolidate it when that party has a variable interest, or combination of variable interests, that provides the party with a controlling financial interest. A party is deemed to have a controlling financial interest if it meets both of the power and losses/benefits criteria. The power criterion is the ability to direct the activities of the VIE that most significantly impact its economic performance. The losses/benefits criterion is the obligation to absorb losses from, or right to receive benefits from, the VIE that could potentially be significant to the VIE. The VIE model requires an ongoing reconsideration of whether a reporting entity is the primary beneficiary of a VIE due to changes in facts and circumstances. For the six months ended June 30, 2021 and for the year ended December 31, 2020 the following entities are considered to be a VIE and are consolidated in our consolidated financial statements: Viva Wealth Fund I, LLC (organized in 2020) and RPC Design and Manufacturing, LLC. For the six months ended June 30, 2021 and year ended December 31, 2020 the following entities were considered to be a VIE, but were not consolidated in our consolidated financial statements due to a lack of the power criterion or the losses/benefits criterion: Vivaventures UTS I, LLC, Vivaventures Royalty II, LLC, Vivaopportunity Fund, LLC, and International Metals Exchange, LLC. For the six months ended June 30, 2021 and for the year ended December 31, 2020 the unaudited financial information for the unconsolidated VIEs is as follows: Vivaventures UTSI, LLC held assets of $3,341,940 and $3,113,292 (where the primary asset represents a receivable from the Company), and liabilities of $43,431 and $41,894. Vivaventures Royalty II, LLC held assets of $2,468,675 and $2,117,066 (where the primary asset represents a receivable from the Company), and liabilities of $300. Vivaopportunity Fund LLC held assets of $2,119,972 (where the primary asset represents a noncontrolling interest in units of a consolidated entity of the Company) and no liabilities. International Metals Exchange, LLC held assets of $4,212 and $82,711 and liabilities of $4,900.
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RPC Design and Manufacturing, LLC: The Company established RPC Design and Manufacturing, LLC (“RDM”) in December 2018 with a business purpose of manufacturing custom machinery and selling or leasing the manufactured equipment in long term contracts with financing or leasing activities to the Company. We own 100% of the voting rights in RDM. We, as the sole general partner of RDM, have the full, exclusive and complete right, power and discretion to operate, manage and control the affairs of RDM and take certain actions necessary to maintain RDM in good standing without the consent of the limited partners. RDM has entered into a license agreement with the Company indicating that while RDM builds custom machinery incorporating the Company’s hydrocarbon extraction technology, RDM will pay the Company a license fee of $500,000 per Remediation Processing Center manufactured. Creditors of RDM have no recourse to the general credit of the Company. For the six months ended June 30, 2021 and for the year ended December 31, 2020, investors in RDM have a noncontrolling interest of $2,110,000, respectively. As of June 30, 2021 and December 31, 2020, the cash and cash equivalents of this VIE are not restricted and can be used to settle the obligations of the reporting entity. As of June 30, 2021 and December 31, 2020 this VIE has an outstanding note payable to the reporting entity in the amount of $146,270 and $335,208, which is eliminated upon consolidation. We have the primary risk (expense) exposure in financing and operating the assets and are responsible for 100% of the operation, maintenance and any unfunded capital expenditures, which ultimately could be 100% of a custom machine, and the decisions related to those expenditures including budgeting, financing and dispatch of power. Based on all these facts, it was determined that we are the primary beneficiary of RDM. Therefore, RDM has been consolidated by the Company. Any intercompany revenue and expense associated with RDM and its license agreement with the Company has been eliminated in consolidation.
Viva Wealth Fund I, LLC: The Company assisted in designing and organizing Viva Wealth Fund I, LLC (“VWFI”) in November 2020, as a special purpose entity, for the purpose of manufacturing, leasing and selling custom equipment solely to the Company. The Company commenced co-managing VWFI with Wealth Space, LLC, an unaffiliated entity, but as of the date of this report Wealth Space, LLC is the sole manager. The Company has been retained by the manager and continues to have common officers with VWFI, including our CEO and CFO, who will assist in the day-to-day operations. VWFI has also retained the Company to act as its sole plant manager, and we will manage and direct all of the manufacturing, leasing and selling of custom equipment in behalf of VWFI to the Company. In November 2020, VWFI commenced a $25,000,000 private placement offering to sell convertible promissory notes, which convert to VWFI LLC units, to accredited investors to raise funds to manufacture equipment that will expand the Company’s second RPC. As of June 30, 2021 and December 31, 2020, the cash and cash equivalents of this VIE are restricted solely for the use of proceeds of this offering (to manufacture RPCs) and cannot be used to settle the obligations of the reporting entity. As of June 30, 2021 and December 31, 2020, the Company has cash attributed to variable interest entities of $1,979,184 and $89,500. As of June 30, 2021, VWFI has reached $6,250,000 in funding and is in the process of releasing the funding for construction of RPC Series A. VWFI has commenced fundraising for RPC Series B and C. In the event that VWFI does not raise at least $6,250,000 for these RPC Series by the offering termination date (November 13, 2021, which date may be extended until November 13, 2022 in the sole discretion of the Company), then the convertible notes and/or units would convert into Vivakor common stock where the minimum conversion price will not be higher of than $0.45 or a 10% discount to market per share or in the event of a public offering, 200% of the per share price of the Company common stock sold in an underwritten offering pursuant to the Company becoming listed on a senior stock exchange (i.e. The Nasdaq Capital Market or New York Stock Exchange). As of September 30, 2021, VWFI has raised approximately $1,480,000 for RPC Series B and C. VWFI unit holders may also sell their units to the Company for their principal investment amount on the 3rd, 4th, and 5th anniversary of the offering termination date. The Company also has the option to purchase any LLC units where the members did not exercise their conversion option under the same terms and pricing. VWFI has entered into a license agreement with the Company indicating that VWFI will pay the Company a license fee of $1,000,000 per series of equipment manufactured with the Company’s proprietary technology. All of the operations of VWFI relate to private placement offering to fund and manufacture proprietary equipment for the Company, as intended in VWFI’s design and organization by the Company, so that the Company controls VWFI in its business purpose, use of proceeds, and selling and leasing of its equipment solely to the Company. Creditors of VWFI have no recourse to the general credit of the Company. We have the primary risk (expense) exposure in financing and operating the assets and are responsible for 100% of the operation, and any unfunded capital expenditures, and the expense to the unit holders in conversion to common stock if series of equipment cannot be fully funded, which ultimately could be 100% of any custom machine. We are responsible for the decisions related to the expenditures of VWFI proceeds including budgeting, financing and dispatch of power surrounding the series of equipment. Based on all these facts, it was determined that we are the primary beneficiary of VWFI. Therefore, VWFI has been consolidated by the Company.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less when acquired to be cash equivalents. As of June 30, 2021 and December 31, 2020, the Company does not have any cash equivalents. The Company places its cash with high credit quality financial institutions. The Company’s accounts at these institutions are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. As of June 30, 2021 and December 31, 2020, the Company had bank balances exceeding the FDIC insurance limit. To reduce its risk associated with the failure of such financial institutions, the Company annually evaluates the rating of the financial institutions in which it holds deposits. As of June 30, 2021 and December 31, 2020, the Company has cash attributed to variable interest entities of $1,979,184 and $89,500.
Accounts Receivable
Accounts receivable are carried at original invoice amount less an estimated allowance for doubtful accounts, if deemed necessary by management, and based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful accounts, if any, by identifying troubled accounts and by using historical experience applied to an aging of accounts. An allowance for doubtful accounts was considered necessary by management as of June 30, 2021 and December 31, 2020 in the amount of $33,000, respectively.
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Equity Method Investments
Consolidated net income includes the Company’s proportionate net income or loss of equity investments. The carrying value of the Company’s equity method investments is increased and decreased by the Company’s proportionate share of the net income or loss of the investee. The carrying value of our equity method investment is also decreased by dividends the Company receives from the investee. The Company did not have any equity method investments as of June 30, 2021. As of December 31, 2020 the equity method investments consisted of the following:
In 2019 the Company had an investment of $800,000 or 800,000,000 shares of common stock, or a diluted 23% equity holding in Scepter Holdings, Inc. (ticker: BRZL, OTC Markets). For the six months ended June 30, 2020, the Company was attributed a loss on this equity investment in the amount of $38,428. There were no distributions to the Company in 2020 from Scepter Holdings, Inc. As of June 30, 2020 the net value of equity investment was $688,701. In the fourth quarter of 2020, the Company was diluted to a 19% equity holding in Scepter Holdings, Inc., and was no longer deemed to have significant influence and ceased to be an equity investment, and as the stock is traded on an active market, the Company has classified the investment as trading securities for the year ended December 31, 2020 with the change in unrealized gains and losses on the investment included in the statement of operations (see Note 5). For the year ended December 31, 2020, the Company was attributed a loss on this equity investment in the amount of $37,665. There were no distributions to the Company in 2020 from Scepter Holdings, Inc. As of June 30, 2021 and December 31, 2020, the Company’s Chief Executive Officer has an immediate family member who is sits on the board of directors of Scepter Holdings, Inc. The Company’s 826,376,882 shares of common stock of Scepter Holdings, Inc. have a market value of approximately $4,379,797 as of September 30, 2021 based on the quoted market price.
As of December 31, 2019, the Company held a 39% interest in Vivaventures Precious Metals, LLC for which the fair value of this investment was none. In July 2020, the Company withdrew from this LLC.
Cost Method Investments
Investments in marketable securities consist of equity securities recorded at fair value. Fair value is defined as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. We analyze our marketable securities in accordance with Accounting Standard Codification 321 (“ASC 321”). Valuations for marketable securities are based on quoted prices for identical assets in active markets. Where marketable securities were found not be part of an actively traded market, we made a measurement alternative election and estimate the fair value at cost of the investment minus impairment.
As of June 30, 2021 and December 31, 2020, the Company owns 1,000 Class A LLC Units in each of the following entities, which are not consolidated: Vivaopportunity Fund LLC, Vivaventures UTSI, LLC, Vivaventures Royalty II, LLC, and International Metals Exchange, LLC. In aggregate these units amount to $4,000 as of June 30, 2021 and December 31, 2020. These Class A Units give the Company’s management control of the entities but lack the necessary economics criterion, where the Company lacks the obligation to absorb losses of these entities, as well as the right to receive benefits from the LLCs.
Convertible Instruments
The Company reviews the terms of convertible debt and preferred stock for indications requiring bifurcation, and separate accounting for the embedded conversion feature. Generally, embedded conversion features where the ability to physical or net-share settle the conversion option is not within the control of the Company or the number of shares is variable are bifurcated and accounted for as derivative financial instruments. (See Derivative Financial Instruments below). Bifurcation of the embedded derivative instrument requires the allocation of the proceeds first to the fair value of the embedded derivative instrument with the residual allocated to the host instrument. The resulting discount to the debt instrument or the redemption value of convertible preferred securities is accreted through periodic charges to interest expense over the term of the agreements or to dividends over the period to the earliest conversion date using the effective interest rate method, respectively.
Derivative Financial Instruments
The Company does not use derivative financial instruments to hedge exposures to cash-flow or market risks. However, certain other financial instruments, such as warrants to purchase the Company’s common stock and the embedded conversion features of debt and preferred instruments that are not considered indexed to the Company’s common stock are classified as liabilities when either (a) the holder possesses rights to net-cash settlement, (b) physical or net share settlement is not within the control of the Company, or (c) based on its anti-dilutive provisions. In such instances, net-cash settlement is assumed for financial accounting and reporting. Such financial instruments are initially recorded at fair value and subsequently adjusted to fair value at the close of each reporting period. Fair value for embedded conversion features and option-based derivative financial instruments is determined using the Monte Carlo Simulation or the Black-Scholes Option Pricing Model, respectively.
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Other convertible instruments that are not derivative financial instruments are accounted for by recording the intrinsic value of the embedded conversion feature as a discount from the initial value of the instrument and accreting it back to face value over the period to the earliest conversion date using the effective interest rate method.
Leases
The Company follows Accounting Standards Codification 842, Leases ("ASC 842"). We determine if an arrangement contains a lease at inception based on whether or not the Company has the right to control the asset during the contract period and other facts and circumstances.
We are the lessee in a lease contract when we obtain the right to control the asset. Operating lease right-of-use ("ROU") assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease, both of which are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. Leases with a lease term of 12 months or less at inception are not recorded on our consolidated balance sheet and are expensed on a straight-line basis over the lease term in our consolidated statement of operations. We determine the lease term by assuming the exercise of renewal options that are reasonably certain. As most of our leases do not provide an implicit interest rate, we use our local incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. As of June 30, 2021 and December 31, 2020, we recorded right-of-use assets of $774,112 and $881,804 and lease obligations of $811,558 and $895,395.
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. No impairment charges were incurred during the three months ended June 30, 2021 and 2020, as the Company was still in the early phases of our business plan and operating losses were expected in our early phases. There can be no assurance, however, 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.
Property and equipment, net
Property and equipment are stated at cost or fair value when acquired. Depreciation is computed by the straight-line method and is charged to the statement of operations over the estimated useful lives of the assets. Leasehold improvements are depreciated over the shorter of the estimated useful lives of the assets or the term of the related lease. Impairment losses are recognized for long-lived assets, including definite-lived intangibles, used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are not sufficient to recover the assets' carrying amount. Impairment losses are measured by comparing the fair value of the assets to their carrying amount.
Interest on long-term debt for the development or manufacturing of Company assets is capitalized to the asset until the asset enters production or use, and thereafter all interest is charged to expense as incurred. Maintenance and repairs are charged to expense as incurred. Leasehold improvements are depreciated over the shorter of the estimated useful lives of the assets or the term of the related lease.
The carrying amount and accumulated depreciation of assets sold or retired are removed from the accounts in the year of disposal and any resulting gain or loss is included in results of operations. The estimated useful lives of property and equipment are as follows:
| Computers, software, and office equipment | 1-5 years |
| Machinery and equipment | 3-5 years |
| Vehicles | 5 years |
| Furniture and fixtures | 5 – 10 years |
| Precious metal extraction machinery (heavy extraction equipment) | 10 years |
| Remediation Processing Centers (heavy extraction and remediation equipment) (“RPC”) | 20 years |
| Leasehold improvements | Lesser of the lease term or estimated useful life |
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Equipment that is currently being manufactured is considered construction in process and is not depreciated until the equipment is placed into service.
Intangible Assets:
We account for intangible assets in accordance with ASC 350 “Intangibles-Goodwill and Other” (“ASC 350”). Intangible asset amounts represent the acquisition date fair values of identifiable intangible assets acquired. The fair values of the intangible assets were determined by using the income approach, discounting projected future cash flows based on management’s expectations of the current and future operating environment. The rates used to discount projected future cash flows reflected a weighted average cost of capital based on our industry, capital structure and risk premiums including those reflected in the current market capitalization. Definite-lived intangible assets are amortized over their useful lives, which have historically ranged from 10 to 20 years. The carrying amounts of our definite-lived intangible assets are evaluated for recoverability whenever events or changes in circumstances indicate that the entity may be unable to recover the asset’s carrying amount.
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 have evaluated our intangible assets and found that certain losses and a delay in our business plan does not constitute a triggering event for our intangible assets, and we have assessed that there to be no impairment for the three months ended June 30, 2021 and 2020.
Share-Based Compensation
Share-based compensation is accounted for based on the requirements of ASC 718, “Compensation-Stock Compensation’ (“ASC 718”) which requires recognition in the financial statements of the cost of employee, consultant, or director services received in exchange for an award of equity instruments over the period the employee, consultant, or director is required to perform the services in exchange for the award (presumptively, the vesting period). ASC 718 also requires measurement of the cost of employee, consultant, or director services received in exchange for an award based on the grant-date fair value of the award.
Income tax
Deferred income taxes are provided on the asset and liability method whereby deferred income tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred income tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred income tax assets will not be realized. Deferred income tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Our annual effective tax rate is based on our income and the tax laws in the various jurisdictions in which we operate. Judgment is required in determining our annual tax expense and in evaluating our tax positions. We establish reserves to remove some or all of the tax benefit of any of our tax positions at the time we determine that the position becomes uncertain based upon one of the following conditions: (1) the tax position is not "more likely than not" to be sustained; (2) the tax position is "more likely than not" to be sustained, but for a lesser amount; or (3) the tax position is "more likely than not" to be sustained, but not in the financial period in which the tax position was originally taken. For purposes of evaluating whether or not a tax position is uncertain, (1) we presume the tax position will be examined by the relevant taxing authority that has full knowledge of all relevant information; (2) the technical merits of a tax position are derived from authorities such as legislation and statutes, legislative intent, regulations, rulings and case law and their applicability to the facts and circumstances of the tax position; and (3) each tax position is evaluated without considerations of the possibility of offset or aggregation with other tax positions taken. We adjust these reserves, including any impact on the related interest and penalties, in light of changing facts and circumstances, such as the progress of a tax audit. See Note 20 for further information on income tax.
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Revenue Recognition
Effective January 1, 2018, we adopted Accounting Standards Codification 606, Revenue from Contracts with Customers ("ASC 606"). For the six months ended June 30, 2021, all of our sales consist of the sale of precious metals with a commitment to deliver precious metals to the customer, and revenue is recognized on the settlement date, which is defined as the date on which: (1) the quantity, price, and specific items being purchased have been established, (2) metals have been shipped to the customer, and (3) payment has been received or is covered by the customer’s established credit limit with the Company.
The new standard contains a five-step approach that entities will apply to determine the measurement of revenue and timing of when it is recognized, including (i) identifying the contract(s) with a customer, (ii) identifying the separate performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to separate performance obligations, and (v) recognizing revenue when (or as) each performance obligation is satisfied. The new standard requires a number of disclosures intended to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue, and the related cash flows. The disclosures include qualitative and quantitative information about contracts with customers, significant judgments made in applying the revenue guidance, and assets recognized from the costs to obtain or fulfill a contract.
In order to ensure the revenue recognition in the proper period, we review material sales contracts for proper cut-off based upon the business practices and legal requirements of each country.
Our performance obligation generally consists of the promise to sell products or complete services to our customers. Control of the products is transferred upon shipment to our customers' locations, as determined by the specific terms of the contract. Upon transfer of control to the customer, which completes our performance obligation, revenue is recognized. Services are completed upon the terms of each contract, specifically in regard to remediation, when the tonnage of contaminated soil is completed and tested our performance obligation is completed and revenue is recognized. After completion of our performance obligation, we have an unconditional right to consideration as outlined in the contract. Historically, we have not accepted returns so there are no sales allowances. Due to the nature of the product we do accept returns. Our receivables will generally be collected in less than nine months, in accordance with the underlying payment terms.
Advertising Expense
Advertising costs are expensed as incurred. The Company did not incur advertising expense for the three months ended June 30, 2021 and 2020.
Recent Accounting Pronouncements
Under the Jumpstart Our Business Startups Act, or the JOBS Act, we meet the definition of an “emerging growth company.” We have irrevocably elected to opt-out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act. As a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non- emerging growth companies.
In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2019-12, Simplifying the Accounting for Income Taxes, which eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating taxes during the quarters and the recognition of deferred tax liabilities for outside basis differences. This guidance also simplifies aspects of the accounting for franchise taxes and changes in tax laws or rates, as well as clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. ASU 2019-12 is effective for the Company beginning January 1, 2021.
In August 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-06 Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which improves Convertible Instruments and Contracts in an Entity’s Own Equity and is expected to improve financial reporting associated with accounting for convertible instruments and contracts in an entity’s own equity. The ASU simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU also simplifies the diluted earnings per share (EPS) calculation in certain areas.
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In May 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2021-04 Earnings Per Share (Topic 260), Debt— Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40), provides a “principles-based framework to determine whether an issuer should recognize the modification or exchange as an adjustment to equity or an expense.”
Net Income Per Share
Basic net income per share is calculated by subtracting any preferred interest distributions from net income, all divided by the weighted-average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net income per common share is computed by dividing the net income 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 June 30, 2021 and 2020 include the following: convertible notes payable convertible into approximately 6,814,497 and 1,380,984 shares of common stock, convertible Series A preferred stock convertible into 20,000,000 shares of common stock (in the event of a public offering of the Company’s common stock this will convert to 25,000,000 shares), convertible Series B preferred stock convertible into approximately none and 13,446,990 shares of common stock, convertible Series B-1 preferred stock convertible into approximately none and 22,330,660 shares of common stock, convertible Series C-1 preferred stock convertible into approximately none and 13,281,760 shares of common stock, stock options granted to employees of 5,500,000 and 500,000 shares of common stock. Stock options granted to Board members or consultants of 14,000,000 shares of common stock were granted as of June 30, 2021. Warrants of none and 1,060,000 shares of common stock were outstanding as of June 30, 2021 and 2020.
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 and equity method investments, lease assets and liabilities, equity method investments, valuation of stock used to acquire assets, and derivatives.
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.
| F-14 |
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.
Note 4. Prepaid Expenses and Other Assets
As of June 30, 2021 and December 31, 2020, our other assets consist of various deposits with vendors, professional service agents, or security deposits on office and warehouse leases. As of June 30, 2021 and December 31, 2020 we had deposits in the amount of $73,245 and $87,052.
The Company entered into an Option Agreement in July 2019 for the exclusive right to purchase certain real property commonly known as Asphalt Ridge. The right to purchase the land was purchased for $200,000, which would be applied as a payment on the land if the option is exercised to purchase the land. The agreement gives the Company 12 months for due diligence and to operate on the land. The agreement grants the Company the option to extend the option for an additional 6 months for a cost of $200,000. The Company capitalized the cost of legal expense for this option in the amount of $2,096 bringing the gross value of the option to $202,096. The Company amortized the prepaid over the life of the agreement, 12 months, and the option was completed amortized as of December 31, 2019. For the three months ended June 30, 2020 amortization expense was $50,524. For the six months ended June 30, 2020 amortization expense was $101,048. As the Company negotiates extending the option, it is continuing to operate on the land, pursuant to an arrangement with the landowner.
Note 5. Marketable Securities
Investments in marketable securities consist of equity securities recorded at fair value. Fair value is defined as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. We analyze our marketable securities in accordance with Accounting Standard Codification 321 (“ASC 321”). Valuations for marketable securities are based on quoted prices for identical assets in active markets. Where marketable securities were found not be part of an actively traded market, we made a measurement alternative election and estimate the fair value at cost of the investment minus impairment.
As of June 30, 2021 and December 31, 2020, the Company owned 3,309,758 shares of common stock in Odyssey Group International, Inc. (“Odyssey”) ticker: ODYY, OTC Markets. The Company owned 2,500,000 shares of Odyssey common stock until June 2020, when the Company converted the outstanding balance of $809,578 of its note receivable with Odyssey into 809,578 shares of Odyssey common stock according to the terms of the note receivable. As of December 31, 2020, these marketable securities are classified as trading securities. The Company accounted for such securities based on the quoted price from the OTC Markets where the stock is traded which resulted in the Company recording an unrealized loss on these marketable securities of $595,392 and $834,164 for the three months ended June 30, 2021 and 2020 compared to an unrealized gain of $1,494,275 and $2,215,827 for the six months ended June 30, 2021 and 2020. As of June 30, 2021 and December 31, 2020 our Odyssey marketable securities were $2,151,226 and $656,951.
In 2019 the Company had an investment of $800,000 or 800,000,000 shares of common stock, or a diluted 23% equity holding in Scepter Holdings, Inc. (“Scepter”), ticker: BRZL, OTC Markets. In the fourth quarter of 2020, the Company was diluted to a 19% equity holding in Scepter, and was no longer deemed to have significant influence and ceased to be an equity investment, and as the stock is traded on an active market, the Company has classified the investment as trading securities with the change in unrealized gains and losses on the investment included in the statement of operations for the six months ended June 30, 2021 and for the year ended December 31, 2020. The Company accounted for such securities based on the quoted price from the OTC Markets where the stock is traded which resulted in the Company recording an unrealized loss on marketable securities of $8,353,777 and none for the three months ended June 30, 2021 and 2020 compared to an unrealized gain of $2,240,000 and none for the six months ended June 30, 2021 and 2020. As of June 30, 2021 and December 31, 2020, the Company’s Chief Executive Officer has an immediate family member who sits on the board of directors of Scepter Holdings, Inc. As of June 30, 2021 and December 31, 2020 our Scepter marketable securities were $5,600,000 and $3,360,000.
| F-15 |
As of June 30, 2021 and December 31, 2020, marketable securities were $7,751,226 and $4,016,951. For the three months ended June 30, 2021 and 2020, the Company recorded a total unrealized loss on marketable securities in the statement of operations of $8,949,169 and $834,164 compared to an unrealized gain of $3,734,275 and 2,215,827 for the six months ended June 30, 2021 and 2020.
Note 6. Inventories
Inventories consist primarily of raw materials (including tar-sand stockpiles) and finished goods (which includes Fenix iron). Inventories are valued at the lower of cost or market (net realizable value). The tar-sand stockpiles consist of 400,000 tons of tar sand stockpile and are anticipated to be used as test material for our extraction remediation units. The stockpiles were acquired at a cost of approximately $0.83 per ton or $333,744. The nano Fenix Iron are finished goods that have a 20-year shelf life and were acquired at cost for $192,000.
Note 7. Precious Metal Concentrate
Precious metal concentrate includes metal concentrates located at the Company’s facilities. Concentrates consist of gold, silver, platinum, palladium, and rhodium. Precious metal concentrate was acquired from our funding agreements for extraction operations with Vivaventures Precious Metals LLC from 2013 through 2016. Our precious metal concentrate requires further refining to be sold as a finished product and is valued at the lower of cost or market (net realizable value).
As of June 30, 2021 and December 31, 2020, the Company carried a refining reserve of $1,166,709 against its precious metal concentrate asset based on estimates that the Company received if it were to sell the precious metal concentrate in its current concentrated form to processing refineries. The Company intends to sell our precious metal concentrate in its current state or refine it into dore bars for sale or monetization and investment purposes. In July 2020, the Company entered into an agreement with International Metals Exchange, LLC (“IME”, a related party) giving IME the option to purchase approximately 1,331 ounces of our precious metal concentrate for approximately $2,800,000. For the year ended December 31, 2020, the Company sold $54,250 of the precious metal concentrate through this option. As of June 30, 2021 this option to purchase precious metals as expired and is being renegotiated.
As of June 30, 2021 and December 31, 2020 the net realizable value of our precious metal concentrate is $1,166,709.
Note 8. Notes Receivable
As of June 30, 2021 and December 31, 2020, our notes receivable consist of a Master Revolving Note with Scepter Holdings, Inc. (ticker: BRZL, OTC Markets), which the Company entered into in January 2019 to lend up to $70,000 to the holder. The note accrues interest at a rate of 7% per annum and accrues monthly on the outstanding principal. The note is convertible into common shares of Scepter Holdings, Inc. at a rate of $0.002 per share or a 50% discount to market on the date of conversion, whichever is less. The note matured in January 2020 and was amended to extend the maturity for an additional year with a maturity of January 2022 and the maximum amount of note was increased to $100,000. As of June 30, 2021 and December 31, 2020 the principal balance with all accrued interest was $80,940 and $78,455.
Note 9. Property and Equipment
The following table sets forth the components of the Company’s property and equipment at June 30, 2021 and December 31, 2020:
| June 30, 2021 | December 31, 2020 | |||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Depreciation | Net Book Value | Gross Carrying Amount | Accumulated Depreciation | Net Book Value | |||||||||||||||||||
| Office furniture and equipment | $ | 14,998 | $ | 3,044 | $ | 11,954 | $ | 14,998 | $ | 2088 | $ | 12,910 | ||||||||||||
| Vehicles | 48,248 | 21,482 | 26,766 | 48,248 | 16,657 | 31,591 | ||||||||||||||||||
| Precious metal extraction machine- 1 ton | 2,280,000 | 228,000 | 2,052,000 | 2,280,000 | 228,000 | 2,052,000 | ||||||||||||||||||
| Precious metal extraction machine- 10 ton | 5,320,000 | 532,000 | 4,788,000 | 5,320,000 | 532,000 | 4,788,000 | ||||||||||||||||||
| Construction in process: | ||||||||||||||||||||||||
| Bioreactors | 1,440,000 | – | 1,440,000 | 1,440,000 | – | 1,440,000 | ||||||||||||||||||
| Cavitation device | 22,103 | – | 22,103 | 22,103 | – | 22,103 | ||||||||||||||||||
| Remediation Processing Unit 1 | 6,029,705 | – | 6,029,705 | 5,558,949 | – | 5,558,949 | ||||||||||||||||||
| Remediation Processing Unit 2 | 5,835,371 | – | 5,835,371 | 4,149,793 | – | 4,149,793 | ||||||||||||||||||
| Remediation Processing Unit 3 | 105,284 | – | 105,284 | 97,353 | – | 97,353 | ||||||||||||||||||
| Total fixed assets | $ | 21,095,709 | $ | 784,526 | $ | 20,311,183 | $ | 18,931,444 | $ | 778,745 | $ | 18,152,699 | ||||||||||||
| F-16 |
For the six months ended June 30, 2021 the Company paid $64,950 with 162,375 shares of Series C-1 Preferred Stock for equipment, which has been valued based on similar cash purchases of the Series C-1 Preferred Stock at $0.40 per share. For the six months ended June 30, 2021 and 2020 depreciation expense was $5,781 and $5,695. For the six months ended June 30, 2021 and 2020 capitalized interest to equipment from debt financing was $822,700 and $724,674. 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.
