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Commitments and Contingencies | 12 Months Ended
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Dec. 31, 2024
Commitments and Contingencies Disclosure [Abstract] |
Commitments and Contingencies | Note 15. Commitments and Contingencies Finance Leases We acquired Silver Fuels Delhi, LLC (SFD) and White Claw Colorado City, LLC (WCCC) in a business combination in August 2022, in which we acquired certain finance lease contracts and liabilities as described below: SFD has two finance lease agreements with Maxus Capital Group, LLC (“Maxus”). The first finance lease involves twelve storage tanks and other equipment for consideration of $1,025,000 for 60 monthly lease payments of $22,100. At the end of the lease term there is an option to purchase the assets back from Maxus at a purchase price of $1. The second finance lease involves remaining property at the oil gathering facility with the exception of land, for consideration of $1,350,861 for 60 monthly lease payments of $18,912. At the end of the lease term, there is an option to purchase the assets back from Maxus at a purchase price of $877,519. The land contains the oil gathering facility, which is being used as collateral by the lessor for both lease obligations. We are required to make minimum cash reserve payments of at least $24,000 ($8,945 and $15,055 for the first and second lease, respectively) each month in addition to the base lease payments. The cash reserve payments are to be used in the event of a default. At the end of the term, Maxus will return the balance of any cash reserve payments. As of December 31, 2023, the balances of the cash reserves for these leases were recorded as other assets in the amount of $369,109 (see Note 6). As these leases grant the lessee an option to purchase the underlying asset that the lessee is reasonably certain to be exercised, the leases are accounted for as finance leases. We have recorded right of use assets in our property, plant, and equipment, and depreciated them on a straight-line basis. We have also recorded a finance lease liability due to Maxus. According to ASC 842, the Company has measured the lease liability and at the present value of the remaining lease payments, as if the lease were acquired on acquisition date of August 1, 2022. This measurement as imputed interest rate of 18% for the first and second lease obligations, which results in the carrying value of the financial liabilities equating the estimated book value of the leased assets at the end of the lease terms and the dates at which the Company may exercise its buy-back options. Future minimum lease payments for each of the remaining years under the Maxus lease obligations are as follows: 2025 $123,036. WCCC a finance lease with Maxus for the terminaling and storage delivery terminal, commonly known as the China Grove Station (the “China Grove Station”), located in Colorado City, Texas to Maxus for consideration of approximately $2,500,000 for 60 monthly lease payments of $39,313. At the end of the lease term, the Company has an option to purchase the China Grove Station back from Maxus at 35% of the original cost, or $875,000. The Company has pledged 100% of its interests in accounts receivable as collateral for the lease obligation. The Company is required to make minimum cash reserve payments of at least $16,100 each month in addition to the base lease payments until Maxus has received $471,756. The cash reserve payments are to be used in the event of default. As of December 31, 2024, the balance of the cash reserves for these leases was recorded as other assets in the amount of $354,200. As these leases grant the lessee an option to purchase the underlying asset that the lessee is reasonably certain to be exercised, the leases are accounted for as finance leases. We have recorded right of use assets in our property, plant, and equipment, and depreciated them on a straight-line basis. We have also recorded a finance lease liability due to Maxus. According to ASC 842, the Company has measured the lease liability and at the present value of the remaining lease payments, as if the lease were acquired on acquisition date of August 1, 2022. This measurement as yielded an imputed interest rate of 18% for the lease obligation, which results in the carrying value of the financial liability equating the estimated book value of the China Grove Station at the end of the lease term and the date at which the Company may exercise its buy-back option. Future minimum lease payments for each of the remaining years under the Maxus lease obligation are as follows: 2025 $471,756, and 2026 $471,756. On May 23, 2023, our subsidiary White Claw Colorado City, LLC (“WCCC”), supplemented an existing Master Agreement (the “Master Agreement”) with Maxus Capital Group, LLC (“Maxus”), under a four-year agreement, which Maxus agreed to finance the build-out of our new wash plant facility located on the land leased by our subsidiary, VivaVentures Remediation Corp., in Houston, Texas. Maxus has funded approximately $2.2 million to finance the build-out of the Houston location in the form of a