Vivakor, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. Business Overview Vivakor, Inc. (“Vivakor” or the “Company”) is an integrated provider of midstream services and environmental solutions within the oil and gas industry. The Company operates through three reportable segments: transportation and logistics, terminaling and storage services, and supply and trading. These segments support the movement, storage, and marketing of crude oil and related hydrocarbon products across key oil producing regions, including the Permian Basin and mid-continent regions. The Company’s transportation and logistics segment includes trucking and pipeline transportation operations, including the Omega Gathering Pipeline in Blaine County, Oklahoma, which serves as a direct connect to the Plains STACK Pipeline and provides access to the Cushing, Oklahoma storage hub. The terminaling and storage segment includes crude oil storage and blending facilities in Colorado City, Texas and Delhi, Louisiana. The supply and trading segment purchases, aggregates, markets, and resells crude oil, condensate, natural gas liquids, and related hydrocarbon products. The Company is also developing an environmental services business through the planned deployment of Remediation Processing Centers (“RPCs”), are designed to recover hydrocarbons from oil contaminated soils and related waste streams. The deployment plan begins with the construction of a RPC in Harris County, Texas, currently scheduled to commission in the third quarter of 2026. On October 1, 2024, the Company acquired certain entities (the “Endeavor Entities”), expanding its midstream operations. During 2025, the Company completed the sale of certain non-core assets acquired in this transaction as part of a strategic review. On July 30, 2025, the Company sold certain non-core business units of Meridian Equipment Leasing, LLC and Equipment Transport, LLC, both subsidiaries included with the Endeavor Entities, in order to streamline operations and focus on core midstream transportation, terminaling, and environmental processing activities. During the first quarter of 2026 and subsequent thereto, the Company continued to pursue additional financing transactions and capital restructuring initiatives intended to support working capital requirements, reduce indebtedness, and support ongoing operations and strategic growth initiatives. Recent Developments March 2026 Reverse Stock Split On March 24, 2026, the Company effected a 1-for-200 reverse stock split of its common stock pursuant to a Certificate of Amendment to the Company’s Amended and Restated Articles of Incorporation following shareholder approval obtained at the Company’s Special Meeting held on December 22, 2025. July 2026 Reverse Stock Split On July 17, 2026, the Company effected a 1-for-20 reverse stock split of its common stock pursuant to a Certificate of Amendment to the Company’s Amended and Restated Articles of Incorporation filed with the State of Nevada on July 10, 2026, following shareholder approval obtained at the Company’s Annual Meeting held on June 30, 2026. 19 Private Financing Transaction (the “Financing”) Convertible Promissory Notes The following summary of the Notes does not purport to be complete and is qualified in its entirety by reference to the forms of SPA and Notes filed as exhibits to the registration statement of which this prospectus forms a part. On May 8, 2026, the Company entered into a Securities Purchase Agreement (the “SPA”) with certain institutional investors providing for the issuance of convertible promissory notes (the “Notes”) with aggregate gross proceeds to the Company of up to $12.0 million, before fees and expenses, in two closings. The Notes have an aggregate principal amount of $15.0 million, reflecting a $3.0 million original issue discount of 20%. The initial closing occurred on May 8, 2026, pursuant to which the Company received $6.0 million in gross proceeds. A second closing for an additional $6.0 million remains subject to the effectiveness of the registration statement of which this prospectus forms a part and other customary closing conditions pursuant to the terms of the SPA and the Note. The Notes are convertible into shares of the Company’s Common Stock at a conversion price equal to the greater of $0.37 per share and 80% of the lowest daily volume weighted average price (“VWAP”) of the Company’s common stock during the five trading days immediately preceding conversion. Conversions under the Notes are generally subject to a 4.99% beneficial ownership limitation, which may be waived upon notice by the applicable holder. In addition, absent shareholder approval, conversions are limited to the extent necessary to comply with Nasdaq’s 19.99% issuance limitation. The Notes contain customary events of default, including payment and covenant defaults, which may result in acceleration of amounts due under the notes and certain additional default-related remedies, including an increase in the outstanding principal amount upon the occurrence of certain events of default. The Company agreed to register for resale shares issuable upon conversion of the Notes, and this prospectus forms part of the related registration statement. The Company intends to use proceeds from the Financing for working capital, debt reduction, and general corporate purposes. RBW Capital Partners LLC, a division of Dawson James Securities, Inc., acted as placement agent in connection