Vivakor (US:VIVK)2024-05-20 21:29Financial Performance - For the three months ended March 31, 2024, the company reported revenues of $16,021,391, an increase of $476,519 or 3.07% compared to $15,544,872 in the same period of 2023 [121]. - The cost of revenue for the three months ended March 31, 2024, was $14,953,254, representing an increase of $921,540 or 6.57% from $14,031,714 in 2023, primarily due to rising oil prices [123]. - Gross profit for the three months ended March 31, 2024, decreased to $1,068,137, a decline of $445,021 or 29.41% compared to $1,513,158 in 2023 [124]. - Operating expenses for the three months ended March 31, 2024, were $2,685,059, an increase of $47,029 or 1.78% from $2,638,030 in 2023, attributed to increased amortization and a shift from consulting to full-time employees [125]. - Interest expense decreased by $761,629, or 63.17%, from $1,205,669 in Q1 2023 to $444,040 in Q1 2024 due to a troubled debt restructuring [126]. - Unrealized loss on marketable securities decreased from $495,826 in Q1 2023 to $82,638 in Q1 2024, reflecting improved market conditions [127]. - Net cash used in operating activities increased from $1,276,123 in Q1 2023 to $1,829,679 in Q1 2024, indicating higher operational costs [129]. - The accumulated deficit as of March 31, 2024, was approximately $67.8 million, with a working capital deficit of about $37 million [130]. - Cash and cash equivalents slightly increased from $744,307 as of December 31, 2023, to $767,273 as of March 31, 2024 [131]. - The company raised approximately $3 million through debt financing in Q1 2024, contributing to its liquidity [132]. Acquisition and Financing - The Company entered into a Membership Interest Purchase Agreement to acquire all issued and outstanding membership interests in Endeavor and its subsidiaries for a purchase price of $120 million [101]. - The acquisition will be financed through a combination of Company common stock and Series A Preferred Stock, which will have a cumulative annual dividend of 6% payable quarterly [101]. - The Preferred Stock can be converted into common stock at a price of $1 per share after the first anniversary of issuance [101]. - The acquisition is expected to be completed within approximately 90 days of the Execution Date, subject to satisfaction of closing conditions [101]. - The purchase price for the acquisition is subject to a post-Closing working capital adjustment, with a target working capital amount of $150,000 [103]. - If the EBITDA for the company's 2024 fiscal year exceeds $12,000,000, the seller earn-out payment could reach up to $49,000,000 [105]. - The purchase price can be adjusted to a maximum of $169,000,000 or reduced to a minimum of $71,000,000 based on performance metrics [105]. - The company will file a registration statement for the resale of shares related to the acquisition within 45 days of closing [106]. - The acquisition involves customary representations and warranties, including a fairness opinion from a financial advisor [107]. - The sellers will enter into 18-month lock-up agreements regarding the common stock consideration received [102]. Debt and Obligations - The company has a secured promissory note of $3,000,000 issued to Cedarview Opportunities Master Fund LP, with a 3% origination fee deducted from the proceeds [74][75]. - The company plans to repay the note with interest-only payments for the first three months, followed by twelve equal monthly installments including $250,000, due by May 5, 2025 [76]. - The Company received a loan of $1 million at an interest rate of 10% per annum, maturing on December 31, 2024, with 100,000 restricted shares issued as part of the agreement [99]. - The loan is personally guaranteed by the Company's CEO, James Ballengee, who is not a related party to the lender [99]. - Contractual obligations for finance lease liabilities totaled $1,789,473 as of March 31, 2024, with operating lease obligations amounting to $3,760,107 [137]. Merger and Corporate Structure - The merger agreement with Empire Energy Acquisition Corp. involves the exchange of 67,200,000 shares of the parent company's common stock, valued at $67,200,000 [79]. - Empire is required to maintain a minimum of $2,500,000 in unrestricted net cash at the closing of the merger [81]. - The board of directors will consist of seven members post-merger, including three chosen by Empire and two by the parent company [84]. - The Merger Agreement includes indemnification provisions with a Parent Cap of $500,000 and a threshold of $250,000 for claims [89]. - The Parent's obligations to consummate the transactions are contingent upon various conditions, including the accuracy of representations and warranties [88]. - A lock-up agreement will be executed by Empire Stockholders representing at least 65% of the issued shares, restricting their shares for 12 months post-Closing [95]. - The Escrow Agreement will hold 5,040,000 shares as security for the Parent's obligations, effective on the Closing Date and terminating 12 months thereafter [97]. Operational Highlights - The company operates crude oil gathering, storage, and transportation facilities, with one facility selling up to 60,000 barrels of crude oil per month [72]. - The company focuses on soil remediation services, particularly in Kuwait and Houston, Texas, utilizing patented processes to recover hydrocarbons [73]. - The company has a 120,000 barrel crude oil storage tank connected to the Lotus pipeline system, with plans to connect to major pipeline systems [72]. - Capitalized interest on construction in process was $318,447 in Q1 2024, with anticipated further construction costs of approximately $1.5 million for new facilities [135]. Risks and Uncertainties - The company emphasizes that forward-looking statements are subject to risks and uncertainties, and actual results may differ significantly from expectations [68][69]. - The company faces potential adverse effects on capital access due to market conditions and lender perceptions, which may impact growth strategies [136].