Note 10. License Agreements
On August 17, 2017, the Company purchased rights to an exclusive license for the applications and implementations involving the Nanosponge Technology and to use and develop the Nanosponge as we see fit at our sole discretion. The Nanosponge contribution in the Company’s processes is to facilitate a cracking process whereby remediated or extracted oil may be further refined from a crude product to a diesel fuel. The license was valued at $2,416,572 and is amortized over its useful life of 20 years. As of June 30, 2021 and December 31, 2020 the accumulated amortization of the license was $463,176 and $402,762. For the six months ended June 30, 2021 and 2020 amortization expense of the license was $60,414. Amortization expense for the years 2022 through 2026 is $120,829 in each respective year. As of June 30, 2021 and December 31, 2020 the net value of the license is $1,953,396 and $2,013,810.
On January 20, 2021, the Company entered into a worldwide, exclusive license agreement with TBT Group, Inc. (of which an independent Vivakor Board member is a 7% shareholder) to license piezo electric and energy harvesting technologies for creating self-powered sensors for making smart roadways. The Company is required to pay $25,000 and 500,000 shares of restricted common stock upon signing. Upon the earlier of (i) 120 days or (ii) the effectiveness of the Company's Registration Statement and receipt of public offering proceeds, the Company will pay licensor $225,000. When the licensor delivers to the Company data showing that the sensor performs based on mutually defined specifications and all designs for the sensor are completed, Company shall pay an additional $250,000 and 500,000 shares of restricted common stock. Upon the delivery of a mutually agreed working prototype, Company will pay licensor $250,000 and 500,000 shares of restricted common stock. Upon commercialization of the product, the Company will pay licensor $250,000 and 1,000,000 shares of restricted common stock. TBT shall have the option, at its sole discretion, to convert the license to a non-exclusive license if the Company fails to pay $500,000 to TBT for sensor inventory per year, which will commence after the second anniversary of product commercialization. The Company shall share in the development costs of the sensor technology to the time of commercialization. Total costs attributed to the Company are estimated to be $125,000. On May 10, 2021, the parties amended the license agreement to extend the terms of the first milestone payment at 120 days to 180 days with a prepayment of $15,000 of the $225,000 to be paid in 180 days.
As of June 30, 2021, the license is valued at $265,000 (or the initial required payment of $25,000, $15,000 prepayment, and 500,000 shares of restricted common stock, valued at $225,000 upon signing) and is amortized over its useful life of 20 years. As of June 30, 2021 the accumulated amortization of the license was $5,521. For the six months ended June 30, 2021 amortization expense of the license was $5,521. Amortization expense for the years 2022 through 2026 is $13,250 in each respective year. As of June 30, 2021 the net value of the license is $259,479.
Note 11. Intellectual Property, Net
The Company entered into a Contribution Agreement dated January 5, 2015, where proprietary information and intellectual property related to certain petroleum extraction technology (also known as hydrocarbon extraction technology) suitable to extract petroleum (or hydrocarbons) from tar sands and other sand-based ore bodies, and all related concepts and conceptualizations thereof (the “Extraction Technology”) was contributed to VivaVentures Energy Group, Inc., a 99% majority-owned subsidiary of Vivakor, and was assessed a fair market value of $16,385,157, which consists of the consideration of $11,800,000 and the Company assuming a deferred tax liability in the amount of $4,585,157. All ownership in the Extraction Technology (including all future enhancements, improvements, modifications, supplements, or additions to the Extraction Technology) was assigned to the Company and is currently being applied to the Company Remediation Processing Centers, which are the units that remediate material. The Extraction Technology is amortized over a 20-year life. For the six months ended June 30, 2021 and 2020 the amortization expense of the technology was $409,629. Amortization expense for the years 2022 through 2026 is $819,258 in each respective year. As of June 30, 2021 and December 31, 2020 the net value of the Extraction Technology is $11,128,252 and $11,537,881.
In 2019, the Company began the process of patenting the Extraction Technology and all of its developments and additions since the acquisition, and we have filed a series of patents and capitalized the costs of these patents. As of June 30, 2021 and December 31, 2020, the capitalized costs of these patents are $110,393 and $100,064. The patents were placed in service in 2021, and will be begin amortizing the cost in April 2021 over the patent useful life.
| F-17 |
The Company entered into an asset purchase agreement dated September 5, 2017, where two patents (US patent number 7282167- Method and apparatus for forming nano-particles and US patent number 9272920- System and method for ammonia synthesis) were purchased and attributed a fair market value of $4,931,380, which consists of the consideration of $3,887,982 and the Company assuming a deferred tax liability in the amount of $1,043,398. The patents grant the Company ownership of a nano catalyst technology that facilitates chemical manufacturing, with a focus on the production of ammonia, specifically for the gas phase condensation process used to create the iron catalyst. The nano catalyst accelerators make the Haber-Bosch process more efficient by increasing the active surface area of standard commercial iron catalysts, thereby lowering the reaction temperature and pressure required for the Haber-Bosch process to occur. As a result, less energy is needed to complete the reaction and create ammonia. The patents are amortized over their useful life of 10 years. For the six months ended June 30, 2021 and 2020 the amortization expense of the patents was $246,569. Amortization expense for the years 2022 through 2026 is $493,138 in each respective year. As of June 30, 2021 and December 31, 2020 the net value of the patents was $3,082,113 and $3,328,682.
The following table sets forth the components of the Company’s intellectual property at June 30, 2021 and December 31, 2020:
| June 30, 2021 | December 31, 2020 | |||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Book Value | Gross Carrying Amount | Accumulated Amortization | Net Book Value | |||||||||||||||||||
| Extraction Technology patents | $ | 110,393 | $ | – | $ | 110,393 | $ | 100,064 | $ | – | $ | 100,064 | ||||||||||||
| Extraction Technology | 16,385,157 | 5,256,905 | 11,128,252 | 16,385,157 | 4,847,276 | 11,537,881 | ||||||||||||||||||
| Ammonia synthesis patents | 4,931,380 | 1,849,267 | 3,082,113 | 4,931,380 | 1,602,698 | 3,328,682 | ||||||||||||||||||
| Total Intellectual property | $ | 21,426,930 | $ | 7,106,172 | $ | 14,320,758 | $ | 21,416,601 | $ | 6,449,974 | $ | 14,966,627 | ||||||||||||
Note 12. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Accounts payable | $ | 475,584 | $ | 1,003,953 | ||||
| Office access deposits | 760 | 705 | ||||||
| Accrued compensation | 150,000 | 101,920 | ||||||
| Accrued tax penalties and interest | 246,749 | 244,230 | ||||||
| Accounts payable and accrued expenses | $ | 873,093 | $ | 1,350,808 | ||||
Note 13. Stock Payable
As of December 31, 2019, the Company had an outstanding payable of $11,800,000 payable in common stock to Sustainable Fuels, Inc. (“SFI”) for the Extraction Technology (See Note 11). Before the Common Stock was issued, the owner of SFI died and the matters and affairs of his estate were passed to the executor of his estate. We attempted to contact SFI and the executor of the estate multiple times to issue and send the common stock to the company or appropriate successor of the estate to no avail. As of December 31, 2020, the Company was able to make contact with the new owner of SFI and has issued 20,000,000 shares of Common Stock to SFI per the terms of the agreement.
| F-18 |
Note 14. Loans and Notes Payable
Loans and Notes payable consist of the following:
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Various promissory notes and convertible notes (a) | $ | 50,960 | $ | 50,960 | ||||
| Novus Capital Group LLC Note (b) | 379,970 | 363,231 | ||||||
| Triple T Notes (c) | 369,188 | 295,543 | ||||||
| National Buick GMC (d) | 23,180 | 25,643 | ||||||
| Various Convertible Bridge Notes (e) | 1,306,559 | 774,522 | ||||||
| Blue Ridge Bank (f) | 410,200 | 205,100 | ||||||
| Small Business Administration (g) | 311,615 | 305,054 | ||||||
| JP Morgan Chase Bank (h) | 90,645 | 90,645 | ||||||
| Various Promissory Notes (i) | 5,939,542 | 735,000 | ||||||
| Total Notes Payable | $ | 8,881,859 | $ | 2,845,698 | ||||
| Loans and notes payable, current | $ | 1,882,063 | $ | 1,196,037 | ||||
| Loans and notes payable, current attributed to variable interest entity | $ | 5,939,542 | $ | 735,000 | ||||
| Loans and notes payable, long term | $ | 1,060,254 | $ | 914,661 | ||||
_____________
| 2021 | $ | 7,821,605 | ||
| 2022 | 10,490 | |||
| 2023 | 380,190 | |||
| 2024 | 11,545 | |||
| 2025 | 18,231 | |||
| Thereafter | 639,797 | |||
| Total | $ | 8,881,859 |
(a) From 2013 through 2018 the Company issued a series of promissory notes and convertible notes with various interest rates ranging up to 12% per annum. The convertible notes convert at the holder’s option after 1 year of issuance and may be converted into shares of common stock. The conversion price is generally equal to the specified per share conversion rate as noted in the note agreements.
(b) On September 5, 2017, the Company acquired patents in the amount of $4,931,380 in which the Company also agreed to assume the encumbering debt on asset in the amount of $334,775 due in December 2019 with no interest accruing until 2020 and a deferred tax liability of $1,043,398. The Company has agreed with the holder of the encumbering debt to extend the note to July 2, 2021 and accrue interest at 7% per annum commencing January 1, 2020 through July 1, 2020, and 10% per annum commencing July 2, 2020 and thereafter.
(c) The balance of this note is due to related parties, specifically the 51% owner of Vivakor Middle East LLC, in which the Company owns 49% and consolidates this entity in its consolidated financial statements. The loan was granted to Vivakor Middle East LLC by the majority owner for operational use with only the agreement of repayment from the net proceeds of such entity’s operations once it commences scaled up operations. No interest accrues on the loans, and no specific maturity date had been agreed upon. On March 10, 2021, the Company entered into a master revolving note with Triple T Trading Company LLC to set forth the relationship of the parties to retain the previous terms of the note payable to Triple T Trading Company LLC, to include a note maturity of March 20, 2023, and maximum lending amount of 1,481,482 QAR or approximately $400,000, valued at an exchange rate of approximately $0.27 per QAR on March 10, 2021.
(d) In May 2019, the Company purchased a vehicle for $36,432 and financed $34,932 over six years with an interest rate of 6.24% per annum. Monthly payments of $485 are required and commenced in July 2019.
| F-19 |
(e) In 2020 the Company entered into various convertible promissory notes as follows:
Throughout 2021 and 2020 the Company entered into convertible promissory notes with an aggregate principal of $625,000. The notes accrue interest at 10% per annum and have a maturity of the earlier of 12 months or the consummation of the Company listing its Common Stock on a senior stock exchange. The notes are convertible at the Company’s option into shares of the Company’s common stock at a price equal to 80% of the opening price of the Company’s common stock on the national exchange or the offering price paid by the investors in the financing in connection with the uplist, whichever is lower, or (ii) repaid in cash in an amount equal to the indebtedness being repaid plus a premium payment equal to 15% of the amount being repaid. If an event of default has occurred and the Company does not convert the amounts due under the Note into the Company’s common stock, then the Company will have the option to convert the outstanding indebtedness into shares of the Company’s common stock at a price equal to 80% of the weighted average trading price of the Company’s common stock on the OTC Markets, or be repaid in cash in an amount equal to all principal and interest due under the Note.
On October 13, 2020, the Company entered into a convertible promissory note in an amount of $280,500 having an interest rate of 12% per annum. The note bears a 10% Original Issue Discount. The loan shall mature in 1 year and may be convertible at the lower of $0.40 or 80% of the lowest median daily traded price over ten trading days prior to conversion, but in the event of a Qualified Uplist the note may be converted at a 30% discount to market. The Company also issued 100,000 restricted shares with no registration rights in conjunction with this note, which was recorded as a debt discount in the amount of $44,000, which is amortized to interest expense over the term of the agreements using the effective interest method. On March 28, 2021 the parties amended this agreement to state that in no event shall the conversion price be lower than $0.10 per share.
On November 23, 2020, the Company entered into a convertible promissory note in an amount of $165,000 having an interest rate of 8% per annum. The note bears a $15,000 Original Issue Discount. The loan shall mature in nine months and may be convertible at the $0.40 per share. If an event of default occurs, the conversion price shall be the lesser of $0.25 cents or 70% of the lowest traded price in the prior twenty trading days immediately preceding the notice of conversion. In the event of an Uplist, the conversion price shall equal the lower of 80% of the opening price of the Company’s shares of Common Stock, as listed on the Senior Exchange, on the first day on which the Company’s shares are traded thereon (representing a 20% discount), or 80% of the offering price of the Company’s shares of Common Stock, as offered in a financing in connection with the Uplisting (representing a 20% discount). The Company also issued 50,000 restricted shares with no registration rights in conjunction with this note, which was recorded as a debt discount in the amount of $23,605, which is amortized to interest expense over the term of the agreements using the effective interest method. Subsequent to June 30, 2021 this note matured and its principal and all accrued interest totaling $175,200 was been paid off.
On February 4, 2021, the Company entered into a convertible promissory note in an amount of $277,778 having an interest rate of 12% per annum. The note bears a 10% Original Issue Discount. The loan shall mature in 1 year and may be convertible at the lower of $0.40 or 80% of the lowest median daily traded price over ten trading days prior to conversion, but in the event of a Qualified Uplist the note may be converted at a 30% discount to market. The Company also issued 100,000 restricted shares with no registration rights in conjunction with this note, which was recorded as a debt discount in the amount of $36,000, which is amortized to interest expense over the term of the agreements using the effective interest method. On March 28, 2021 the parties amended this agreement to state that in no event shall the conversion price be lower than $0.10 per share.
(f) In May 2020, the Company entered into a Paycheck Protection Program (“PPP”) loan agreement for $205,100 with Blue Ridge Bank, subject to the Small Business Administration’s (“SBA”) Paycheck Protection Program. The loan carries an annual interest rate of one (1) percent per annum with payment beginning in the seventh month with monthly payments required until maturity in the 18th month. The loan may be fully forgivable according to the CARES Act if the Company can provide proper documentation for the use of the proceeds of the loan. The Company has achieved the milestones for loan forgiveness and anticipates that this debt will be forgiven in full in 2021. On January 6, 2021 the Company was granted an extension of the PPP and granted an additional $205,100 from Blue Ridge Bank, subject to the Small Business Administration’s (“SBA”) Paycheck Protection Program. The loan carries an annual interest rate of one (1) percent per annum with payment beginning in the tenth month with monthly payments required until maturity in five years. The loan may be fully forgivable according to the CARES Act if the Company can provide proper documentation for the use of the proceeds of the loan. The Company has achieved the milestones for loan forgiveness, has applied for loan forgiveness, and anticipates that this debt will be forgiven in full in 2021.
(g) From May through August 2020, the Company entered into various loan agreements with the Small Business Administration for an aggregate loan amount of $299,900. The loans carry an interest rate of 3.75% per annum. The loans shall mature in 30 years.
(h) In April 2021, the Company entered into a Paycheck Protection Program loan agreement with JP Morgan Chase Bank, subject to the Small Business Administration’s (“SBA”) Paycheck Protection Program. The loan may be fully forgivable according to the CARES Act if the Company can provide proper documentation for the use of the proceeds of the loan. The Company has achieved the milestones for loan forgiveness and anticipates that this debt will be forgiven in full in 2021.
| F-20 |
(i) Viva Wealth Fund I, LLC is offering up to $25,000,000 in convertible notes in a private offering. As of June 30, 2021, VWFI has raised $6,520,000. A convertible note will automatically convert into the LLC units at the earlier of (i) the date that the Equipment is placed into quality control and testing or (ii) six months from the date of investment. The convertible notes will accrue interest at 12% per annum and are paid quarterly. At the maturity date, remaining interest will be paid, at which time no further interest payments will accrue. Upon the offering termination date, all units accepted for any series of equipment will automatically convert to Vivakor common stock if the Company has not accepted subscriptions for at least $6,250,000 for a series of equipment. The conversion price of the automatic stock conversion will not be higher of than $0.45 or a 10% discount to market per share or in the event of a public offering, 200% of the per share price of the Company common stock sold in an underwritten offering pursuant to the Company becoming listed on a senior stock exchange (i.e. The Nasdaq Capital Market or New York Stock Exchange). The termination date of the offering is November 13, 2021, which date may be extended until November 13, 2022 in the sole discretion of the Company. As of September 30, 2021 VWFI has reached $6,250,000 in funding and has released the funding for construction of RPC Series A. VWFI has commenced fundraising for RPC Series B and C and has raised approximately $1,480,000 needed to manufacture RPC Series B and C. Subsequent to June 30, 2021 $1,805,000 of this debt has been converted into units of the LLC.
Note 15. Commitments and Contingencies
Leases
In June 2019, the Company entered into a Sublease agreement with US Closer, LLC, whereby we agreed to lease approximately 12,061 square feet of office and manufacturing space located in South Salt Lake City, Utah. Pursuant to the Sublease, the sublease expired on December 31, 2020 and required a monthly lease payment of $6,633.55 plus other pass-through expenses as required under the Primary Lease. The Company renegotiated with the landlord to renew this lease as the primary tenant in January 2021 to lease this warehouse on a month-to-month basis. The lease may be terminated at any time or for any reason with a 30-day written notice to terminate. The January 2021 lease requires a monthly lease payment of $6,833 plus other pass-through expenses as required under the lease as long as the Company remains in the space. As a condition of the lease, we were required to provide a $6,965 security deposit.
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.
The right-of-use asset for operating leases as of June 30, 2021 and December 31, 2020 was $774,112 and $881,804. Rent expense for the three month period ended June 30, 2021 and 2020 was $186,086 and $131,562.
The following table reconciles the undiscounted cash flows for the leases as of June 30, 2021 to the operating lease liability recorded on the balance sheet:
| 2021 | $ | 139,707 | ||
| 2022 | 287,769 | |||
| 2023 | 299,466 | |||
| 2024 | 231,174 | |||
| 2025 | – | |||
| Total undiscounted lease payments | 958,116 | |||
| Less: Abatement of rents | 22,832 | |||
| Less: Imputed interest | 123,726 | |||
| Present value of lease payments | $ | 811,558 | ||
| Operating lease liabilities, current | $ | 139,707 | ||
| Operating lease liabilities, long-term | $ | 671,851 | ||
| Weighted-average remaining lease term | 3.50 | |||
| Weighted-average discount rate | 7.0% |
The discount rate is the Company’s incremental borrowing rate, or the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Based on an assessment of the Company’s borrowings the incremental borrowing rate was determined to be 7%.
| F-21 |
Note 16. Long-term Debt
To assist in funding the manufacture of the Company’s Remediation Processing Centers, between 2015 and 2017, the Company entered into two agreements which include terms for the purchase of participation rights for the sale of future revenue of the funded RPCs, and which also require working interest budget payments by the Company.
The Company accounts for the terms under these contracts for the sale of future revenue under Accounting Standards Codification 470 (“ASC 470”). Accordingly, these contracts include the receipt of cash from an investor where the Company agrees to pay the investor for a defined period a specified percentage or amount of the revenue or a measure of income (for example, gross revenue) according to their contractual right, in which the Company will record the cash as debt and apply the effective interest method to calculate and accrue interest on the contracts. The terms of these agreements grant the holder a prorated 25% participation in the gross revenue of the assets as defined in the agreements for 20 years after operations commence for a purchase price of approximately $2,200,000. In the event that the contract is not fully subscribed by the LLCs it will receive only a prorated participation of the available 25% participation. The Company made its first payment of $7,735 of its estimated annual payments of $1,769,000 in the second quarter of 2021. The Company estimates future payments based on revenue projections for the RPCs.
In accordance with ASC 470, the Company records the proceeds from these contracts as debt because the Company has significant continuing involvement in the generation of the cash flows due to the investor (for example, active involvement in the generation of the operating revenues of the business segment), which constitutes the presence of a factor that independently creates a rebuttable presumption that debt classification is appropriate. The Company has determined its effective interest rates to be between 36.1% and 36.58% based on each contract’s future revenue streams expected to be paid to the investor. These rates represent the discount rate that equates estimated cash flows with the initial proceeds received from the investor and is used to compute the amount of interest expense to be recognized each period. During the development and manufacturing of the assets the effective interest has been capitalized to the assets. As the assets enter operations or service of their intended use, the effective interest on these contracts will be recognized as interest expense (See Note 9).
In 2016 and 2017, additional consideration to investors to enter into these agreements was granted, and the Company issued to these investors 3,390,000 shares of Series B-1 Preferred Stock with a relative fair value of $0.25 per share or based on conversion terms and price of the Company’s Common Stock at the time of issuance. The Company also issued 3,185,000 common stock warrants to investors. The relative fair value of the warrants and Series B-1 preferred stock in aggregate was $1,488,550, and was recorded as a debt discount, which is amortized to interest expense over the term of the agreements using the effective interest method. During the manufacturing phase of the asset, the interest expense is capitalized to the asset.
Some holders of these participation rights also have the option to relinquish ownership and all remaining benefits of their LLC units in exchange for Common Stock in the Company. Depending on the contract, these options to convert to common stock range from between 1 and 5.5 years. The exercise period ranges from between 1 year to 5.5 years with a step-up discount to market for each year the option is not exercised with a range of between a 5% to a 25% discount to market. Accordingly, under Accounting Standards Codification 815 (“ASC 815”) the Company valued these options at fair value using a Monte Carlo Simulation by a third-party valuation expert, which found the fair value of the options to be nominal. Long-term debt related to these participation rights is recorded in “Long-term debt” on the consolidated balance sheet.
The accounting for the terms under these contracts that call for working interest budget payments by the Company are recorded in current liabilities on the consolidated balance sheet and paid down through pass-through expenses or cash according to the contract. Accordingly, the Company records any unpaid balance of budget payments received in “Long-term debt, current” as these liabilities are generally paid within 12 months after proceeds are received.
Long-term debt consists of the following:
| June, 30 | December 31, | |||||||
| 2021 | 2020 | |||||||
| Principal | $ | 2,196,233 | $ | 2,196,233 | ||||
| Accrued interest | 3,812,100 | 2,997,136 | ||||||
| Debt discount | (234,266 | ) | (241,709 | ) | ||||
| Total long term debt | $ | 5,774,067 | $ | 4,951,660 | ||||
| Long term debt, current | $ | 2,123 | $ | 1,020 | ||||
| Long term debt | $ | 5,771,944 | $ | 4,950,640 | ||||
| F-22 |
The following table sets forth the estimated payment schedule of long-term debt as of June 30, 2021:
| 2021 | $ | 2,123 | ||
| 2022 | 5,370 | |||
| 2023 | 7,318 | |||
| 2024 | 9,974 | |||
| 2025 | 13,591 | |||
| Thereafter | 2,157,857 | |||
| Total | $ | 2,196,233 |
Note 17. Stockholders' Equity
Series A, Series B, Series B-1, Series C and Series C-1 Preferred Stock
The Preferred Stock authorized by the Company may be issued from time to time in one or more series. The Company is authorized to issue 450,000,000 shares of preferred stock. The Company is authorized to issue 2,000,000 shares of Series A Preferred Stock, 98,000,000 shares of Series B Preferred Stock, 50,000,000 shares of Series B-1 Preferred Stock, 100,000,000 shares of Series C Preferred Stock, and 100,000,000 shares of Series C-1 Preferred Stock. The Board of Directors is authorized to fix or alter the number of shares constituting any series of Preferred Stock and the designation thereof. In 2021, the Board of Directors authorized, and a majority vote acceptance was received of each voting class of preferred stock, including Series B Preferred Stock, Series B-1 Preferred Stock, and Series C-1 Preferred Stock, that each class’s designations be amended that upon the Company’s public offering in conjunction with an uplist to a senior stock exchange that these classes of preferred stock will convert their preferred shares to common shares on a one for one basis.
The Company has issued 2,000,000 shares of Series A Preferred Stock, convertible at a current ratio of 10 shares of Common Stock for each outstanding share of Series A Preferred Stock. The conversion price is subject to adjustment under certain customary circumstances, including as a result of stock splits and combinations, dividends and distributions, and certain issuances of common stock. Holders of shares of Series A Preferred Stock will have the right to 25 votes for each share of Common Stock into which such shares of Series A Preferred Stock can then be converted (with a current conversion ratio of 10 shares of Common Stock for each outstanding share of Series A Preferred Stock) and the right to a liquidation preference in any distribution of net assets made to the shareowners prior to and in preference to the holders of Common Stock and any other Preferred Stock holder in the liquidation, dissolution or winding up of our Company. As of June 30, 2021 and December 31, 2020 the liquidation preference is $400,000. Holders of shares of Series A Preferred Stock are not currently entitled to dividends. The Company has the right, but not the obligation, to redeem shares of Series A Preferred Stock.
The Company has issued none and 6,507,492 of Series B Preferred Stock as of June 30, 2021 and December 31, 2020, respectively. Shares of Series B Preferred Stock are convertible one year after issuance, at any time at the option of the holder, into shares of Common Stock (with a conversion price at the lesser of the issuance price ($0.20) or a 10% discount to market on the conversion date). Automatic 1-for-1 conversion of all outstanding shares of Series B Preferred Stock into shares of Common Stock occurred on May 1, 2021. No other shares have been issued since the conversion of all of the outstanding shares of this class of stock. The conversion price is subject to adjustment under certain customary circumstances, including as a result of stock splits and combinations, dividends and distributions, and certain issuances of common stock. The Company has the right, but not the obligation, to redeem shares of Series B Preferred Stock one year after issuance. Holders of Series B Preferred Stock will have the right to one vote for each share of Common Stock into which such Series B Preferred Stock is then convertible, and a right to a liquidation preference in any distribution of net assets made to the shareowners prior to and in preference to the holders of Common Stock and any Preferred Stockholder, except holders of Series A Preferred Stock, in the liquidation, dissolution or winding up of our Company. As of June 30, 2021 and December 31, 2020 the liquidation preference was none and $1,341,233. Dividends are 12.5% and cumulative and are payable only when, as, and if declared by the Board of Directors.
The Company has issued none and 14,031,834 of Series B-1 Preferred Stock as of June 30, 2021 and December 31, 2020, respectively. Shares of Series B-1 Preferred Stock are convertible one year after issuance, at any time at the option of the holder, into shares of Common Stock (with a conversion price at the lesser of the issuance price ($0.25) or a 10% discount to market on the conversion date). Automatic 1-for-1 conversion of all outstanding shares of Series B-1 Preferred Stock into shares of Common Stock occurred on May 1, 2021. No other shares have been issued since the conversion of all of the outstanding shares of this class of stock. The conversion price is subject to adjustment under certain customary circumstances, including as a result of stock splits and combinations, dividends and distributions, and certain issuances of common stock. The Company has the right, but not the obligation, to redeem shares of Series B-1 Preferred Stock one year after issuance. Holders of Series B-1 Preferred Stock have no voting or dividend rights, and a right to a liquidation preference in any distribution of net assets made to the shareowners prior to and in preference to the holders of Common Stock and any Preferred Stockholder, except holders of Series A and Series B Preferred Stock, in the liquidation, dissolution or winding up of our Company. As of June 30, 2021 and December 31, 2020 the liquidation preference was none and $3,507,981.
| F-23 |
The Company has not issued any Series C Preferred Stock as of June 30, 2021 and December 31, 2020, respectively. Shares of Series C Preferred Stock are convertible one year after issuance, at any time at the option of the holder, into shares of Common Stock (with a conversion price at the lesser of the issuance price ($0.35) or a 10% discount to the market price on the conversion date). Automatic conversion of shares of Series C Preferred Stock into shares of Common Stock may occur due to certain qualified public offerings entered into or by written consent of a majority of the holders of Series C Preferred Stock or upon the four-year anniversary date of the issuance of such shares. The conversion price is subject to adjustment under certain customary circumstances, including as a result of stock splits and combinations, dividends and distributions, and certain issuances of common stock. The Company has the right, but not the obligation, to redeem shares of Series C Preferred Stock one year after issuance. Holders of Series C Preferred Stock will have the right to one vote for each share of Common Stock into which such Series C Preferred Stock is then convertible, and a right to a liquidation preference in any distribution of net assets made to the shareowners prior to and in preference to the holders of Common Stock and any Preferred Stockholder, except holders of Series B and B-1 Preferred Stock, in the liquidation, dissolution or winding up of our Company. Dividends are 12.5% and cumulative and are payable only when, as, and if declared by the Board of Directors.
The Company has issued none and 7,658,680 of Series C-1 Preferred Stock as of June 30, 2021 and December 31, 2020, respectively. Shares of Series C-1 Preferred Stock are convertible one year after issuance, at any time at the option of the holder, into shares of Common Stock (with a conversion price at the lesser of the issuance price ($0.40) or a 10% discount to the market price on the conversion date). Automatic conversion of all outstanding shares of Series C-1 Preferred Stock into shares of Common Stock occurred on May 4, 2021 by written consent of a majority of the holders of Series C-1 Preferred Stock. No other shares have been issued since the conversion of all of the outstanding shares of this class of stock. The conversion price is subject to adjustment under certain customary circumstances, including as a result of stock splits and combinations, dividends and distributions, and certain issuances of common stock. The Company has the right, but not the obligation, to redeem shares of Series C-1 Preferred Stock one year after issuance. Holders of Series C-1 Preferred Stock have no voting or dividend rights, and a right to a liquidation preference in any distribution of net assets made to the shareowners prior to and in preference to the holders of Common Stock and any Preferred Stockholder, except holders of Series A, Series B, Series B-1, and Series C Preferred Stock, in the liquidation, dissolution or winding up of our Company. As of June 30, 2021 and December 31, 2020 the liquidation preference was none and $3,063,472.