with the Financing. Standby Equity Purchase Agreement The following summary of the Standby Equity Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to the form of the Standby Equity Purchase Agreement filed as an exhibit to the registration statement of which this prospectus forms a part. On May 8, 2026, the Company entered into a standby equity purchase agreement (the “SEPA”) with an institutional investor (the “SEPA Investor”) providing for the potential purchase by the SEPA Investor of up to $100 million of the Company’s common stock over a 36-month period, subject to the terms and conditions of the SEPA. Under the SEPA, the Company may, at its discretion, direct the SEPA Investor to purchase shares of common stock from time to time, subject to specified volume limitations, pricing formulas, and beneficial ownership limitations set forth in the agreement. Shares issued under the SEPA will generally be purchased at a discount to prevailing market prices. 20 The Company controls the timing and amount of any sales under the SEPA, subject to the terms and limitations contained in the agreement. Actual sales under the SEPA will depend on a variety of factors, including market conditions, trading prices of the Company’s common stock, and the Company’s capital needs. The Company is required to file a separate registration statement covering shares issuable under the SEPA before any sales may occur under the agreement. Reclassifications Certain reclassifications have been made to prior years’ amounts to conform to the 2025 presentation, including adjustments related to the purchase price allocation of accrued interest and principal note payable amounts to conform to the 2025 presentation. Change in Segment Reporting Beginning in the third quarter of 2025, the Company revised its segment reporting structure to more closely align with how the chief operating decision maker assesses performance and allocates resources across the business. The Company now reports three operating and reportable segments: transportation and logistics, terminaling and storage services, and supply and trading. Revenues generated from supply and trading were previously reported under Terminaling and Storage and Transportation and Logistics in the first two quarters of 2025. The Company’s chief operating decision maker evaluates segment performance primarily based on segment gross profit. Prior-period segment information has been recast, where applicable, to conform to the current presentation. Concurrent with this change, we no longer report “Corporate and Other” as a separate category, as these activities do not represent an operating segment and are not separately reviewed by our chief operating decision maker. Corporate expenses, including executive and shared services personnel, stock-based compensation, professional fees, and other overhead costs, are now allocated to the operating segments or reflected in consolidated results, as appropriate. Results of Consolidated Operations for the three months ended June 30, 2026 and 2025 Revenue For the three months ended June 30, 2026 and 2025, revenues were $32,117,206 and $29,099,446, respectively, representing an increase of $3,017,760, or 10.37%. The increase in revenue was primarily attributable to the expansion of the Company’s crude oil supply and trading activities, which generated $26.5 million of revenue during the 2026 period. This increase was partially offset by lower revenues from the Company’s transportation and logistics and terminaling and storage segments as the Company continued to implement commercial strategies that integrate physical crude oil transportation, terminaling and related logistics services with its expanding supply, marketing and trading activities. Revenue from transportation and terminaling services is generally recognized as the services are performed, while revenue from crude oil sales is generally recognized when control of the crude oil transfers to the customer. The Company’s earnings and cash flows from its midstream business operations are primarily affected by market conditions, commodity price fluctuations, and crude oil production levels within the Company’s operating regions, which influence throughput volumes, transportation activity, storage utilization, and trading margins. Cost of Revenue For the three months ended June 30, 2026 and 2025, cost of revenues was $25,482,907 and $24,519,777, respectively, representing an increase of $963,130, or 3.93%. The increase was primarily attributable to the expansion of the Company’s crude oil supply and trading activities, partially offset by lower costs associated with the Company’s transportation and logistics and terminaling and storage segments. Cost of revenues primarily comprises costs associated with the Company’s transportation and logistics operations, terminaling and storage services, and crude oil supply and trading activities. These costs generally fluctuate based on operating activity levels, throughput volumes, and commodity trading volumes. 