Vivakor, Inc. 10-K/A

Item 5 - Market for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our Common Stock is listed on the Nasdaq Capital Market under the symbol “VIVK.” Holders As of April 5, 2022, there were 15,038,619 shares of Common Stock outstanding held by approximately 570 holders of record (not including an indeterminate number of beneficial holders of stock held in street name). Warrants There were no warrants issued nor outstanding as of April 5, 2022. 20 Dividends To date, we have not paid any dividends on our common stock and do not anticipate paying any dividends in the foreseeable future. The declaration and payment of dividends on the common stock is at the discretion of our Board of Directors and will depend on, among other things, our operating results, financial condition, capital requirements, contractual restrictions or such other factors as our Board of Directors may deem relevant. Securities Authorized for Issuance under Equity Compensation Plans As of December 31, 2021 the Company did not have an equity compensation plan. Recent Issuance of Unregistered Securities The following sets forth information regarding all unregistered securities sold by us in transactions that were exempt from the requirements of the Securities Act in the last fiscal year. Except where noted, all of the securities discussed in this Item 5 were all issued in reliance on the exemption under Section 4(a)(2) of the Securities Act. 2021 On January 13, 2021, the Company issued 33,667 shares of common stock at approximately $13.05 per share for $438,004 in services. On January 28, 2021, the Company issued 3,333 shares of common stock for a $36,000 reduction of liabilities pursuant to conversion of a promissory note at approximately $10.80 per share. 21 On April 16, 2021, the Company issued 24,850 shares of common stock for a $217,800 reduction of liabilities pursuant to conversion of a promissory note at approximately $8.76 per share. On April 22, 2021, the Company issued 16,667 shares of common stock for a $225,000 payment to purchase a license at approximately $13.50 per share. On May 24, 2021, the Company issued 986 shares of common stock for a $11,000 reduction of liabilities pursuant to conversion of a promissory note at approximately $11,16 per share. On August 5, 2021, the Company issued 19,841 shares of common stock for an approximate $110,002 reduction of liabilities pursuant to conversion of a promissory note at approximately $5.55 per share. On December 6, 2021, the Company issued 10,784 shares of common stock for an approximate $82,500 reduction of liabilities pursuant to conversion of a promissory note at approximately $7.65 per share. On December 15, 2021, the Company issued 8,818 shares of common stock for a $55,000 reduction of liabilities pursuant to conversion of a promissory note at approximately $6.24 per share. From January 1, 2021 through December 31, 2021, the Company issued 218,333 shares of common stock for $1,301,500 for the conversion of 216,916 shares of Series B Preferred Stock, at an average price of approximately $6.00 per share. From January 1, 2021 through December 31, 2021 the Company issued 473,578 shares of common stock for $3,550,176 for the conversion of 467,278 shares of Series B-1 Preferred Stock, at $7.50 per share. From January 1, 2021 through December 31, 2021 the Company issued 260,703 shares of common stock for $4,615,927 for the conversion of 266,328 shares of Series C-1 Preferred Stock, at $17.70 per share. 22 Item 7 - Management ’ s Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this Annual Report on 10-K. Overview Vivakor, Inc. is a socially responsible operator, acquirer and developer of 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. 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. Reclassifications Certain reclassifications were made to prior years' amounts to conform to the 2021 presentation. 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 were 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. 23 Revenue For the years ended December 31, 2021 and 2020 we realized revenues of $1,088,428 and $1,457,781, respectively, representing a decrease of $369,353 or 25.34%. The decrease in revenue is primarily attributed to reopening of our Vernal site for quality control operations for the latter course of 2020 and 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. 99% 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. 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 sold $7,735 of extracted test material from our RPCII located in Utah. 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 years ended December 31, 2021 and 2020 costs of revenue were $1,050,676 and $1,356,378, respectively, representing a decrease of $305,702 or 22.54%. 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. In 2021, 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. Gross Profit and Gross Margin For the years ended December 31, 2021 and 2020 we realized gross profit of $37,752 and $101,403, respectively, representing a decrease of $63,651 or 62.77%. 