For the six months ended June 30, 2021 and 2020, $9,467,604 and $1,773,929 or 28,529,164 and 8,590,491 shares of Series B, Series B-1, and Series C-1 Preferred Stock were converted into 28,678,403 and 9,981,226 shares of Common Stock.
For the six months ended June 30, 2021, the Company issued 162,735 Series C-1 Preferred Stock or $64,950 for a reduction in stock payables.
For the six months ended June 30, 2021 and 2020, the Company issued 168,783 and 254,581 shares of Series B-1 Preferred Stock as a $42,196 and $64,748 stock dividend paid to Series B Preferred Shareholders.
Common Stock
The Company is authorized to issue 1,250,000,000 shares of common stock. As of June 30, 2021 and December 31, 2020, there were 368,472,475 and 337,679,020 shares of our common stock issued and outstanding, respectively. Treasury stock is carried at cost.
For the six months ended June 30, 2021 and 2020, $9,467,604 and $1,773,929 or 28,529,164 and 9,891,226 shares of Series B, Series B-1, and Series C-1 Preferred Stock were converted into 28,678,403 and 9,891,226 shares of Common Stock.
For the six months ended June 30, 2020 the Company issued 20,000,000 shares of Common Stock for a $11,800,000 reduction in stock payables.
As of June 30, 2021 and December 31, 2020, the Company granted stock-based compensation to employees, including a 500,000 share stock award, which vests at the end of four years, and a 5,000,000 stock options that cliff vests at the end of five years. For the six months ended June 30, 2021 and 2020, stock-based compensation was $223,056 and $23,057. As of June 30, 2021 and December 31, 2020, the Company also granted non-statutory stock options, including 4,000,000 stock options to the Board of Directors, which vests over 1 year, and a 10,000,000 stock option to a consultant, which vests over 4 years. Non-statutory stock-based compensation was $730,000 and none for the six months ended June 30, 2021 and 2020.
For the six months ended June 30, 2021, the Company issued 875,052 shares for a $264,800 reduction of liabilities.
For the six months ended June 30, 2021, the Company issued 1,010,000 shares of Common Stock for $438,001 in services to the Company.
| F-24 |
For the six months ended June 30, 2021, the Company issued 500,000 shares for a $225,000 payment for a technology license (see Note 10).
For the six months ended June 30, 2020 the Company issued 228,000 shares of Common Stock in the amount of $41,028 for cash.
Noncontrolling Interest
For the six months ended June 30, 2020, the Company converted $735,000 in Viva Wealth Fund I, LLC convertible promissory notes into 147 units of noncontrolling interest in Viva Wealth Fund I, LLC.
For the six months ended June 30, 2020, the Company issued 110,981 units of noncontrolling interest in RPC Design and Manufacturing LLC for cash of $554,907.
Note 18. Temporary Equity
Shares of Series B, B-1, C and C-1 convertible preferred stock hold conversion features providing that, at the holder’s election, the holder may convert the preferred stock into common stock. Upon conversion, the Company may be required to deliver a variable number of equity shares that is determined by using a formula based on the market price of the Company’s Common Stock. After four years from the date of issuance, Series C preferred shareholders are forced to automatically convert to Common Stock. On May 1, 2021, all outstanding shares of Series B and B-1 converted at 1-for-1 to Common Stock. On May 4, 2021, all outstanding shares of Series C-1 converted at 1-for-1 to Common Stock. For each respective series, the holder may convert their preferred shares to common shares at the original issue price as defined, which ranges from between $0.20 per share to $0.40 per share, at the lesser of the original issue price or 90% of the market price on the conversion date. As of December 31, 2020, the market price of the Company’s Common Stock was $0.50per share. There is no contractual cap on the number of common shares that the Company could be required to deliver on preferred shareholders’ conversions to Common Stock. Because the feature contains no explicit share limit, the Company assumes that it may be forced to cash settle the conversion feature in accordance with the accounting analysis under ASC 815-40-25.
Accordingly, under ASC 815-40-25-10 the Company may be forced to settle these conversion features in cash, specifically since it is unknown as to what date the shareholders’ may convert their preferred stock to common stock and if there will be sufficient authorized and unissued common shares on that date. As of December 31, 2020 the Company did have sufficient authorized and unissued common shares to satisfy all preferred shareholders interest if it were converted to Common Stock, although if the stock price were to drop below $0.02 per share and the Company may be forced to settle such conversions in cash, which may consider them redeemable. Accordingly, Series B, B-1, C and C-1 preferred stock has been classified in temporary equity.
The following table shows all changes to temporary equity during for the six months ended June 30, 2021 and 2020.
| Convertible Preferred Stock | ||||||||||||||||||||||||
| Series B | Series B-1 | Series C-1 | ||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||
| December 31, 2020 | 6,507,492 | $ | 1,301,500 | 14,031,834 | $ | 3,507,981 | 7,658,680 | $ | 4,550,977 | |||||||||||||||
| Series C-1 Issue for a reduction in stock payables | – | – | – | – | 162,375 | 64,950 | ||||||||||||||||||
| Dividend paid in Series B-1 Preferred Stock | – | – | – | – | 168,783 | 42,196 | ||||||||||||||||||
| Conversion of Series B and B-1 Preferred Stock to Common Stock | (6,507,492 | ) | (1,301,500 | ) | (14,031,834 | ) | (3,507,981 | ) | (7,989,838 | ) | (4,658,123 | ) | ||||||||||||
| June 30, 2021 | – | $ | – | – | $ | – | – | $ | – | |||||||||||||||
| Convertible Preferred Stock | ||||||||||||||||||||||||
| Series B | Series B-1 | Series C-1 | ||||||||||||||||||||||
| December 31, 2019 | 21,251,890 | $ | 4,250,380 | 22,758,670 | $ | 5,689,690 | 13,384,760 | $ | 6,841,409 | |||||||||||||||
| Dividend paid in Series B-1 Preferred Stock | – | – | – | – | 254,581 | 64,748 | ||||||||||||||||||
| Conversion of Series B, B-1, and C-1 Preferred Stock to Common Stock | (7,804,900 | ) | (1,560,980 | ) | (682,591 | ) | (171,749 | ) | (103,000 | ) | (41,200 | ) | ||||||||||||
| June 30, 2020 | 13,446,990 | $ | 2,689,400 | 22,076,079 | $ | 5,517,941 | 13,536,341 | $ | 6,864,957 | |||||||||||||||
| F-25 |
Note 19. 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.
As of June 30, 2021 and December 31, 2020, the Company has granted stock-based compensation to employees, including a 500,000 share stock award, which was issued in 2018 and vests at the end of four years, and a 5,000,000 stock option that was issued in 2020 and cliff vests at the end of five years. For the six months ended June 30, 2021 and 2020, stock-based compensation was $223,056 and $23,057. In 2020, the Company also granted non-statutory stock options, including 4,000,000 stock options to the Board of Directors, which vests over 1 year, and a 10,000,000 stock option to a consultant, which vests over 4 years. Non-statutory stock-based compensation was $730,000 and none for the six months ended June 30, 2021 and 2020.
There were no other options granted during the six months ended June 30, 2021 and 2020, respectively.
The following table summarizes all stock option activity of the Company for the six months ended June 30, 2021:
| Weighted | ||||||||||||
| Weighted | Average | |||||||||||
| Average | Remaining | |||||||||||
| Number | Exercise | Contractual | ||||||||||
| of Shares | Price | Life (Years) | ||||||||||
| Outstanding, December 31, 2020 | 19,500,000 | $ | 0.40 | 6.41 | ||||||||
| Granted | – | – | – | |||||||||
| Exercised | – | – | – | |||||||||
| Forfeited | – | – | – | |||||||||
| Outstanding, June 30, 2021 | 19,500,000 | $ | 0.40 | 5.91 | ||||||||
| Exercisable, December 31, 2020 | 1,412,500 | $ | 0.40 | 3.38 | ||||||||
| Exercisable, June 30, 2021 | 3,250,000 | $ | 0.40 | 5.10 |
As of June 30, 2021, 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 June 30, 2021 and 2020, the Company had none and 1,060,000 warrants outstanding. These warrants relate to the warrants issued as an incentive to investors with an investment into the Company. The outstanding warrants were issued at $0.40 per share of Common Stock. The warrants were granted for a one-year period.
Management uses the Black-Scholes option pricing model to determine the fair value of warrants on the date of issuance. The fair value of warrants issued pursuant to the issuance of notes payable was recorded as deferred debt issuance cost and amortized over the remaining term of the associated debt.
The assumptions used in the Black-Scholes option pricing model to determine the fair value of the warrants on the date of issuance are as follows:
| Risk-free interest rate | 1.2% |
| Expected dividend yield | None |
| Expected life of warrants | 1 years |
| Expected volatility rate | 119% |
| F-26 |
The following table summarizes the activity of the Company’s share purchase warrants:
| Weighted | ||||||||||||
| average | Aggregate | |||||||||||
| Number of | exercise | Intrinsic | ||||||||||
| warrants | price | Value | ||||||||||
| Balance, December 31, 2019 | 1,080,000 | $ | 0.40 | $ | – | |||||||
| Expired | (1,060,000 | ) | 0.40 | – | ||||||||
| Exercised | (20,000 | ) | 0.40 | – | ||||||||
| Balance, December 31, 2020 | – | $ | – | $ | – | |||||||
There were no share purchase warrants outstanding as of June 30, 2021. As of June 30, 2020, the following share purchase warrants were outstanding:
| Number of warrants outstanding | Exercise price | Expiration date | ||||||||||
| Balance, December 31, 2019 | 1,060,000 | $ | 0.40 | December 2020 | ||||||||
Note 20. 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 $723,911 and a benefit of $8,171 for the six months ended June 30, 2021 and 2020, respectively. The Company is projecting a 6.51% effective tax rate for the year ending December 31, 2021, which is primarily the result of projected provision from book income incurred for the year. The Company recorded income tax expense of $723,911 and $56,158 for the six months ended June 30 31, 2021 and 2020, respectively. The Company’s effective tax rate for 2020 was (21.97%) which was the result of the benefit of book losses offset by additional valuation allowance on the net operating losses.
As of December 31, 2020, the Company had estimated federal and state net operating loss (NOL) carryforwards of approximately $11.7 million and $5.2 million, respectively. Federal NOL carryforwards begin to expire in 2026.
Note 21. Related Party Transactions
The Company provided secured loan financing and assistance to the development and commercialization of two bioactive beverages and one weight loss beverage for Vivaceuticals, Inc., which shared a common officer and board of director member with the Company. Vivaceuticals sold its assets to Scepter Holdings, Inc. in 2018. In 2019, the Company received 800,000 shares of preferred stock in Scepter Holdings, Inc. to extinguish the loan encumbering the assets. The Company has converted these preferred shares into 800,000,000 shares of Common Stock of Scepter Holdings, Inc., which is traded on the OTC Markets (ticker: BRZL) (see Note 3). In 2019 we entered into a Convertible Master Revolving Note with Scepter and over the course of approximately two years lent them $71,000, which accrued 7% interest per annum (see Note 8). As of June 30, 2021 the principal balance with all accrued interest was $80,940. As of June 30, 2021, the Company’s Chief Executive Officer has an immediate family member who sits on the board of directors of Scepter Holdings, Inc.
The Company has a consulting contract with LBL Professional Consulting, Inc. (“LBL”), which shares a common officer with the Company. For the six months ended June 30, 2021 and 2020, LBL provided services in the amount of $131,560 and $120,228. On December 17, 2020, the Company granted non-statutory stock options to LBL for 10,000,000 shares of Common Stock. The stock options vest over four years. The stock options are exercisable for up to ten years from the grant date. The common officer is not the beneficiary of the Company and is not permitted to participate in any discussion, including the LBL’s board meetings, regarding any Company stock that LBL may own at any time.
| F-27 |
In July 2020, the Company entered into an agreement with IME giving IME the option to purchase approximately 1,331 ounces of our precious metal concentrate for approximately $2,800,000. VVMCI, a wholly owned subsidiary of Vivakor, Inc. owns all of the Class A Units of IME, which have sole voting power for all material matters except for removal of the manager, and VVMCI serves as a manager of IME. For the year ended December 31, 2020, the Company sold $54,250 of the precious metal concentrate through this option. The option agreement expired on December 31, 2020, and the parties are currently negotiating if they will extend the option agreement.
The Company has a note payable to Triple T, which is owned by the 51% majority-owner of Vivakor Middle East LLC. As of June 30, 2021 and December 31, 2020 the balance owed was $369,188 and $295,543.
As of December 31, 2020, the Company had a common board of directors member with CannaPharmaRx Inc. The Company has a $33,000 account receivable with CannaPharmaRx Inc. for leasing office space to this entity. As of December 31, 2020, the Company recorded an allowance for doubtful accounts on these receivables in the amount of $33,000. As of January 1, 2021 the Company no longer leases office space to this entity.
Note 22. Subsequent Events
The Company has evaluated subsequent events through October 5, 2021, the date the financial statements were available to issue.
Subsequent to June 30, 2021, the Company exercised its right to convert the balance and all accrued interest of convertible promissory notes in the amount of $110,000 into 595,283 shares of Common Stock.
Subsequent to June 30, 2021, VWFI has raised $1,210,000 in conjunction with the $25,000,000 private placement offering to sell convertible promissory notes, which convert to VWFI LLC units, to accredited investors to raise funds to manufacture equipment that manufacture RPC Series B. Subsequent to June 30, 2021, VWFI has also converted $1,805,000 of convertible debt into VWFI LLC units.
In August 2021, the Company converted its Scepter Holdings, Inc. note receivable, with the principal balance and all accrued interest totaling $80,940, into 26,376,882 common shares of the borrower.
In August 2021, the Company paid off a matured convertible promissory note and all of its accrued interest, totaling $175,200.
| F-28 |
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Vivakor, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Vivakor, Inc. (the Company) as of December 31, 2019, and the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for the year ended December 31, 2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for the year ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the entity’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Hall & Company CPAS
We have served as the Company's auditor since 2019.
Irvine, CA
November 6, 2020
| F-29 |
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Vivakor, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Vivakor, Inc. (the Company) as of December 31, 2020, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the entity’s management. Our responsibility is to express an opinion on the entity’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Macias Gini & O’Connell LLP
Irvine, California
We have served as the Company's auditor since 2021.
April 9, 2021
| F-30 |
VIVAKOR, INC.
| December 31, | ||||||||||||
| 2020 | 2019 | Pro Forma* | ||||||||||
| ASSETS | (Unaudited) | |||||||||||
| Current assets: | ||||||||||||
| Cash and cash equivalents | $ | 309,404 | $ | 93,361 | $ | 309,404 | ||||||
| Cash and cash equivalents attributed to variable interest entity | 89,500 | 511,542 | 89,500 | |||||||||
| Accounts Receivable, less allowances of $33,000 and $21,000, respectively | 7,735 | – | 7,735 | |||||||||
| Marketable securities, trading | 4,016,951 | – | 4,016,951 | |||||||||
| Inventories | 525,744 | 525,744 | 525,744 | |||||||||
| Precious metal concentrate | 1,166,709 | 1,183,228 | 1,166,709 | |||||||||
| Prepaid expenses and other assets | 87,052 | 202,392 | 87,052 | |||||||||
| Total current assets | 6,203,095 | 2,516,267 | 6,203,095 | |||||||||
| Equity method investments | – | 727,129 | – | |||||||||
| Other investments | 4,000 | 28,000 | 4,000 | |||||||||
| Notes receivable | 78,455 | 844,892 | 78,455 | |||||||||
| Property and equipment, net | 18,152,699 | 15,925,548 | 18,152,699 | |||||||||
| Rights of use assets- operating leases | 881,804 | 1,167,149 | 881,804 | |||||||||
| License agreement, net | 2,013,810 | 2,134,639 | 2,013,810 | |||||||||
| Intellectual property, net | 14,966,627 | 16,260,169 | 14,966,627 | |||||||||
| Total assets | $ | 42,300,490 | $ | 39,603,793 | $ | 42,300,490 | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) AND TEMPORARY EQUITY | ||||||||||||
| Current liabilities: | ||||||||||||
| Accounts payable and accrued expenses | $ | 1,350,808 | $ | 871,867 | $ | 1,350,808 | ||||||
| Stock payable | – | 11,800,000 | – | |||||||||
| Operating lease liabilities, current | 276,699 | 345,442 | 276,699 | |||||||||
| Loans and notes payable, current | 1,332,770 | 662,179 | 1,332,770 | |||||||||
| Loans and notes payable, current attributed to variable interest entity | 735,000 | 31,966 | 735,000 | |||||||||
| Long-term debt, current | 593,457 | 126,535 | 593,457 | |||||||||
| Total current liabilities | 4,288,734 | 13,837,989 | 4,288,734 | |||||||||
| Operating lease liabilities, long term | 618,696 | 826,010 | 618,696 | |||||||||
| Loans and notes payable, long term | 777,928 | – | 777,928 | |||||||||
| Long-term debt | 4,358,203 | 3,900,923 | 4,358,203 | |||||||||
| Deferred income tax liabilities | 6,207,905 | 5,702,751 | 6,207,905 | |||||||||
| Total liabilities | 16,251,466 | 24,267,673 | 16,251,466 | |||||||||
| Redeemable, convertible preferred stock, $.001 par value; 348,000,000 shares authorized; | ||||||||||||
| Series B- 12.5%, cumulative, 6,507,492 and 21,251,890 issued and outstanding as of December 31, 2020 and 2019 | 1,301,500 | 4,250,380 | – | |||||||||
| Series B-1- 14,031,834 and 22,758,670 issued and outstanding as of December 31, 2020 and 2019 | 3,507,981 | 5,689,690 | – | |||||||||
| Series C-1- 7,658,680 and 13,384,760 issued and outstanding as of December 31, 2020 and 2019 | 4,550,977 | 6,841,409 | ||||||||||
| Total temporary equity | 9,360,458 | 16,781,479 | ||||||||||
| Stockholders' equity (deficit): | ||||||||||||
| Convertible, preferred stock, $.001 par value; 102,000,000 shares authorized; Series A- 2,000,000 issued and outstanding | 2,000 | 2,000 | – | |||||||||
| Common stock, $.001 par value; 1,250,000,000 shares authorized; 337,679,020 and 285,343,964 were issued and outstanding as of December 31, 2020 and 2019 | 337,679 | 285,344 | 390,877 | |||||||||
| Additional paid-in capital | 45,294,790 | 24,793,943 | 54,604,050 | |||||||||
| Treasury stock, at cost | (20,000 | ) | (20,000 | ) | (20,000 | ) | ||||||
| Accumulated deficit | (30,204,992 | ) | (27,848,500 | ) | (30,204,992 | ) | ||||||
| Total Vivakor, Inc. stockholders' equity (deficit) | 15,409,477 | (2,787,213 | ) | 24,769,935 | ||||||||
| Noncontrolling interest | 1,279,089 | 1,341,854 | 1,279,089 | |||||||||
| Total stockholders' equity (deficit) | 16,688,566 | (1,445,359 | ) | 26,049,024 | ||||||||
| Total liabilities and stockholders’ equity (deficit) and temporary equity | $ | 42,300,490 | $ | 39,603,793 | $ | 42,300,490 | ||||||
* See Note 3 of the consolidated financial statements for further details in the preparation our pro forma financial information.
See accompanying notes to consolidated financial statements
| F-31 |
VIVAKOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
| Year Ended | ||||||||
| December 31, | ||||||||
| 2020 | 2019 | |||||||
| Revenues | $ | 1,457,781 | $ | – | ||||
| Cost of revenues | 1,356,378 | – | ||||||
| Gross profit | 101,403 | – | ||||||
| Operating expenses: | ||||||||
| Sales and marketing | 567,290 | 18,559 | ||||||
| General and administrative | 2,806,238 | 748,348 | ||||||
| Bad debt expense | 13,645 | 12,000 | ||||||
| Amortization and depreciation | 1,562,622 | 1,524,274 | ||||||
| Total operating expenses | 4,949,795 | 2,303,181 | ||||||
| Loss from operations | (4,848,392 | ) | (2,303,181 | ) | ||||
| Other income: | ||||||||
| Equity investment loss | (37,665 | ) | (72,871 | ) | ||||
| Gain on extinguished debt | – | 607,536 | ||||||
| Realized loss on conversion of note receivable | (121,428 | ) | – | |||||
| Unrealized gain on marketable securities | 2,614,338 | – | ||||||
| Interest income | 35,344 | 73,761 | ||||||
| Interest expense | (86,162 | ) | (9,288 | ) | ||||
| Other income | 39,560 | 19,039 | ||||||
| Total other income | 2,443,987 | 618,177 | ||||||
| Loss before provision for income taxes | (2,404,405 | ) | (1,685,004 | ) | ||||
| Provision for income taxes | (466,964 | ) | (589,203 | ) | ||||
| Consolidated net loss | (2,871,369 | ) | (2,274,207 | ) | ||||
| Less: Net loss attributable to noncontrolling interests | (687,672 | ) | (114,965 | ) | ||||
| Net loss attributable to Vivakor, Inc. | $ | (2,183,697 | ) | $ | (2,159,242 | ) | ||
| Net loss attributable to common shareholders | $ | (2,183,697 | ) | $ | (2,159,242 | ) | ||
| Dividend on preferred stock | 172,795 | 495,054 | ||||||
| $ | (2,356,492 | ) | $ | (2,654,296 | ) | |||
| Loss per common share- basic and diluted | $ | (0.01 | ) | $ | (0.01 | ) | ||
| Weighted average number of common shares- basic and diluted | 309,305,009 | 257,611,762 | ||||||
| Pro forma loss per common share- basic and diluted* | $ | (0.01 | ) | $ | (0.01 | ) | ||
| Pro forma weighted average number of common shares- basic and diluted* | 362,503,015 | 310,809,768 | ||||||
* See Note 3 of the consolidated financial statements for further details in the preparation our pro forma financial information.
See accompanying notes to consolidated financial statements
| F-32 |
VIVAKOR, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY(DEFICIT)
| Series A Preferred Stock | Common Stock | |||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Additional Paid-in Capital | Treasury Stock | Accumulated Deficit | Non-controlling Interest | Total Stockholders' Equity (Deficit) | ||||||||||||||||||||||||||||
| December 31, 2018 | 2,000,000 | $ | 2,000 | 230,256,188 | $ | 230,257 | $ | 13,363,511 | $ | (20,000 | ) | $ | (25,194,204 | ) | $ | (7,181 | ) | $ | (11,625,617 | ) | ||||||||||||||||
| Common Stock issued for reduction in liabilities | – | – | 209,414 | 209 | 53,291 | – | – | – | 53,500 | |||||||||||||||||||||||||||
| Common Stock issued for services | – | – | 1,155,779 | 1,156 | 218,441 | – | – | – | 219,597 | |||||||||||||||||||||||||||
| Exercise of Common Stock warrants | – | – | 230,000 | 230 | 91,752 | – | – | – | 91,982 | |||||||||||||||||||||||||||
| Conversion of temporary equity Series B, B-1, and C-1 Preferred Stock to Common Stock | – | – | 53,492,583 | 53,492 | 11,018,527 | – | – | – | 11,072,019 | |||||||||||||||||||||||||||
| Stock based compensation | – | – | – | – | 48,421 | – | – | – | 48,421 | |||||||||||||||||||||||||||
| Issuance of noncontrolling interest | – | – | – | – | – | – | – | 1,464,000 | 1,464,000 | |||||||||||||||||||||||||||
| Dividend paid in Series B-1 Preferred Stock | – | – | – | – | – | – | (495,054 | ) | – | (495,054 | ) | |||||||||||||||||||||||||
| Net loss | – | – | – | – | – | – | (2,159,242 | ) | (114,965 | ) | (2,274,207 | ) | ||||||||||||||||||||||||
| December 31, 2019 | 2,000,000 | $ | 2,000 | 285,343,964 | $ | 285,344 | $ | 24,793,943 | $ | (20,000 | ) | $ | (27,848,500 | ) | 1,341,854 | $ | (1,445,359 | ) | ||||||||||||||||||
| Common Stock issued for reduction in stock payable | – | – | 20,000,000 | 20,000 | 11,780,000 | – | – | – | 11,800,000 | |||||||||||||||||||||||||||
| Common Stock issued for a reduction in liabilities | – | – | 274,922 | 275 | 135,718 | – | – | – | 135,993 | |||||||||||||||||||||||||||
| Common Stock issued for cash | – | – | 228,000 | 228 | 40,800 | – | – | – | 41,028 | |||||||||||||||||||||||||||
| Common Stock issued for services | – | – | 700,000 | 700 | 280,531 | – | – | – | 281,231 | |||||||||||||||||||||||||||
| Conversion of temporary equity Series B, B-1, and C-1 Preferred Stock to Common Stock | – | – | 31,132,130 | 31,132 | 7,562,684 | – | – | – | 7,593,816 | |||||||||||||||||||||||||||
| Stock options issued for services | – | – | – | – | 555,000 | – | – | – | 555,000 | |||||||||||||||||||||||||||
| Stock based compensation | – | – | – | – | 146,114 | – | – | – | 146,114 | |||||||||||||||||||||||||||
| Issuance of noncontrolling interest | – | – | – | – | – | – | – | 624,907 | 624,907 | |||||||||||||||||||||||||||
| Dividend paid in Series B-1 Preferred Stock | – | – | – | – | – | – | (172,795 | ) | – | (172,795 | ) | |||||||||||||||||||||||||
| Net loss | – | – | – | – | – | – | (2,183,697 | ) | (687,672 | ) | (2,871,369 | ) | ||||||||||||||||||||||||
| December 31, 2020 | 2,000,000 | $ | 2,000 | 337,679,020 | $ | 337,679 | $ | 45,294,790 | $ | (20,000 | ) | $ | (30,204,992 | ) | $ | 1,279,089 | $ | 16,688,566 | ||||||||||||||||||
See accompanying notes to consolidated financial statements
| F-33 |
VIVAKOR, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
| Year Ended | ||||||||
| December 31, | ||||||||
| 2020 | 2019 | |||||||
| OPERATING ACTIVITIES: | ||||||||
| Consolidated net loss | $ | (2,871,369 | ) | $ | (2,274,207 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 1,562,622 | 1,524,274 | ||||||
| Bad debt expense | 13,645 | 12,000 | ||||||
| Equity investment loss | 37,665 | 72,871 | ||||||
| Gain on extinguished debt | – | (607,536 | ) | |||||
| Common stock issued for services | 281,231 | 219,597 | ||||||
| Common stock options issued for services | 555,000 | – | ||||||
| Realized loss on conversion of note receivable | 121,428 | – | ||||||
| Unrealized gain- marketable securities | (2,614,338 | ) | – | |||||
| Deferred income taxes | 466,164 | 588,403 | ||||||
| Stock-based compensation | 146,114 | 48,421 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (19,735 | ) | (11,730 | ) | ||||
| Precious metal concentrate | 16,519 | – | ||||||
| Other assets | (2,549 | ) | (250,590 | ) | ||||
| Right of use assets | 285,345 | (1,167,149 | ) | |||||
| Operating lease activities | (285,345 | ) | 1,167,151 | |||||
| Accounts payable | 517,931 | 547,494 | ||||||
| Accrued interest on notes receivable | (35,344 | ) | (73,761 | ) | ||||
| Accrued interest on notes payable | 71,361 | 9,288 | ||||||
| Net cash used in operating activities | (1,753,655 | ) | (195,474 | ) | ||||
| INVESTING ACTIVITIES: | ||||||||
| Issuance of notes receivable | (10,441 | ) | (112,122 | ) | ||||
| Payment on costs of patents | (18,854 | ) | (81,210 | ) | ||||
| Purchase of equipment | (1,197,922 | ) | (1,861,667 | ) | ||||
| Net cash used in investing activities | (1,227,217 | ) | (2,054,999 | ) | ||||
| FINANCING ACTIVITIES: | ||||||||
| Proceeds from long-term debt | – | 2,418,142 | ||||||
| Payment of long-term debt | (116,535 | ) | (2,123,708 | ) | ||||
| Proceeds from loans and notes payable | 2,231,796 | 89,960 | ||||||
| Proceeds from the sale of common stock | 41,028 | – | ||||||
| Payment of notes payable | (6,323 | ) | (1,480 | ) | ||||
| Proceeds from exercised stock warrants for cash | – | 91,982 | ||||||
| Issuance of noncontrolling interest | 624,907 | 1,464,000 | ||||||
| Net cash provided by financing activities | 2,774,873 | 1,938,896 | ||||||
| Net increase (decrease) in cash and cash equivalents | (205,999 | ) | (311,577 | ) | ||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 604,903 | 916,480 | ||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 398,904 | $ | 604,903 | ||||
| SUPPLEMENTAL CASHFLOW INFORMATION: | ||||||||
| Cash paid during the year for: | ||||||||
| Interest | – | – | ||||||
| Income taxes | – | – | ||||||
| Noncash transactions: | ||||||||
| Conversion of Series B, B-1, and C-1 Preferred Stock to Common Stock | $ | 7,593,816 | $ | 11,072,019 | ||||
| Stock issued for a reduction in liabilities | $ | 11,935,993 | $ | 53,500 | ||||
| Dividend paid in Series B-1 Preferred Stock | $ | 172,795 | $ | 495,054 | ||||
| Series C-1 Preferred Stock issued for the purchase of equipment | $ | – | $ | 507,044 | ||||
| Extinguished debt for equity investment | $ | – | $ | 25,314 | ||||
| Extinguished notes receivable for equity investment | $ | 809,578 | $ | 800,000 | ||||
| Capitalized interest on construction in process | $ | 1,025,852 | $ | 1,061,215 | ||||
See accompanying notes to consolidated financial statements
| F-34 |
VIVAKOR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization and Basis of Presentation
Vivakor, Inc. (collectively “we”, “us,” “our,” “Vivakor” or the “Company”) is a socially responsible operator, acquirer and developer of clean energy technologies and environmental solutions, which is currently focused on soil remediation in the United States and Kuwait, and we have corporate offices in Utah, California, and in Qatar. We specialize in the remediation of soil from properties contaminated by or laden with heavy crude oil and other substances. 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 C-corporation and changed its name to Vivakor, Inc. pursuant to Articles of Conversion filed with the Nevada Secretary of State.