21 Gross Profit For the three months ended June 30, 2026 and 2025, gross profit was $6,634,299 and $4,579,669, respectively, representing an increase of $2,054,630, or 44.86%. The increase in gross profit reflects improved profitability across the Company’s midstream operations despite the change in revenue mix during the period. Gross profit from the transportation and logistics segment increased approximately 30.0%, driven primarily by the reorientation of transportation services with crude oil trading activities in areas with shorter hauling radiuses and cost efficiencies associated with related-party contracts containing minimum volume commitments. Gross profit from the terminaling and storage segment increased approximately 22.8%, primarily attributable to fee-based commercial arrangements and related-party activities. In addition, the Company’s expanding supply and trading segment contributed approximately $1.0 million of gross profit during the 2026 period as increased trade volumes and optimization of crude oil trading activities contributed to the Company’s results. Operating Expenses For the three months ended June 30, 2026 and 2025, operating expenses were $6,475,997 and $11,356,416, respectively, representing a decrease of $4,880,419, or 42.97%. The decrease in operating expenses was primarily attributable to lower depreciation and amortization expense. The decrease in depreciation expense was primarily attributable to the July 2025 divestiture of Meridian Equipment Leasing, LLC and Equipment Transport, LLC, as well as revisions to the estimated useful lives of certain property and equipment based on operational experience and expected usage. Interest Expense For the three months ended June 30, 2026 and 2025, total interest expense, including related-party interest expense, was $4,120,977 and $4,436,831 respectively, representing a decrease of $315,854, or 7.12%. The decrease in interest expense was primarily attributable to the July 2025 divestiture of Meridian Equipment Leasing, LLC and Equipment Transport, LLC, partially offset by interest expense associated with finance lease and debt obligations assumed in connection with the acquisition of the Endeavor Entities on October 1, 2024. Unrealized Gain (Loss) on Marketable Securities For the three months ended June 30, 2026 and 2025, the Company recognized an unrealized gain on marketable securities of $346,871 and an unrealized loss of $1,731,160, respectively, representing an increase of $2,078,031. The Company’s marketable securities are recorded at fair value based on quoted market prices, with unrealized gains and losses recognized in earnings during the applicable reporting period. Segment Operating Results for the three months ended June 30, 2026 and 2025 Operating Results of our Terminaling and Storage Segment : 2026 2025 Change ($) Change (%) Revenues $ 7,399 $ 13,396,481 $ (13,389,082 ) -99.9 % Revenues - related party 1,872,351 5,246,692 (3,374,341 ) -64.3 % Total revenues 1,879,750 18,643,173 (16,763,423 ) -89.9 % Cost of revenues 53,929 17,156,132 (17,102,203 ) -99.7 % Gross profit $ 1,825,821 $ 1,487,041 $ 338,780 22.8 % 22 The Terminaling and Storage segment provides crude oil receipt, storage, throughput, transfer, loading and related terminal services. Revenues generated by the terminaling and storage segment declined primarily due to reduced receipts from pipeline and terminal utilization during the period. Despite the decrease in revenues, gross profit increased primarily due to fee-based commercial arrangements, including related-party take-or-pay and minimum volume commitments. Under these arrangements, customers are contractually obligated to make payments for specified minimum throughput volumes or reserved tank capacity regardless of actual utilization. Because these payments relate principally to the availability of existing terminal and storage capacity, periods in which committed volumes or capacity are not fully utilized generally result in limited incremental cost of revenues associated with the related payments. As a result, these contractual commitments contributed to higher gross margins and increased gross profit during the period despite lower overall revenues. We continue to pursue opportunities to improve efficiencies, modernize midstream business operations and enhance the profitability of our terminaling and storage assets. Operating Results of our Transportation Logistics Segment : 2026 2025 Change ($) Change (%) Revenues $ 19,213 $ 7,601,942 $ (7,582,729 ) -99.7 % Revenues - related party 3,730,702 2,854,331 876,371 30.7 % Total revenues 3,749,916 10,456,273 (6,706,357 ) -64.1 % Cost of revenues - 7,363,645 (7,363,645 ) -100.0 % Gross profit $ 3,749,916 $ 3,092,628 $ 657,288 21.3 % The Transportation and Logistics segment provides crude oil gathering, trucking, pipeline transportation and related logistics services. For the three months ended June 30, 2026, total revenues decreased primarily as a result of the Company’s continued implementation of commercial strategies that integrate physical crude oil transportation services with its supply, marketing and trading activities, resulting in lower standalone transportation activity during the period. Despite the decrease in total revenues, gross profit increased primarily due to a shift in the segment’s revenue mix toward related-party contractual minimum volume commitments and take-or-pay arrangements. Under these arrangements, customers are contractually obligated to make payments based on specified minimum transportation or throughput volumes regardless of actual utilization. When committed volumes are not fully utilized, the related payments may be recognized without corresponding variable transportation costs, resulting in limited or no cost of revenues associated with such payments. Accordingly, the increased contribution from these contractual commitments, together