finance lease for the wash plant, plus an additional $2.1 million in financing, and we will lease the wash plant facility under WCCC’s supplement to the Master Agreement. We expect our lease payments to Maxus under the supplement to be approximately $57,962 per month over 4 years, with an early buyout option of approximately $685,000 or lease-end option to purchase the facilities for the fair market value. We anticipate that the lease will commence in the third quarter of 2025 at which time the final amount funded and lease payments will be determined. During the construction phase the Company controls the asset under construction and has recorded a liability for the amounts funded by Maxus until lease commencement. We acquired Meridian Equipment Leasing, LLC (MEL) in a business combination in October 2022, in which we acquired certain finance lease contracts and liabilities as described below: Meridian Equipment Leasing has a master lease agreement (which originally contained eighteen finance leases) containing eight finance leases as of December 31, 2024 with Maxus Capital Group, LLC (“Maxus”). The leases have funded the purchase of tractors, trailers, and other crude oil transportation assets for consideration of $10,168,677 and with monthly payments of $306,050 per month. The eight leases under the Maxus master lease, have a total of $8,714,278 in right of use asset as of December 31, 2024 with accumulated right-of-use amortization of $1,536,203. We are required to make minimum cash reserve payments of at least $25,919 (for the 8 leases) each month in addition to the base lease payments. The cash reserve payments are to be used in the event of a default. At the end of the term, Maxus will return the balance of any cash reserve payments. As of December 31, 2024, the balances of the cash reserves for these leases were recorded as other assets in the amount of $1,490,562 (see Note 6). As these leases grant the lessee an option to purchase the underlying asset that the lessee is reasonably certain to be exercised, the leases are accounted for as finance leases. We have recorded right of use assets in our property, plant, and equipment, and depreciated them on a straight-line basis. We have also recorded a finance lease liability due to Maxus. According to ASC 842, the Company has measured the lease liability and at the present value of the remaining lease payments, as if the lease were acquired on acquisition date of October 1, 2024. This measurement as imputed interest rate of ranging from 6.05% to 6.30% lease obligations, which results in the carrying value of the financial liabilities equating the estimated book value of the leased assets at the end of the lease terms and the dates at which the Company may exercise its buy-back options. Future minimum lease payments for each of the remaining years under the Maxus lease obligations are as follows: 2025 $3,672,604, 2026: $2,637,587. On December 24, 2024, our subsidiary Meridian Equipment Leasing, LLC (“MEL”), supplemented (Schedule 21) an existing Master Agreement (the “Master Agreement”) with Maxus Capital Group, LLC (“Maxus”), under a four-year agreement, which Maxus agreed to a sale leaseback of approximately $1.5 million of certain gathering and pipeline assets. Under the terms of the lease, lease payments to are $40,335 per month over four years, with an early buyout option or option at the end of the base term to purchase the equipment for $470,462. As of December 31, 2024, Maxus has only funded $696,153 of the sales price. We anticipate that the lease will commence in the second quarter of 2025, after Maxus has paid the full purchase price for the equipment. Accordingly, the Company recorded the funded amount as a component of “Accounts payable and accrued expenses” as of December 31, 2024. The following table reconciles the undiscounted cash flows for the finance leases as of December 31, 2024 to the finance lease liability recorded on the balance sheet:
Schedule of financing lease liability |  |  |  |
2025 |  |  | 4,267,396 |
2026 |  |  | 3,109,343 |
Total undiscounted lease payments |  |  | 7,376,738 |
Less: Imputed interest |  |  | 743,609 |
Present value of lease payments |  |  | 6,633,129 |
Add: carrying value of lease obligation at end of lease term |  |  | 2,769,868 |
Total finance lease obligations |  | $ | 9,402,997 |
Finance lease liabilities, current |  | $ | 4,267,396 |
Finance lease liabilities, long-term |  | $ | 5,135,601 |
Weighted-average discount rate |  |  | 7.99 | %
Weighted-average remaining lease term (months) |  |  | 21.41 |