On December 18, 2020, our Board of Directors and stockholders holding a majority of our outstanding voting shares, authorized a reverse stock split of each of the outstanding shares of the Corporation’s common stock, $0.001 par value per share, as well as each of the outstanding shares of the Corporation’s preferred stock, at a ratio to be determined by the Board of within a range of a minimum of a one-for-twelve (1-for-12) to a maximum of one-for-forty (1-for-40) (the “Reverse Stock Split Ratio”), with the exact ratio to be set at a number within this range as determined by the Board in its sole discretion, with no change in par value. The Board of Directors has not approved a stock split ratio as of the date of this report.
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 is having 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 have issued policies intended to stop or slow the further spread of the disease.
COVID-19 and the U.S. response to the pandemic are significantly affecting the economy. There are no comparable events that provide guidance as to the effect the COVID-19 pandemic may have, and, as a result, the ultimate effect of the pandemic is highly uncertain and subject to change. We do not yet know the full extent of the effects on the economy, the markets we serve, our business, or our operations. In March 2020 we temporarily suspended operations in Kuwait and Utah due to COVID-19 government restrictions and as of the date of this report we have not resumed operations in Kuwait.
Note 2. Liquidity
We have historically suffered net losses and cumulative negative cash flows from operations and, as of December 31, 2020, we had an accumulated deficit of approximately $30 million. As of December 31, 2020 we had cash of $309,404. To date we have financed our operations primarily through debt financing, private equity offerings and our working interest agreements. For the years ended December 31, 2020 and 2019, we issued $624,907 and $1,464,000 noncontrolling units of RDM, respectively, we received proceeds of none and $2,418,142 from our working interest agreements with VV UTSI and VV RII, made payments on our working interest agreements with VV UTSI and RII of $116,535 and $2,123,708, and we also received proceeds of $2,231,796 and $89,960 related to the issuance of convertible bridge notes and other loans. For the year ended December 31, 2020, as included in the proceeds above, we obtained Paycheck Protection Program loans for $295,745 that may be forgiven under the CARES Act, if we can demonstrate that the proceeds from the loan were used for eligible expenses. We also obtained a loan from the Small Business Administration in the amount of $299,900 in May 2020, as included in the proceeds above. We believe we have other liquid assets that may be used to assist in financing the operations of the Company if needed, including marketable securities in Odyssey and Scepter, which hold a fair value of $4,016,951 as of December 31, 2020 and have been deposited for trading. Subsequent to December 31, 2020, the Company has also obtained further financing of approximately $1,715,000 through the operations of Viva Wealth Fund I, LLC, and approximately $855,100 from various convertible promissory notes, and a PPP loan. We believe the liquid assets from the Company’s available for sale investments and provided from subsequent fundraising activities of the Company give it adequate working capital to finance our day-to-day operations for at least twelve months through April 2022.
| F-35 |
Note 3. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with the Financial Accounting Standards Board (“FASB”) “FASB Accounting Standard Codification™” (the “Codification”) which is the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of consolidated financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States. Separate pro forma earnings per share information has been prepared in the statements of operations for the years ended December 31, 2020 and 2019, giving the effect of the conversion of certain preferred stock in conjunction with an anticipated public offering of the Company’s common stock.
All figures are in U.S. dollars unless indicated otherwise.
Principles of Consolidation
The consolidated financial statements include the accounts of Vivakor, Inc., its wholly owned and majority-owned active subsidiaries, or joint ventures (collectively, the “Company”). Intercompany balances and transactions between consolidated entities are eliminated. Inactive entities have no value, assets or liabilities. Vivakor has the following wholly and majority-owned subsidiaries: Vivaventures Management Company, Inc., Vivaventures Energy Group, Inc. (99%), Vivaventures Oil Sands, Inc., Vivasphere, Inc., Vivasight, Inc. (inactive), and Vivathermic, Inc. (inactive). Vivakor maintains an interest in the following entities: Health America, Inc. (39%, inactive), VVPM 100, LLC (inactive), which is managed by Vivakor, VPM VII, LLC (inactive), which is managed by Vivakor, Vivakor Middle East, LLC (49%, consolidated), VivaRRT, LLC (50%, inactive). The Company withdrew from VivaVentures Precious Metal, LLC (39%, equity method investment) in July 2020. Vivakor manages and consolidates RPC Design and Manufacturing LLC, which includes a noncontrolling interest investment from Vivaopportunity Fund, LLC, which is also managed by Vivaventures Management Company, Inc. Vivakor has common officers with and consolidates Viva Wealth Fund I, LLC.
The Company follows ASC 810-10-15 guidance with respect to accounting for Variable Interest Entities (“VIE”). A VIE is an entity that does not have sufficient equity at risk to finance its activities without additional subordinated financial support from other parties, or whose equity investors lack any of the characteristics of a controlling financial interest. A variable interest is an investment or other interest that will absorb portions of a VIE’s expected losses or receive portions of the entity’s expected residual returns. Variable interests are contractual, ownership, or other pecuniary interests that change with changes in the fair value of the entity’s net assets. A party is the primary beneficiary of a VIE and must consolidate it when that party has a variable interest, or combination of variable interests, that provides the party with a controlling financial interest. A party is deemed to have a controlling financial interest if it meets both of the power and losses/benefits criteria. The power criterion is the ability to direct the activities of the VIE that most significantly impact its economic performance. The losses/benefits criterion is the obligation to absorb losses from, or right to receive benefits from, the VIE that could potentially be significant to the VIE. The VIE model requires an ongoing reconsideration of whether a reporting entity is the primary beneficiary of a VIE due to changes in facts and circumstances. For the years ended December 31, 2020 and 2019 the following entities are considered to be a VIE and is consolidated in our consolidated financial statements: Viva Wealth Fund I, LLC (organized and operated during 2020) and RPC Design and Manufacturing, LLC. For the years ended December 31, 2020 and 2019 the following entities were considered to be a VIE, but were not consolidated in our consolidated financial statements due to a lack of the power criterion or the losses/benefits criterion: Vivaventures UTSI, LLC, Vivaventures Royalty II, LLC, Vivaopportunity Fund, LLC, and International Metals Exchange, LLC. For the years ended December 31, 2020 and 2019 the unaudited financial information for the unconsolidated VIEs is as follows: Vivaventures UTSI, LLC held assets of $3,113,292 and $2,341,192 (where the primary asset represents a receivable from the Company), and liabilities of $41,894 and $40,019. Vivaventures Royalty II, LLC held assets of $2,117,066 and $1,776,360 (where the primary asset represents a receivable from the Company), and liabilities of $300. Vivaopportunity Fund LLC held assets of $2,119,972 and $1,793,000 (where the primary asset represents a noncontrolling interest in units of a consolidated entity of the Company) and no liabilities. International Metals Exchange, LLC held assets of $82,711 and none and liabilities of $4,900 and none.
| F-36 |
RPC Design and Manufacturing, LLC: The Company established RPC Design and Manufacturing, LLC (“RDM”) in December 2018 with a business purpose of manufacturing custom machinery and selling or leasing the manufactured equipment in long term contracts with financing or leasing activities to the Company. We own 100% of the voting rights in the RDM. We, as the sole general partner of RDM, have the full, exclusive and complete right, power and discretion to operate, manage and control the affairs of RDM and take certain actions necessary to maintain RDM in good standing without the consent of the limited partners. RDM has entered into a license agreement with the Company indicating that while RDM builds custom machinery incorporating the Company’s hydrocarbon extraction technology, RDM will pay the Company a license fee of $500,000 per Remediation Processing Center manufactured. Creditors of RDM have no recourse to the general credit of the Company. For the years ended December 31, 2020 and 2019 investors in RDM have a noncontrolling interest of $2,110,000 and $1,464,000, respectively. We have the primary risk (expense) exposure in financing and operating the assets and are responsible for 100% of the operation, maintenance and any unfunded capital expenditures, which ultimately could be 100% of a custom machine, and the decisions related to those expenditures including budgeting, financing and dispatch of power. Based on all these facts, it was determined that we are the primary beneficiary of RDM. Therefore, RDM has been consolidated by the Company. Any intercompany revenue and expense associated with RDM and its license agreement with the Company has been eliminated in consolidation.
Viva Wealth Fund I, LLC: The Company assisted in designing and organizing Viva Wealth Fund I, LLC (“VWFI”) in November 2020, as a special purpose entity, for the purpose of manufacturing, leasing and selling custom equipment solely to the Company. The Company commenced co-managing VWFI with Wealth Space, LLC, an unaffiliated entity, but as of the date of this report Wealth Space, LLC is the sole manager. The Company has been retained by the manager and continues to have common officers with VWFI, including our CEO and CFO, who will assist in the day-to-day operations. VWFI has also retained the Company to act as its sole Plant manager, and we will manage and direct all of the manufacturing, leasing and selling of custom equipment in behalf of VWFI to the Company. In November 2020, VWFI commenced a $25,000,000 private placement offering to sell convertible promissory notes, which convert to VWFI LLC units, to accredited investors to raise funds to manufacture equipment that will expand the Company’s second RPC. In the event that VWFI does not raise at least $6,250,000 by the offering termination date (November 13, 2021, which date may be extended until November 13, 2022 in the sole discretion of the Company), then the convertible notes and/or units would convert into Vivakor common stock where the minimum conversion price will not be lower than 200% of the per share price of the Company common stock sold in an underwritten offering pursuant to the Company becoming listed on a senior stock exchange (i.e. The Nasdaq Capital Market or New York Stock Exchange). As of April 1, 2021 VWFI has raised approximately $3,135,000 of the $6,250,000. VWFI unit holders may also sell their units to the Company for their principal investment amount on the 3rd, 4th, and 5th anniversary of the offering termination date. The Company also has the option to purchase any LLC units where the members did not exercise their conversion option under the same terms and pricing. VWFI has entered into a license agreement with the Company indicating that VWFI will pay the Company a license fee of $1,000,000 per series of equipment manufactured with the Company’s proprietary technology. All of the operations of VWFI relate to private placement offering to fund and manufacture proprietary equipment for the Company, as intended in VWFI’s design and organization by the Company, so that the Company controls VWFI in its business purpose, use of proceeds, and selling and leasing of its equipment solely to the Company. Creditors of VWFI have no recourse to the general credit of the Company. We have the primary risk (expense) exposure in financing and operating the assets and are responsible for 100% of the operation, and any unfunded capital expenditures, and the expense to the unit holders in conversion to common stock if series of equipment cannot be fully funded, which ultimately could be 100% of any custom machine. We are responsible for the decisions related to the expenditures of VWFI proceeds including budgeting, financing and dispatch of power surrounding the series of equipment. Based on all these facts, it was determined that we are the primary beneficiary of VWFI. Therefore, VWFI has been consolidated by the Company.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less when acquired to be cash equivalents. As of December 31, 2020 and 2019, the Company does not have any cash equivalents. The Company places its cash with high credit quality financial institutions. The Company’s accounts at these institutions are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. As of December 31, 2020 and 2019, the Company had bank balances exceeding the FDIC insurance limit. To reduce its risk associated with the failure of such financial institutions, the Company annually evaluates the rating of the financial institutions in which it holds deposits. As of December 31, 2020 and 2019, the Company has cash attributed to variable interest entities of $89,500 and $511,542.
| F-37 |
Accounts Receivable
Accounts receivable are carried at original invoice amount less an estimated allowance for doubtful accounts, if deemed necessary by management, and based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful accounts, if any, by identifying troubled accounts and by using historical experience applied to an aging of accounts. An allowance for doubtful accounts was considered necessary by management as of December 31, 2020 and 2019 in the amounts of $33,000 and $21,000, respectively.
Equity Method Investments
Consolidated net income (loss) includes the Company’s proportionate net income or loss of equity investments. The carrying value of the Company’s equity method investments is increased and decreased by the Company’s proportionate share of the net income or loss of the investee. The carrying value of our equity method investment is also decreased by dividends the Company receives from the investee. As of December 31, 2020 and 2019 the equity method investments consisted of the following:
In 2019 the Company had an investment of $800,000 or 800,000,000 shares of common stock, or a diluted 23% equity holding in Scepter Holdings, Inc. (ticker: BRZL, OTC Markets). In the fourth quarter of 2020, the Company was diluted to a 19% equity holding in Scepter Holdings, Inc., and was no longer deemed to have significant influence and ceased to be an equity investment, and as the stock is traded on an active market, the Company has classified the investment as trading securities for the year ended December 31, 2020 with the change in unrealized gains and losses on the investment included in the statement of operations (see Note 5). For the years ended December 31, 2020 and 2019, the Company was attributed a loss on this equity investment in the amount of $37,665 and $72,871. There were no distributions to the Company in 2020 or 2019 from Scepter Holdings, Inc. As of December 31, 2019 the net value of equity investment was $727,129. As of December 31, 2020 and 2019, the Company’s Chief Executive Officer has an immediate family member who is sits on the board of directors of Scepter Holdings, Inc. The Company’s 800,000,000 shares of common stock of Scepter Holdings, Inc. have a market value of approximately $13,680,000 as of April 1, 2021 based on the quoted market price.
As of December 31, 2019, the Company held a 39% interest in Vivaventures Precious Metals, LLC for which the fair value of this investment is none. In July 2020, the Company withdrew from this LLC.
Cost Method Investments
Investments in marketable securities consist of equity securities recorded at fair value. Fair value is defined as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. We analyze our marketable securities in accordance with Accounting Standard Codification 321 (“ASC 321”). Valuations for marketable securities are based on quoted prices for identical assets in active markets. Where marketable securities were found not be part of an actively traded market, we made a measurement alternative election and estimate the fair value at cost of the investment minus impairment.
As of December 31, 2020 and 2019, the Company owns 1,000 Class A LLC Units in each of the following entities, which are not consolidated: Vivaopportunity Fund LLC, Vivaventures UTSI, LLC and Vivaventures Royalty II, LLC. In 2020 the Company purchased 1,000 Class A Units in International Metals Exchange, LLC. In aggregate these units amount to $4,000 and $3,000 as of December 31, 2020 and 2019. These Class A Units give the Company’s management control of the entities but lack the necessary economics criterion, where the Company lacks the obligation to absorb losses of these entities, as well as the right to receive benefits from the LLCs.
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As of December 31, 2019, the Company owned 2,500,000 shares of common stock in Odyssey Group International, Inc. (ticker: ODYY, OTC Markets), at a cost of $25,000. For the year ended December 31, 2020, the Company noted that this investment began trading on an active market and accounted for such securities based on the quoted price from the OTC Markets where the stock is currently traded (See Note 5). As of December 31, 2019, the Company accounted for such securities at cost minus impairment due to the investment not being traded on an active market noting that the stock was thinly traded.
Convertible Instruments
The Company reviews the terms of convertible debt and preferred stock for indications requiring bifurcation, and separate accounting for the embedded conversion feature. Generally, embedded conversion features where the ability to physical or net-share settle the conversion option is not within the control of the Company or the number of shares is variable are bifurcated and accounted for as derivative financial instruments. (See Derivative Financial Instruments below). Bifurcation of the embedded derivative instrument requires the allocation of the proceeds first to the fair value of the embedded derivative instrument with the residual allocated to the host instrument. The resulting discount to the debt instrument or the redemption value of convertible preferred securities is accreted through periodic charges to interest expense over the term of the agreements or to dividends over the period to the earliest conversion date using the effective interest rate method, respectively.
Derivative Financial Instruments
The Company does not use derivative financial instruments to hedge exposures to cash-flow or market risks. However, certain other financial instruments, such as warrants to purchase the Company’s common stock and the embedded conversion features of debt and preferred instruments that are not considered indexed to the Company’s common stock are classified as liabilities when either (a) the holder possesses rights to net-cash settlement, (b) physical or net share settlement is not within the control of the Company, or (c) based on its anti-dilutive provisions. In such instances, net-cash settlement is assumed for financial accounting and reporting. Such financial instruments are initially recorded at fair value and subsequently adjusted to fair value at the close of each reporting period. Fair value for embedded conversion features and option-based derivative financial instruments is determined using the Monte Carlo Simulation or the Black-Scholes Option Pricing Model, respectively.
Other convertible instruments that are not derivative financial instruments are accounted for by recording the intrinsic value of the embedded conversion feature as a discount from the initial value of the instrument and accreting it back to face value over the period to the earliest conversion date using the effective interest rate method.
Leases
Effective January 1, 2019, we adopted Accounting Standards Codification 842, Leases ("ASC 842"). We determine if an arrangement contains a lease at inception based on whether or not the Company has the right to control the asset during the contract period and other facts and circumstances.
We are the lessee in a lease contract when we obtain the right to control the asset. Operating lease right-of-use ("ROU") assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease, both of which are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. Leases with a lease term of 12 months or less at inception are not recorded on our consolidated balance sheet and are expensed on a straight-line basis over the lease term in our consolidated statement of operations. We determine the lease term by assuming the exercise of renewal options that are reasonably certain. As most of our leases do not provide an implicit interest rate, we use our local incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. ASC 842 is effective for us beginning on January 1, 2019. As of December 31, 2020 and 2019, we recorded right-of-use assets of $881,804 and $1,167,149 and lease obligations of $895,395 and $1,171,452. On adoption, we recognized additional liabilities, with corresponding ROU assets based on the present value of the lease payments over the lease term under current leasing contracts for existing operating leases. There was no statement of operations or cash flow statement impact on adoption, nor were prior periods adjusted.
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The effects of the changes made to our balance sheet at adoption were as follows:
|
Balance at December 31, 2018 |
Impact from ASU 2016-02 Adoption |
Balance at January 1, 2019 |
||||||||||
| Financial statement line item: | ||||||||||||
| Right-of-use assets- operating leases | $ | – | $ | 130,383 | $ | 130,383 | ||||||
| Current lease liabilities | $ | – | $ | (130,383 | ) | $ | (130,383 | ) | ||||
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. No impairment charges were incurred during the years ended December 31, 2020 and 2019 as the Company was still in the early phases of our business plan and operating losses were expected in our early phases. There can be no assurance, however, 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.
Property and equipment, net
Property and equipment are stated at cost or fair value when acquired. Depreciation is computed by the straight-line method and is charged to the statement of operations over the estimated useful lives of the assets. Leasehold improvements are depreciated over the shorter of the estimated useful lives of the assets or the term of the related lease. Impairment losses are recognized for long-lived assets, including definite-lived intangibles, used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are not sufficient to recover the assets' carrying amount. Impairment losses are measured by comparing the fair value of the assets to their carrying amount.
Interest on long-term debt for the development or manufacturing of Company assets is capitalized to the asset until the asset enters production or use, and thereafter all interest is charged to expense as incurred. Maintenance and repairs are charged to expense as incurred. Leasehold improvements are depreciated over the shorter of the estimated useful lives of the assets or the term of the related lease.
The carrying amount and accumulated depreciation of assets sold or retired are removed from the accounts in the year of disposal and any resulting gain or loss is included in results of operations. The estimated useful lives of property and equipment are as follows:
| Computers, software, and office equipment | 1-5 years |
| Machinery and equipment | 3-5 years |
| Vehicles | 5 years |
| Furniture and fixtures | 5 – 10 years |
| Precious metal extraction machinery (heavy extraction equipment) | 10 years |
| Remediation Processing Centers (heavy extraction and remediation equipment) (“RPC”) | 20 years |
| Leasehold improvements | Lesser of the lease term or estimated useful life |
Equipment that is currently being manufactured is considered construction in process and is not depreciated until the equipment is placed into service.
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Intangible Assets:
We account for intangible assets in accordance with ASC 350 “Intangibles-Goodwill and Other” (“ASC 350”). Intangible asset amounts represent the acquisition date fair values of identifiable intangible assets acquired. The fair values of the intangible assets were determined by using the income approach, discounting projected future cash flows based on management’s expectations of the current and future operating environment. The rates used to discount projected future cash flows reflected a weighted average cost of capital based on our industry, capital structure and risk premiums including those reflected in the current market capitalization. Definite-lived intangible assets are amortized over their useful lives, which have historically ranged from 10 to 20 years. The carrying amounts of our definite-lived intangible assets are evaluated for recoverability whenever events or changes in circumstances indicate that the entity may be unable to recover the asset’s carrying amount.
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 have evaluated our intangible assets and found that certain losses and a delay in our business plan does not constitute a triggering event for our intangible assets, and we have assessed that there to be no impairment for the years ended December 31, 2020 and 2019.
Share-Based Compensation
Share-based compensation is accounted for based on the requirements of ASC 718, “Compensation-Stock Compensation’ (“ASC 718”) which requires recognition in the financial statements of the cost of employee, consultant, or director services received in exchange for an award of equity instruments over the period the employee, consultant, or director is required to perform the services in exchange for the award (presumptively, the vesting period). ASC 718 also requires measurement of the cost of employee, consultant, or director services received in exchange for an award based on the grant-date fair value of the award.
Income tax
Deferred income taxes are provided on the asset and liability method whereby deferred income tax assets are recognized for deductible temporary differences and operating loss and tax credit carry-forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred income tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred income tax assets will not be realized. Deferred income tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Our annual effective tax rate is based on our income and the tax laws in the various jurisdictions in which we operate. Judgment is required in determining our annual tax expense and in evaluating our tax positions. We establish reserves to remove some or all of the tax benefit of any of our tax positions at the time we determine that the position becomes uncertain based upon one of the following conditions: (1) the tax position is not "more likely than not" to be sustained; (2) the tax position is "more likely than not" to be sustained, but for a lesser amount; or (3) the tax position is "more likely than not" to be sustained, but not in the financial period in which the tax position was originally taken. For purposes of evaluating whether or not a tax position is uncertain, (1) we presume the tax position will be examined by the relevant taxing authority that has full knowledge of all relevant information; (2) the technical merits of a tax position are derived from authorities such as legislation and statutes, legislative intent, regulations, rulings and case law and their applicability to the facts and circumstances of the tax position; and (3) each tax position is evaluated without considerations of the possibility of offset or aggregation with other tax positions taken. We adjust these reserves, including any impact on the related interest and penalties, in light of changing facts and circumstances, such as the progress of a tax audit. See Note 19 for further information on income tax.
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Revenue Recognition
Effective January 1, 2018, we adopted Accounting Standards Codification 606, Revenue from Contracts with Customers ("ASC 606"). Approximately 96% of our sales consist of the sale of precious metals with a commitment to deliver precious metals to the customer, and revenue is recognized on the settlement date, which is defined as the date on which: (1) the quantity, price, and specific items being purchased have been established, (2) metals have been shipped to the customer, and (3) payment has been received or is covered by the customer’s established credit limit with the Company.
The new standard contains a five-step approach that entities will apply to determine the measurement of revenue and timing of when it is recognized, including (i) identifying the contract(s) with a customer, (ii) identifying the separate performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to separate performance obligations, and (v) recognizing revenue when (or as) each performance obligation is satisfied. The new standard requires a number of disclosures intended to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue, and the related cash flows. The disclosures include qualitative and quantitative information about contracts with customers, significant judgments made in applying the revenue guidance, and assets recognized from the costs to obtain or fulfill a contract.
In order to ensure the revenue recognition in the proper period, we review material sales contracts for proper cut-off based upon the business practices and legal requirements of each country
Our performance obligation generally consists of the promise to sell products or complete services to our customers. Control of the products is transferred upon shipment to our customers' locations, as determined by the specific terms of the contract. Upon transfer of control to the customer, which completes our performance obligation, revenue is recognized. Services are completed upon the terms of each contract, specifically in regard to remediation, when the tonnage of contaminated soil is completed and tested our performance obligation is completed and revenue is recognized. After completion of our performance obligation, we have an unconditional right to consideration as outlined in the contract. Historically, we have not accepted returns so there are no sales allowances. Due to the nature of the product we do accept returns. Our receivables will generally be collected in less than nine months, in accordance with the underlying payment terms.
Advertising Expense
Advertising costs are expensed as incurred. The Company did not have advertising expense for the years ended December 31, 2020 and 2019.
Recent Accounting Pronouncements
Under the Jumpstart Our Business Startups Act, or the JOBS Act, we meet the definition of an “emerging growth company.” We have irrevocably elected to opt-out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act. As a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non- emerging growth companies.
In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2019-12, Simplifying the Accounting for Income Taxes, which eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating taxes during the quarters and the recognition of deferred tax liabilities for outside basis differences. This guidance also simplifies aspects of the accounting for franchise taxes and changes in tax laws or rates, as well as clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. ASU 2019-12 is effective for the Company beginning January 1, 2021. We are currently evaluating the impact that ASU 2019-12 may have on our consolidated financial statements.
In August 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-06 Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which improves Convertible Instruments and Contracts in an Entity’s Own Equity and is expected to improve financial reporting associated with accounting for convertible instruments and contracts in an entity’s own equity. The ASU simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU also simplifies the diluted earnings per share (EPS) calculation in certain areas. We are currently evaluating the impact that ASU 2020-06 may have on our consolidated financial statements.
| F-42 |
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 for the years ended December 31, 2020 and 2019 include the following: convertible notes payable convertible into approximately 1,072,954 and 551,830 shares of common stock, convertible Series A preferred stock convertible into 20,000,000 shares of common stock (in the event of a public offering of the Company’s common stock this will convert to 25,000,000 shares), convertible Series B preferred stock convertible into approximately 6,507,492 and 36,009,711 shares of common stock, convertible Series B-1 preferred stock convertible into approximately 14,031,834 and 23,544,455 shares of common stock, convertible Series C-1 preferred stock convertible into approximately 7,658,680 and 12,117,160 shares of common stock, stock options granted to employees of 5,500,000 shares of common stock, stock options granted to Board members or consultants of 14,000,000 shares of common stock, and warrants of none and 10,080,000 shares of common stock. As of December 31, 2019, a stock payable for 20,000,000 shares of common stock was also outstanding.
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 and equity method investments, lease assets and liabilities, equity method investments, valuation of stock used to acquire assets, and derivatives.
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.
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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 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.
Note 4. Prepaid Expenses and Other Assets
As of December 31, 2020 and 2019, our prepaid expenses and other assets consist of the following:
| December 31, | December 31, | |||||||
| 2020 | 2019 | |||||||
| Prepaid expense on option to purchase land, net (a) | $ | – | $ | 117,889 | ||||
| Deposits (b) | 87,052 | 84,503 | ||||||
| Total Prepaid Expenses and Other Assets | $ | 87,052 | $ | 202,392 | ||||
(a) The Company entered into an Option Agreement in July 2019 for the exclusive right to purchase certain real property commonly known as Asphalt Ridge. The right to purchase the land was purchased for $200,000, which would be applied as a payment on the land if the option is exercised to purchase the land. The agreement gives the Company 12 months for due diligence and to operate on the land. The agreement grants the Company the option to extend the option for an additional 6 months for a cost of $200,000. The Company capitalized the cost of legal expense for this option in the amount of $2,096 bringing the gross value of the option to $202,096. The Company amortized the prepaid over the life of the agreement, 12 months. For the years ended December 31, 2020 and 2019 amortization expense was $117,889 and $84,207. In July 2020, the landowner agreed to amend the Option Agreement to extend the term of this option for an additional 6 months at no cost to the Company. As of December 31, 2020, the Option Agreement has expired, and the Company is currently negotiating an agreement to provide for such option to continue. As the Company negotiates extending the option, it is continuing to operate on the land, pursuant to an arrangement with the landowner.
(b) Various deposits with vendors, professional service agents, or security deposits on office and warehouse leases.
Note 5. Marketable Securities
Investments in marketable securities consist of equity securities recorded at fair value. Fair value is defined as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. We analyze our marketable securities in accordance with Accounting Standard Codification 321 (“ASC 321”). Valuations for marketable securities are based on quoted prices for identical assets in active markets. Where marketable securities were found not be part of an actively traded market, we made a measurement alternative election and estimate the fair value at cost of the investment minus impairment.
| F-44 |
As of December 31, 2019, the Company owned 2,500,000 shares of common stock in Odyssey Group International, Inc. (“Odyssey”) ticker: ODYY, OTC Markets, at a cost of $25,000. As of December 31, 2019, the Company accounted for such securities at cost minus impairment due to the investment not being traded on an active market noting that the stock was thinly traded. In June 2020, the Company converted the outstanding balance of $809,578 of its note receivable with Odyssey into 809,578 shares of Odyssey common stock according to the terms of the note receivable. As of December 31, 2020, the Company owns 3,309,578 shares of Odyssey common stock. The Company noted that Odyssey’s common stock began trading on an active market and classified them as trading securities with the change in unrealized gains and losses on the investment included in the statement of operations. As of December 31, 2020, these marketable securities are classified as trading securities. The Company accounted for such securities based on the quoted price from the OTC Markets where the stock is traded which resulted in the Company recording an unrealized loss on these marketable securities of $56,198 for the year ended December 31, 2020.