with the reorientation of transportation services toward crude oil trading activities in areas with shorter hauling distances, resulted in higher gross margins and increased gross profit during the period despite lower overall revenues. Operating Results of our Supply and Trading Segment : 2026 2025 Change ($) Change (%) Revenues $ 26,487,540 $ 9,152,025 $ 17,335,515 189.4 % Revenues - related party - - - Total revenues 26,487,540 9,152,025 17,335,515 189.4 % Cost of revenues 25,428,979 9,129,586 16,299,393 - Gross profit $ 1,058,561 $ 22,439 $ 1,036,123 4617.6 % The Crude Oil Supply and Trading segment purchases and sells crude oil and related petroleum products and manages associated supply, marketing and logistics activities. Revenues and gross profit in the supply and trading segment continue to benefit the Company’s earnings due to higher realized margins from optimized crude oil trading activities and increased trade volumes as a result of efforts to expand our customer network. 23 Results of Consolidated Operations for the six months ended June 30, 2026 and 2025 Revenue For the six months ended June 30, 2026 and 2025, revenues were $51,575,316 and $66,439,737, respectively, representing a decrease of $14,864,421, or 22.37%. The decrease in revenue was primarily attributable to lower revenues from the Company’s transportation and logistics and terminaling and storage segments, including the impact of the July 2025 divestiture of Meridian Equipment Leasing, LLC and Equipment Transport, LLC. These decreases were partially offset by the expansion of the Company’s crude oil supply and trading activities, which generated approximately $40.0 million of revenue during the 2026 period. The change in revenue mix also reflects the Company’s continued implementation of commercial strategies that integrate physical crude oil transportation, terminaling and related logistics services with its expanding supply, marketing and trading activities. The Company’s earnings and cash flows from its midstream business operations are primarily affected by market conditions, commodity price fluctuations and crude oil production levels within the Company’s operating regions, which influence throughput volumes, transportation activity, storage utilization and trading margins. Cost of Revenue For the six months ended June 30, 2026 and 2025, cost of revenues was $39,217,787 and $57,101,634, respectively, representing a decrease of $17,883,847, or 31.32%. The decrease in cost of revenues was primarily attributable to lower costs associated with the Company’s transportation and logistics and terminaling and storage segments, including the impact of the July 2025 divestiture, largely offset by approximately $39.0 million of cost of revenues associated with the expansion of the Company’s crude oil supply and trading activities during the 2026 period. Cost of revenues primarily consists of costs associated with the Company’s transportation and logistics operations, terminaling and storage services, and crude oil supply and trading activities, and generally fluctuates based on operating activity levels, throughput volumes, commodity prices and trading volumes. Gross Profit For the six months ended June 30, 2026 and 2025, gross profit was $12,357,529 and $9,338,103, respectively, representing an increase of $3,019,426, or 32.33%. The increase in gross profit reflects improved profitability across the Company’s midstream operations despite lower overall revenues and the change in revenue mix during the period. Gross profit from the terminaling and storage segment increased approximately 107.2%, primarily attributable to fee-based commercial arrangements and related-party activities. Gross profit from the transportation and logistics segment increased approximately 14.5%, driven primarily by the reorientation of transportation services with crude oil trading activities in areas with shorter hauling radiuses and cost efficiencies associated with related-party contracts containing minimum volume commitments. In addition, the Company’s expanding supply and trading segment contributed approximately $1.0 million of gross profit during the 2026 period as increased trade volumes and optimization of crude oil trading activities contributed to the Company’s results. Operating Expenses For the six months ended June 30, 2026 and 2025, operating expenses were $14,624,493 and $22,557,295, respectively, representing a decrease of $7,932,802, or 35.17%. The decrease in operating expenses was primarily attributable to lower depreciation and amortization expense resulting from the July 2025 divestiture of Meridian Equipment Leasing, LLC and Equipment Transport, LLC, as well as revisions to the estimated useful lives of certain property and equipment based on operational experience and expected usage. Interest Expense For the six months ended June 30, 2026 and 2025, total interest expense, including related-party interest expense, was $6,134,388 and $5,621,029, respectively, representing an increase of $513,359, or 9.13%. The increase in interest expense was primarily attributable to the July 2025 divestiture of Meridian Equipment Leasing, LLC and Equipment Transport, LLC, partially offset by interest expense associated with finance lease and debt obligations assumed in connection with the acquisition of the Endeavor Entities on October 1, 2024. 