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 at the time the finance leases were entered into or revalued upon acquisition, the incremental borrowing rate was determined to be between 6.29% and 18.00%. Operating Leases On December 16, 2022, our subsidiary, VivaVentures Remediation Corp. entered into a Land Lease Agreement (the “Land Lease”) with W&P Development Corporation, under which we agreed to lease approximately 3.5 acres of land in Houston, Texas. The Land Lease is for an initial term of 126 months and may be extended for an additional 120 months at our discretion. Our monthly rent is $0 for the first three months and then at month 4 it is approximately $7,000 (based on a 50% reduction) and increases to approximately $13,000 in month 7 and then increases annually up to approximately $16,000 per month by the end of the initial term. We plan to place one or more of our RPC machines on the property, as well as store certain equipment. On October 1, 2024, the Company acquired a lease agreement for corporate office space in Dallas, Texas at Spring Valley. Commencing on June 1, 2022, the five-year lease terminates on May 31, 2027 with Spring Valley Leasing LLC. The lease required a monthly lease payment $15,233 through the remaining life of the lease. On October 1, 2024, the Company acquired a lease agreement for land, building, yard and improvements in Monohans, Texas related to operating a trucking yard and shop. Commencing on May 1, 2021, the five-year lease terminates on April 30, 2026. The lease requires a monthly lease payment of $10,000. On October 1, 2024, the Company acquired a lease agreement for 10 acres of land and its buildings and improvements in Reeves County, Texas. Commencing on January 1, 2024, seventeen-month lease terminates on May 31, 2025. The lease requires a monthly lease payment of $138,395. On October 1, 2024, the Company acquired a lease agreement for building and yard in Reeves County, Texas related to operating a trucking yard and shop. Commencing on January 1, 2024, the seventeen-month lease terminates on May 31, 2025. The lease requires a monthly lease payment of $35,000. The right-of-use asset for operating leases as of December 31, 2024 and 2023 was $4,920,454 and $1,534,870. Rent expense for the years ended December 31, 2024 and 2023 was $557,892 and $564,085. The following table reconciles the undiscounted cash flows for the leases as of December 31, 2024 to the operating lease liability recorded on the balance sheet:
Schedule of lessee operating lease liability |  |  |  |
2025 |  |  | 2,636,151 |
2026 |  |  | 1,246,055 |
2027 |  |  | 261,441 |
2028 |  |  | 173,899 |
2029 |  |  | 177,855 |
Thereafter |  |  | 2,683,523 |
Total undiscounted lease payments |  |  | 7,178,923 |
Less: Imputed interest |  |  | 2,352,421 |
Present value of lease payments |  | $ | 4,826,502 |
Operating lease liabilities, current |  | $ | 2,636,151 |
Operating lease liabilities, long-term |  | $ | 2,190,351 |
Weighted-average remaining lease term |  |  | 118.15 |
Weighted-average discount rate |  |  | 8.1136 | %
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 at the time the operating leases were entered into or acquired, the incremental borrowing rate was determined to be between 6.29 and 10.5%. Employment Agreements On October 28, 2022 we entered into an executive employment agreement with a new Chief Executive Officer, James Ballengee, which provides for annual compensation of $1,000,000 payable in shares of our common stock issued in four equal quarterly installments, priced at the volume weighted average price (VWAP) for the five trading days preceding the date of the Employment Agreement and each anniversary thereof (the “CEO Compensation”). For the twelve months of Mr. Ballengee’s employment (October 28, 2023 to October 27, 2024), we owed Mr. Ballengee a total of 1,657,016 shares of our common stock, issuable at 414,254 per quarter. For the next twelve months of his employment (October 28, 2024 to October 27, 2025), we owe Mr. Ballengee a total of 688,891 shares of our common stock, to be paid in three equal quarterly installments of 172,222 shares of Common Stock, and one installment of 172,225 shares (prior to tax withholdings). The CEO Compensation is subject to satisfaction of Nasdaq rules, the provisions of the Company’s equity incentive plan and other applicable requirements and shall be accrued if such issuance is due prior to satisfaction of any such requirements. Additionally, Mr. Ballengee shall be eligible for a discretionary performance bonus. The Employment Agreement may be terminated by either party for any or no reason, by providing five days’ notice of termination. On June 13, 2024, we entered into a new Employment Agreement with Mr. Tyler Nelson with respect to our appointment of Mr. Nelson as Chief Financial Officer. Pursuant to the New Employment Agreement, Mr. Nelson will receive: (i) $450,000 annually (the “Base Salary”); (ii) an annual cash incentive bonus of a minimum of 50% of the Base Salary (a portion of which may be payable in the form of restricted common stock of the Company) and a maximum of 120% of the Base Salary; and (iii) an annual equity incentive bonus of a minimum of 25% of the Base Salary and a maximum of 120% of the Base Salary in shares of restricted stock. Mr. Nelson will also be eligible for a cash transaction bonus (the “Transaction Bonus”) for Qualified Transactions, as defined in the New Employment Agreement, of 0.5% of the enterprise value of the assets, equity or business sold or acquired or the listing value of the equity or debt being listed on a national exchange. For each of the closing of the Merger Agreement and Endeavor MIPA, Mr. Nelson will receive a bonus of $200,000, with $100,000 for