In 2019 the Company had an investment of $800,000 or 800,000,000 shares of common stock, or a diluted 23% equity holding in Scepter Holdings, Inc. (“Scepter”), ticker: BRZL, OTC Markets. In the fourth quarter of 2020, the Company was diluted to a 19% equity holding in Scepter, and was no longer deemed to have significant influence and ceased to be an equity investment, and as the stock is traded on an active market, the Company has classified the investment as trading securities for the year ended December 31, 2020 with the change in unrealized gains and losses on the investment included in the statement of operations. As of December, 31, 2020, the Company owns 800,000,000 shares of Scepter. The Company classified these marketable securities as trading securities with the change in unrealized gains and losses on the investment included in the statement of operations. The Company accounted for such securities based on the quoted price from the OTC Markets where the stock is traded which resulted in the Company recording an unrealized gain on marketable securities of $2,670,536 for the year ended December 31, 2020. As of December 31, 2020 and 2019, the Company’s Chief Executive Officer has an immediate family member who sits on the board of directors of Scepter Holdings, Inc.
As of December 31, 2020, marketable securities were $4,016,951. For the year ended December 31, 2020, the Company recorded a total unrealized gain on marketable securities in the statement of operations of $2,614,338.
Note 6. Inventories
Inventories consist primarily of raw materials (including tar-sand stockpiles) and finished goods (which includes Fenix iron). Inventories are valued at the lower of cost or market (net realizable value). The tar-sand stockpiles consist of 400,000 tons of tar sand stockpile and are anticipated to be used as test material for our extraction remediation units. The stockpiles were acquired at a cost of approximately $0.83 per ton or $333,744. The nano Fenix Iron are finished goods that have a 20-year shelf life and were acquired at cost for $192,000.
Note 7. Precious Metal Concentrate
Precious metal concentrate includes metal concentrates located at the Company’s facilities. Concentrates consist of gold, silver, platinum, palladium, and rhodium. Precious metal concentrate was acquired from our funding agreements for extraction operations with Vivaventures Precious Metals LLC from 2013 through 2016. Our precious metal concentrate requires further refining to be sold as a finished product and is valued at the lower of cost or market (net realizable value).
As of December 31, 2020 and 2019, the Company carried a refining reserve of $1,166,709 and $1,183,229 against its precious metal concentrate asset based on estimates that the Company received if it were to sell the precious metal concentrate in its current concentrated form to processing refineries. The Company intends to sell our precious metal concentrate in its current state or refine it into dore bars for sale or monetization and investment purposes. In July 2020, the Company entered into an agreement with International Metals Exchange, LLC (“IME”, a related party) giving IME the option to purchase approximately 1,331 ounces of our precious metal concentrate for approximately $2,800,000. As of December 31, 2020, the Company has sold $54,250 of the precious metal concentrate through this option.
As of December 31, 2020 and 2019 the net realizable value of our precious metal concentrate is $1,166,709 and $1,183,228.
| F-45 |
Note 8. Notes Receivable
Notes receivable consist of the following:
| December 31, | ||||||||
| 2020 | 2019 | |||||||
| Related party receivable (a) | $ | – | $ | 2,202 | ||||
| Odyssey Group International, Inc. note receivable (b) | – | 779,176 | ||||||
| Scepter Holdings, Inc. note receivable (c) | 78,455 | 63,514 | ||||||
| Total Notes Receivable | $ | 78,455 | $ | 844,892 | ||||
(a) In 2019, the Company loaned $2,202 to Vivaopportunity Fund, LLC, which holds a noncontrolling interest in our consolidated financial statements. As of December 31, 2020, the $2,202 has been repaid. The Company is not required to provide any subordinated support to this entity.
(b) We entered into a Master Revolving Note with Odyssey Group International, Inc., (ticker: ODYY, OTC Markets) in January 2017 for the Company to lend up to $450,000 to the holder. The note accrued interest at a rate of 12.5% per annum and accrued monthly on the outstanding principal. The loan was amended in November 2017 to extend the maturity date to lend up to $750,000 and it extended the maturity to January 2020. All outstanding principal and accrued interest of $809,578 was converted to the borrower’s common stock in June 2020 at $1.00 per share for 809,578 shares of common stock.
(c) We entered into a Master Revolving Note with Scepter Holdings, Inc. (ticker: BRZL, OTC Markets) in January 2019 for the Company to lend up to $70,000 to the holder. The note accrues interest at a rate of 7% per annum and accrues monthly on the outstanding principal. The note is convertible into common shares of Scepter Holdings, Inc. at a rate of $0.002 per share or a 50% discount to market on the date of conversion, whichever is less. The note matured in January 2020 and was amended to extend the maturity for an additional year with a maturity of January 2022 and the maximum amount of note was increased to $100,000.
Note 9. Property and Equipment
The following table sets forth the components of the Company’s property and equipment at December 31, 2020 and 2019:
| December 31, 2020 | December 31, 2019 | |||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Depreciation | Net Book Value | Gross Carrying Amount | Accumulated Depreciation | Net Book Value | |||||||||||||||||||
| Office furniture and equipment | $ | 14,998 | $ | 2,088 | $ | 12,910 | $ | 9,617 | $ | 229 | $ | 9,388 | ||||||||||||
| Vehicles | 48,248 | 16,657 | 31,591 | 48,248 | 7,007 | 41,241 | ||||||||||||||||||
| Precious metal extraction machine- 1 ton | 2,280,000 | 228,000 | 2,052,000 | 2,280,000 | 228,000 | 2,052,000 | ||||||||||||||||||
| Precious metal extraction machine- 10 ton | 5,320,000 | 532,000 | 4,788,000 | 5,320,000 | 532,000 | 4,788,000 | ||||||||||||||||||
| Construction in process: | ||||||||||||||||||||||||
| Nanosponge prototype | 17,103 | – | 17,103 | 17,103 | – | 17,103 | ||||||||||||||||||
| Bioreactors | 1,440,000 | – | 1,440,000 | 1,440,000 | – | 1,440,000 | ||||||||||||||||||
| Cavitation device | 5,000 | – | 5,000 | |||||||||||||||||||||
| Remediation Processing Unit 1 | 5,558,949 | – | 5,558,949 | 4,983,731 | – | 4,983,731 | ||||||||||||||||||
| Remediation Processing Unit 2 | 4,149,793 | – | 4,149,793 | 2,496,732 | – | 2,496,732 | ||||||||||||||||||
| Remediation Processing Unit 3 | 97,353 | – | 97,353 | 97,353 | – | 97,353 | ||||||||||||||||||
| Total fixed assets | $ | 18,931,444 | $ | 778,745 | $ | 18,152,699 | $ | 16,692,784 | $ | 767,236 | $ | 15,925,548 | ||||||||||||
| F-46 |
For the year ended December 31, 2019 the Company paid $507,044 with 42,254 shares of Series C-1 Preferred Stock for equipment, which has been valued based on similar cash purchases of the Series C-1 Preferred Stock at $0.40 per share. For the years ended December 31, 2020 and 2019 depreciation expense was $11,508 and $6,843. For the years ended December 31, 2020 and 2019 capitalized interest to equipment from debt financing was $1,025,852 and $1,061,215. 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.
Note 10. License Agreements
On August 17, 2017, the Company purchased rights to an exclusive license for the applications and implementations involving the Nanosponge Technology and to use and develop the Nanosponge as we see fit at our sole discretion. The Nanosponge contribution in the Company’s processes is to facilitate a cracking process whereby remediated or extracted oil may be further refined from a crude product to a diesel fuel. The license was valued at $2,416,572 and is amortized over its useful life of 20 years. As of December 31, 2020 and 2019 the accumulated amortization of the license was $402,762 and $281,933. For the years ended December 31, 2020 and 2019 amortization expense of the license was $120,829 and $120,828. Amortization expense for the years 2021 through 2024 is $120,829 in each respective year. As of December 31, 2020 and 2019 the net value of the license is $2,013,810 and $2,134,639.
Note 11. Intellectual Property, Net
The Company entered into a Contribution Agreement dated January 5, 2015, where proprietary information and intellectual property related to certain petroleum extraction technology (also known as hydrocarbon extraction technology) suitable to extract petroleum (or hydrocarbons) from tar sands and other sand-based ore bodies, and all related concepts and conceptualizations thereof (the “Extraction Technology”) was contributed to VivaVentures Energy Group, Inc., a 99% majority-owned subsidiary of Vivakor, and was assessed a fair market value of $16,385,157, which consists of the consideration of $11,800,000 and the Company assuming a deferred tax liability in the amount of $4,585,157. All ownership in the Extraction Technology (including all future enhancements, improvements, modifications, supplements, or additions to the Extraction Technology) was assigned to the Company and is currently being applied to the Company Remediation Processing Centers, which are the units that remediate material. The Extraction Technology is amortized over a 20-year life. For the years ended December 31, 2020 and 2019 the amortization expense of the patents was $819,258. Amortization expense for the years 2021 through 2024 is $819,258 in each respective year. As of December 31, 2020 and 2019 the net value of the Extraction Technology is $11,537,881 and $12,357,139.
In 2019, the Company began the process of patenting the Extraction Technology and all of its developments and additions since the acquisition, and we have filed a series of patents and capitalized the costs of these patents. As of December 31, 2020 and 2019, the capitalized costs of these patents are $100,064 and $81,210. The patents were placed in service in 2021, at which time the Company will be begin amortizing the cost over the patent useful life.
The Company entered into an asset purchase agreement dated September 5, 2017, where two patents (US patent number 7282167- Method and apparatus for forming nano-particles and US patent number 9272920- System and method for ammonia synthesis) were purchased and attributed a fair market value of $4,931,380, which consists of the consideration of $3,887,982 and the Company assuming a deferred tax liability in the amount of $1,043,398. The patents grant the Company ownership of a nano catalyst technology that facilitates chemical manufacturing, with a focus on the production of ammonia, specifically for the gas phase condensation process used to create the iron catalyst. The nano catalyst accelerators make the Haber-Bosch process more efficient by increasing the active surface area of standard commercial iron catalysts, thereby lowering the reaction temperature and pressure required for the Haber-Bosch process to occur. As a result, less energy is needed to complete the reaction and create ammonia. The patents are amortized over their useful life of 10 years. For the years ended December 31, 2020 and 2019 the amortization expense of the patents was $493,138. Amortization expense for the years 2021 through 2025 is $493,138 in each respective year. As of December 31, 2020 and 2019 the net value of the patents was $3,328,682 and $3,821,820.
| F-47 |
The following table sets forth the components of the Company’s intellectual property at December 31, 2020 and 2019:
| December 31, 2020 | December 31, 2019 | |||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Book Value | Gross Carrying Amount | Accumulated Amortization | Net Book Value | |||||||||||||||||||
| Extraction Technology patents | $ | 100,064 | $ | – | $ | 100,064 | $ | 81,210 | $ | – | $ | 81,210 | ||||||||||||
| Extraction Technology | 16,385,157 | 4,847,276 | 11,537,881 | 16,385,157 | 4,028,018 | 12,357,139 | ||||||||||||||||||
| Ammonia synthesis patents | 4,931,380 | 1,602,698 | 3,328,682 | 4,931,380 | 1,109,560 | 3,821,820 | ||||||||||||||||||
| Total Intellectual property | $ | 21,416,601 | $ | 6,449,974 | $ | 14,966,627 | $ | 21,397,747 | $ | 5,137,578 | $ | 16,260,169 | ||||||||||||
Note 12. Accounts Payable and Accrued Expenses
Accounts payable consist of the following:
| December 31, | ||||||||
| 2020 | 2019 | |||||||
| Accounts payable | $ | 1,003,953 | $ | 583,966 | ||||
| Office access deposits | 705 | 1,490 | ||||||
| Accrued compensation | 101,920 | 125,000 | ||||||
| Accrued tax penalties and interest | 244,230 | 161,411 | ||||||
| Accounts payable and accrued expenses | $ | 1,350,808 | $ | 871,867 | ||||
As of December 31, 2020 and 2019 accounts payable attributed to variable interest entities was none and $161,415.
Note 13. Stock Payable
As of December 31, 2019, the Company had an outstanding payable of $11,800,000 payable in common stock to Sustainable Fuels, Inc. (“SFI”) for the Extraction Technology (See Note 11). Before the Common Stock was issued, the owner of SFI died and the matters and affairs of his estate were passed to the executor of his estate. We attempted to contact SFI and the executor of the estate multiple times to issue and send the common stock to the company or appropriate successor of the estate to no avail. As of December 31, 2020, the Company was able to make contact with the new owner of SFI and has issued 20,000,000 shares of Common Stock to SFI per the terms of the agreement.
| F-48 |
Note 14. Loans and Notes Payable
Loans and Notes payable consist of the following:
| December 31, | ||||||||
| 2020 | 2019 | |||||||
| Various promissory notes and convertible notes (a) | $ | 50,960 | $ | 80,212 | ||||
| Novus Capital Group LLC Note (b) | 363,231 | 334,775 | ||||||
| TriValley & Triple T Notes (c) | 295,543 | 247,192 | ||||||
| National Buick GMC (d) | 25,643 | 31,966 | ||||||
| Various Convertible Bridge Notes, net of debt discounts of $67,605 (e) | 774,522 | – | ||||||
| Blue Ridge Bank (f) | 205,100 | – | ||||||
| Small Business Administration (g) | 305,054 | – | ||||||
| JP Morgan Chase Bank (h) | 90,645 | – | ||||||
| Various Promissory Notes (i) | 735,000 | – | ||||||
| Total Notes Payable | $ | 2,845,698 | $ | 694,145 | ||||
| Loans and notes payable, current | $ | 1,332,770 | $ | 662,179 | ||||
| Loans and notes payable, current attributed to variable interest entity | 735,000 | 31,966 | ||||||
| Loans and notes payable, long term | $ | 777,928 | $ | – | ||||
_____________
| Principal | Interest | Total | ||||||||||
| 2021 | $ | 2,067,770 | $ | 7,997 | $ | 2,075,767 | ||||||
| 2022 | 78,857 | 12,874 | 91,731 | |||||||||
| 2023 | 306,546 | 12,361 | 318,907 | |||||||||
| 2024 | 11,545 | 11,819 | 23,364 | |||||||||
| 2025 | 18,231 | 11,010 | 29,241 | |||||||||
| Thereafter | 362,749 | 160,022 | 522,771 | |||||||||
| Total | $ | 2,845,698 | $ | 216,083 | $ | 3,061,781 | ||||||
(a) From 2013 through 2018 the Company issued a series of promissory notes and convertible notes with various interest rates ranging up to 12% per annum. The convertible notes convert at the holder’s option after 1 year of issuance and may be converted into shares of common stock. The conversion price is generally equal to the specified per share conversion rate as noted in the note agreements. In 2019 a series of the promissory note holders agreed to settle $632,850 in notes payable for 2,531,400 shares of marketable securities of Odyssey Group International, Inc. owned by the Company. The Company converted $25,314 of its convertible note receivable into 2,531,400 shares of Odyssey Group International, Inc. and transferred these shares to the note holders to extinguish the notes payable and has accounted for these marketable securities at cost or $25,314 and recorded a $607,536 gain on the extinguishment of debt in “Gain (loss) on extinguishment of debt” in the accompanying consolidated statement of operations.
(b) On September 5, 2017, the Company acquired patents in the amount of $4,931,380 in which the Company also agreed to assume the encumbering debt on asset in the amount of $334,775 due in December 2019 with no interest accruing until 2020 and a deferred tax liability of $1,043,398. The Company has agreed with the holder of the encumbering debt to extend the note to July 2, 2021 and accrue interest at 7% per annum commencing January 1, 2020 through July 1, 2020, and 10% per annum commencing July 2, 2020 and thereafter.
(c) The balance of these outstanding notes is due to related parties, specifically the 51% owner of Vivakor Middle East LLC, in which the Company owns 49% and consolidates this entity in its consolidated financial statements. The loans were granted to Vivakor Middle East LLC by the majority owner for operational use with only the agreement of repayment from the net proceeds of such entity’s operations once it commences scaled up operations. No interest accrues on the loans, and no specific maturity date has been agreed upon. On March 10, 2021, the Company entered into a master revolving note with Triple T Trading Company LLC to set forth the relationship of the parties to retain the previous terms of the note payable to Triple T Trading Company LLC, but to include a note maturity of March 20, 2023 and maximum lending amount of 1,481,482 QAR or approximately $400,000, valued at an exchange rate of approximately $0.27 per QAR on March 10, 2021.
(d) In May 2019, the Company purchased a vehicle for $36,432 and financed $34,932 over six years with an interest rate of 6.24% per annum. Monthly payments of $485 are required and commenced in July 2019.
| F-49 |
(e) In 2020 the Company entered into various convertible promissory notes as follows:
In 2020 the Company entered into convertible promissory notes with an aggregate principal of $433,000. The notes accrue interest at 10% per annum and have a maturity of the earlier of 12 months or the consummation of the Company listing its Common Stock on a senior stock exchange. The notes are convertible at the Company’s option into shares of the Company’s common stock at a price equal to 80% of the opening price of the Company’s common stock on the national exchange or the offering price paid by the investors in the financing in connection with the uplist, whichever is lower, or (ii) repaid in cash in an amount equal to the indebtedness being repaid plus a premium payment equal to 15% of the amount being repaid. If an event of default has occurred and the Company does not convert the amounts due under the Note into the Company’s common stock, then the Company will have the option to convert the outstanding indebtedness into shares of the Company’s common stock at a price equal to 80% of the weighted average trading price of the Company’s common stock on the OTC Markets, or be repaid in cash in an amount equal to all principal and interest due under the Note.
On October 13, 2020, the Company entered into a convertible promissory note in an amount of $280,500 having an interest rate of 12% per annum. The note bears a 10% Original Issue Discount. The loan shall mature in 1 year and may be convertible at the lower of $0.40 or 80% of the lowest median daily traded price over ten trading days prior to conversion, but in the event of a Qualified Uplist the note may be converted at a 30% discount to market. The Company also issued 100,000 restricted shares with no registration rights in conjunction with this note, which was recorded as a debt discount in the amount of $44,000, which is amortized to interest expense over the term of the agreements using the effective interest method.
On November 23, 2020, the Company entered into a convertible promissory note in an amount of $165,000 having an interest rate of 8% per annum. The note bears a $15,000 Original Issue Discount. The loan shall mature in nine months and may be convertible at the $0.40 per share. If an event of default occurs, the conversion price shall be the lesser of $0.25 cents or 70% of the lowest traded price in the prior twenty trading days immediately preceding the notice of conversion. In the event of an Uplist, the conversion price shall equal the lower of 80% of the opening price of the Company’s shares of Common Stock, as listed on the Senior Exchange, on the first day on which the Company’s shares are traded thereon (representing a 20% discount), or 80% of the offering price of the Company’s shares of Common Stock, as offered in a financing in connection with the Uplisting (representing a 20% discount). The Company also issued 50,000 restricted shares with no registration rights in conjunction with this note, which was recorded as a debt discount in the amount of $23,605, which is amortized to interest expense over the term of the agreements using the effective interest method.
(f) In May 2020, the Company entered into a Paycheck Protection Program loan agreement with Blue Ridge Bank, subject to the Small Business Administration’s (“SBA”) Paycheck Protection Program. The loan carries an annual interest rate of one (1) percent per annum with payment beginning in the seventh month with monthly payments required until maturity in the 18th month. The loan may be fully forgivable according to the CARES Act if the Company can provide proper documentation for the use of the proceeds of the loan. The Company has achieved the milestones for loan forgiveness and anticipates that this debt will be forgiven in full in 2021.
(g) From May through August 2020, the Company entered into various loan agreements with the Small Business Administration for an aggregate loan amount of $299,900. The loans carry an interest rate of 3.75% per annum. The loans shall mature in 30 years.
(h) In July 2020, the Company entered into a Paycheck Protection Program loan agreement with JP Morgan Chase Bank, subject to the Small Business Administration’s (“SBA”) Paycheck Protection Program. The loan may be fully forgivable according to the CARES Act if the Company can provide proper documentation for the use of the proceeds of the loan. The Company has achieved the milestones for loan forgiveness and anticipates that this debt will be forgiven in full in 2021.
| F-50 |
(i) Viva Wealth Fund I, LLC is offering up to $25,000,000 in convertible notes in a private offering. As of December 31, 2020, VWFI has raised $735,000. A convertible note will automatically convert into the LLC units at the earlier of (i) the date that the Equipment is placed into quality control and testing or (ii) six months from the date of investment. The convertible notes will accrue interest at 12% per annum and are paid quarterly. At the maturity date, remaining interest will be paid, at which time no further interest payments will accrue. Upon the offering termination date, all units accepted for any series of equipment will automatically convert to Vivakor common stock if the Company has not accepted subscriptions for at least $6,250,000 for a series of equipment. The conversion price of the automatic stock conversion is the greater of $0.45 per share or the share price based on the 30-day average share price of Vivakor common stock discounted by 10%. The termination date of the offering is November 13, 2021, which date may be extended until November 13, 2022 in the sole discretion of the Company. As of April 1, 2021 VWFI has raised approximately $3,135,000 of the $6,250,000.
Note 15. Commitments and Contingencies
Leases
In June 2019, the Company entered into a Sublease agreement with US Closer, LLC, whereby we agreed to lease approximately 12,061 square feet of office and manufacturing space located in South Salt Lake City, Utah. Pursuant to the Sublease, the sublease expires on December 31, 2020 and requires a monthly lease payment of $6,633.55 plus other pass-through expenses as required under the Primary Lease. The Company renegotiated with the landlord to renew this lease as the primary tenant in January 2021 to lease this warehouse on a month to month basis. The lease may be terminated at any time or for any reason with a 30 day written notice to terminate.
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.
The right-of-use asset for operating leases as of December 31, 2020 and 2019 was $881,804 and $1,167,149. Rent expense for the years ended December 31, 2020 and 2019 was $257,948 and $241,131.
The following table reconciles the undiscounted cash flows for the leases as of December 31, 2020 to the operating lease liability recorded on the balance sheet
| 2021 | $ | 276,699 | ||
| 2022 | 287,769 | |||
| 2023 | 299,466 | |||
| 2024 | 231,174 | |||
| 2025 | – | |||
| Total undiscounted lease payments | 1,095,108 | |||
| Less: Abatement of rents | 46,569 | |||
| Less: Imputed interest | 153,144 | |||
| Present value of lease payments | $ | 895,395 | ||
| Operating lease liabilities, current | $ | 276,699 | ||
| Operating lease liabilities, long-term | $ | 618,696 | ||
| Weighted-average remaining lease term | 3.75 years | |||
| Weighted-average discount rate | 7.0% |
The discount rate is the Company’s incremental borrowing rate, or the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Based on an assessment of the Company’s borrowings the incremental borrowing rate was determined to be 7%.
Note 16. Long-term Debt
To assist in funding the manufacture of the Company’s Remediation Processing Centers, between 2015 and 2017, the Company entered into two agreements which include terms for the purchase of participation rights for the sale of future revenue of the funded RPCs, and which also require working interest budget payments by the Company.
| F-51 |
The Company accounts for the terms under these contracts for the sale of future revenue under Accounting Standards Codification 470 (“ASC 470”). Accordingly, these contracts include the receipt of cash from an investor where the Company agrees to pay the investor for a defined period a specified percentage or amount of the revenue or a measure of income (for example, gross revenue) according to their contractual right, in which the Company will record the cash as debt and apply the effective interest method to calculate and accrue interest on the contracts. The terms of these agreements grant the holder a prorated 25% participation in the gross revenue of the assets as defined in the agreements for 20 years after operations commence for a purchase price of approximately $2,200,000. In the event that the contract is not fully subscribed by the LLCs it will receive only a prorated participation of the available 25% participation. Under the terms of the agreement, we anticipate Remediation Processing Centers to commence operations and to begin making estimated annual payments of $1,769,000 in September 2021 based on revenue projections from the RPCs.
In accordance with ASC 470, the Company records the proceeds from these contracts as debt because the Company has significant continuing involvement in the generation of the cash flows due to the investor (for example, active involvement in the generation of the operating revenues of the business segment), which constitutes the presence of a factor that independently creates a rebuttable presumption that debt classification is appropriate. The Company has determined its effective interest rates to be between 36.1% and 36.52% based on each contract’s future revenue streams expected to be paid to the investor. These rates represent the discount rate that equates estimated cash flows with the initial proceeds received from the investor and is used to compute the amount of interest expense to be recognized each period. During the development and manufacturing of the assets the effective interest has been capitalized to the assets. As the assets enter operations or service of their intended use, the effective interest on these contracts will be recognized as interest expense (See Note 9).
In 2016 and 2017, additional consideration to investors to enter into these agreements was granted, and the Company issued to these investors 3,390,000 shares of Series B-1 Preferred Stock with a relative fair value of $0.25 per share or based on conversion terms and price of the Company’s Common Stock at the time of issuance. The Company also issued 3,185,000 common stock warrants to investors. The relative fair value of the warrants and Series B-1 preferred stock in aggregate was $1,488,550, and was recorded as a debt discount, which is amortized to interest expense over the term of the agreements using the effective interest method. During the manufacturing phase of the asset, the interest expense is capitalized to the asset.
Some holders of these participation rights also have the option to relinquish ownership and all remaining benefits of their LLC units in exchange for Common Stock in the Company. Depending on the contract, these options to convert to common stock range from between 1 and 5.5 years. The exercise period ranges from between 1 year to 5.5 years with a step-up discount to market for each year the option is not exercised with a range of between a 5% to a 25% discount to market. Accordingly, under Accounting Standards Codification 815 (“ASC 815”) the Company valued these options at fair value using a Monte Carlo Simulation by a third-party valuation expert, which found the fair value of the options to be nominal. Long-term debt related to these participation rights is recorded in “Long-term debt” on the consolidated balance sheet.
The accounting for the terms under these contracts that call for working interest budget payments by the Company are recorded in current liabilities on the consolidated balance sheet and paid down through pass-through expenses or cash according to the contract. Accordingly, the Company records any unpaid balance of budget payments received in “Long-term debt, current” as these liabilities are generally paid within 12 months after proceeds are received.
Long-term debt consists of the following:
| December 31, | ||||||||
| 2020 | 2019 | |||||||
| Principal | $ | 2,196,233 | $ | 2,186,233 | ||||
| Accrued interest | 2,997,136 | 1,971,285 | ||||||
| Debt discount | (241,709 | ) | (256,595 | ) | ||||
| Working interest payable | – | 126,535 | ||||||
| Total long term debt | $ | 4,951,660 | $ | 4,027,458 | ||||
| Long term debt, current | $ | 593,457 | $ | 126,535 | ||||
| Long term debt | $ | 4,358,203 | $ | 3,900,923 | ||||
| F-52 |
The following table sets forth the estimated payment schedule of long-term debt as of December 31, 2020:
| Principal | Interest | Total | ||||||||||
| 2021 | $ | 1,020 | $ | 1,767,590 | $ | 1,768,610 | ||||||
| 2022 | 4,971 | 1,952,580 | 1,957,551 | |||||||||
| 2023 | 6,774 | 1,950,777 | 1,957,551 | |||||||||
| 2024 | 9,231 | 1,948,320 | 1,957,551 | |||||||||
| 2025 | 12,579 | 1,944,972 | 1,957,551 | |||||||||
| Thereafter | 2,161,658 | 24,691,026 | 26,852,684 | |||||||||
| Total | $ | 2,196,233 | $ | 34,255,265 | $ | 36,451,498 | ||||||
Note 17. Stockholders' Equity
Series A, Series B, Series B-1, Series C and Series C-1 Preferred Stock
The Preferred Stock authorized by the Company may be issued from time to time in one or more series. The Company is authorized to issue 450,000,000 shares of preferred stock. The Company is authorized to issue 2,000,000 shares of Series A Preferred Stock, 98,000,000 shares of Series B Preferred Stock, 50,000,000 shares of Series B-1 Preferred Stock, 100,000,000 shares of Series C Preferred Stock, and 100,000,000 shares of Series C-1 Preferred Stock. The Board of Directors is authorized to fix or alter the number of shares constituting any series of Preferred Stock and the designation thereof. Subsequent to December 31, 2020, the Board of Directors authorized and a majority vote acceptance was received of each voting class of preferred stock, including Series B Preferred Stock, Series B-1 Preferred Stock, and Series C-1 Preferred Stock, that each class’ designations be amended that upon the Company’s public offering in conjunction with an uplist to a senior stock exchange that these classes of preferred stock will convert their preferred shares to common shares on a one for one basis.
The Company has issued 2,000,000 shares of Series A Preferred Stock, convertible at a current ratio of 10 shares of Common Stock for each outstanding share of Series A Preferred Stock. The conversion price is subject to adjustment under certain customary circumstances, including as a result of stock splits and combinations, dividends and distributions, and certain issuances of common stock. Holders of shares of Series A Preferred Stock will have the right to 25 votes for each share of Common Stock into which such shares of Series A Preferred Stock can then be converted (with a current conversion ratio of 10 shares of Common Stock for each outstanding share of Series A Preferred Stock) and the right to a liquidation preference in any distribution of net assets made to the shareowners prior to and in preference to the holders of Common Stock and any other Preferred Stock holder in the liquidation, dissolution or winding up of our Company. As of December 31, 2020 and 2019 the liquidation preference is $400,000. Holders of shares of Series A Preferred Stock are not currently entitled to dividends. The Company has the right, but not the obligation, to redeem shares of Series A Preferred Stock.