24 Unrealized Gain (Loss) on Marketable Securities For the six months ended June 30, 2026 and 2025, the Company recognized an unrealized gain on marketable securities of $335,493 and an unrealized loss of $78,406, respectively, representing an increase of $413,899. The Company’s marketable securities are recorded at fair value based on quoted market prices, with unrealized gains and losses recognized in earnings during the applicable reporting period. Segment Operating Results for the six months ended June 30, 2026 and 2025 Operating Results of our Terminaling and Storage Segment : 2026 2025 Change ($) Change (%) Revenues $ 147,931 $ 35,222,983 $ (35,075,052 ) -99.6 % Revenues - related party 3,604,569 7,284,226 (3,679,657 ) -50.5 % Total revenues 3,752,500 42,507,209 (38,754,709 ) -91.2 % Cost of revenues 109,247 39,971,144 (39,861,897 ) -99.7 % Gross profit $ 3,643,253 $ 2,536,065 $ 1,107,188 $ 43.7 % The Terminaling and Storage segment provides crude oil receipt, storage, throughput, transfer, loading and related terminal services. For the six months ended June 30, 2026, total revenues decreased primarily due to lower terminal utilization and throughput activity during the period. Despite the decrease in revenues, gross profit increased primarily due to fee-based commercial arrangements, including related-party take-or-pay and minimum volume commitments. Under these arrangements, customers are contractually obligated to make payments for specified minimum throughput volumes or reserved tank capacity regardless of actual utilization. Because these payments relate principally to the availability of existing terminal and storage capacity, periods in which committed volumes or capacity are not fully utilized generally result in limited incremental cost of revenues associated with the related payments. As a result, these contractual commitments contributed to higher gross margins and increased gross profit during the period despite lower overall revenues. We continue to pursue opportunities to improve efficiencies, modernize midstream business operations and enhance the profitability of our terminaling and storage assets. Operating Results of our Transportation Logistics Segment : 2026 2025 Change ($) Change (%) Revenues $ 421,942 $ 18,563,956 $ (18,142,014 ) -97.7 % Revenues - related party 7,363,210 5,368,572 1,994,638 37.2 % Total revenues 7,785,152 23,932,528 (16,147,376 ) -67.5 % Cost of revenues - 17,130,490 (17,130,490 ) -100.0 % Gross profit $ 7,785,152 $ 6,802,038 $ 983,114 $ 14.5 % The Transportation and Logistics segment provides crude oil gathering, trucking, pipeline transportation and related logistics services. For the six months ended June 30, 2026, total revenues decreased primarily as a result of the Company’s continued implementation of commercial strategies that integrate physical crude oil transportation services with its supply, marketing and trading activities, resulting in lower standalone transportation activity during the period. Despite the decrease in total revenues, gross profit increased primarily due to a shift in the segment’s revenue mix toward related-party contractual minimum volume commitments and take-or-pay arrangements. Under these arrangements, customers are contractually obligated to make payments based on specified minimum transportation or throughput volumes regardless of actual utilization. When committed volumes are not fully utilized, the related payments may be recognized without corresponding variable transportation costs, resulting in limited or no cost of revenues associated with such payments. Accordingly, the increased contribution from these contractual commitments, together with the reorientation of transportation services toward crude oil trading activities in areas with shorter hauling distances, resulted in higher gross margins and increased gross profit during the period despite lower overall revenues. 25 Operating Results of our Supply and Trading Segment : 2026 2025 Change ($) Change (%) Revenues $ 40,037,664 $ 24,808,502 $ 15,229,162 61.4 % Revenues - related party - - - Total revenues 40,037,664 24,808,502 15,229,162 61.4 % Cost of revenues 39,108,541 24,030,401 15,078,140 Gross profit $ 929,123 $ 778,101 $ 151,022 $ 19.4 % The Crude Oil Supply and Trading segment purchases and sells crude oil and related petroleum products and manages associated supply, marketing and logistics activities. Revenues and gross profit in the supply and trading segment continue to benefit the Company’s earnings due to higher realized margins from optimized crude oil trading activities and increased trade volumes as a result of efforts to expand our customer network. Cash Flow The following table sets forth the primary sources and uses of cash and cash equivalents for the six months ended June 30, 2026 and 2025 as presented below: June 30, 2026 2025 Net cash (used) by operating activities $ (3,664,073 ) $ (6,980,336 ) Net cash provided by (used) by investing activities (500,000 ) 1,860,000 Net cash provided (used) by financing activities 2,327,925 5,108,500 Liquidity and Capital Resources Operating Activities Net cash used in operating activities was approximately $3.7 million for the six months ended June 30, 2026, compared to approximately $7.0 million cash usage during the comparable 2025 period. Operating cash flows during the 2026 period were primarily impacted by the Company’s net loss and working capital changes, including increases in accounts receivable, partially offset by non-cash expenses including depreciation and