each such bonus to be paid in cash and the remaining $100,000 for each such bonus to be paid in shares of our common stock, valued on the date of close of the Merger Agreement and the Endeavor MIPA, respectively. The foregoing bonuses are in lieu of a Transaction Bonus for either the Merger Agreement or the Endeavor MIPA. The new Employment Agreement is for an initial term of two years and will auto-renew for subsequent one-year terms if not terminated by either party at the end of a term, which requires 90 days prior notice. The new Employment Agreement may also be terminated under standard cause and without cause termination and resignation provisions. At the time of entering into the new Employment Agreement, we owed Mr. Nelson $1,167,750 in accrued salary and bonuses, plus interest (together, the “Accrued Compensation”), for serving as our Chief Financial Officer under the Original Agreement. Pursuant to the Settlement Agreement, we agreed with Mr. Nelson on the Accrued Compensation would be paid to Mr. Nelson under of a straight promissory note in the principal amount of the Accrued Compensation (the “Note”). Under the terms of the Note, the amounts due under the Note will accrue interest at 8% per annum, and will be paid to Mr. Nelson by paying him 5% of any money received by us from closed future financings or acquisition/merger/sale transactions until the Note has been paid in full. In the event the Note has not been paid in full by June 30, 2025, the Note will mature and any amounts due thereunder will be due and payable in full in such date. Under the terms of the Settlement Agreement we issued Mr. Nelson a stock option agreement (the “Option Agreement”) setting forth the stock options Mr. Nelson were issued on June 9, 2022 (the “Grant Date”). Pursuant to the Option Agreement, as of the Grant Date, Mr. Nelson was granted 917,825 stock options (the “Options”) at an exercise price per share of $1.80. The Options shall vest as follows: (i) 360,145 shares on the Grant Date, (ii) 219,312 shares three (3) months after the Grant Date, (iii) 48,338 shares for each of the following six (6) quarters, and (iv) 48,340 shares following the eighth (8th) quarter after the Grant Date. The Options were fully vested as of June 9, 2024. On October 1, 2024, we entered into an executive employment agreement with Russ Shelton as Executive Vice President and Chief Operating Officer. Mr. Shelton will receive (i) base salary compensation of $337,000 USD annually (the “Base Compensation”); (ii) an annual cash and equity incentive compensation of up to $808,000 based upon certain performance criteria as more particularly described therein. As an inducement to enter into the Shelton Agreement, Mr. Shelton shall receive a one-time signing grant of our common stock equivalent in value to $150,000, which are priced per share based on the volume-weighted average price for the preceding five (5) trading days prior to the day of such grant, subject to an eighteen (18) month lockup period, which shall be granted promptly after the Effective Date, as defined therein. Pursuant to the Shelton Agreement, Mr. Shelton’s employment is at-will under Texas law, except as modified therein. Mr. Shelton’s employment with Vivakor Administration, LLC, a subsidiary of ours, began on October 1, 2024. In connection with the Shelton Agreement, Mr. Shelton and Ballengee Holdings, LLC, an affiliate of James H. Ballengee, our Chairman, President, and CEO, have entered into a side letter agreement (the “Shelton Side Letter”) promising Mr. Shelton (i) certain additional Base Compensation equal to the difference between Mr. Shelton’s current salary and $375,000 by January 1, 2025, should we not increase Mr. Shelton’s Base Compensation, as defined in the Shelton Agreement, to such level, and (ii) a one-time special cash bonus of $100,000.00 USD upon completion of an equity capital raise, as more particularly set forth therein. On June 26, 2024, we entered into an executive employment agreement with Patrick M. Knapp to join the company as our Executive Vice President, General Counsel, & Secretary and provides for an annual base salary of $350,000, payable in equal installments every two weeks. In addition, the Knapp Agreement provides for annual incentive cash and equity compensation of up to $840,000 based on certain performance goals as further set forth therein. As an inducement to enter into the Knapp Agreement, Mr. Knapp shall receive a one-time signing grant of our common stock equivalent in value to $250,000, which are priced per share based on the volume-weighted average price for the preceding five (5) trading days prior to the day of such grant (calculated to be 140,190 shares based on the effective date of the Knapp Agreement), subject to an eighteen (18) month lockup period and a conditional clawback obligation concurrent therewith, which shall be granted within thirty (30) days after the Start Date, as defined therein. Pursuant to the Knapp Agreement, Mr. Knapp’s employment is at-will under Texas law, except as modified therein. Mr. Knapp’s employment began on June 26, 2024.

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