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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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
|
|
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.
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.
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.
(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.
(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.
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
|
|
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.
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.
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.
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
|
|
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
|
|
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%
|
|
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.
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.
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.
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 349,059 shares of Common Stock.
Subsequent to December 31, 2020, 1,010,000
shares of Common Stock were issued for $438,000 in services.
Shares
Common
Stock
Vivakor, Inc.
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PROSPECTUS
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, 2021
Through and including , 2021 (the 25th day after the date of this offering), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s
obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.