amortization, stock-based compensation, and non-cash interest expense. During the six months ended June 30, 2026, approximately $10.2 million of notes payable and related working capital balances were settled pursuant to existing netting arrangements with related parties. The transaction was non-cash and therefore did not impact cash flows from operating or financing activities. As of June 30, 2026, the Company had approximately $5.2 million outstanding under its accounts receivable factoring arrangement with B1 Bank. During the year, B1 Bank applied approximately $1.8 million of restricted cash maintained by the Company against amounts outstanding under the facility. Investing Activities During the six months ended June 30, 2026, the Company invested $500,000 in a joint venture. During the six months ended June 30, 2025, investing activities primarily consisted of approximately $1.9 million of proceeds received from the sale of vehicles and trailers. 26 Financing Activities Net cash provided by financing activities for the six months ended June 30, 2026 consisted of approximately $7.2 million of proceeds received from loans and notes payable, offset by approximately $4.8 million of payments and other reductions in debt obligations. During the six months ended June 30, 2025, financing activities included approximately $12.3 million of proceeds from the issuance of notes payable and other financing arrangements, offset by approximately $7.2 million of repayments on notes payable and finance lease liabilities. Liquidity Outlook Although the Company had no firm contractual commitments for capital expenditures as of June 30, 2026, management expects to continue investing in the development of its Texas remediation and wash plant facilities as market conditions and available capital permit. The Company expects to fund its operations and strategic growth initiatives through a combination of operating cash flows, financing activities, and capital management initiatives. The Company’s ability to meet its obligations and execute its growth strategy will depend, in part, on its ability to improve operating cash flows and obtain additional financing. The availability and terms of such financing are subject to market conditions, operating performance, and capital market availability, and there can be no assurance that additional financing will be available on acceptable terms, or at all. Management continues to evaluate opportunities to enhance liquidity, manage existing obligations, and support ongoing operations and development activities. Contractual Obligations The Company remains in discussions with Maxus Capital Group, LLC regarding certain finance lease obligations that were subject to a prior forbearance agreement entered into during 2025. As of June 30, 2026, the related finance lease liabilities continue to be classified as current due to the existing payment status and ongoing negotiations with the lessor. Description June 30, 2026 December 31, 2025 Principal portion of finance lease obligations $ 8,711,783 $ 8,711,784 Accrued interest $ 837,481 $ 390,068 Total finance lease liabilities (current) $ 9,549,265 $ 9,101,852 Our contractual obligations as of June 30, 2026 for operating lease liabilities are for office warehouse space, land, and truck yards, in which leases end in 2026 through 2027. Contractual payments under operating lease obligations as of June 30, 2026 are as follows: 2026 $ 119,008 2027 $ 141,509 2028 $ - 2029 $ - Thereafter $ - Total Remaining $ 260,517 Interest Rate and Market Risk Interest rate risk is the potential for reduced net interest income and other rate-sensitive income resulting from adverse changes in the level of interest rates. We do not have variable interest rate-sensitive income agreements. We do have financing arrangements that were issued on August 1, 2022 as consideration for the business combination and acquisition of SFD and WCCC, in which notes have variable interest rates based on the prime rate. These may expose us to further interest expense if the prime rate increases. 27 Market Risk - Equity Investments Market risk is the potential for loss arising from adverse changes in the fair value of fixed-income securities, equity securities, other earning assets, and derivative financial instruments as a result of changes in interest rates or other factors. We own equity securities that are publicly traded. Because the fair value of these securities may fall below the cost at which we acquired them, we are exposed to the possibility of loss. Equity investments are approved, monitored, and evaluated by members of management. Inflation Prolonged periods of slow growth, significant inflationary pressures, volatility and disruption in financial markets, could lead to increased costs of doing business. Inflation generally will cause suppliers to increase their rates, and inflation may also increase employee salaries and benefits. 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 Except for revisions to the estimated useful lives of certain property and equipment disclosed in Note 7 to the condensed consolidated financial statements, there have been no material changes to our critical accounting policies or use of estimates from those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025 filed with the SEC on April 15, 2026. Item 3. Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, we are not required to provide the information required by this Item.