The Company has issued 6,507,492 and 21,251,890 of Series B Preferred Stock as of December 31, 2020 and 2019, respectively. Shares of Series B Preferred Stock are convertible one year after issuance, at any time at the option of the holder, into shares of Common Stock (with a conversion price at the lesser of the issuance price ($0.20) or a 10% discount to market on the conversion date). Also, automatic conversion of shares of Series B Preferred Stock into shares of Common Stock may occur due to certain qualified public offerings entered into or by written consent of a majority of the holders of Series B Preferred Stock. The conversion price is subject to adjustment under certain customary circumstances, including as a result of stock splits and combinations, dividends and distributions, and certain issuances of common stock. Certain holders of Series B contractually agreed to an automatic conversion to Common Stock after 4 years of issuance. The Company has the right, but not the obligation, to redeem shares of Series B Preferred Stock one year after issuance. Holders of Series B Preferred Stock will have the right to one vote for each share of Common Stock into which such Series B Preferred Stock is then convertible, and a right to a liquidation preference in any distribution of net assets made to the shareowners prior to and in preference to the holders of Common Stock and any Preferred Stock holder, except holders of Series A Preferred Stock, in the liquidation, dissolution or winding up of our Company. As of December 31, 2020 and 2019 the liquidation preference was $1,341,233 and $4,383,202. Dividends are 12.5% and cumulative and are payable only when, as, and if declared by the Board of Directors.
| F-53 |
The Company has issued 14,031,834 and 22,758,670 of Series B-1 Preferred Stock as of December 31, 2020 and 2019, respectively. Shares of Series B-1 Preferred Stock are convertible one year after issuance, at any time at the option of the holder, into shares of Common Stock (with a conversion price at the lesser of the issuance price ($0.25) or a 10% discount to market on the conversion date). Also, automatic conversion of shares of Series B-1 Preferred Stock into shares of Common Stock may occur due to certain qualified public offerings entered into or by written consent of a majority of the holders of Series B-1 Preferred Stock. The conversion price is subject to adjustment under certain customary circumstances, including as a result of stock splits and combinations, dividends and distributions, and certain issuances of common stock. The Company has the right, but not the obligation, to redeem shares of Series B-1 Preferred Stock one year after issuance. Holders of Series B-1 Preferred Stock have no voting or dividend rights, and a right to a liquidation preference in any distribution of net assets made to the shareowners prior to and in preference to the holders of Common Stock and any Preferred Stockholder, except holders of Series A and Series B Preferred Stock, in the liquidation, dissolution or winding up of our Company. As of December 31, 2020 and 2019 the liquidation preference was $3,507,959 and $5,689,690.
The Company has not issued any Series C Preferred Stock as of December 31, 2020 and 2019, respectively. Shares of Series C Preferred Stock are convertible one year after issuance, at any time at the option of the holder, into shares of Common Stock (with a conversion price at the lesser of the issuance price ($0.35) or a 10% discount to the market price on the conversion date). Automatic conversion of shares of Series C Preferred Stock into shares of Common Stock may occur due to certain qualified public offerings entered into or by written consent of a majority of the holders of Series C Preferred Stock or upon the four year anniversary date of the issuance of such shares. The conversion price is subject to adjustment under certain customary circumstances, including as a result of stock splits and combinations, dividends and distributions, and certain issuances of common stock. The Company has the right, but not the obligation, to redeem shares of Series C Preferred Stock one year after issuance. Holders of Series C Preferred Stock will have the right to one vote for each share of Common Stock into which such Series C Preferred Stock is then convertible, and a right to a liquidation preference in any distribution of net assets made to the shareowners prior to and in preference to the holders of Common Stock and any Preferred Stock holder, except holders of Series B and B-1 Preferred Stock, in the liquidation, dissolution or winding up of our Company. Dividends are 12.5% and cumulative and are payable only when, as, and if declared by the Board of Directors.
The Company has issued 7,658,680 and 13,384,760 of Series C-1 Preferred Stock as of December 31, 2020 and 2019, respectively. Shares of Series C-1 Preferred Stock are convertible one year after issuance, at any time at the option of the holder, into shares of Common Stock (with a conversion price at the lesser of the issuance price ($0.40) or a 10% discount to the market price on the conversion date). In addition, automatic conversion of shares of Series C-1 Preferred Stock into shares of Common Stock may occur due to certain qualified public offerings entered into or by written consent of a majority of the holders of Series C-1 Preferred Stock. The conversion price is subject to adjustment under certain customary circumstances, including as a result of stock splits and combinations, dividends and distributions, and certain issuances of common stock. The Company has the right, but not the obligation, to redeem shares of Series C-1 Preferred Stock one year after issuance. Holders of Series C-1 Preferred Stock have no voting or dividend rights, and a right to a liquidation preference in any distribution of net assets made to the shareowners prior to and in preference to the holders of Common Stock and any Preferred Stock holder, except holders of Series A, Series B, Series B-1, and Series C Preferred Stock, in the liquidation, dissolution or winding up of our Company. As of December 31, 2020 and 2019 the liquidation preference was $3,063,472 and $5,353,904.
For the year ended December 31, 2020, $7,593,816 or 29,888,496, shares of Series B, Series B-1, and Series C-1 Preferred Stock were converted into 31,132,130 shares of Common Stock.
For the year ended December 31, 2020, the Company issued 691,182 shares of Series B-1 Preferred Stock as a $172,795 stock dividend paid to Series B Preferred Shareholders.
For the year ended December 31, 2019, the Company issued 1,980,126 shares of Series B-1 Preferred Stock as a $495,054 stock dividend paid to Series B Preferred Shareholders.
| F-54 |
For the year ended December 31, 2019, $11,072,019, or 53,492,573 shares of Series B and Series B-1 Preferred Stock, were converted into 53,492,583 shares of Common Stock.
For the year ended December 31, 2019, the Company issued 1,267,608 Series C-1 Preferred Stock for $507,044 for the purchase of equipment.
Common Stock
The Company is authorized to issue 1,250,000,000 shares of common stock. As of December 31, 2020 and 2019, there were 337,679,020 and 285,343,964 shares of our common stock issued and outstanding, respectively. Treasury stock is carried at cost.
For the year ended December 31, 2020, $7,593,816 or 29,888,496, shares of Series B, Series B-1, and Series C-1 Preferred Stock were converted into 31,132,130 shares of Common Stock.
For the year ended December 31, 2020 the Company issued 20,000,000 shares of Common Stock for a $11,800,000 reduction in stock payables.
For the year ended December 31, 2020 the Company issued 228,000 shares of Common Stock in the amount of $41,028 for cash.
For the year ended December 31, 2020, the Company granted stock-based compensation to employees, including a 500,000 share stock award, which vests at the end of four years and a 5,000,000 stock options that cliff vests at the end of five years. For the year ended December 31, 2020, stock-based compensation was $146,114. For the year ended December 31, 2020, the Company also granted non-statutory stock options, including 4,000,000 stock options to the Board of Directors, which vests over 1 year, and a 10,000,000 stock option to a consultant, which vests over 4 years. Non-statutory stock based compensation was $555,000 for the year ended December 31, 2020.
For the year ended December 31, 2019, $11,072,019, or 53,492,573 shares of Series B and Series B-1 Preferred Stock, were converted into 53,492,583 shares of Common Stock.
For the year ended December 31, 2019, the Company issued 209,414 shares for a $53,500 reduction of liabilities.
For the year ended December 31, 2019, the Company issued 230,000 shares of Common Stock for $91,982 in cash due to exercised warrants.
For the year ended December 31, 2019, the Company issued 1,155,779 shares of Common Stock for $219,597 for services to the Company.
For the year ended December 31, 2019, the Company granted stock-based compensation to an employee, including a 500,000 share stock award, which vests after 4 years. For the year ended December 31, 2019, stock-based compensation was $48,421.
Noncontrolling Interest
For the year ended December 31, 2020 and 2019, the Company issued 124,981 and 292,800 units of noncontrolling interest in RPC Design and Manufacturing LLC for cash of $624,907 and $1,464,000.
| F-55 |
Note 18. Temporary Equity
Shares of Series B, B-1, C and C-1 convertible preferred stock hold conversion features providing that, at the holder’s election, the holder may convert the preferred stock into common stock. Upon conversion, the Company may be required to deliver a variable number of equity shares that is determined by using a formula based on the market price of the Company’s Common Stock. After four years from the date of issuance, Series B and C preferred shareholders are forced to automatically convert to Common Stock. For each respective series, the holder may convert their preferred shares to common shares at the original issue price as defined, which ranges from between $0.20 per share to $0.40 per share, at the lesser of the original issue price or 90% of the market price on the conversion date. As of December 31, 2020 and 2019, the market price of the Company’s Common Stock was $0.50 and $0.20 per share. As of the date of this report the market price of the shares is approximately $0.38 per share. There is no contractual cap on the number of common shares that the Company could be required to deliver on preferred shareholders’ conversions to Common Stock. Because the feature contains no explicit share limit, the Company assumes that it may be forced to cash settle the conversion feature in accordance with the accounting analysis under ASC 815-40-25.
Accordingly, under ASC 815-40-25-10 the Company may be forced to settle these conversion features in cash, specifically since it is unknown as to what date the shareholders’ may convert their preferred stock to common stock and if there will be sufficient authorized and unissued common shares on that date. As of December 31, 2020 and 2019 the Company did have sufficient authorized and unissued common shares to satisfy all preferred shareholders interest if it were converted to Common Stock, although if the stock price were to drop below $0.02 per share and the Company could not authorize further shares it may be forced to settle such conversions in cash, which may consider them redeemable. Accordingly, Series B, B-1, C and C-1 preferred stock has been classified in temporary equity.
The following table shows all changes to temporary equity during for the year ended December 31, 2020 and 2019.
| Convertible Preferred Stock | ||||||||||||||||||||||||
| Series B | Series B-1 | Series C-1 | ||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||
| December 31, 2018 | 67,271,587 | $ | 13,454,255 | 28,251,420 | $ | 7,062,780 | 12,117,160 | $ | 6,334,365 | |||||||||||||||
| Conversion of Series B and B-1 Preferred Stock to Common Stock | (46,019,697 | ) | (9,203,875 | ) | (7,472,876 | ) | (1,868,144 | ) | – | – | ||||||||||||||
| Series C-1 Preferred Stock issued for the purchase of equipment | – | – | – | – | 1,267,600 | 507,044 | ||||||||||||||||||
| Dividend paid in Series B-1 Preferred Stock | – | – | 1,980,126 | 495,054 | – | – | ||||||||||||||||||
| December 31, 2019 | 21,251,890 | $ | 4,250,380 | 22,758,670 | $ | 5,689,690 | 13,384,760 | $ | 6,841,409 | |||||||||||||||
| Conversion of Series B, B-1, and C-1 Preferred Stock to Common Stock | (14,744,398 | ) | (2,948,880 | ) | (9,418,018 | ) | (2,354,504 | ) | (5,726,080 | ) | (2,290,432 | ) | ||||||||||||
| Dividend paid in Series B-1 Preferred Stock | – | – | 691,182 | 172,795 | – | – | ||||||||||||||||||
| December 31, 2020 | 6,507,492 | $ | 1,301,500 | 14,031,834 | $ | 3,507,981 | 7,658,680 | $ | 4,550,977 | |||||||||||||||
| F-56 |
Note 19. Warrants
As of December 31, 2020 and 2019, the Company had none and 1,080,000 warrants outstanding. These warrants relate to the warrants issued as an incentive to investors with an investment into the Company. The outstanding warrants were issued at $0.40 per share of Common Stock. The warrants were granted for a one-year period.
Management uses the Black-Scholes option pricing model to determine the fair value of warrants on the date of issuance. The fair value of warrants issued pursuant to the issuance of notes payable was recorded as deferred debt issuance cost and amortized over the remaining term of the associated debt.
The assumptions used in the Black-Scholes option pricing model to determine the fair value of the warrants on the date of issuance are as follows:
| Risk-free interest rate | 1.2% |
| Expected dividend yield | None |
| Expected life of warrants | 1 years |
| Expected volatility rate | 119% |
The following table summarizes the activity of the Company’s share purchase warrants:
| Weighted | ||||||||||||
| average | Aggregate | |||||||||||
| Number of | exercise | Intrinsic | ||||||||||
| warrants | price | Value | ||||||||||
| Balance, December 31, 2018 | 16,485,000 | $ | 0.55 | $ | – | |||||||
| Expired | (15,195,000 | ) | 0.56 | |||||||||
| Exercised | (210,000 | ) | 0.40 | |||||||||
| Balance, December 31, 2019 | 1,080,000 | $ | 0.40 | $ | – | |||||||
| Expired | (1,060,000 | ) | 0.40 | |||||||||
| Exercised | (20,000 | ) | 0.40 | |||||||||
| Balance, December 31, 2020 | – | $ | 0.40 | $ | – | |||||||
There were no share purchase warrants outstanding as of December 31, 2020. As of December 31, 2019, the following share purchase warrants were outstanding:
| Number of warrants outstanding | Exercise price | Expiration date | ||||||||||
| Balance, December 31, 2019 | 1,080,000 | $ | 0.40 | December 2020 | ||||||||
| F-57 |
Note 20. Income Tax
Provision for income taxes is as follows:
| December 31, | ||||||||
| 2020 | 2019 | |||||||
| Current: | ||||||||
| State | $ | 800 | $ | 800 | ||||
| 800 | 800 | |||||||
| Deferred: | ||||||||
| Federal | 336,124 | 422,037 | ||||||
| State | 130,040 | 166,366 | ||||||
| 466,164 | 588,403 | |||||||
| Net provision | $ | 466,964 | $ | 589,203 | ||||
The differences between the expected income tax benefit based on the statutory Federal United States income tax rates and the Company's effective tax rates are summarized below:
| December 31, 2020 | ||||||||
| Tax Computed At The Federal Statutory Rate | $ | (447,850 | ) | 21.00% | ||||
| State Tax, Net Of Fed Tax Benefit | (77,025 | ) | 3.54% | |||||
| Nondeductible Expenses | 22,040 | -1.03% | ||||||
| Flowthrough Entity not Subject to Tax | 187,948 | -8.81% | ||||||
| Foreign Corporation - Minority Interest | 8,996 | -0.42% | ||||||
| Valuation Allowance | 772,855 | -36.24% | ||||||
| Rate Change | – | 0.00% | ||||||
| R&D Credits | – | 0.00% | ||||||
| Other/Prior Year True-Up | – | 0.00% | ||||||
| Provision for income taxes | $ | 466,964 | -21.96% | |||||
| December 31, 2019 | ||||||||
| Tax Computed At The Federal Statutory Rate | $ | (344,301 | ) | 21.00% | ||||
| State Tax, Net Of Fed Tax Benefit | (100,906 | ) | 6.15% | |||||
| Nondeductible Expenses | 3,406 | -0.21% | ||||||
| Flowthrough Entity not Subject to Tax | 21,313 | -1.30% | ||||||
| Foreign Corporation - Minority Interest | 14,251 | -0.87% | ||||||
| Valuation Allowance | 995,440 | -60.72% | ||||||
| Rate Change | – | 0.00% | ||||||
| R&D Credits | – | 0.00% | ||||||
| Other/Prior Year True-Up | – | 0.00% | ||||||
| Provision for income taxes | $ | 589,203 | -35.94% | |||||
| F-58 |
Significant components of the Company's deferred tax assets and liabilities are as follows:
| December 31, 2020 | ||||
| Reserves | $ | 336,875 | ||
| Fixed Assets | (1,915,021 | ) | ||
| Leases | 3,803 | |||
| Intangibles | (3,964,173 | ) | ||
| Net Operating Losses | 3,544,614 | |||
| Impairment Losses | – | |||
| Stock Options | 155,309 | |||
| Accruals | 19,440 | |||
| Other | (699,478 | ) | ||
| Net Deferred Liability | (2,518,631 | ) | ||
| Less: Valuation Allowance | (3,689,274 | ) | ||
| Total deferred tax liability: | $ | (6,207,905 | ) | |
| December 31, 2019 | ||||
| Reserves | $ | 336,987 | ||
| Fixed Assets | (1,711,017 | ) | ||
| Leases | 1,204 | |||
| Intangibles | (4,301,036 | ) | ||
| Net Operating Losses | 2,819,624 | |||
| Impairment Losses | – | |||
| Accruals | 46,508 | |||
| Other | 21,400 | |||
| Net Deferred Liability | (2,786,330 | ) | ||
| Less: Valuation Allowance | (2,916,421 | ) | ||
| Total deferred tax liability: | $ | (5,702,751 | ) |
In determining the possible future realization of deferred tax assets, the Company has considered future taxable income from the following sources: (a) reversal of taxable temporary differences; and (b) tax planning strategies that, if necessary, would be implemented to accelerate taxable income into years in which net operating losses might otherwise expire.
| F-59 |
Deferred tax assets are recognized subject to management’s judgment that realization is more likely than not. A valuation allowance is recognized for a deferred tax asset if, based on the weight of the available evidence, it is more likely than not that some portion of the deferred tax asset will not be realized. In making such judgments, significant weight is given to evidence that can be objectively verified. Based on our review of the deferred tax assets the Company has concluded that a valuation allowance is necessary on the net operating loss balance, as realization of this asset does not meet the more likely than not threshold.
As of December 31, 2020 the Company had estimated net operating losses for federal and state purposes of $11.7 million, respectively. Federal and state net operating losses will begin to expire in 2028.
We recognize a tax position as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination.
For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. We recognize potential interest and penalties related to unrecognized tax benefits in the general and administrative expense in the statement of operations of the Company.
The Company is in the process of filing back income tax returns from 2010 through the current year and subject to IRS examination for these year. The Company has booked a reserve for potential penalties associated with non-filing of certain foreign information reports related to its subsidiary in the Middle East. Penalties and interest have been reported in the general and administrative section of the statement of operations. The reserve balance at December 31, 2020 and 2019 was $238,000 and $156,000, respectively. The Company does not expect this reserve to reverse within the next 12 months, as they will apply for a penalty waiver when the tax returns are ultimately filed. Due to the non-filing of income tax returns, statutes of limitations on the potential examination of those income tax periods will continue to run until the returns are filed, at which time the statutes will begin. The Company expects to file all past due income tax returns within the next 12 months.
Note 21. Related Party Transactions
The Company provided secured loan financing and assistance to the development and commercialization of two bioactive beverages and one weight loss beverage for Vivaceuticals, Inc., which shared a common officer and board of director member with the Company. Vivaceuticals sold its assets to Scepter Holdings, Inc. in 2018. In 2019, the Company received 800,000 shares of preferred stock in Scepter Holdings, Inc. to extinguish the loan encumbering the assets. The Company has converted these preferred shares into 800,000,000 shares of Common Stock of Scepter Holdings, Inc., which is traded on the OTC Markets (ticker: BRZL) (see Note 3). As of December 31, 2020 and 2019, the Company’s Chief Executive Officer has an immediate family member who sits on the board of directors of Scepter Holdings, Inc.
The Company has a consulting contract with Vivaventures Precious Metals, LLC, which is majority owned by an employee of the Company. For the year ended December 31, 2020 and 2019 the Company paid Vivaventures Precious Metals LLC none and $290,000 for consulting services rendered.
| F-60 |
The Company has a consulting contract with LBL Professional Consulting, Inc. (“LBL”), which shares a common officer with the Company. For the year ended December 31, 2020 and 2019, the Company paid LBL $191,295 and $231,199 for rendered services for a team of consultants serving the Company. In September 2020, the Company granted non-statutory stock options to LBL for 30,000,000 shares of Common Stock. As of December 17, 2020 the parties have agreed to amend the contract to reduce the stock options to purchase 10,000,000 shares of common stock. The stock options vest over four years. The stock options are exercisable for up to ten years from the grant date. The common officer is not the beneficiary of the Company and is not permitted to participate in any discussion, including the LBL’s board meetings, regarding any Company stock that LBL may own at any time.
In July 2020, the Company entered into an agreement with IME giving IME the option to purchase approximately 1,331 ounces of our precious metal concentrate for approximately $2,800,000. VVMCI, a wholly-owned subsidiary of Vivakor, Inc. owns all of the Class A Units of IME, which have sole voting power for all material matters except for removal of the manager, and VVMCI serves as a manager of IME. For the year ended December 31, 2020, the Company sold $54,250 of the precious metal concentrate through this option. The option agreement expired on December 31, 2020, and the parties are currently negotiating if they will extend the option agreement.
The Company has a note payable to TriValley and Triple T, which is owned by the 51% majority-owner of Vivakor Middle East LLC. As of December 31, 2020 and 2019 the balance owed was $295,543 and $247,192.
The Company has a common board of directors member with CannaPharmaRx Inc. As of December 31, 2020 and 2019, the Company has a $33,000 and $21,000 account receivable with CannaPharmaRx Inc. for leasing office space to this entity. As of December 31, 2020 and 2019, the Company recorded an allowance for doubtful accounts on these receivables in the amount of $33,000 and $21,000.
Note 22. Subsequent Events
The Company has evaluated subsequent events through April 9, 2021, the date the financial statements were available to issue.
On January 28, 2021, the Company issued 124,924 shares of common stock for a $31,231 reduction of liabilities pursuant to conversion of a promissory note at approximately $0.25 per share.
On January 28, 2021, the Company issued 407,500 shares of common stock at approximately $0.40 per share for $163,000 in services.
On January 20, 2021, the Company entered into a worldwide, exclusive license agreement with TBT Group, Inc. (of which an independent Vivakor Board member is a 7% shareholder) to license piezo electric and energy harvesting technologies for creating self-powered sensors for making smart roadways. The Company is required to pay $25,000 and 500,000 shares of restricted common stock within upon signing. Upon the earlier of (i) 120 days or (ii) the effectiveness of the Company's Registration Statement and receipt of public offering proceeds, the Company will pay licensor $225,000. When the licensor delivers to the Company data showing that the sensor performs based on mutually defined specifications and all designs for the sensor are completed, Company shall pay an additional $250,000 and 500,000 shares of restricted common stock. Upon the delivery of a mutually agreed working prototype, Company will pay licensor $250,000 and 500,000 shares of restricted common stock. Upon commercialization of the product, the Company will pay licensor $250,000 and 1,000,000 shares of restricted common stock. TBT shall have the option, at its sole discretion, to convert the license to a non-exclusive license if the Company fails to pay $500,000 to TBT for sensor inventory per year, which will commence after the second anniversary of product commercialization. The Company shall share in the development costs of the sensor technology to the time of commercialization. Total costs attributed to the Company are estimated to be $125,000.
| F-61 |
On January 21, 2021, the Company amended its agreements with VivaVentures Royalty II, LLC in which the parties agreed to amend the conversion terms of VV RII’s options to convert to the Company’s common stock. The amendment provides for a minimum price for conversion of LLC units into Vivakor common stock. The minimum conversion price will not be lower than 200% of the per share price of the Company common stock sold in an underwritten offering pursuant to the Company becoming listed on a senior stock exchange (i.e. The Nasdaq Capital Market or New York Stock Exchange).
On February 4, 2021, the Company entered into a convertible promissory note in an amount of $250,000 having an interest rate of 12% per annum. The note bears a 10% Original Issue Discount. The loan shall mature in 1 year and may be convertible at the lower of $0.40 or 80% of the lowest median daily traded price over ten trading days prior to conversion, but in the event of a Qualified Uplist the note may be converted at a 30% discount to market. The Company also issued 100,000 restricted shares with no registration rights in conjunction with this note.
On February 2, 2021, the Company issued 50,000 shares of common stock at approximately $0.47 per share pursuant to a convertible promissory note.
On March 10, 2021, the Company entered into a master revolving note with Triple T Trading Company LLC to set forth the relationship of the parties to retain the previous terms of the note payable to Triple T Trading Company LLC, and include a note maturity of March 20, 2023 and maximum lending amount of 1,481,482 QAR or approximately $400,000, valued at an exchange rate of approximately $0.27 on March 10, 2021.
On March 22, 2021, the Company amended its agreements with Viva Wealth Fund I, LLC in which the parties agreed to amend the conversion terms of LLC units holder options to convert to the Company’s common stock. The amendment provides for a minimum price for conversion of LLC units into Vivakor common stock. The minimum conversion price will not be lower than 200% of the per share price of the Company common stock sold in an underwritten offering pursuant to the Company becoming listed on a senior stock exchange (i.e. The Nasdaq Capital Market or New York Stock Exchange).
Subsequent to December 31, 2020, the Company entered into a Paycheck Protection Program loan agreement with Blue Ridge Bank, subject to the Small Business Administration’s (“SBA”) Paycheck Protection Program for $205,100. The loan carries an annual interest rate of one (1) percent per annum with payment beginning in the seventh month with monthly payments required until maturity in the 18th month. The loan may be fully forgivable according to the CARES Act if the Company can provide proper documentation for the use of the proceeds of the loan.
Subsequent to December 31, 2020, the Company entered into convertible promissory notes with an aggregate principal of $400,000. The notes accrue interest at 10% per annum and have a maturity of the earlier of 12 months or the consummation of the Company listing its Common Stock on a senior stock exchange. The notes are convertible at the Company’s option into shares of the Company’s common stock at a price equal to 80% of the opening price of the Company’s common stock on the national exchange or the offering price paid by the investors in the financing in connection with the uplist, whichever is lower, or (ii) repaid in cash in an amount equal to the indebtedness being repaid plus a premium payment equal to 15% of the amount being repaid. If an event of default has occurred and the Company does not convert the amounts due under the Note into the Company’s common stock, then the Company will have the option to convert the outstanding indebtedness into shares of the Company’s common stock at a price equal to 80% of the weighted average trading price of the Company’s common stock on the OTC Markets, or be repaid in cash in an amount equal to all principal and interest due under the Note.
Subsequent to December 31, 2020, VWFI has raised $1,715,000 in conjunction with the $25,000,000 private placement offering to sell convertible promissory notes, which convert to VWFI LLC units, to accredited investors to raise funds to manufacture equipment that will expand the Company’s second RPC.
Subsequent to December 31, 2020, 100,000 shares of Series B Preferred Stock and 249,059 shares of Series B-1 Preferred Stock, for an aggregate of $82,265, were converted into 349,060 shares of Common Stock.
Subsequent to December 31, 2020, 1,010,000 shares of Common Stock were issued for $438,000 in services.
| F-62 |
1,370,290 Shares
Common Stock
Vivakor, Inc.
____________________________________
PROSPECTUS
____________________________________
, 2021
| 63 |
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than underwriting discounts and commissions, to be paid by the Registrant in connection with the issuance and distribution of the common stock being registered. All amounts other than the SEC registration fee and FINRA fee are estimates.
| SEC Registration Fee | $ | |||
| FINRA Filing Fee | ||||
| Legal Fees and Expenses | * | |||
| Accounting Fees and Expenses | * | |||
| Total | $ | * |
* To be completed by amendment.
Item 14. Indemnification of Officers and Directors
The Nevada Revised Statutes limits or eliminates the personal liability of directors to corporations and their stockholders for monetary damages for breaches of directors’ fiduciary duties as directors. Our Bylaws include provisions that require the company to indemnify our directors or officers against monetary damages for actions taken as a director or officer of our Company. We are also expressly authorized to carry directors’ and officers’ insurance to protect our directors, officers, employees and agents for certain liabilities. Our Amended and Restated Articles of Incorporation do not contain any limiting language regarding director immunity from liability.
The limitation of liability and indemnification provisions under the Nevada Revised Statutes and our Amended and Restated Bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duties. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. However, these provisions do not limit or eliminate our rights, or those of any stockholder, to seek non-monetary relief such as injunction or rescission in the event of a breach of a director’s fiduciary duties. Moreover, the provisions do not alter the liability of directors under the federal securities laws. In addition, your investment may be adversely affected to the extent that, in a class action or direct suit, we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.
Item 15. Recent Sales 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 three years. Except where noted, all of the securities discussed in this Item 15 were all issued in reliance on the exemption under Section 4(a)(2) of the Securities Act.
2021
On January 13, 2021, the Company issued 1,000,000 shares of common stock at approximately $0.44 per share for $435,000 in services.
On January 28, 2021, the Company issued 100,000 shares of common stock for a $36,000 reduction of liabilities pursuant to conversion of a promissory note at approximately $0.36 per share.
| II-1 |
On January 28, 2021, the Company issued 10,000 shares of common stock at approximately $0.30 per share for $3,000 in services.
On February 2, 2021, the Company issued 50,000 shares of common stock at approximately $0.47 per share pursuant to a convertible promissory note.
On April 16, 2021, the Company issued
745,482 shares of common stock for a $217,800 reduction of liabilities pursuant to conversion of a promissory note at approximately $0.29 per share.
On April 22, 2021, the Company issued 500,000 shares of common stock for a $225,000 payment to purchase a license at approximately $0.45 per share.
On May 24, 2021, the Company issued 29,570 shares of common stock for a $11,000 reduction of liabilities pursuant to conversion of a promissory note at approximately $0.37 per share.
On August 5, 2021, the Company issued 595,238 shares of common stock for a $110,002 reduction of liabilities pursuant to conversion of a promissory note at approximately $0.185 per share.
From January 1, 2021 through June 30, 2021, the Company issued 6,550,000 shares of common stock for $1,301,500 for the conversion of 6,507,492 shares of Series B Preferred Stock, at an average price of approximately $0.20 per share.
From January 1, 2021 through June 30, 2021 the Company issued 14,207,331 shares of common stock for $3,550,176 for the conversion of 14,031,834 shares of Series B-1 Preferred Stock, at $0.25 per share.
From January 1, 2021 through June 30, 2021 the Company issued 7,821,072 shares of common stock for $4,615,927 for the conversion of 7,989,838 shares of Series C-1 Preferred Stock, at $0.59 per share.
2020
On November 4, 2020, the Company issued 100,000 shares of common stock at $0.44 per share pursuant to a convertible promissory note.
On November 4, 2020, the Company issued 300,000 shares of common stock at $0.40 per share for $121,230 in services.
On April 21, 2020, the Company issued 20,000,000 shares of common stock pursuant to a contribution agreement at a price of $0.59.
On April 13, 2020, the Company issued 60,000 shares of common stock to investors at $0.3198 per share for cash proceeds of $19,188.
On January 27, 2020, the Company issued 168,000 shares of common stock to investors at $0.13 per share for cash proceeds of $21,840.