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. 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 years ended December 31, 2021 and 2020, we realized operating expenses of $6,963,668 and $4,949,795, which represents an increase of $2,013,873, or 40.69%. Our operating expenses increased due to increased professional service expenses in regards to audit, tax, and legal expense in relation to our registration statement, its amendments, and in preparing for an underwritten public offering of our common stock, 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 approximately $1.4 million in professional service expense, and operations, for startup and management of that entity in 2021. 24 Loss from Operations For the years ended December 31, 2021 and 2020, we realized a loss from operations of $6,925,916 and $4,848,392, which represents an increase of $2,077,524, or 42.85%. The increase in loss is attributed to the increase in operating expenses discussed above. Interest income and expense For the years ended December 31, 2021 and 2020, we realized interest income of $3,312 and $35,344, which represents a decrease of $32,032, or 90.63%. The decrease in interest income is mainly attributed to the conversion of the Odyssey note receivable 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. In August 2021, we also converted $81,768 of our note receivable with Scepter into 26,376,882 shares of Scepter common stock pursuant to the terms of the note. For the years ended December 31, 2021 and 2020, we realized interest expense of $501,598 and $86,162, which represents an increase of $415,436, or 482.16%. The increase in interest expense is mainly attributable to the Company entering into loans and notes payable to cover operating expenses during the COVID-19 pandemic throughout 2020 and 2021, and our commencement our VWFI $25,000,000 private placement offering to sell convertible promissory notes, which accrue interest at 12% per annum, and convert to VWFI LLC units after six months. The proceeds of the VWFI offering are used to manufacture RPCs. VWFI has reached $6,250,000 in funding and has released the funding for construction of RPC Series A, and commenced fundraising for RPC Series B. Approximately $487,000 in interest has accrued, which is made up of approximately $398,000 capitalized for the construction RPCs, and $89,000 of interest expense, all of which is related to the VWFI offering for the year ended December 31, 2021. Throughout 2020, the Company entered 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. Interest of approximately $179,000 and amortized loan discounts of approximately of $194,000 are attributed to these loans for the year ended December 31, 2021. Unrealized gain (loss) on marketable securities For the years ended December 31, 2021 and 2020, the company reported an unrealized loss of $1,094,054, and an unrealized gain $2,614,338 on marketable securities, which represents a decrease of $3,708,392, or 141.85%. 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 when 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, which resulted in the Company recording an unrealized loss on marketable securities of $1,297,594 and an unrealized gain of $2,670,536 for the years ended December 31, 2021 and 2020. In January 2020, the Odyssey 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. For the years ended December 31, 2021 and 2020 we recorded an unrealized gain of $203,540 and an unrealized loss of $56,198 on these marketable securities for the years ended December 31, 2020. In December 2021 we sold such shares of Odyssey in a private transaction for a purchase price of $860,491, reflecting the market price at that time. Gain (loss) on conversion of note receivable For the years ended December 31, 2021 and 2020, we recorded a gain of $87,044 and a loss of $121,428 on the conversion of notes receivable, which represents an increase of $208,472, or 171.68%. In August 2021 we converted $81,768 of our note receivable with Scepter into 26,376,882 shares of Scepter common stock pursuant to the terms of the note at $0.0031 per share. On the date of the conversion, the Scepter price per share on OTC Markets was $0.0062 per share, which resulted in a $87,044 gain on the disposition of the note receivable. 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. 