From January 1, 2020 through December 31, 2020, the Company issued 691,182 shares of Series B-1 Preferred Stock as a $172,795 stock dividend paid to Series B Preferred Shareholders at a price of approximately $0.25 per share.
From January 1, 2020 through December 31, 2020, the Company issued 15,715,242 shares of common stock for $2,948,880 for the conversion of 14,744,398 shares of Series B Preferred Stock, at an average price of approximately $0.20 per share.
From January 1, 2020 through December 31, 2020, the Company issued 9,658,048 shares of common stock for $2,354,504 for the conversion of 9,418,018 shares of Series B-1 Preferred Stock, at an average price of approximately $0.25 per share.
From January 1, 2020 through December 31, 2020, the Company issued 5,758,844 shares of common stock for $2,290,432 for the conversion of 5,726,080 shares of Series C-1 Preferred Stock, at an average price of approximately $0.40 per share.
2019
On December 31, 2019, the Company issued 1,155,779 shares of common stock to a consultant for market services valued at $219,597 at a price of $0.19 per share.
On December 18, 2019, the Company issued 539,373 shares of Series C-1 Preferred Stock at $0.40 per share for the purchase of equipment valued at $215,749.
On December 16, 2019 the Company issued 32,931 shares of Series C-1 Preferred Stock at $0.40 per share for the purchase of equipment valued at $13,172.
On July 11, 2019 the Company issued 695,304 shares of Series C-1 Preferred Stock at $0.40 per share for the purchase of equipment valued at $278,122.
| II-2 |
From January 1, 2019 through December 31, 2019, the Company issued 1,980,126 shares of Series B-1 Preferred Stock as a $495,054 stock dividend paid to Series B Preferred Shareholders at a price of $0.25 per share.
From January 1, 2019 through December 31, 2019, the Company issued 46,019,697 shares of common stock for $9,203,875 for the conversion of 46,019,697 shares of Series B Preferred Stock, at an average price of $0.20 per share.
From January 1, 2019 through December 31, 2019, the Company issued 7,472,876 shares of common stock for $1,868,144 for the conversion of 7,472,876 shares of Series B-1 Preferred Stock, at an average price of $0.25 per share.
From January 1, 2019 through December 31, 2019, the Company issued 209,414 shares for a $53,500 reduction of liabilities pursuant to conversion of promissory notes at an average price of $0.25 per share.
From January 1, 2019 through December 31, 2019, the Company issued 230,000 shares of common stock for $91,982 in cash for the exercise of 230,000 warrants at an average price of $0.40 per share.
Item 16. Exhibits and Financial Statement Schedules
The following exhibits are filed with this Registration Statement:
| II-3 |
| ____________ |
| (1) | Incorporated by reference with Form S-1 filed November 11, 2020 |
| (2) | Incorporated by reference with Form S-1/A filed February 12, 2021 |
| (3) | Incorporated by reference with Form S-1/A filed April 12, 2021 |
| (4) | Incorporated by reference with Form S-1/A filed July 2, 2021 |
(b) Financial statement schedules.
All schedules have been omitted because either they are not required, are not applicable or the information is otherwise set forth in the financial statements and related notes thereto.
Item 17. Undertakings
The undersigned registrant hereby undertakes:
| (1) | To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: |
| (i) | To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; | |
| (ii) | To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; | |
| (iii) | To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; |
| II-4 |
| (2) | That for the purpose of determining any liability under the Securities Act of 1933 each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. | |
| (3) | To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. |
| (4) | That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use. | |
| (5) | That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: |
The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
| (i) | Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; | |
| (ii) | Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; | |
| (iii) | The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and | |
| (iv) | Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. |
| (f) | The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. | |
| (h) | Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described in Item 14 above, or otherwise, the Registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. | |
| (i) | The undersigned Registrant hereby undertakes: |
| II-5 |
| (1) | That for purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. | |
| (2) | That for the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and this offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. | |
| * | Paragraph references correspond to those of Regulation S-K, Item 512. |
| II-6 |
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Salt Lake City, State of Utah, on November 4, 2021.
| Vivakor, Inc. | ||||
| By: | /s/ Matthew Nicosia | |||
| Name: Matthew Nicosia | ||||
| Title: Chief Executive Officer | ||||
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated:
| Signature | Title | Date | ||
| /s/ Matthew Nicosia | Chief Executive Officer and Director | November 4, 2021 | ||
| Matthew Nicosia | (Principal Executive Officer) | |||
| * | Chief Financial Officer | November 4, 2021 | ||
| Tyler Nelson | (Principal Accounting Officer and Principal Financial Officer) |
|||
| * | Director | November 4, 2021 | ||
| Joseph Spence | ||||
| * | Director | November 4, 2021 | ||
| Matthew Balk | ||||
| * | Director | November 4, 2021 | ||
| Trent Staggs | ||||
| * | Director | November 4, 2021 | ||
| Al Ferrara |
| * By: | /s/ Matthew Nicosia | |
| Matthew Nicosia, Attorney-in-fact |
| II-7 |
Exhibit 5.1
|
November 4, 2021
Vivakor, Inc. 433 Lawndale Drive
|
 |
| Re: Registration Statement on Form S-1 for Vivakor, Inc., a Nevada corporation |
Ladies and Gentlemen:
We have acted as counsel to Vivakor, Inc., a Nevada corporation (the “Company”), in connection with the preparation and filing with the U.S. Securities and Exchange Commission (the “Commission”) of a Registration Statement on Form S-1 (the “Registration Statement”). The Company is filing the Registration Statement in connection with the offering from time to time, pursuant to Rule 415 promulgated under the Securities Act of 1933, as amended (the “Securities Act”), by certain selling stockholders of up to 1,370,290 shares (the “Common Shares”) of the Company’s common stock, par value $0.001 per share (“Common Stock”).
The offering of the Common Shares will be as set forth in the prospectus contained in the Registration Statement, as amended, and as supplemented from time to time.
In rendering these opinions, we have examined the Company’s Articles of Incorporation and Bylaws, both as amended and currently in effect, the Registration Statement, and the exhibits thereto, and such other records, instruments and documents as we have deemed advisable in order to render these opinions. In such examination, we have assumed the genuineness of all signatures, the legal capacity of all natural persons, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified, conformed or photo static copies and the authenticity of the originals of such latter documents. We are opining herein as to the Nevada Revised Statutes and we express no opinion with respect to any other laws.
As a result of and subject to the foregoing, we are of the following opinion:
Subject to the qualifications, limitations, exceptions and assumptions set forth herein, we are of the opinion that the Common Shares have been validly issued, are fully paid and are non-assessable.
The foregoing opinion is qualified to the extent that the enforceability of any applicable agreement, document, or instrument discussed herein may be limited by or subject to bankruptcy, insolvency, fraudulent transfer or conveyance, reorganization, moratorium or other similar laws relating to or affecting creditors’ rights generally, and general equitable or public policy principles.
We have relied as to certain matters on information obtained from officers of the Company.
Our opinion letter is expressly limited to the matters set forth above, and we render no opinion, whether by implication or otherwise, as to any other matters relating to the Company, the Common Shares or the agreements and instruments addressed herein, or in the Registration Statement. This opinion is based upon currently existing statutes, regulations, rules and judicial decisions, and we disclaim any obligation to advise you of any change in any of these sources of law or subsequent legal or factual developments which might affect any matters or opinions set forth herein.
We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the references to this firm under the caption “Legal Matters” in the Prospectus which is a part of the Registration Statement. In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Commission promulgated thereunder.
| Very truly yours, | |
| /s/ Lucosky Brookman LLP | |
| Lucosky Brookman LLP |
Exhibit 10.32
VIVAKOR, INC.
2021 EQUITY AND INCENTIVE PLAN
SECTION 1. GENERAL PURPOSE OF THE PLAN: DEFINITIONS
The name of the plan is the VIVAKOR, INC. 2021 EQUITY AND INCENTIVE PLAN (the “Plan”). The purpose of the Plan is to encourage, retain and enable the officers, employees, directors, Consultants and other key persons of VIVAKOR, INC., a Nevada corporation (including any successor entity, the “Company”) and its Subsidiaries, upon whose judgment, initiative and efforts the Company largely depends for the successful conduct of its business, to acquire a proprietary interest in the Company.
The following terms shall be defined as set forth below:
“Affiliate” of any Person means a Person that directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with the first mentioned Person. A Person shall be deemed to control another Person if such first Person possesses directly or indirectly the power to direct, or cause the direction of, the management and policies of the second Person, whether through the ownership of voting securities, by contract or otherwise.
“Award” or “Awards,” except where referring to a particular category of grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock Options, Stock Appreciation Rights (“SAR”), Restricted Stock Awards (including preferred stock), Unrestricted Stock Awards, Restricted Stock Units, Performance Awards or any combination of the foregoing.
“Award Agreement” means a written or electronic agreement setting forth the terms and provisions applicable to an Award granted under the Plan. Each Award Agreement may contain terms and conditions in addition to those set forth in the Plan; provided, however, in the event of any conflict in the terms of the Plan and the Award Agreement, the terms of the Plan shall govern.
“Board” means the Board of Directors of the Company.
“Cause” shall have the meaning as set forth in the Award Agreement(s). In the case that any Award Agreement does not contain a definition of “Cause,” it shall mean (i) the grantee’s dishonest statements or acts with respect to the Company or any Affiliate of the Company, or any current or prospective customers, suppliers vendors or other third parties with which such entity does business; (ii) the grantee’s commission of (A) a felony or (B) any misdemeanor involving moral turpitude, deceit, dishonesty or fraud; (iii) the grantee’s failure to perform his assigned duties and responsibilities to the reasonable satisfaction of the Company which failure continues, in the reasonable judgment of the Company, after written notice given to the grantee by the Company; (iv) the grantee’s gross negligence, willful misconduct or insubordination with respect to the Company or any Affiliate of the Company; or (v) the grantee’s material violation of any provision of any agreement(s) between the grantee and the Company relating to noncompetition, nonsolicitation, nondisclosure and/or assignment of inventions.
“Chief Executive Officer” means the Chief Executive Officer of the Company or, if there is no Chief Executive Officer, then the President of the Company.
“Code” means the Internal Revenue Code of 1986, as amended, and any successor Code, and related rules, regulations and interpretations.
“Committee” means the Committee of the Board referred to in Section 2.
“Consultant” means any entity or natural person that provides bona fide services to the Company (including a Subsidiary), and such services are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the Company’s securities.
“Disability” means such condition which renders a Person (A) unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expect to last for a continuous period of not less than 12 months, (B) by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under an accident and health plan covering employees of the Company, (C) determined to be totally disabled by the Social Security Administration, or (D) determined to be disabled under a disability insurance program which provides for a definition of disability that meets the requirements of this section.
“Effective Date” means the date on which the Plan is adopted as set forth in this Plan.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.
“Fair Market Value” of the Stock on any given date means the fair market value of the Stock determined in good faith by the Committee based on the reasonable application of a reasonable valuation method that is consistent with Section 409A of the Code. If the Stock is admitted to trade on a national securities exchange, the determination shall be made by reference to the closing price reported on such exchange. If there is no closing price for such date, the determination shall be made by reference to the last date preceding such date for which there is a closing price. If the date for which Fair Market Value is determined is the first day when trading prices for the Stock are reported on a national securities exchange, the Fair Market Value shall be the “Price to the Public” (or equivalent).
“Good Reason” shall have the meaning as set forth in the Award Agreement(s). In the case that any Award Agreement does not contain a definition of “Good Reason,” it shall mean (i) a material diminution in the grantee’s base salary except for across-the-board salary reductions similarly affecting all or substantially all similarly situated employees of the Company or (ii) a change of more than 100 miles in the geographic location at which the grantee provides services to the Company, so long as the grantee provides at least 90 days’ notice to the Company following the initial occurrence of any such event and the Company fails to cure such event within 30 days thereafter.
“Grant Date” means the date that the Committee designates in its approval of an Award in accordance with applicable law as the date on which the Award is granted, which date may not precede the date of such Committee approval.
“Holder” means, with respect to an Award or any Shares, the Person holding such Award or Shares, including the initial recipient of the Award or any Permitted Transferee.
“Incentive Stock Option” means any Stock Option designated and qualified as an “incentive stock option” as defined in Section 422 of the Code.
“Non-Qualified Stock Option” means any Stock Option that is not an Incentive Stock Option.
“Option” or “Stock Option” means any option to purchase shares of Stock granted pursuant to Section 5.
“Permitted Transferees” shall mean any of the following to whom a Holder may transfer Shares hereunder (as set forth in Section 10(a)(ii)(A)): the Holder’s child, stepchild, grandchild, parent, step-parent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the Holder’s household (other than a tenant or employee), a trust in which these persons have more than fifty percent of the beneficial interest, a foundation in which these persons control the management of assets, and any other entity in which these persons own more than fifty percent of the voting interests; provided, however, that any such trust does not require or permit distribution of any Shares during the term of the Award Agreement unless subject to its terms. Upon the death of the Holder, the term Permitted Transferees shall also include such deceased Holder’s estate, executors, administrators, personal representatives, heirs, legatees and distributees, as the case may be.
“Person” shall mean any individual, corporation, partnership (limited or general), limited liability company, limited liability partnership, association, trust, joint venture, unincorporated organization or any similar entity.
| 2 |
“Restricted Stock Award” means Awards granted pursuant to Section 7 and “Restricted Stock” means Shares issued pursuant to such Awards.
“Restricted Stock Unit” means an Award of phantom stock units to a grantee, which may be settled in cash or Shares as determined by the Committee, pursuant to Section 9.
“Sale Event” means the consummation of i) a change in the ownership of the Company, ii) a change in effective control of the Company, or iii) a change in the ownership of a substantial portion of the assets of the Company. The occurrence of a Sale Event shall be acknowledged by the plan administrator or board of directors, by strictly applying these provisions without any discretion to deviate from the objective application of the definitions provided herein. ; provided, however, that any capital raising event, or a merger effected solely to change the Company’s domicile shall not constitute a “Sale Event.”
Except as otherwise provided herein, a change in the ownership of the Company occurs on the date that any one person, or more than one person acting as a group acquires ownership of stock of the Company that, together with stock held by such person or group, constitutes more than 50 percent of the total fair market value or total voting power of the stock of the Company. However, if any one person, or more than one person acting as a group, is considered to own more than 50 percent of the total fair market value or total voting power of the stock of the Company the acquisition of additional stock by the same person or persons is not considered to cause a change in the ownership of the Company (or to cause a change in the effective control of the Company). An increase in the percentage of stock owned by any one person, or persons acting as a group, as a result of a transaction in which the corporation acquires its stock in exchange for property will be treated as an acquisition of stock for purposes of this section. This section applies only when there is a transfer of stock of the Company (or issuance of stock) which remains outstanding after the transaction.
A change in the effective control of the Company occurs only on either of the following dates: (1) The date any one person, or more than one person acting as a group acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of the Company possessing 30 percent or more of the total voting power of the stock of the Company; (2) The date a majority of members of the Company’s board of directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Company’s board of directors before the date of the appointment or election.
A change in the ownership of a substantial portion of the Company’s assets occurs on the date that any one person, or more than one person acting as a group acquires (or has acquired during the 12- month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value equal to or more than 40 percent of the total gross fair market value of all of the assets of the Company immediately before such acquisition or acquisitions. For this purpose, gross fair market value means the value of the assets of the corporation, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.
“Section 409A” means Section 409A of the Code and the regulations and other guidance promulgated thereunder.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations thereunder.
“Service Relationship” means any relationship as a full-time employee, part-time employee, director or other key person (including Consultants) of the Company or any Subsidiary or any successor entity (e.g., a Service Relationship shall be deemed to continue without interruption in the event an individual’s status changes from full-time employee to part-time employee or Consultant).
“Shares” means shares of Stock.
“Stock” means the Common Stock, par value $0.001 per share, of the Company.
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“Stock Appreciation Right” or “SAR” means any right to receive from the Company upon exercise by an optionee or settlement, in cash, Shares, or a combination thereof, the excess of (i) the Fair Market Value of one Share on the date of exercise or settlement over (ii) the exercise price of the right on the date of grant, or if granted in connection with an Option, on the date of grant of the Option.
“Subsidiary” means any corporation or other entity (other than the Company) in which the Company has more than a 50 percent interest, either directly or indirectly.
“Ten Percent Owner” means an employee who owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than 10 percent of the combined voting power of all classes of stock of the Company or any parent of the Company or any Subsidiary.
“Termination Event” means the termination of the Award recipient’s Service Relationship with the Company and its Subsidiaries for any reason whatsoever, regardless of the circumstances thereof, and including, without limitation, upon death, disability, retirement, discharge or resignation for any reason, whether voluntarily or involuntarily. The following shall not constitute a Termination Event: (i) a transfer to the service of the Company from a Subsidiary or from the Company to a Subsidiary, or from one Subsidiary to another Subsidiary or (ii) an approved leave of absence for military service or sickness, or for any other purpose approved by the Committee, if the individual’s right to re-employment is guaranteed either by a statute or by contract or under the policy pursuant to which the leave of absence was granted or if the Committee otherwise so provides in writing.
“Unrestricted Stock Award” means any Award granted pursuant to Section 8 and “Unrestricted Stock” means Shares issued pursuant to such Awards.
SECTION 2. ADMINISTRATION OF PLAN; COMMITTEE AUTHORITY TO SELECT GRANTEES AND DETERMINE AWARDS
(a) Administration of Plan. The Plan shall be administered by the Compensation Committee of the Board, comprised of not less than three directors or the Board of Directors in the absence of a Compensation Committee of the Board. All references herein to the “Committee” shall be deemed to refer to the group then responsible for administration of the Plan at the relevant time (i.e., either the Board of Directors or a committee or committees of the Board, as applicable).
(b) Powers of Committee. The Committee shall have the power and authority to grant Awards consistent with the terms of the Plan, including the power and authority:
(i) to select the individuals to whom Awards may from time to time be granted;
(ii) to determine the time or times of grant, and the amount, if any, of Incentive Stock Options, Non-Qualified Stock Options, SARs, Restricted Stock Awards, Unrestricted Stock Awards, Restricted Stock Units, or any combination of the foregoing, granted to any one or more grantees;
(iii) to determine the number and types of Shares to be covered by any Award and, subject to the provisions of the Plan, the price, exercise price, conversion ratio or other price relating thereto;
(iv) to determine and, subject to Section 13, to modify from time to time the terms and conditions, including restrictions, not inconsistent with the terms of the Plan, of any Award, which terms and conditions may differ among individual Awards and grantees, and to approve the form of Award Agreements;
(v) to accelerate at any time the exercisability or vesting of all or any portion of any Award;
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(vi) to impose any limitations on Awards, including limitations on transfers, repurchase provisions and the like, and to exercise repurchase rights or obligations;
(vii) subject to Section 5(a)(ii) and any restrictions imposed by Section 409A, to extend at any time the period in which Stock Options may be exercised; and
(viii) at any time to adopt, alter and repeal such rules, guidelines and practices for administration of the Plan and for its own acts and proceedings as it shall deem advisable; to interpret the terms and provisions of the Plan and any Award (including Award Agreements); to make all determinations it deems advisable for the administration of the Plan; to decide all disputes arising in connection with the Plan; and to otherwise supervise the administration of the Plan.
All decisions and interpretations of the Committee shall be binding on all persons, including the Company and all Holders.
(c) Award Agreement. Awards under the Plan shall be evidenced by Award Agreements that set forth the terms, conditions and limitations for each Award.
(d) Indemnification. Neither the Board nor the Committee, nor any member of either or any delegate thereof, shall be liable for any act, omission, interpretation, construction or determination made in good faith in connection with the Plan, and the members of the Board and the Committee (and any delegate thereof) shall be entitled in all cases to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expense (including, without limitation, reasonable attorneys’ fees) arising or resulting therefrom to the fullest extent permitted by law and/or under the Company’s governing documents, including its certificate of incorporation or bylaws, or any directors’ and officers’ liability insurance coverage which may be in effect from time to time and/or any indemnification agreement between such individual and the Company.
(e) Foreign Award Recipients. Notwithstanding any provision of the Plan to the contrary, in order to comply with the laws in other countries in which the Company and any Subsidiary operate or have employees or other individuals eligible for Awards, the Committee, in its sole discretion, shall have the power and authority to: (i) determine which Subsidiaries, if any, shall be covered by the Plan; (ii) determine which individuals, if any, outside the United States are eligible to participate in the Plan; (iii) modify the terms and conditions of any Award granted to individuals outside the United States to comply with applicable foreign laws; (iv) establish subplans and modify exercise procedures and other terms and procedures, to the extent the Committee determines such actions to be necessary or advisable (and such subplans and/or modifications shall be attached to the Plan as appendices); provided, however, that no such subplans and/or modifications shall increase the share limitation contained in Section 3(a) hereof; and (v) take any action, before or after an Award is made, that the Committee determines to be necessary or advisable to obtain approval or comply with any local governmental regulatory exemptions or approvals.
SECTION 3. STOCK ISSUABLE UNDER THE PLAN; MERGERS AND OTHER TRANSACTIONS; SUBSTITUTION
(a) Stock Issuable. The maximum number of Shares reserved and available for issuance under the Plan shall be 60,000,000 Shares (the “Share Reserve”), subject to adjustment as provided in Section 3(b) and the following sentence regarding the annual increase. In addition, the Share Reserve will automatically increase on January 1st of each year, for a period of not more than ten years, commencing on January 1, 2023, and ending on (and including) January 1, 2032, in an amount equal to 6,000,000 shares. Notwithstanding the foregoing, the Board may act prior to January 1st of a given year to provide that there will be no January 1st increase in the Share Reserve for such year or that the increase in the Share Reserve for such year will be a lesser number of shares of Stock than would otherwise occur pursuant to the preceding sentence. If a Stock Award or any portion thereof (i) expires or otherwise terminates without all of the shares covered by such Stock Award having been issued or (ii) is settled in cash (i.e., the Participant receives cash rather than stock), the Shares subject to such Stock Award, to the extent of any such expiration, termination or settlement, will again be available for issuance under the Plan. If any shares of Stock issued pursuant to a Stock Award are forfeited back to or repurchased by the Company because of the failure to meet a contingency or condition required to vest such shares in the Participant, then the shares that are forfeited or repurchased will revert to and again become available for issuance under the Plan. Any shares reacquired by the Company in satisfaction of tax withholding obligations on a Stock Award or as consideration for the exercise or purchase price of a Stock Award will again become available for issuance under the Plan. For purposes of this limitation, the Shares underlying any Awards that are forfeited, canceled, reacquired by the Company prior to vesting, satisfied without the issuance of Stock or otherwise terminated (other than by exercise) shall be added back to the Shares available for issuance under the Plan. Subject to such overall limitations, Shares may be issued up to such maximum number pursuant to any type or types of Award, and no more than 1,000,000 Shares may be issued pursuant to Incentive Stock Options. The value of any Shares granted to a non-employee director of the Company, solely for services as a director, when added to any annual cash payments or awards, shall not exceed an aggregate value of four hundred thousand dollars ($400,000) in any calendar year.
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(b) Changes in Stock. Subject to Section 3(c) hereof, if, as a result of any reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar change in the Company’s capital stock, the outstanding Shares are increased or decreased or are exchanged for a different number or kind of shares or other securities of the Company, or additional Shares or new or different shares or other securities of the Company or other non-cash assets are distributed with respect to such Shares or other securities, in each case, without the receipt of consideration by the Company, or, if, as a result of any merger or consolidation, or sale of all or substantially all of the assets of the Company, the outstanding Shares are converted into or exchanged for other securities of the Company or any successor entity (or a parent or subsidiary thereof), the Committee shall make an appropriate and proportionate adjustment in (i) the maximum number of Shares reserved for issuance under the Plan, (ii) the number and kind of Shares or other securities subject to any then outstanding Awards under the Plan, (iii) the repurchase price, if any, per Share subject to each outstanding Award, and (iv) the exercise price for each Share subject to any then outstanding Stock Options under the Plan, without changing the aggregate exercise price (i.e., the exercise price multiplied by the number of Stock Options) as to which such Stock Options remain exercisable. The Committee shall in any event make such adjustments as may be required by the laws of Nevada and the rules and regulations promulgated thereunder. The adjustment by the Committee shall be final, binding and conclusive. No fractional Shares shall be issued under the Plan resulting from any such adjustment, but the Committee in its discretion may make a cash payment in lieu of fractional shares.
(c) Sale Events.
(i) Options.
(A) In the case of and subject to the consummation of a Sale Event, the Plan and all outstanding Options and SARs issued hereunder shall become one hundred percent (100%) vested upon the effective time of any such Sale Event. New stock options or other awards of the successor entity or parent thereof shall be substituted therefor, with an equitable or proportionate adjustment as to the number and kind of shares and, if appropriate, the per share exercise prices, as such parties shall agree (after taking into account any acceleration hereunder and/or pursuant to the terms of any Award Agreement).
(B) In the event of the termination of the Plan and all outstanding Options and SARs issued hereunder pursuant to Section 3(c), each Holder of Options shall be permitted, within a period of time prior to the consummation of the Sale Event as specified by the Committee, to exercise all such Options or SARs which are then exercisable or will become exercisable as of the effective time of the Sale Event; provided, however, that the exercise of Options not exercisable prior to the Sale Event shall be subject to the consummation of the Sale Event.
(C) Notwithstanding anything to the contrary in Section 3(c)(i)(A), in the event of a Sale Event, the Company shall have the right, but not the obligation, to make or provide for a cash payment to the Holders of Options, without any consent of the Holders, in exchange for the cancellation thereof, in an amount equal to the difference between (A) the value as determined by the Committee of the consideration payable per share of Stock pursuant to the Sale Event (the “Sale Price”) times the number of Shares subject to outstanding Options being cancelled (to the extent then vested and exercisable, including by reason of acceleration in connection with such Sale Event, at prices not in excess of the Sale Price) and (B) the aggregate exercise price of all such outstanding vested and exercisable Options.
(ii) Restricted Stock and Restricted Stock Unit Awards.
(A) In the case of and subject to the consummation of a Sale Event, all unvested Restricted Stock and unvested Restricted Stock Unit Awards issued hereunder shall become one hundred percent (100%) vested, with an equitable or proportionate adjustment as to the number and kind of shares subject to such awards as such parties shall agree (after taking into account any acceleration hereunder and/or pursuant to the terms of any Award Agreement).
(B) Such Restricted Stock shall be repurchased from the Holder thereof at the then Fair Market Value of such shares, (subject to adjustment as provided in Section 3(b)) for such Shares.
(C) Notwithstanding anything to the contrary in Section 3(c)(ii)(A), in the event of a Sale Event, the Company shall have the right, but not the obligation, to make or provide for a cash payment to the Holders of Restricted Stock or Restricted Stock Unit Awards, without consent of the Holders, in exchange for the cancellation thereof, in an amount equal to the Sale Price times the number of Shares subject to such Awards, to be paid at the time of such Sale Event or upon the later vesting of such Awards.
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SECTION 4. ELIGIBILITY
Grantees under the Plan will be such full or part-time officers and other employees, directors, Consultants and key persons of the Company and any Subsidiary who are selected from time to time by the Committee in its sole discretion; provided, however, that Awards shall be granted only to those individuals described in Rule 701(c) of the Securities Act.
SECTION 5. STOCK OPTIONS
Upon the grant of a Stock Option, the Company and the grantee shall enter into an Award Agreement. The terms and conditions of each such Award Agreement shall be determined by the Committee, and such terms and conditions may differ among individual Awards and grantees.
Stock Options granted under the Plan may be either Incentive Stock Options or Non-Qualified Stock Options. Incentive Stock Options may be granted only to employees of the Company or any Subsidiary that is a “subsidiary corporation” within the meaning of Section 424(f) of the Code. To the extent that any Option does not qualify as an Incentive Stock Option, it shall be deemed a Non-Qualified Stock Option.
(a) Terms of Stock Options. The Committee in its discretion may grant Stock Options to those individuals who meet the eligibility requirements of Section 4. Stock Options shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem desirable.
(i) Exercise Price. The exercise price per share for the Shares covered by a Stock Option shall be determined by the Committee at the time of grant but shall not be less than 100 percent of the Fair Market Value on the Grant Date. In the case of an Incentive Stock Option that is granted to a Ten Percent Owner, the exercise price per share for the Shares covered by such Incentive Stock Option shall not be less than 110 percent of the Fair Market Value on the Grant Date.
(ii) Option Term. The term of each Stock Option shall be fixed by the Committee, but no Stock Option shall be exercisable more than ten years from the Grant Date. In the case of an Incentive Stock Option that is granted to a Ten Percent Owner, the term of such Stock Option shall be no more than five years from the Grant Date.
(iii) Exercisability; Rights of a Stockholder. Stock Options shall become exercisable and/or vested at such time or times, whether or not in installments, as shall be determined by the Committee at or after the Grant Date. The Award Agreement may permit a grantee to exercise all or a portion of a Stock Option immediately at grant; provided that the Shares issued upon such exercise shall be subject to restrictions and a vesting schedule identical to the vesting schedule of the related Stock Option, such Shares shall be deemed to be Restricted Stock for purposes of the Plan, and the optionee may be required to enter into an additional or new Award Agreement as a condition to exercise of such Stock Option. An optionee shall have the rights of a stockholder only as to Shares acquired upon the exercise of a Stock Option and not as to unexercised Stock Options. An optionee shall not be deemed to have acquired any Shares unless and until a Stock Option shall have been exercised pursuant to the terms of the Award Agreement and this Plan and the optionee’s name has been entered on the books of the Company as a stockholder.
(iv) Method of Exercise. Stock Options may be exercised by an optionee in whole or in part, by the optionee giving written or electronic notice of exercise to the Company, specifying the number of Shares to be purchased. Payment of the purchase price may be made by one or more of the following methods (or any combination thereof) to the extent provided in the Award Agreement:
(A) In cash, by certified or bank check, by wire transfer of immediately available funds, or other instrument acceptable to the Committee;
(B) If permitted by the Committee, by the optionee delivering to the Company a promissory note, if the Board has expressly authorized the loan of funds to the optionee for the purpose of enabling or assisting the optionee to effect the exercise of his or her Stock Option; provided, that at least so much of the exercise price as represents the par value of the Stock shall be paid in cash if required by state law;
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(C) If permitted by the Committee, through the delivery (or attestation to the ownership) of Shares that have been purchased by the optionee on the open market or that are beneficially owned by the optionee and are not then subject to restrictions under any Company plan. To the extent required to avoid variable accounting treatment under applicable accounting rules, such surrendered Shares if originally purchased from the Company shall have been owned by the optionee for at least six months. Such surrendered Shares shall be valued at Fair Market Value on the exercise date;
(D) If permitted by the Committee and by the optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company for the purchase price; provided that in the event the optionee chooses to pay the purchase price as so provided, the optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Committee shall prescribe as a condition of such payment procedure; or
(E) If permitted by the Committee, and only with respect to Stock Options that are not Incentive Stock Options, by a “net exercise” arrangement pursuant to which the Company will reduce the number of Shares issuable upon exercise by the largest whole number of Shares with a Fair Market Value that does not exceed the aggregate exercise price.
Payment instruments will be received subject to collection. No certificates for Shares so purchased will be issued to the optionee or, with respect to uncertificated Stock, no transfer to the optionee on the records of the Company will take place, until the Company has completed all steps it has deemed necessary to satisfy legal requirements relating to the issuance and sale of the Shares, which steps may include, without limitation, (i) receipt of a representation from the optionee at the time of exercise of the Option that the optionee is purchasing the Shares for the optionee’s own account and not with a view to any sale or distribution of the Shares or other representations relating to compliance with applicable law governing the issuance of securities, (ii) the legending of the certificate (or notation on any book entry) representing the Shares to evidence the foregoing restrictions, and (iii) obtaining from optionee payment or provision for all withholding taxes due as a result of the exercise of the Option. The delivery of certificates representing the shares of Stock (or the transfer to the optionee on the records of the Company with respect to uncertificated Stock) to be purchased pursuant to the exercise of a Stock Option will be contingent upon (A) receipt from the optionee (or a purchaser acting in his or her stead in accordance with the provisions of the Stock Option) by the Company of the full purchase price for such Shares and the fulfillment of any other requirements contained in the Award Agreement or applicable provisions of laws and (B) if required by the Company, the optionee shall have entered into any stockholders agreements or other agreements with the Company and/or certain other of the Company’s stockholders relating to the Stock. In the event an optionee chooses to pay the purchase price by previously-owned Shares through the attestation method, the number of Shares transferred to the optionee upon the exercise of the Stock Option shall be net of the number of Shares attested to by the Optionee.
(b) Annual Limit on Incentive Stock Options. To the extent required for “incentive stock option” treatment under Section 422 of the Code, the aggregate Fair Market Value (determined as of the Grant Date) of the Shares with respect to which Incentive Stock Options granted under the Plan and any other plan of the Company or its parent and any Subsidiary that become exercisable for the first time by an optionee during any calendar year shall not exceed $100,000 or such other limit as may be in effect from time to time under Section 422 of the Code. To the extent that any Stock Option exceeds this limit, it shall constitute a Non-Qualified Stock Option.
(c) Termination. Any portion of a Stock Option that is not vested and exercisable on the date of termination of an optionee’s Service Relationship shall immediately expire and be null and void. Once any portion of the Stock Option becomes vested and exercisable, the optionee’s right to exercise such portion of the Stock Option (or the optionee’s representatives and legatees as applicable) in the event of a termination of the optionee’s Service Relationship shall continue until the earliest of: (i) the date which is: (A) 12 months following the date on which the optionee’s Service Relationship terminates due to death or Disability (or such longer period of time as determined by the Committee and set forth in the applicable Award Agreement), or (B) three months following the date on which the optionee’s Service Relationship terminates if the termination is due to any reason other than death or Disability (or such longer period of time as determined by the Committee and set forth in the applicable Award Agreement), or (ii) the Expiration Date set forth in the Award Agreement; provided that notwithstanding the foregoing, an Award Agreement may provide that if the optionee’s Service Relationship is terminated for Cause, the Stock Option shall terminate immediately and be null and void upon the date of the optionee’s termination and shall not thereafter be exercisable.
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SECTION 6. STOCK APPRECIATION RIGHTS
The Committee is authorized to grant SARs to optionees with the following terms and conditions and with such additional terms and conditions, in either case not inconsistent with the provisions of the Plan, as the Committee shall determine –
(a) SARs may be granted under the Plan to optionees either alone or in addition to other Awards granted under the Plan and may, but need not, relate to specific Option granted under Section 5.
(b) The exercise price per Share under a SAR shall be determined by the Committee, provided, however, that except in the case of a substitute Award, such exercise price shall not be less than the fair market value of a Share on the date of grant of such SAR.
(c) The term of each SAR shall be fixed by the Committee but shall not exceed 10 years from the date of grant of such SAR.
(d) The Committee shall determine the time or times at which a SAR may be exercised or settled in whole or in part. Unless otherwise determined by the Committee or unless otherwise set forth in an Award Agreement, the provisions set forth in Section 5 above with respect to exercise of an Award following termination of service shall apply to any SAR. The Committee may specify in an Award Agreement that an “in-the-money” SAR shall be automatically exercised on its expiration date.
SECTION 7. RESTRICTED STOCK AWARDS
(a) Nature of Restricted Stock Awards. The Committee may, in its sole discretion, grant (or sell at par value or such other purchase price determined by the Committee) to an eligible individual under Section 4 hereof a Restricted Stock Award under the Plan. The Committee shall determine the restrictions and conditions applicable to each Restricted Stock Award at the time of grant. Conditions may be based on the type of stock upon which restrictions are placed, continuing employment (or other Service Relationship), achievement of pre-established performance goals and objectives and/or such other criteria as the Committee may determine. Upon the grant of a Restricted Stock Award, the Company and the grantee shall enter into an Award Agreement. The terms and conditions of each such Award Agreement shall be determined by the Committee, and such terms and conditions may differ among individual Awards and grantees.
(b) Rights as a Stockholder. Upon the grant of the Restricted Stock Award and payment of any applicable purchase price, a grantee of Restricted Stock shall be considered the record owner of and shall be entitled to vote the Restricted Stock if, and to the extent, such Shares are entitled to voting rights, subject to such conditions contained in the Award Agreement. The grantee shall be entitled to receive all dividends and any other distributions declared on the Shares; provided, however, that the Company is under no duty to declare any such dividends or to make any such distribution. Unless the Committee shall otherwise determine, certificates evidencing the Restricted Stock shall remain in the possession of the Company until such Restricted Stock is vested as provided in subsection (d) below of this Section, and the grantee shall be required, as a condition of the grant, to deliver to the Company a stock power endorsed in blank and such other instruments of transfer as the Committee may prescribe.
(c) Restrictions. Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of except as specifically provided herein or in the Award Agreement. Except as may otherwise be provided by the Committee either in the Award Agreement or, subject to Section 13 below, in writing after the Award Agreement is issued, if a grantee’s Service Relationship with the Company and any Subsidiary terminates, the Company or its assigns shall have the right, as may be specified in the relevant instrument, to repurchase some or all of the Shares subject to the Award at such purchase price as is set forth in the Award Agreement.
(d) Vesting of Restricted Stock. The Committee at the time of grant shall specify in the Award Agreement the date or dates and/or the attainment of pre-established performance goals, objectives and other conditions on which the substantial risk of forfeiture imposed shall lapse and the Restricted Stock shall become vested, subject to such further rights of the Company or its assigns as may be specified in the Award Agreement.
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SECTION 8. UNRESTRICTED STOCK AWARDS
The Committee may, in its sole discretion, grant (or sell at par value or such other purchase price determined by the Committee) to an eligible person under Section 4 hereof an Unrestricted Stock Award under the Plan. Unrestricted Stock Awards may be granted in respect of past services or other valid consideration, or in lieu of cash compensation due to such grantee.
SECTION 9. RESTRICTED STOCK UNITS
(a) Nature of Restricted Stock Units. The Committee may, in its sole discretion, grant to an eligible person under Section 4 hereof Restricted Stock Units under the Plan. The Committee shall determine the restrictions and conditions applicable to each Restricted Stock Unit at the time of grant. Vesting conditions may be based on continuing employment (or other Service Relationship), achievement of pre-established performance goals and objectives which may be based on targets for revenue, revenue growth, EBITDA, net income, earnings per share and/or other such criteria as the Committee may determine. Upon the grant of Restricted Stock Units, the grantee and the Company shall enter into an Award Agreement. The terms and conditions of each such Award Agreement shall be determined by the Committee and may differ among individual Awards and grantees. On or promptly following the vesting date or dates applicable to any Restricted Stock Unit, but in no event later than March 15 of the year following the year in which such vesting occurs, such Restricted Stock Unit(s) shall be settled in the form of cash or shares of Stock, as specified in the Award Agreement. Restricted Stock Units may not be sold, assigned, transferred, pledged, or otherwise encumbered or disposed of.
(b) Rights as a Stockholder. A grantee shall have the rights of a stockholder only as to Shares, if any, acquired upon settlement of Restricted Stock Units. A grantee shall not be deemed to have acquired any such Shares unless and until the Restricted Stock Units shall have been settled in Shares pursuant to the terms of the Plan and the Award Agreement, the Company shall have issued and delivered a certificate representing the Shares to the grantee (or transferred on the records of the Company with respect to uncertificated stock), and the grantee’s name has been entered in the books of the Company as a stockholder.
(c) Termination. Except as may otherwise be provided by the Committee either in the Award Agreement or in writing after the Award Agreement is issued, a grantee’s right in all Restricted Stock Units that have not vested shall automatically terminate upon the grantee’s cessation of Service Relationship with the Company and any Subsidiary for any reason.
SECTION 10. TRANSFER RESTRICTIONS; COMPANY RIGHT OF FIRST REFUSAL; COMPANY REPURCHASE RIGHTS
(a) Restrictions on Transfer.
(i) Non-Transferability of Certain Awards. Restricted Stock awards granted under Section 7, Stock Options, SARs and, prior to exercise, the Shares issuable upon exercise of such Stock Option, shall not be transferable by the optionee otherwise than by will, or by the laws of descent and distribution, and all Stock Options shall be exercisable, during the optionee’s lifetime, only by the optionee, or by the optionee’s legal representative or guardian in the event of the optionee’s incapacity. Notwithstanding the foregoing, the Committee, in its sole discretion, may provide in the Award Agreement regarding a given Stock Option or Restricted Stock award that the optionee may transfer by gift, without consideration for the transfer, his or her Non-Qualified Stock Options to his or her family members (as defined in Rule 701 of the Securities Act), to trusts for the benefit of such family members, or to partnerships in which such family members are the only partners (to the extent such trusts or partnerships are considered “family members” for purposes of Rule 701 of the Securities Act), provided that the transferee agrees in writing with the Company to be bound by all of the terms and conditions of this Plan and the applicable Award Agreement, including the execution of a stock power upon the issuance of Shares. Stock Options, SARs and the Shares issuable upon exercise of such Stock Options, shall be restricted as to any pledge, hypothecation, or other transfer, including any short position, any “put equivalent position” (as defined in the Exchange Act) or any “call equivalent position” (as defined in the Exchange Act) prior to exercise.
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(ii) Shares. No Shares shall be sold, assigned, transferred, pledged, hypothecated, given away or in any other manner disposed of or encumbered, whether voluntarily or by operation of law, unless (i) the transfer is in compliance with the terms of the applicable Award Agreement, all applicable securities laws (including, without limitation, the Securities Act), and with the terms and conditions of this Section 10, (ii) the transfer does not cause the Company to become subject to the reporting requirements of the Exchange Act, and the transferee consents in writing to be bound by the provisions of the Plan and the Award Agreement, including this Section 10. In connection with any proposed transfer, the Committee may require the transferor to provide at the transferor’s own expense an opinion of counsel to the transferor, satisfactory to the Committee, that such transfer is in compliance with all foreign, federal and state securities laws (including, without limitation, the Securities Act). Any attempted transfer of Shares not in accordance with the terms and conditions of this Section 10 shall be null and void, and the Company shall not reflect on its records any change in record ownership of any Shares as a result of any such transfer, shall otherwise refuse to recognize any such transfer and shall not in any way give effect to any such transfer of Shares. The Company shall be entitled to seek protective orders, injunctive relief and other remedies available at law or in equity including, without limitation, seeking specific performance or the rescission of any transfer not made in strict compliance with the provisions of this Section 10. Subject to the foregoing general provisions, and unless otherwise provided in the applicable Award Agreement, Shares may be transferred pursuant to the following specific terms and conditions (provided that with respect to any transfer of Restricted Stock, all vesting and forfeiture provisions shall continue to apply with respect to the original recipient):
(A) Transfers to Permitted Transferees. The Holder may transfer any or all of the Shares to one or more Permitted Transferees; provided, however, that following such transfer, such Shares shall continue to be subject to the terms of this Plan (including this Section 10) and such Permitted Transferee(s) shall, as a condition to any such transfer, deliver a written acknowledgment to that effect to the Company and shall deliver a stock power to the Company with respect to the Shares. Notwithstanding the foregoing, the Holder may not transfer any of the Shares to a Person whom the Company reasonably determines is a direct competitor or a potential competitor of the Company or any of its Subsidiaries.
(B) Transfers Upon Death. Upon the death of the Holder, any Shares then held by the Holder at the time of such death and any Shares acquired after the Holder’s death by the Holder’s legal representative shall be subject to the provisions of this Plan, and the Holder’s estate, executors, administrators, personal representatives, heirs, legatees and distributees shall be obligated to convey such Shares to the Company or its assigns under the terms contemplated by the Plan and the Award Agreement.
(b) Right of First Refusal. In the event that a Holder desires at any time to sell or otherwise transfer all or any part of his or her Shares (other than shares of Restricted Stock which by their terms are not transferrable), the Holder first shall give written notice to the Company of the Holder’s intention to make such transfer. Such notice shall state the number of Shares that the Holder proposes to sell (the “Offered Shares”), the price and the terms at which the proposed sale is to be made and the name and address of the proposed transferee. At any time within 30 days after the receipt of such notice by the Company, the Company or its assigns may elect to purchase all or any portion of the Offered Shares at the price and on the terms offered by the proposed transferee and specified in the notice. The Company or its assigns shall exercise this right by mailing or delivering written notice to the Holder within the foregoing 30-day period. If the Company or its assigns elect to exercise its purchase rights under this Section 10(b), the closing for such purchase shall, in any event, take place within 45 days after the receipt by the Company of the initial notice from the Holder. In the event that the Company or its assigns do not elect to exercise such purchase right, or in the event that the Company or its assigns do not pay the full purchase price within such 45-day period, the Holder shall be required to pay a transaction processing fee of $10,000 to the Company (unless waived by the Committee) and then may, within 60 days thereafter, sell the Offered Shares to the proposed transferee and at the same price and on the same terms as specified in the Holder’s notice. Any Shares not sold to the proposed transferee shall remain subject to the Plan. If the Holder is a party to any stockholders agreements or other agreements with the Company and/or certain other of the Company’s stockholders relating to the Shares, (i) the transferring Holder shall comply with the requirements of such stockholders agreements or other agreements relating to any proposed transfer of the Offered Shares, and (ii) any proposed transferee that purchases Offered Shares shall enter into such stockholders agreements or other agreements with the Company and/or certain of the Company’s stockholders relating to the Offered Shares on the same terms and in the same capacity as the transferring Holder.
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(c) Company’s Right of Repurchase.
(i) Right of Repurchase for Unvested Shares Issued Upon the Exercise of an Option. Upon a Termination Event, the Company or its assigns shall have the right and option to repurchase from a Holder of Shares acquired upon exercise of a Stock Option which is still subject to a risk of forfeiture as of the Termination Event. Such repurchase rights may be exercised by the Company within the later of (A) six months following the date of such Termination Event or (B) seven months after the acquisition of Shares upon exercise of a Stock Option. The repurchase price shall be equal to the lower of the original per share price paid by the Holder, subject to adjustment as provided in Section 3(b) of the Plan, or the current Fair Market Value of such Shares as of the date the Company elects to exercise its repurchase rights.
(ii) Right of Repurchase With Respect to Restricted Stock. Upon a Termination Event, the Company or its assigns shall have the right and option to repurchase from a Holder of Shares received pursuant to a Restricted Stock Award any Shares that are still subject to a risk of forfeiture as of the Termination Event. Such repurchase right may be exercised by the Company within six months following the date of such Termination Event. The repurchase price shall be the lower of the original per share purchase price paid by the Holder, subject to adjustment as provided in Section 3(b) of the Plan, or the current Fair Market Value of such Shares as of the date the Company elects to exercise its repurchase rights.
(iii) Procedure. Any repurchase right of the Company shall be exercised by the Company or its assigns by giving the Holder written notice on or before the last day of the repurchase period of its intention to exercise such repurchase right. Upon such notification, the Holder shall promptly surrender to the Company, free and clear of any liens or encumbrances, any certificates representing the Shares being purchased, together with a duly executed stock power for the transfer of such Shares to the Company or the Company’s assignee or assignees. Upon the Company’s or its assignee’s receipt of the certificates from the Holder, the Company or its assignee or assignees shall deliver to him, her or them a check for the applicable repurchase price; provided, however, that the Company may pay the repurchase price by offsetting and canceling any indebtedness then owed by the Holder to the Company.
(d) Escrow Arrangement.
(i) Escrow. In order to carry out the provisions of this Section 10 of this Plan more effectively, the Company shall hold any Shares issued pursuant to Awards granted under the Plan in escrow together with separate stock powers executed by the Holder in blank for transfer. The Company shall not dispose of the Shares except as otherwise provided in this Plan. In the event of any repurchase by the Company (or any of its assigns), the Company is hereby authorized by the Holder, as the Holder’s attorney-in-fact, to date and complete the stock powers necessary for the transfer of the Shares being purchased and to transfer such Shares in accordance with the terms hereof. At such time as any Shares are no longer subject to the Company’s repurchase and first refusal rights, the Company shall, at the written request of the Holder, deliver to the Holder a certificate representing such Shares with the balance of the Shares to be held in escrow pursuant to this Section.
(ii) Remedy. Without limitation of any other provision of this Plan or other rights, in the event that a Holder or any other Person is required to sell a Holder’s Shares pursuant to the provisions of Sections 10(b) or (c) hereof and in the further event that he or she refuses or for any reason fails to deliver to the Company or its designated purchaser of such Shares the certificate or certificates evidencing such Shares together with a related stock power, the Company or such designated purchaser may deposit the applicable purchase price for such Shares with a bank designated by the Company, or with the Company’s independent public accounting firm, as agent or trustee, or in escrow, for such Holder or other Person, to be held by such bank or accounting firm for the benefit of and for delivery to him, her, them or it, and/or, in its discretion, pay such purchase price by offsetting any indebtedness then owed by such Holder as provided above. Upon any such deposit and/or offset by the Company or its designated purchaser of such amount and upon notice to the Person who was required to sell the Shares to be sold pursuant to the provisions of Sections 10(b) or (c), such Shares shall at such time be deemed to have been sold, assigned, transferred and conveyed to such purchaser, such Holder shall have no further rights thereto (other than the right to withdraw the payment thereof held in escrow, if applicable), and the Company shall record such transfer in its stock transfer book or in any appropriate manner.
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(e) Lockup Provision. If requested by the Company, a Holder shall not sell or otherwise transfer or dispose of any Shares (including, without limitation, pursuant to Rule 144 under the Securities Act) held by him or her for such period following the effective date of a public offering by the Company of Shares as the Company shall specify reasonably and in good faith. If requested by the underwriter engaged by the Company, each Holder shall execute a separate letter confirming his or her agreement to comply with this Section.
(f) Adjustments for Changes in Capital Structure. If, as a result of any reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar change in the Common Stock, the outstanding Shares are increased or decreased or are exchanged for a different number or kind of securities of the Company, the restrictions contained in this Section 10 shall apply with equal force to additional and/or substitute securities, if any, received by Holder in exchange for, or by virtue of his or her ownership of, Shares.
(g) Termination. The terms and provisions of Section 10(b) and Section 10(c) (except for the Company’s right to repurchase Shares still subject to a risk of forfeiture upon a Termination Event) shall terminate upon consummation of any Sale Event, in either case as a result of which Shares are registered under Section 12 of the Exchange Act and publicly-traded on any national security exchange.
SECTION 11. TAX WITHHOLDING
(a) Payment by Grantee. Each grantee shall, no later than the date as of which the value of an Award or of any Shares or other amounts received thereunder first becomes includable in the gross income of the grantee for income tax purposes, pay to the Company, or make arrangements satisfactory to the Committee regarding payment of, any Federal, state, or local taxes of any kind required by law to be withheld by the Company with respect to such income. The Company and any Subsidiary shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the grantee. The Company’s obligation to deliver stock certificates (or evidence of book entry) to any grantee is subject to and conditioned on any such tax withholding obligations being satisfied by the grantee.
(b) Payment in Stock. The Company’s minimum required tax withholding obligation may be satisfied, in whole or in part, by the Company withholding from Shares to be issued pursuant to an Award a number of Shares having an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the minimum withholding amount due.
SECTION 12. SECTION 409A AWARDS
To the extent that any Award is determined to constitute “nonqualified deferred compensation” within the meaning of Section 409A (a “409A Award”), the Award shall be subject to such additional rules and requirements as may be specified by the Committee from time to time. In this regard, if any amount under a 409A Award is payable upon a “separation from service” (within the meaning of Section 409A) to a grantee who is considered a “specified employee” (within the meaning of Section 409A), then no such payment shall be made prior to the date that is the earlier of (i) six months and one day after the grantee’s separation from service, or (ii) the grantee’s death, but only to the extent such delay is necessary to prevent such payment from being subject to interest, penalties and/or additional tax imposed pursuant to Section 409A. The Company makes no representation or warranty and shall have no liability to any grantee under the Plan or any other Person with respect to any penalties or taxes under Section 409A that are, or may be, imposed with respect to any Award. It is the intent of the Board that payments and benefits under the Plan comply with or be exempt from Section 409A and the regulations and guidance promulgated thereunder and, accordingly, to the maximum extent permitted the Plan shall be interpreted to be in compliance therewith or exempt therefrom. In no event whatsoever shall the Company be liable for any additional tax, interest or penalty that may be imposed upon a Participant by Section 409A or damages to a Participant for failing to comply with Section 409A.
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SECTION 13. AMENDMENTS AND TERMINATION
The Board may, at any time, amend or discontinue the Plan and the Committee may, at any time, amend or cancel any outstanding Award for the purpose of satisfying changes in law or for any other lawful purpose, but no such action shall adversely affect rights under any outstanding Award without the consent of the holder of the Award. The Committee may exercise its discretion to reduce the exercise price of outstanding Stock Options or effect repricing through cancellation of outstanding Stock Options and by granting such holders new Awards in replacement of the cancelled Stock Options. To the extent determined by the Committee to be required either by the Code to ensure that Incentive Stock Options granted under the Plan are qualified under Section 422 of the Code or otherwise, Plan amendments shall be subject to approval by the Company stockholders entitled to vote at a meeting of stockholders. Nothing in this Section 13 shall limit the Board’s or Committee’s authority to take any action permitted pursuant to Section 3(c). The Board reserves the right to amend the Plan and/or the terms of any outstanding Stock Options to the extent reasonably necessary to comply with the requirements of the exemption pursuant to Rule 12h-1 of the Exchange Act.
SECTION 14. STATUS OF PLAN
With respect to the portion of any Award that has not been exercised and any payments in cash, Stock or other consideration not received by a grantee, a grantee shall have no rights greater than those of a general creditor of the Company unless the Committee shall otherwise expressly so determine in connection with any Award.
SECTION 15. GENERAL PROVISIONS
(a) No Distribution; Compliance with Legal Requirements. The Committee may require each person acquiring Shares pursuant to an Award to represent to and agree with the Company in writing that such person is acquiring the Shares without a view to distribution thereof. No Shares shall be issued pursuant to an Award until all applicable securities law and other legal and stock exchange or similar requirements have been satisfied. The Committee may require the placing of such stop-orders and restrictive legends on certificates for Stock and Awards, as it deems appropriate.
(b) Delivery of Stock Certificates. Stock certificates to grantees under the Plan shall be deemed delivered for all purposes when the Company or a stock transfer agent of the Company shall have mailed such certificates in the United States mail, addressed to the grantee, at the grantee’s last known address on file with the Company; provided that stock certificates to be held in escrow pursuant to Section 10 of the Plan shall be deemed delivered when the Company shall have recorded the issuance in its records. Uncertificated Stock shall be deemed delivered for all purposes when the Company or a stock transfer agent of the Company shall have given to the grantee by electronic mail (with proof of receipt) or by United States mail, addressed to the grantee, at the grantee’s last known address on file with the Company, notice of issuance and recorded the issuance in its records (which may include electronic “book entry” records).
(c) No Employment Rights. The adoption of the Plan and the grant of Awards do not confer upon any Person any right to continued employment or Service Relationship with the Company or any Subsidiary.
(d) Trading Policy Restrictions. Option exercises and other Awards under the Plan shall be subject to the Company’s insider trading policy-related restrictions, terms and conditions as may be established by the Committee, or in accordance with policies set by the Committee, from time to time.
(e) Designation of Beneficiary. Each grantee to whom an Award has been made under the Plan may designate a beneficiary or beneficiaries to exercise any Award on or after the grantee’s death or receive any payment under any Award payable on or after the grantee’s death. Any such designation shall be on a form provided for that purpose by the Committee and shall not be effective until received by the Committee. If no beneficiary has been designated by a deceased grantee, or if the designated beneficiaries have predeceased the grantee, the beneficiary shall be the grantee’s estate.
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(f) Legend. Any certificate(s) representing the Shares shall carry substantially the following legend (and with respect to uncertificated Stock, the book entries evidencing such shares shall contain the following notation):
The transferability of this certificate and the shares of stock represented hereby are subject to the restrictions, terms and conditions (including repurchase and restrictions against transfers contained in the Plan and any agreements entered into thereunder by and between the company and the holder of this certificate (a copy of which is available at the offices of the company for examination).
(g) Information to Holders of Options. In the event the Company is relying on the exemption from the registration requirements of Section 12(g) of the Exchange Act contained in paragraph (f)(1) of Rule 12h-1 of the Exchange Act, the Company shall provide the information described in Rule 701(e)(3), (4) and (5) of the Securities Act to all holders of Options in accordance with the requirements thereunder. The foregoing notwithstanding, the Company shall not be required to provide such information unless the option holder has agreed in writing, on a form prescribed by the Company, to keep such information confidential.
SECTION 16. EFFECTIVE DATE OF PLAN
The Plan shall become effective upon adoption by the Board and shall be approved by stockholders in accordance with applicable state law and the Company’s articles of incorporation and bylaws within 12 months thereafter. If the stockholders fail to approve the Plan within 12 months after its adoption by the Board of Directors, then any Awards granted or sold under the Plan shall be rescinded and no additional grants or sales shall thereafter be made under the Plan. Subject to such approval by stockholders and to the requirement that no Shares may be issued hereunder prior to such approval, Stock Options and other Awards may be granted hereunder on and after adoption of the Plan by the Board. No grants of Stock Options and other Awards may be made hereunder after the tenth anniversary of the date the Plan is adopted by the Board or the date the Plan is approved by the Company’s stockholders, whichever is earlier.
SECTION 17. GOVERNING LAW
This Plan, all Awards and any controversy arising out of or relating to this Plan and all Awards shall be governed by and construed in accordance with the laws of the State of Nevadaas to matters within the scope thereof, without regard to conflict of law principles that would result in the application of any law other than the law of the State of Delaware.
| DATE ADOPTED BY THE BOARD OF DIRECTORS: | November [], 2021 |
DATE ADOPTED BY THE
SHAREHOLDERS: __________________________.
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Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
The Board of Directors
Vivakor, Inc.
We consent to the use, in this Amendment No. 1 of Form S-1 Registration Statement under the Securities Act of 1933 (File No. 333-260075), of our report dated November 6, 2020, with respect to the audit of the consolidated balance sheet of Vivakor, Inc. (the “Company”) as of December 31, 2019, and the related consolidated statements of operations, changes in stockholders’ deficit and cash flows for the period ended December 31, 2019, and the related notes to the consolidated financial statements, included herein and to the reference to our firm under the heading “Experts” in the prospectus to be filed on or around November 4, 2021.
/s/ Hall & Company CPAs
Irvine, California
November 4, 2021
Exhibit 23.2
Consent of Independent Registered Public Accounting Firm
The Board of Directors
Vivakor, Inc.
We consent to the use, in this Amendment No. 1 of Form S-1 Registration Statement under the Securities Act of 1933 (File No. 333-260075), of our report dated April 9, 2021, with respect to the audit of the consolidated balance sheets of Vivakor, Inc. (the “Company”) as of December 31, 2020, and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for the year ended December 31, 2020, and the related notes to the consolidated financial statements, included herein and to the reference to our firm under the heading “Experts” in the prospectus to be filed on or around November 4, 2021.
/s/ Macias, Gini & O’Connell, LLP
Irvine, California
November 4, 2021