25 Provision for income tax The Company recorded an income tax benefit of $1,050,207 and a tax provision of $466,964 for the years ended December 31, 2021 and 2020, respectively. The Company’s effective tax rate for 2021 and 2020 was 16.48% and -21.96%, 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 years ended December 31, 2021 and 2020 as presented below: December 31, 2021 2020 Net cash used in operating activities $ (2,901,696 ) $ (1,753,655 ) Net cash used in investing activities (4,514,642 ) (1,227,217 ) Net cash provided by financing activities 8,511,153 2,774,873 Liquidity and Capital Resources We have historically suffered net losses and cumulative negative cash flows from operations and, as of December 31, 2021 and 2020, we had an accumulated deficit of approximately $36 million and $30.2 million. As of December 31, 2021 and 2020, we had cash and cash equivalents of $1,493,719 and $398,904, with $199,952 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, although on February 14, 2022, the Company closed an underwritten public offering of 1,600,000 shares of common stock, at a public offering price of $5.00 per share, for aggregate gross proceeds of $8.0 million, prior to deducting underwriting discounts, commissions, and other offering expenses. The Company's Common Stock began trading on the Nasdaq Capital Market under the symbol “VIVK”. For the years ended December 31, 2021 and 2020, our net cash used in operating activities was mainly comprised of net effect of the consolidated net loss of $7,255,706 and $2,871,369, we recognized a $1,051,007 (decrease) $466,164 (increase) related to our provision for income taxes as described above, our depreciation and amortization of $1,462,492 and $1,562,662, and an increase in accounts payable of $38,128 and $517,931 related to the building of our second RPCs. For the years ended December 31, 2021 and 2020, we were also able to issue stock for services of $438,004 and $281,231, common stock options issued for services in relation to a consultant and the Board of Director of $1,585,000 and $555,000, and stock-based compensation employees of $446,112 and $146,114 in lieu of using cash. We also realized interest expense on loans and notes payable of $501,598 and $71,361 related to the Company entering into loans and notes payable to cover operating expenses during the COVID-19 pandemic, and our commencement our VWFI $25,000,000 private placement offering to sell convertible promissory notes, which accrue interest at 12% per annum, and convert to VWFI LLC units after six months. For the years ended December 31, 2021 and 2020 we also realized a $87,044 gain and $121,428 loss on conversions of notes receivable, and an unrealized loss of $1,094,054 and an unrealized gain of $2,614,338 on marketable securities as described above. For the years ended December 31, 2021 and 2020, our net cash used in investing activities was mainly attributed to our purchase of equipment of $4,236,276 and $1,197,922 related to the manufacturing of our RPCs. The Company also paid $265,000 for an additional license technology for piezo electric and energy harvesting technologies for creating self-powered sensors for making smart roadways. 26 Our net cash provided by our financing activities was mainly attributed to the net effect of the following events: For the year ended December 31, 2021 and 2020, we issued none and $624,907 noncontrolling units of RDM, and we also received proceeds of $8,033,407 and $944,673 related to the issuance of convertible bridge notes and other loans. For the year ended December 31, 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, 2021 and 2020, we issued none and $624,907 noncontrolling units of RDM, and we received proceeds of $9,135,984 and $2,231,796 related to the issuance of convertible bridge notes and other loans, including $8,825,000 in 2021 (of which $5,560,000 of this debt has converted to VWFI LLC units) of convertible notes issued in relation to our VWFI $25,000,000 private placement offering to sell convertible promissory notes, which accrue interest at 12% per annum, and convert to VWFI LLC units after six months. For the year ended December 31, 2021 and 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. Capitalized interest on construction in process was $1,614,697 and $1,025,852 for the year ended December 31, 2021 and 2020. There are no further existing firm obligations; however we anticipate further construction costs of approximately $1.6 million in connection with our construction in process of our RPC Series A & B expansions; and construction for each Nanosponge costs approximately $200,000, and we intend to manufacture for and add a Nanosponge to our current and 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 December 31, 2021 are for operating lease liabilities for office and warehouse space, which leases end in 2024. Operating lease obligations as of December 31, 2021 are as follows: 2022 $ 287,769 2023 299,466 2024 231,174 Total $ 818,409 Interest Rate and Market Risk Our financing arrangements are not subject to variable interest rates of the prime rate or LIBOR. 27 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. 28 Item 7A - Quantitative and Qualitative Disclosures About Market Risk Not applicable. Item 8 - Financial Statements and Supplementary Data The consolidated financial statements required by this item begin on page F-1 of this Annual Report on Form 10-K and are incorporated herein by reference. Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosures None.